Renewable Fuel Standard Program: Standards for 2018 and Biomass-Based Diesel Volume for 2019, 58486-58527 [2017-26426]

Download as PDF 58486 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 80 [EPA–HQ–OAR–2017–0091; FRL–9971–73– OAR] RIN 2060–AT04 Renewable Fuel Standard Program: Standards for 2018 and BiomassBased Diesel Volume for 2019 Environmental Protection Agency (EPA). ACTION: Final rule. AGENCY: transportation fuel produced or imported in the year 2018. Relying on statutory waiver authority that is available when projected cellulosic biofuel production volumes are less than the applicable volume specified in the statute, the EPA is establishing volume requirements for cellulosic biofuel, advanced biofuel, and total renewable fuel that are below the statutory volume targets. In this action, we are also establishing the applicable volume of biomass-based diesel for 2019. This final rule is effective on February 12, 2018. ADDRESSES: The EPA has established a docket for this action under Docket ID No. EPA–HQ–OAR–2017–0091. All documents in the docket are listed on the http://www.regulations.gov Web site. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose DATES: Under section 211 of the Clean Air Act, the Environmental Protection Agency (EPA) is required to set renewable fuel percentage standards every year. This action establishes the annual percentage standards for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel that apply to gasoline and diesel SUMMARY: NAICS 1 codes Category Industry Industry Industry Industry Industry Industry Industry Industry .................................................................. .................................................................. .................................................................. .................................................................. .................................................................. .................................................................. .................................................................. .................................................................. 1 North SIC 2 codes 324110 325193 325199 424690 424710 424720 221210 454319 2911 2869 2869 5169 5171 5172 4925 5989 disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the internet and will be publicly available only in hard copy form. Publicly available docket materials are available electronically through http:// www.regulations.gov. 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; email address: macallister.julia@epa.gov. SUPPLEMENTARY INFORMATION: Entities potentially affected by this final rule are those involved with the production, distribution, and sale of transportation fuels, including gasoline and diesel fuel or renewable fuels such as ethanol, biodiesel, renewable diesel, and biogas. Potentially regulated categories include: FOR FURTHER INFORMATION CONTACT: Examples of potentially regulated entities Petroleum Refineries. Ethyl alcohol manufacturing. Other basic organic chemical manufacturing. Chemical and allied products merchant wholesalers. Petroleum bulk stations and terminals. Petroleum and petroleum products merchant wholesalers. Manufactured gas production and distribution. Other fuel dealers. American Industry Classification System (NAICS). Industrial Classification (SIC) system code. 2 Standard This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this action. This table lists the types of entities that EPA is now aware could potentially be regulated by this action. Other types of entities not listed in the table could also be regulated. To determine whether your entity would be regulated by this action, you should carefully examine the applicability criteria in 40 CFR part 80. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed in the FOR FURTHER INFORMATION CONTACT section. ethrower on DSK3G9T082PROD with RULES Outline of This Preamble I. Executive Summary A. Purpose of This Action B. Summary of Major Provisions in This Action 1. Approach to Setting Volume Requirements 2. Cellulosic Biofuel 3. Advanced Biofuel 4. Total Renewable Fuel 6. 2019 Biomass-Based Diesel 7. Annual Percentage Standards VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 II. Authority and Need for Waiver of Statutory Applicable Volumes A. Statutory Authorities for Reducing Volume Targets 1. Cellulosic Waiver Authority 2. General Waiver Authority B. Treatment of Carryover RINs 1. Updated Projection of Carryover RIN Volume 2. EPA’s Decision Regarding the Treatment of Carryover RINs III. Cellulosic Biofuel Volume for 2018 A. Statutory Requirements B. Cellulosic Biofuel Industry Assessment 1. Potential Domestic Producers 2. Potential Foreign Sources of Cellulosic Biofuel 3. Summary of Volume Projections for Individual Companies C. Projection from the Energy Information Administration D. Cellulosic Biofuel Volume for 2018 1. Liquid Cellulosic Biofuel 2. CNG/LNG Derived From Biogas 3. Total Cellulosic Biofuel in 2018 IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2018 A. Volumetric Limitation on Use of the Cellulosic Waiver Authority B. Reasonably Attainable Volumes of Advanced Biofuel 1. Imported Sugarcane Ethanol 2. Biodiesel and Renewable Diesel PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 3. Other Advanced Biofuel 4. Total Advanced Biofuel C. Exercise of Cellulosic Waiver Authority for Advanced Biofuel D. Exercise of Cellulosic Waiver Authority for Total Renewable Fuel E. Impacts of 2018 Standards on Costs 1. Illustrative Cost Savings Associated With Reducing Statutory Cellulosic Volumes 2. Illustrative Cost Analysis of Advanced Biofuels Using 2017 as the Baseline V. Consideration of Additional Reductions Using Other Waiver Authorities A. Inadequate Domestic Supply B. Severe Economic Harm C. Severe Environmental Harm D. Biomass-Based Diesel Waiver Authority VI. Final Biomass-Based Diesel Volume for 2019 A. Statutory Requirements B. Determination of the 2019 Applicable Volume of Biomass-Based Diesel C. Consideration of Statutory Factors set forth in CAA Section 211(o)(2)(B)(ii)(I)– (VI) for 2019 VII. Percentage Standards for 2018 A. Calculation of Percentage Standards B. Small Refineries and Small Refiners C. Final Standards VIII. Administrative Actions A. Assessment of the Domestic Aggregate Compliance Approach E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations B. Assessment of the Canadian Aggregate Compliance Approach C. RIN Market Operation IX. Public Participation X. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Executive Order 13771: Reducing Regulations and Controlling Regulatory Costs C. Paperwork Reduction Act (PRA) D. Regulatory Flexibility Act (RFA) E. Unfunded Mandates Reform Act (UMRA) F. Executive Order 13132: Federalism G. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments H. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks I. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use J. National Technology Transfer and Advancement Act (NTTAA) K. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations L. Congressional Review Act (CRA) XI. Statutory Authority I. Executive Summary The Renewable Fuel Standard (RFS) program began in 2006 pursuant to the requirements in Clean Air Act (CAA) section 211(o) that were added 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), leading to the publication of major revisions to the regulatory requirements on March 26, 2010.1 EISA’s stated goals include moving the United States (U.S) toward ‘‘greater energy independence and security [and] to increase the production of clean renewable fuels.’’ Today, nearly all gasoline used for transportation purposes contains 10 percent ethanol (E10), and on average diesel fuel contains more than 4 percent biodiesel and/or renewable diesel.2 The statute includes annual volume targets, and requires EPA to translate those volume targets (or alternative volume requirements established by EPA in accordance with statutory waiver authorities) into compliance obligations that obligated parties must meet every year. In this action, we are establishing the annual percentage standards for cellulosic biofuel, biomass-based diesel (BBD), advanced biofuel, and total renewable fuel that would apply to all gasoline and diesel produced or imported in 2018. We are also establishing the applicable volume of BBD for 2019. Real-world challenges, in particular the slower-than-expected development of the cellulosic biofuel industry, has slowed progress towards meeting Congressional goals for renewable fuels. Given the nested nature of the standards, the shortfall in cellulosic biofuels has made the volume targets established by Congress for 2018 for advanced biofuels and total renewable fuels beyond reach. On July 21, 2017, EPA published a proposed rulemaking, containing proposed volume requirements for the RFS Program’s four categories of renewable fuels that would apply in 2018 (and 2019 for BBD).3 On August 1, EPA hosted a public hearing on the proposed rule, and EPA received over 235,000 written comments on the proposed rule as well. On October 4, 2017 (82 FR 46174), EPA published an ‘‘Availability of Supplemental Information; Request for Further Comment,’’ (hereinafter, ‘‘October 4 document’’) seeking further comment on the possible use of other waiver authorities in the final rule. Transcripts of the public hearing, along with all the comments received on the proposed rule and the October 4 document are available in the docket. After careful review of the information before us we are finalizing volume requirements for 2018 for cellulosic biofuel, advanced biofuel and total renewable fuel that are 58487 lower than the statutory targets, but nevertheless will ensure these renewable fuels will continue to play a critical role as a complement to our petroleum-based fuels. The final rule modifies the volume requirements slightly relative to the proposed rule, and in this notice we explain where and why such modifications were made. In this action, we are finalizing volume requirements for cellulosic biofuel at the level we project to be available for 2018. We are using the ‘‘cellulosic waiver authority’’ provided by the statute to finalize volume requirements for advanced biofuel and total renewable fuel that are lower than the statutory targets by the same magnitude as the reduction in the cellulosic biofuel reduction (i.e., the volumes we are finalizing for cellulosic biofuel, advanced biofuel, and total renewable fuel are all 6.71 billion gallons lower than the statutory volumes). We are not reducing volumes through use of the general waiver authority or the biomass-based diesel waiver authority.4 We note that while we are reducing the required volume of total renewable fuel, advanced biofuel and cellulosic biofuel below statutory levels, the required volumes in this rule would achieve the implied statutory volumes for conventional biofuel 5 and non-cellulosic advanced biofuel 6 for 2018. The final volume requirements for 2018 are shown in Table I–1 below. Relative to the levels finalized for 2017, the 2018 volume requirements for advanced biofuel and total renewable fuel are higher by 10 million gallons. EPA is reducing the advanced biofuel and total renewable fuel statutory volumes by the same amount as we are reducing the cellulosic biofuel volume. These reductions effectively preserve the implied statutory volumes for conventional renewable fuel and noncellulosic advanced biofuels. We are establishing the volume requirement for BBD for 2019 at the proposed volume of 2.1 billion gallons. TABLE I–1—FINAL VOLUME REQUIREMENTS a 2018 ethrower on DSK3G9T082PROD with RULES Cellulosic biofuel (million gallons) ........................................................................................................................... Biomass-based diesel (billion gallons) .................................................................................................................... Advanced biofuel (billion gallons) ............................................................................................................................ 1 75 FR 14670, March 26, 2010. biodiesel and/or renewable diesel blend percentages based on EIA’s October 2017 Short Term Energy Outlook (STEO). 3 82 FR 34206, July 21, 2017. 2 Average VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 4 See 42 U.S.C. 7545(o)(7)(A)(i–ii). See also the discussion of the general waiver authority in Section II.A.2. below. 5 Throughout this final rule conventional biofuel refers to biofuel that qualifies as renewable fuel, but does not qualify as an advanced biofuel. RINs PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 2019 288 b 2.1 4.29 n/a 2.1 n/a generated for conventional biofuels have a D code of 6. 6 Throughout this final rule non-cellulosic advanced biofuel refers to biofuel that qualifies as advanced biofuel, but does not qualify as cellulosic biofuel. RINs generated for non-cellulosic advanced biofuels have a D code of 4 or 5. E:\FR\FM\12DER2.SGM 12DER2 58488 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations TABLE I–1—FINAL VOLUME REQUIREMENTS a—Continued 2018 Renewable fuel (billion gallons) ............................................................................................................................... 2019 19.29 n/a a All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent. b The 2018 BBD volume requirement was established in the 2017 final rule (81 FR 89746, December 12, 2016). A. Purpose of This Action The national volume targets of renewable fuel that are intended to be achieved under the RFS program each year (absent an adjustment or waiver by EPA) are specified in CAA section 211(o)(2). The statutory volume targets for 2018 are shown in Table I.A–1, along with the 2017 targets for comparison. The cellulosic biofuel and BBD categories are nested within the advanced biofuel category, which is itself nested within the total renewable fuel category. This means, for example, that each gallon of cellulosic biofuel or BBD that is used to satisfy the individual volume requirements for those fuel types can also be used to satisfy the requirements for advanced biofuel and total renewable fuel. TABLE I.A–1—APPLICABLE VOLUME TARGETS SPECIFIED IN THE CLEAN AIR ACT [Billion gallons] a 2017 Cellulosic biofuel ...................................................................................................................................................... Biomass-based diesel .............................................................................................................................................. Advanced biofuel ..................................................................................................................................................... Renewable fuel ........................................................................................................................................................ a All 2018 5.5 ≥1.0 9.0 24.0 7.0 ≥1.0 11.0 26.0 values are ethanol-equivalent on an energy content basis, except values for BBD which are given in actual gallons. Under the RFS program, EPA is required to determine and publish annual percentage standards for each compliance year. The percentage standards are calculated to ensure use in transportation fuel of the national ‘‘applicable volumes’’ of the four types of biofuel (cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel) that are set forth in the statute or established by EPA in accordance with the Act’s requirements. The percentage standards are used by obligated parties (generally, producers and importers of gasoline and diesel fuel) to calculate their individual compliance obligations. Each of the four percentage standards is applied to the volume of non-renewable gasoline and diesel that each obligated party produces or imports during the specified calendar year to determine their individual volume obligations with respect to the four renewable fuel types. The individual volume obligations determine the number of Renewable Identification Numbers (RINs) of each renewable fuel type that each obligated party must acquire and retire to demonstrate compliance. EPA is establishing the annual applicable volume requirements for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2018, and for BBD for 2019.7 Table I.A–2 lists the statutory provisions and associated criteria relevant to determining the national applicable volumes used to set the percentage standards in this final rule. TABLE I.A–2—STATUTORY PROVISIONS FOR DETERMINATION OF APPLICABLE VOLUMES Applicable volumes Clean Air Act reference Criteria provided in statute for determination of applicable volume Cellulosic biofuel ............................. 211(o)(7)(D)(i) ................................ Required volume must be lesser of volume specified in CAA 211(o)(2)(B)(i)(III) or EPA’s projected volume. EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economy or environment of a State, region, or the United States, or if there is an inadequate domestic supply. Required volume for years after 2012 must be at least 1.0 billion gallons, and must be based on a review of implementation of the program, coordination with other federal agencies, and an analysis of specified factors. EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economy or environment of a State, region, or the United States, or if there is an inadequate domestic supply. EPA in consultation with other federal agencies shall issue a temporary waiver of applicable volumes of BBD where there is a significant feedstock disruption or other market circumstance that would make the price of BBD fuel increase significantly. When exercising this authority, EPA is also authorized to reduce the applicable volumes of advanced and total renewable fuel by the same or a lesser volume. 211(o)(7)(A) ................................... Biomass-based diesel ..................... 211(o)(2)(B)(ii) and (v) ................... 211(o)(7)(A) ................................... ethrower on DSK3G9T082PROD with RULES 211(o)(7)(E) ................................... 7 The 2018 BBD volume requirement was established in the 2017 final rule. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations 58489 TABLE I.A–2—STATUTORY PROVISIONS FOR DETERMINATION OF APPLICABLE VOLUMES—Continued Applicable volumes Clean Air Act reference Criteria provided in statute for determination of applicable volume Advanced biofuel ............................. 211(o)(7)(D)(i) ................................ If applicable volume of cellulosic biofuel is reduced below the statutory volume to the projected volume, EPA may reduce the advanced biofuel and total renewable fuel volumes in CAA 211(o)(2)(B)(i)(I) and (II) by the same or lesser volume. No criteria specified. EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economy or environment of a State, region, or the United States, or if there is an inadequate domestic supply. If applicable volume of biomass-based diesel is reduced, EPA may reduce the advanced biofuel and total renewable fuel volumes in CAA 211(o)(2)(B)(i)(I) and (II) by the same or lesser volume. If applicable volume of cellulosic biofuel is reduced below the statutory volume to the projected volume, EPA may reduce the advanced biofuel and total renewable fuel volumes in CAA 211(o)(2)(B)(i)(I) and (II) by the same or lesser volume. No criteria specified. EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economy or environment of a State, region, or the United States, or if there is an inadequate domestic supply. If applicable volume of biomass-based diesel is reduced, EPA may reduce the advanced biofuel and total renewable fuel volumes in CAA 211(o)(2)(B)(i)(I) and (II) by the same or lesser volume. 211(o)(7)(A) ................................... 211(o)(7)(E) ................................... Total renewable fuel ........................ 211(o)(7)(D)(i) ................................ 211(o)(7)(A) ................................... ethrower on DSK3G9T082PROD with RULES 211(o)(7)(E) ................................... As shown in Table I.A–2, the statutory authorities allowing EPA to modify or set the applicable volumes differ for the four categories of renewable fuel. Under the statute, EPA must annually determine the projected volume of cellulosic biofuel production for the following year. If the projected volume of cellulosic biofuel production is less than the applicable volume specified in CAA section 211(o)(2)(B)(i)(III) of the statute, EPA must lower the applicable volume used to set the annual cellulosic biofuel percentage standard to the projected production volume. In Section III of this final rule, we present our analysis of cellulosic biofuel production and the applicable volume for 2018. This analysis is based primarily on the estimate of cellulosic biofuel production for 2018 conducted by the Energy Information Administration (EIA),8 information reported to EPA through our Electronic Moderated Transaction System (EMTS), comments received on our proposed rule, and an evaluation of producers’ production plans and progress to date following discussions with cellulosic biofuel producers. With regard to BBD, CAA section 211(o)(2)(B) specifies the applicable volumes of BBD to be used in the RFS program only through year 2012. For subsequent years the statute sets a minimum volume of 1 billion gallons, and directs EPA, in coordination with 8 ‘‘Letter from EIA to EPA on 2018 projected volumes,’’ available in docket EPA–HQ–OAR– 2017–0091. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 the U.S. Departments of Agriculture (USDA) and Energy (DOE), to determine the required volume after review of implementation of the renewable fuels program and consideration of a number of factors. The BBD volume requirement must be established 14 months before the year in which it will apply. In the 2017 final rule we established the BBD volume for 2018. In Section VI of this preamble we discuss our assessment of statutory and other relevant factors and our final volume requirement for BBD for 2019, which has been developed in coordination with USDA and DOE. We are establishing an applicable volume of 2.1 billion gallons of BBD for use in deriving the BBD percentage standard in 2019. This volume is equal to the applicable volume of BBD established in a prior rulemaking for 2018, and would provide continued support to an industry that is a significant contributor to the pool of advanced biofuel, while at the same time setting the volume requirement in a manner anticipated to provide a continued incentive for the development of other types of advanced biofuel. Regarding advanced biofuel and total renewable fuel, Congress provided several mechanisms through which the statutory targets could be reduced if necessary. If we reduce the applicable volume of cellulosic biofuel below the volume specified in CAA section 211(o)(2)(B)(i)(III), we also have the authority to reduce the applicable volumes of advanced biofuel and total renewable fuel by the same or a lesser PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 amount. We refer to this as the ‘‘cellulosic waiver authority.’’ We may also reduce the applicable volumes of any of the four renewable fuel types using the ‘‘general waiver authority’’ provided in CAA section 211(o)(7)(A) if EPA, in consultation with USDA and DOE, finds that implementation of the statutory volumes would severely harm the economy or environment of a State, region, or the U.S., or if there is inadequate domestic supply. We are also authorized under CAA section 211(o)(7)(E) to reduce the applicable volume of BBD established for 2018, and to make equal or lesser reductions in the 2018 applicable volumes of advanced biofuel and total renewable fuel, if we determine that there is a significant renewable feedstock disruption or other market circumstance that would make the price of BBD increase significantly. Sections II and IV of this final rule describe our use of the cellulosic waiver authority alone to derive the volumes of advanced biofuel and total renewable fuel that are below the statutory target volumes, and our assessment that the resulting volumes can be met. We believe that reductions in the statutory targets for cellulosic biofuel, advanced biofuel and total renewable fuel for 2018 are necessary. However, in light of our review of available information, we are making those reductions under the cellulosic waiver authority alone and are not reducing them further under other waiver authorities. Thus, the reductions in both the advanced and total E:\FR\FM\12DER2.SGM 12DER2 58490 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations renewable fuel standards are directly attributable to the significant shortfall in cellulosic biofuel production, as compared to the statutory targets. A discussion of our consideration of the general waiver authority and biomassbased diesel waiver authority to further reduce the required biofuel volumes in 2018 can be found in Section V. B. Summary of Major Provisions in This Action This section briefly summarizes the major provisions of this final rule. We are establishing applicable volume requirements and associated percentage standards for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2018; for BBD we are establishing the percentage standard for 2018 and the applicable volume requirement for 2019. ethrower on DSK3G9T082PROD with RULES 1. Approach to Setting Volume Requirements The approach we have taken in this final rule of using the cellulosic waiver authority to reduce advanced biofuel and total renewable fuel by the same amount as the reduction in the required volume of cellulosic biofuel is the same approach as in our proposed rule, but is a departure from our approach to using the cellulosic biofuel waiver authority in previous years. In previous years we have used the cellulosic waiver authority to reduce the advanced biofuel and total renewable fuel volume requirements by a lesser amount than the reduction in the cellulosic biofuel volume requirement to allow reasonably attainable volumes of advanced biofuels to partially backfill for missing cellulosic biofuel volumes. However, the approach we have taken for 2018 does not result in a reduction in the volume requirement for non-cellulosic advanced biofuel. While the implied statutory volume for non-cellulosic advanced biofuel increased by 500 million gallons from 2017 to 2018, through our 2017 action we effectively required early use of approximately 0.5 billion gallons of non-cellulosic advanced volume that Congress envisioned would be first used in 2018.9 Therefore, despite using the cellulosic 9 The statutory advanced biofuel and cellulosic biofuel requirements for 2018 are 11.0 and 7.0 billion gallons respectively. This implies a noncellulosic advanced biofuel statutory volume of 4.0 billion gallons. The statutory advanced biofuel and cellulosic biofuel requirements for 2017 are 9.0 and 5.5 billion gallons respectively. This implies a noncellulosic advanced biofuel statutory volume of 3.5 billion gallons. In 2017 EPA established required volumes of advanced biofuel and cellulosic biofuel of 4.28 billion and 311 million gallons respectively, implying a non-cellulosic advanced biofuel volume of 3.97 billion gallons. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 waiver authority to reduce the volume of advanced biofuel by the same amount as cellulosic biofuel, the advanced biofuel volume requirement for 2018 is 10 million gallons higher than the advanced biofuel volume requirement in 2017. In this rule we are reducing all three volume requirements by the same amount after considering the greenhouse gas (GHG), energy security benefits, and anticipated costs of advanced biofuels that would occur at levels beyond those being finalized today. Section II provides a general description of our approach to setting volume requirements in today’s rule, including a review of the statutory waiver authorities and our consideration of carryover RINs. Section III provides our assessment of the 2018 cellulosic biofuel volume, based on a projection of production that reflects a neutral aim at accuracy. Sections IV and V describe our assessments of advanced biofuel and total renewable fuel, and consideration of the general and biomass-based diesel waiver authorities. Finally, Section VI provides our determination regarding the 2019 BBD volume requirement, and reflects an analysis of a set of factors stipulated in CAA section 211(o)(2)(B)(ii). 2. Cellulosic Biofuel In the past several years the cellulosic biofuel industry has continued to make progress towards increased commercial scale production. Cellulosic biofuel production reached record levels in 2016 and has continued to grow throughout 2017, driven largely by compressed natural gas (CNG) and liquefied natural gas (LNG) derived from biogas. Liquid cellulosic biofuels, while produced in much smaller quantities than CNG/LNG derived from biogas, have been produced at steady but relatively small volumes throughout 2017. In this rule we are establishing a cellulosic biofuel volume requirement of 288 million ethanol-equivalent gallons for 2018 based on our production projection. Our projection reflects consideration of a production estimate from EIA, RIN generation data available to EPA through EMTS, comments we received on the proposed rule, the information we have received regarding individual facilities’ capacities, production start dates and biofuel production plans, a review of cellulosic biofuel production relative to EPA’s projections in previous annual rules, and EPA’s own engineering judgment. To project cellulosic biofuel production for 2018 we used the same basic methodology described in the proposed rule. However, we have used PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 updated data to derive percentile values used in our production projection for liquid cellulosic biofuels and to derive the year-over-year change in the rate of production of CNG/LNG derived from biogas that is used in the projection for CNG/LNG. (See Section III for further detail on the methodology used to project cellulosic biofuel production.) In estimating the volume of liquid cellulosic biofuel that will be made available in the U.S. in 2018, we considered all potential production sources by company and facility. This included facilities still in the commissioning or start-up phases, as well as facilities already producing some volume of cellulosic biofuel.10 From this universe of potential liquid cellulosic biofuel sources, we identified the subset that is expected to produce commercial volumes of qualifying liquid cellulosic biofuel for use as transportation fuel, heating oil, or jet fuel by the end of 2018. To arrive at projected volumes, we collected relevant information on each facility. We then developed projected production ranges based on factors such as progress towards construction and production goals, facility registration status, production volumes achieved, and other significant factors that could potentially impact fuel production or the ability of the produced fuel to qualify for cellulosic biofuel RINs. We also used this information to group these companies based on production history and to select a value within the aggregated projected production ranges that we believe best represents the most likely production volume from each group of companies in 2018. For 2018, we are using an industry wide, rather than a facility-by-facility approach to project the production of CNG/LNG derived from biogas. We believe this approach is appropriate due to the mature state of this technology, the large number of facilities that are registered to produce cellulosic biofuel RINs for these fuels, and the fact that their volumes are likely to be affected more by market wide factors than individual company situations. Further discussion on our projection of cellulosic biofuel production in 2018, including the factors considered and the way these factors were used to determine our final cellulosic biofuel projection, can be found in Section III. 10 Facilities primarily focused on research and development (R&D) were not the focus of our assessment, as production from these facilities represents very small volumes of cellulosic biofuel, and these facilities typically have not generated RINs for the fuel they have produced. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations 3. Advanced Biofuel 5. Other Waiver Authorities We are finalizing required advanced biofuel requirements using the same approach used in the July proposed rulemaking. As was the case at the time of proposal, the conditions that compelled us to reduce the 2017 volume requirement for advanced biofuel below the statutory target remain relevant in 2018. As for 2017, we investigated the ability of volumes of non-cellulosic advanced biofuels to backfill unavailable volumes of cellulosic biofuel in 2018. We took into account the various constraints on the ability of the market to make advanced biofuels available, the ability of the standards we set to bring about market changes in the time available, the potential impacts associated with diverting biofuels and/ or biofuel feedstocks from current use to the production of advanced biofuel used in the U.S., the fact that the biodiesel tax credit is currently not available for 2018, the proposed countervailing duties on imports of biodiesel from Argentina and Indonesia, as well as the cost of advanced biofuels. Based on these considerations we have decided to reduce the applicable volume of advanced biofuel by the same amount as we are reducing the applicable volume of cellulosic biofuels. This results in an advanced biofuel volume for 2018 that is 10 million gallons higher than the advanced biofuel volume for 2017. Although we determined that a small amount of reasonably attainable volumes of advanced biofuel could be used to backfill a portion of the missing cellulosic biofuel, for reasons described in Section IV, we are not exercising the discretion provided under the cellulosic waiver authority in a manner that would lead to that result. As mentioned above, we are exercising our cellulosic waiver authority to reduce the statutory applicable volume of advanced biofuel to a volume requirement of 4.29 billion gallons for 2018. This applicable volume for 2018 is 10 million gallons higher than the applicable volume for advanced biofuel for 2017. We have evaluated whether additional reductions in cellulosic biofuel, biomass-based diesel, advanced biofuel, or total renewable fuel are warranted for 2018 using either the general waiver authority or the BBD waiver authority and have determined that additional reductions are not warranted at this time. ethrower on DSK3G9T082PROD with RULES 4. Total Renewable Fuel Following our determination of the appropriate volume reduction for advanced biofuel for 2018 using the cellulosic waiver authority, we calculated what the total renewable fuel volume would be if we provide the same level of reduction using the cellulosic waiver authority. The resulting volume is 19.29 billion gallons. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 6. 2019 Biomass-Based Diesel In EISA, Congress specified increasing applicable volumes of BBD through 2012. Beyond 2012 Congress stipulated that EPA, in coordination with DOE and USDA, was to establish the BBD volume taking into consideration implementation of the program to date and various specified factors, providing that the required volume for BBD could not be less than 1.0 billion gallons. For 2013, EPA established an applicable volume of 1.28 billion gallons. For 2014 and 2015 we established the BBD volume requirement to reflect the actual volume for each of these years of 1.63 and 1.73 billion gallons.11 For 2016 and 2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons respectively. Finally, for 2018 the BBD volume requirement was set at 2.1 billion gallons. We proposed to maintain this level for 2019. Given current and recent market conditions, the advanced biofuel volume requirement is driving the production and use of biodiesel and renewable diesel volumes over and above volumes required through the separate BBD standard, and we expect this to continue. For 2019, EPA continues to believe that it would still be appropriate to provide a floor above the statutory minimum of 1 billion gallons to provide a guaranteed level of support for the continued production and use of BBD. However, we also believe that the volume of BBD supplied in previous years demonstrates that the advanced biofuel standard is capable of incentivizing additional supply of these fuels above the volume required by the BBD standard. Thus, based on a review of the implementation of the program to date and all the factors required under the statute, and in coordination with USDA and DOE, we are finalizing an applicable volume of BBD for 2019 at the proposed volume of 2.1 billion gallons. 11 The 2015 BBD standard was based on actual data for the first 9 months of 2015 and on projections for the latter part of the year for which data on actual use was not available at the time. PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 58491 7. Annual Percentage Standards The renewable fuel standards are expressed as a volume percentage and are used by each producer and importer of fossil-based gasoline or diesel to determine their renewable fuel volume obligations. Four separate percentage standards are required under the RFS program, corresponding to the four separate renewable fuel categories shown in Table I.A–1. The specific formulas we use in calculating the renewable fuel percentage standards are contained in the regulations at 40 CFR 80.1405. The percentage standards represent the ratio of the national applicable volume of renewable fuel volume to the national projected non-renewable gasoline and diesel volume less any gasoline and diesel attributable to small refineries granted an exemption prior to the date that the standards are set. The volume of transportation gasoline and diesel used to calculate the percentage standards was based on a letter provided to the EPA by EIA, as required by statute.12 The percentage standards for 2018 are shown in Table I.B.7–1. Detailed calculations can be found in Section VII, including the projected gasoline and diesel volumes used. TABLE I.B.7–1—FINAL 2018 PERCENTAGE STANDARDS Cellulosic biofuel ................... Biomass-based diesel .......... Advanced biofuel .................. Renewable fuel ..................... 0.159% 1.74% 2.37% 10.67% 8. Assessment of Aggregate Compliance By November 30 of each year we are required to assess the status of the aggregate compliance approach to land use restrictions under the definition of renewable biomass for both the U.S. and Canada. In today’s action we are providing the final announcements for these administrative actions. As described in Section VIII.A, based on data provided by the USDA and using the methodology in place since 2014, we have estimated that U.S. agricultural land totaled approximately 376 million acres in 2017 and thus did not exceed the 2007 baseline acreage. This assessment means that the aggregate compliance provision can continue to be used in the U.S. for calendar year 2018. On September 29, 2011, EPA approved the use of a similar aggregate compliance approach for planted crops and crop residue grown in Canada. As 12 ‘‘Letter from EIA to EPA on 2018 projected volumes,’’ available in docket EPA–HQ–OAR– 2017–0091. E:\FR\FM\12DER2.SGM 12DER2 58492 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations described in Section VIII.B, based on data provided by Canada, we have estimated that Canadian agricultural land totaled approximately 117.8 million acres in 2017 and thus did not exceed the 2007 baseline acreage. This assessment means that the aggregate compliance provision can continue to be used in Canada for calendar year 2018. II. Authority and Need for Waiver of Statutory Applicable Volumes The CAA provides EPA with the authority to enact volume requirements below the applicable volume targets specified in the statute under specific circumstances. This section discusses those authorities. ethrower on DSK3G9T082PROD with RULES A. Statutory Authorities for Reducing Volume Targets In CAA section 211(o)(2), Congress specified increasing annual volume targets for total renewable fuel, advanced biofuel, and cellulosic biofuel for each year through 2022, and for BBD through 2012, and authorized EPA to set volume requirements for subsequent years in coordination with USDA and DOE, and after consideration of specified factors. However, Congress also recognized that under certain circumstances it would be appropriate for EPA to set volume requirements at a lower level than reflected in the statutory volume targets, and thus provided waiver provisions in CAA section 211(o)(7). 1. Cellulosic Waiver Authority Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines that the projected volume of cellulosic biofuel production for a given year is less than the applicable volume specified in the statute, that EPA must reduce the applicable volume of cellulosic biofuel required to the projected production volume for that calendar year. In making this projection, EPA may not ‘‘adopt a methodology in which the risk of overestimation is set deliberately to outweigh the risk of underestimation’’ and must make a projection that ‘‘aims at accuracy.’’ API v. EPA, 706 F.3d 474, 479 (D.C. Cir. 2013). Pursuant to this provision, EPA has set the cellulosic biofuel requirement lower than the statutory volumes for each year since 2010. As described in Section III.D, the projected volume of cellulosic biofuel production for 2018 is less than the 7.0 billion gallon volume target in the statute. Therefore, for 2018, we are setting the cellulosic biofuel volume requirement at a level lower than the statutory applicable volume, in accordance with this provision. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 CAA section 211(o)(7)(D)(i) also provides EPA with the authority to reduce the applicable volume of total renewable fuel and advanced biofuel in years when it reduces the applicable volume of cellulosic biofuel under that provision. The reduction must be less than or equal to the reduction in cellulosic biofuel. For 2018, we are also reducing the applicable volumes of advanced biofuel and total renewable fuel under this authority. The cellulosic waiver authority is discussed in detail in the preamble to the 2017 final rule and that discussion is incorporated by reference.13 See also, API v. EPA, 706 F.3d 474 (D.C. Cir. 2013) (requiring that EPA’s cellulosic biofuel projections reflect a neutral aim at accuracy), Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014) (affirming EPA’s broad discretion under the cellulosic waiver authority to reduce volumes of advanced biofuel and total renewable fuel), and Americans for Clean Energy v. EPA (‘‘ACE’’), 864 F.3d 691 (D.C. Cir. 2017) (discussed below). In ACE, the court evaluated EPA’s use of the cellulosic waiver authority in the 2014–2016 annual rulemaking to reduce the advanced biofuel and total renewable fuel volumes for 2014, 2015, and 2016. There, EPA used the cellulosic waiver authority to reduce the standard for advanced biofuel to a volume that was reasonably attainable, and then provided a comparable reduction under this authority for total renewable fuel.14 The Court of Appeals for the District of Columbia, relying on the analysis in Monroe Energy, reaffirmed that EPA enjoys ‘‘broad discretion’’ under the cellulosic waiver authority ‘‘to consider a variety of factors—including demand-side constraints in the advanced biofuels market.’’ 15 The Court noted that the only textual limitation on the use of the cellulosic waiver authority is that it cannot exceed the amount of the reduction in cellulosic biofuel.16 The Court contrasted the general waiver authority under CAA section 211(o)(7)(A) and the biomass based diesel waiver authority under CAA section 211(o)(7)(E), which ‘‘detail the considerations and procedural steps that EPA must take before waiving fuel requirements,’’ with the cellulosic waiver authority, which identifies no factors regarding reductions in advanced and total renewable fuel other than the limitation that any such reductions may not exceed the 13 See 81 FR 89752–89753 (December 12, 2016). 80 FR 77433–34 (December 14, 2015). 15 ACE at 730. 16 Id. at 733. 14 See PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 reduction in cellulosic biofuel volumes.17 The Court also concluded that the scope of EPA’s discretionary authority to reduce advanced and total volumes is the same under the cellulosic waiver provision whether EPA is declining to exercise its authority to waive volumes, or choosing to do so.18 In this action we are reducing the statutory volume targets for advanced biofuels and total renewable fuel by equal amounts, as was our approach in using the cellulosic waiver authority in setting the 2014–2017 standards. EPA’s reasoning for an equal reduction is explained in the 2017 final rule.19 We have made a determination, as described in Section IV, that the applicable volume for advanced biofuels specified in the statute for 2018 cannot be achieved and we are exercising our cellulosic waiver authority to lower the applicable volume of advanced biofuel, and to provide an equal reduction in the applicable volume of total renewable fuel. In addition, we have determined that there is likely to be adequate supply to satisfy the total renewable fuel volume derived through applying an equal volume reduction as for advanced biofuel as discussed in Section V. Therefore, we have determined that no further reductions of the total renewable fuel volume requirement are necessary to address supply concerns.20 The resulting volumes of advanced and total renewable fuel resulting from this exercise of the cellulosic waiver authority provide for an implied volume allowance for conventional biofuel of fifteen billion gallons, equal to that envisioned by Congress for 2018. 2. General Waiver Authority Section 211(o)(7)(A) of the CAA provides that EPA, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the applicable volumes specified in the Act in whole or in part based on a petition by one or more States, by any person subject to the requirements of the Act, or by the EPA Administrator on his own motion. Such a waiver must be based on a determination by the Administrator, after public notice and opportunity for comment that: (1) Implementation of the requirement would severely harm the 17 Id. 18 Id. 19 See 81 FR 89752–89753 (December 12, 2016). See also, 78 FR 49809–49810 (August 15, 2013); 80 FR 77434 (December 14, 2015). 20 As described in the Response to Comments document accompanying this action, we have also determined that additional waivers are not appropriate to address either severe economic or severe environmental harm. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ethrower on DSK3G9T082PROD with RULES economy or the environment of a State, a region, or the United States; or (2) there is an inadequate domestic supply. In the October 4 document, EPA sought comment on the possible use of the general waiver authority to reduce volumes of advanced biofuel and total renewable fuel for the 2018 standards below the levels proposed in the 2018 NPRM.21 The October 4 document provided information on historic domestic production, imports, and exports of advanced biofuel, as well as additional information, and sought comment on how that information could inform a potential determination of inadequate domestic supply or severe economic harm. Based on an evaluation of supply and potential economic impact of the volumes of advanced and total renewable fuel that result after use of the cellulosic waiver authority, comments from stakeholders, and as further discussed in Section V, EPA is not using the general waiver authority on the basis of severe economic or environmental harm or inadequate domestic supply to further reduce those volumes for 2018. EPA’s response to comments addressing possible use of the general waiver authority are provided in a memorandum to the docket 22 and in the Response to Comments (RTC) document accompanying this action. 3. Biomass-Based Diesel Waiver Authority Section 211(o)(7)(E)(ii) of the CAA provides that if EPA determines that there is a significant renewable feedstock disruption or other market circumstance that would make the price of BBD increase significantly, EPA shall, in consultation with the Secretary of Energy, and the Secretary of Agriculture, issue an order to reduce, for up to a 60-day period, the annual volume requirement for BBD by an appropriate quantity that does not exceed 15 percent. The statute also stipulates that EPA is authorized to reduce applicable volumes of advanced biofuel and total renewable fuel by the same or a lesser volume than the reduction in BBD. In the October 4 document, EPA sought comment on potential interpretations of this authority, as well as the potential use of the BBD waiver authority to reduce the 2018 volume requirement for BBD by as much as 315 million gallons, and to concurrently 21 See 82 FR 46174 (October 4, 2017). of waivers for severe economic harm or BBD prices for 2018,’’ memorandum from David Korotney to docket EPA–HQ–OAR–2017– 0091. 22 ‘‘Assessment VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 reduce the advanced biofuel and total renewable fuel volume requirements by as much as 473 million gallons. The notice provided information on the price of biodiesel in light of the expiration of the federal tax credit, and the potential imposition of new duties on imports of biodiesel from Argentina and Indonesia. As described in the RTC document, EPA has determined that it would not be appropriate at this time to use the BBD waiver authority. Based on information provided in comments, as well its own analysis discussed in Section V, EPA believes that there is an insufficient basis to support a finding that the biomass based diesel prices currently in the marketplace, or reasonably anticipated in the immediate future, represent a ‘‘significant’’ increase in prices that would justify use of this waiver authority. B. Treatment of Carryover RINs Consistent with our approach in the 2013, 2014–16, and 2017 final rules, we have also considered the availability and role of carryover RINs in evaluating whether we should exercise our discretion to use the cellulosic waiver authority in setting the cellulosic, advanced, and total volume requirements for 2018. Neither the statute nor EPA regulations specify how or whether EPA should consider the availability of carryover RINs in exercising the cellulosic waiver authority.23 As noted in the context of the rules establishing the 2014–16 and 2017 RFS standards, we believe that a bank of carryover RINs is extremely important in providing obligated parties compliance flexibility in the face of substantial uncertainties in the transportation fuel marketplace, and in providing a liquid and well-functioning RIN market upon which success of the 23 CAA section 211(o)(5) requires that EPA establish a credit program as part of its RFS regulations, and that the credits be valid to show compliance for 12 months as of the date of generation. EPA implemented this requirement though the use of RINs, which can be used to demonstrate compliance for the year in which they are generated or the subsequent compliance year. Obligated parties can obtain more RINs than they need in a given compliance year, allowing them to ‘‘carry over’’ these excess RINs for use in the subsequent compliance year, although use of these carryover RINs is limited to 20% of the obligated party’s RVO. For the bank of carryover RINs to be preserved from one year to the next, individual carryover RINs are used for compliance before they expire and are essentially replaced with newer vintage RINs that are then held for use in the next year. For example, if the volume of the collective carryover RIN bank is to remain unchanged from 2017 to 2018, then all of the vintage 2017 carryover RINs must be used for compliance in 2018, or they will expire. However, the same volume of 2018 RINs can then be ‘‘banked’’ for use in the next year. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 58493 entire program depends.24 Carryover RINs provide flexibility in the face of a variety of circumstances that could limit the availability of RINs, including weather-related damage to renewable fuel feedstocks and other circumstances potentially affecting the production and distribution of renewable fuel.25 On the other hand, carryover RINs can be used for compliance purposes, and in the context of the 2013 RFS rulemaking we noted that an abundance of carryover RINs available in that year, together with possible increases in renewable fuel production and import, justified maintaining the advanced and total renewable fuel volume requirements for that year at the levels specified in the statute.26 EPA’s approach to the consideration of carryover RINs in exercising our cellulosic waiver authority was affirmed in Monroe Energy and ACE.27 In the 2018 NPRM, EPA estimated that the size of the carryover RIN bank was then approximately 2.06 billion carryover RINs (including all D codes).28 We proposed that in light of this relatively limited volume and the important functions provided by the RIN bank, that we would not set the volume requirements for 2018 in a manner that would intentionally lead to a drawdown in the bank of carryover RINs. In their comments on the 2018 NPRM, parties generally expressed two opposing points of view. Commenters representing obligated parties supported EPA’s proposed decision to not assume a drawdown in the bank of carryover RINs in determining the appropriate volume requirements. These commenters reiterated the importance of maintaining the carryover RIN bank in order to provide obligated parties with necessary compliance flexibilities, better market trading liquidity, and a cushion against future program uncertainty. Commenters representing renewable fuel producers, however, contended that carryover RINs represent actual supply and should be accounted 24 See 80 FR 77482–87 (December 14, 2015) and 81 FR 89754–55 (December 12, 2016). 25 See id., and 72 FR 23900 (May 1, 2007). 26 See 79 FR 49794 (August 15, 2013). 27 Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE at 713. 28 This was an increase of 520 million RINs from the previous estimate of 1.54 billion carryover RINs in the 2017 final rule. This increase in the carryover RIN bank compared to that projected in the 2017 final rule was not due to an underestimate by EPA in the amount of gasoline, diesel fuel, or ethanol that was consumed in 2016, but rather was driven almost entirely by a combination of overcompliance by biodiesel producers facing an expiring biodiesel tax credit at the end of 2016 and approximately 390 million RINs that small refineries granted a hardship exemption for 2016 were not required to retire. E:\FR\FM\12DER2.SGM 12DER2 58494 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations for when establishing the annual volume standards. These commenters stated that not accounting for carryover RINs goes against Congressional intent of the RFS program, deters investment in next-generation biofuels, and ignores other programmatic buffers and flexibilities such as carry-forward deficits and small refinery hardship exemptions.29 ethrower on DSK3G9T082PROD with RULES 1. Updated Projection of Carryover RIN Volume Based on currently available information, our estimate of the carryover RIN bank has increased to 2.22 billion RINs, an increase of 160 million RINs from the previous estimate of 2.06 billion carryover RINs in the 2018 NPRM.30 Part of the update considers small refinery hardship exemptions for 2016 that were granted since the 2018 NPRM was issued. These additional small refinery hardship exemptions led to the return to the RIN marketplace of approximately 125 million 2016 RINs that would otherwise have been required for compliance by the small refineries granted an exemption for 2016. The carryover RIN volume is 11.5 percent of the total renewable fuel volume requirement that EPA is finalizing for 2018, which is less than the 20 percent maximum limit permitted by the regulations to be carried over for use in complying with the 2018 standards.31 However, there remains considerable uncertainty surrounding this number for a number of reasons, including the possible impact of an action to address the remand in ACE, the possibility of additional small refinery exemptions, and the impact of 2017 RFS compliance on the bank of carryover RINs. In addition, we note that there have been enforcement actions in past years that have resulted in the retirement of carryover RINs to make up for the generation and use of invalid RINs and/ or the failure to retire RINs for exported renewable fuel. Future enforcement actions could have similar results, and require that obligated parties and/or renewable fuel exporters settle past enforcement-related obligations in addition to the annual standards, thereby potentially creating demand for RINs greater than can be accommodated 29 A full description of comments received, and our detailed responses to them, is available in the Response to Comments document in the docket. 30 The calculations performed to estimate the number of carryover RINs currently available can be found in the memorandum, ‘‘Carryover RIN Bank Calculations for 2018 Final Rule,’’ available in the docket. 31 See 40 CFR 80.1427(a)(5). VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 through actual renewable fuel blending in 2018. Collectively, the result of satisfying RFS obligations in 2017 and settling enforcement-related accounts could be an effective reduction in the size of the collective bank of carryover RINs. In light of these uncertainties, it is possible that the net result would be a bank of carryover RINs larger or smaller than 11.5 percent of the final 2018 total renewable fuel volume requirement. 2. EPA’s Decision Regarding the Treatment of Carryover RINs EPA has decided to maintain the proposed approach, and not set the volume requirements in the final rule with the intention or expectation of drawing down the current bank of carryover RINs. In addition, we do not believe that the availability of carryover RINs, together with the potential supply of renewable fuel in volumes higher than we are requiring though this final rule, should lead us to increase the volume requirements. In finalizing this approach, we carefully considered the comments received, including on the role of carryover RINs under our waiver authorities and the policy implications of our decision. While we have not assumed an intentional drawdown in the overall bank of carryover RINs owned by obligated parties collectively in establishing the volume requirements for 2018, we understand that some obligated parties may choose to sell or use all or part of their individual banks of carryover RINs. To the extent that they do, other obligated parties would be in a position to bank carryover RINs by using available renewable fuel or purchasing RINs representing such fuel, with the expected net result that the standards adopted in this action will have no effect on the size of the overall bank of carryover RINs that is owned collectively by obligated parties.32 We believe that a balanced consideration of the possible role of carryover RINs in achieving the statutory volume objectives for advanced and total renewable fuels, versus maintaining an adequate bank of carryover RINs for important programmatic functions, is appropriate when EPA exercises its discretion under the cellulosic waiver authority, and that the statute does not specify the extent to which EPA should require a drawdown in the bank of carryover RINs when it exercises this authority. 32 We expect that any renewable fuel produced in the U.S. that is not used to satisfy the 2018 renewable fuel standards will be exported, thereby not leading to an increase in the bank of 2018 RINs or carryover RINs. PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 An adequate RIN bank serves to make the RIN market liquid. Just as the economy as a whole functions best when individuals and businesses prudently plan for unforeseen events by maintaining inventories and reserve money accounts, we believe that the RFS program functions best when sufficient carryover RINs are held in reserve for potential use by the RIN holders themselves, or for possible sale to others that may not have established their own carryover RIN reserves. Were there to be no RINs in reserve, then even minor disruptions causing shortfalls in renewable fuel production or distribution, or higher than expected transportation fuel demand (requiring greater volumes of renewable fuel to comply with the percentage standards that apply to all volumes of transportation fuel, including the unexpected volumes) could lead to the need for a new waiver of the standards, undermining the market certainty so critical to the RFS program. However, a significant drawdown of the carryover RIN bank leading to a scarcity of RINs may stop the market from functioning in an efficient manner (i.e., one in which there are a sufficient number of reasonably available RINs for obligated parties seeking to purchase them), even where the market overall could satisfy the standards. For all of these reasons, the collective carryover RIN bank provides a needed programmatic buffer that both facilitates individual compliance and provides for smooth overall functioning of the program.33 We have evaluated the volume of carryover RINs likely available for 2018, and we believe it is prudent not to intentionally draw down this volume of carryover RINs in establishing the 2018 standards. In addition, we have considered whether the current bank of carryover RINs, together with the additional supply of renewable fuel available in 2018 above the levels we are requiring be used, would justify reduced use of the cellulosic waiver authority. For the reasons described above and in Sections IV.C and D, we do not believe this to be the case. Therefore, for the reasons noted above, and consistent with the approach we took in the 2014–2016 and 2017 final rules, we are making a determination that, under current circumstances, an intentional drawdown of the carryover RIN bank should not be assumed in establishing the 2018 volume requirements. In addition, we do not believe that the 33 Here we use the term ‘‘buffer’’ as shorthand reference to all of the benefits that are provided by a sufficient bank of carryover RINs. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations presence of the current bank of carryover RINs, together with additional potential supplies of renewable fuel in 2018, justifies reduced use of the cellulosic waiver authority in setting the 2018 advanced biofuel and total renewable fuel volumes. However, we note that we may or may not take a similar approach in future years; we will assess the situation on a case-bycase basis going forward, and take into account the size of the carryover RIN bank in the future and any lessons learned from implementing past rules. ethrower on DSK3G9T082PROD with RULES III. Cellulosic Biofuel Volume for 2018 In the past several years the cellulosic biofuel industry has continued to make progress towards increased commercialscale production. Cellulosic biofuel production reached record levels in 2016, driven largely by CNG and LNG derived from biogas. Production volumes have continued to increase in 2017.34 While multiple large cellulosic ethanol facilities struggled to achieve production rates consistent with their nameplate capacity, several facilities consistently produced cellulosic ethanol from corn kernel fiber at a smaller scale during 2016 and 2017. This section describes our assessment of the volume of cellulosic biofuel that we project will be produced or imported into the U.S. in 2018, and some of the uncertainties associated with those volumes. In the July NPRM, EPA proposed cellulosic volumes based on a methodology that differed in a couple of important ways from the approach we used in 2017. We proposed changes to the percentile values used to project liquid cellulosic biofuel production and a new industry-wide methodology for projecting the production of CNG/LNG derived from biogas. For this action, we are finalizing volumes for 2018 based on an approach that is similar, but not identical, to what we proposed. We discuss the changes we made from proposal to final below. In our RTC document, we respond to the multiple comments EPA received on the changes to the cellulosic projection methodology we proposed in July. In order to project the volume of cellulosic biofuel production in 2018 we considered EIA’s projection of cellulosic biofuel production,35 comments 34 The majority of the cellulosic RINs generated for CNG/LNG are sourced from biogas from landfills; however, the biogas may come from a variety of sources including municipal wastewater treatment facility digesters, agricultural digesters, separated MSW digesters, and the cellulosic components of biomass processed in other waste digesters. 35 ‘‘Letter from EIA to EPA on 2018 projected volumes,’’ available in docket EPA–HQ–OAR– 2017–0091. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 received on the 2018 NPRM, data reported to EPA through EMTS, and information we collected through meetings with representatives of facilities that have produced or have the potential to produce qualifying volumes of cellulosic biofuel for consumption as transportation fuel, heating oil, or jet fuel in the U.S. in 2018. There are two main parts to this projection. To project the range of potential production volumes of liquid cellulosic biofuel we used the same methodology as the methodology used in the 2017 final rule. However, we have adjusted the percentile values used to select a point estimate within a projected production range for each group of companies based on recent information, and with the objective of improving the accuracy of the projections. To project the production of cellulosic biofuel RINs for CNG/LNG derived from biogas we use the methodology discussed in the proposed rule with updated data. This methodology reflects the mature status of this industry, the large number of facilities registered to generate cellulosic biofuel RINs from these fuels, and EPA’s continued attempts to refine its methodology to yield estimates that are as accurate as possible. This methodology is an improvement on the methodology that EPA used to project cellulosic biofuel production for CNG/ LNG derived from biogas in the 2017 final rule. EPA has updated the list of potential cellulosic biofuel producers, projected facility start-up dates, facility capacities, production volumes, and other relevant information with the most recent information available. The methodologies used to project the production of liquid cellulosic biofuels and cellulosic CNG/LNG derived from biogas are described in more detail in Sections III.D–1 and III.D–2 below. After a brief description of the statutory requirements in Section III.A, we discuss the companies the EPA reviewed in the process of projecting qualifying cellulosic biofuel production in the U.S. in 2018 in Section III.B. Section III.C discusses the projection of cellulosic biofuel production provided to EPA by EIA, and Section III.D discusses the methodologies used by EPA to project cellulosic biofuel production in 2018 and the resulting projection of 288 million ethanolequivalent gallons. A. Statutory Requirements The volumes of renewable fuel to be produced and used as transportation fuel under the RFS program each year (absent an adjustment or waiver by EPA) are specified in CAA section 211(o)(2)(B)(i)(III). The volume of PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 58495 cellulosic biofuel specified in the statute for 2018 is 7.0 billion gallons. The statute provides that if EPA determines, based on a letter provided to the EPA by EIA, that the projected volume of cellulosic biofuel production in a given year is less than the statutory volume, then EPA shall reduce the applicable volume of cellulosic biofuel to the projected volume available during that calendar year.36 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 volumes of advanced biofuels and total renewable fuel by the same or a lesser volume, and we are required to make cellulosic waiver credits available.37 Our consideration of the 2018 volume requirements for advanced biofuel and total renewable fuel is presented in Section IV. B. Cellulosic Biofuel Industry Assessment In order to project cellulosic biofuel production for 2018, we have tracked the progress of several dozen potential cellulosic biofuel production facilities. As we have done in previous years, we have focused on facilities with the potential to produce commercial-scale volumes of cellulosic biofuel rather than small research and development (R&D) or pilot-scale facilities. Larger commercial-scale facilities are much more likely to generate RINs for the fuel they produce and the volumes they produce will have a far greater impact on the cellulosic biofuel standard for 2018. The volume of cellulosic biofuel produced from R&D and pilot-scale facilities is quite small in relation to that expected from the commercial-scale facilities. R&D and demonstration-scale facilities have also generally not generated RINs for the fuel they have produced in the past. Their focus is on developing and demonstrating the technology, not producing commercial volumes. RIN generation from R&D and pilot-scale facilities in previous years has not contributed significantly to the overall number of cellulosic RINs generated.38 We have therefore not 36 The U.S. Court of Appeals for the District of Columbia Circuit evaluated this requirement in API v. EPA 706 F.3d 474, 479–480 (D.C. Cir. 2013), in the context of a challenge to the 2012 cellulosic biofuel standard. The Court stated that in projecting potentially available volumes of cellulosic biofuel EPA must apply an ‘‘outcome-neutral methodology’’ aimed at providing a prediction of ‘‘what will actually happen.’’ 37 See 40 CFR 80.1456. 38 While a few small R&D and pilot scale facilities have registered as cellulosic RIN generators, total E:\FR\FM\12DER2.SGM Continued 12DER2 58496 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ethrower on DSK3G9T082PROD with RULES considered production from R&D and pilot-scale facilities in our projection of cellulosic biofuel production for 2018. From this list of commercial-scale facilities we used information from EMTS, publicly available information (including press releases and news reports), comments on the 2018 NPRM, information from EIA, and information provided by representatives of potential cellulosic biofuel producers, to make a determination of which facilities are most likely to produce liquid cellulosic biofuel and generate cellulosic biofuel RINs in 2018. Each of these companies was investigated further in order to determine the current status of its facilities and its likely cellulosic biofuel production and RIN generation volumes for 2018. Both in our discussions with representatives of individual companies and as part of our internal evaluation process we gathered and analyzed information including, but not limited to, the funding status of these facilities, current status of the production technologies, anticipated construction and production ramp-up periods, facility registration status, and annual fuel production and RIN generation targets. As an initial matter, it is useful to review the success of EPA’s recent cellulosic biofuel projections. EPA used a consistent methodology to project cellulosic biofuel production in the final three months of 2015 and in 2016 and 2017.39 The record of actual production indicates that EPA’s projection was lower than the actual number of cellulosic RINs made available in 2015,40 and higher than the actual number of RINs made available in 2016.41 While we currently only have data available through September 2017, it appears likely that the number of cellulosic RINs made available in 2017 will fall short of EPA’s projection in our production from each of these facilities from 2011 through September 2017 has been less than 150,000 RINs. This is approximately 1% of all liquid cellulosic biofuel production through September 2017. 39 This methodology is most recently described in the 2017 final rule. See 81 FR 89746, 89755 (December 12, 2016). 40 EPA only projected cellulosic biofuel production for the final three months of 2015, since data on the availability of cellulosic biofuel RINs (D3+D7) for the first nine months of the year were available at the time the analyses were completed for the final rule. 41 EPA projected that 123 million and 230 million cellulosic RINs would be generated in 2015 and 2016, respectively. The number of available cellulosic RINs in these years (RINs generated minus RINs retired for non-compliance reasons) was 140 and 190 million RINs. See ‘‘Assessment of the Accuracy of Cellulosic Biofuel Production Projections in 2015 and 2016 (June 2017 Update),’’ memorandum from Dallas Burkholder to EPA Air Docket EPA–HQ–OAR–2017–0091 for more detail. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 2017 final rule.42 The fact that the projections made using this methodology have been somewhat inaccurate, under-estimating the actual number of RINs made available in 2015 and over-estimating in 2016 and (most likely) 2017, reflects the inherent difficulty with projecting cellulosic biofuel production. It also emphasizes the importance of continuing to make refinements to our projection methodology in an effort to produce accurate projections. EPA’s projections of liquid cellulosic biofuel were higher than the actual volume of liquid cellulosic biofuel produced in both 2015 and 2016, and appear likely to be higher than actual liquid cellulosic biofuel production in 2017. We believe this recent data warrants a change to the percentile values used to project liquid cellulosic biofuel from the percentile values used in prior years in an effort to take into account the most recent data available and make the projections for 2018 more accurate. We are therefore adjusting the percentile values used to project liquid cellulosic biofuel production based on actual liquid cellulosic biofuel production in 2016 and through September 2017. Use of this updated data also results in different percentile values than we proposed to use for 2018. We believe that the use of the methodology (described in the 2018 NPRM and in Section III.D.1 below), with the adjusted approach to developing the percentile values used to project production volumes for liquid cellulosic biofuels, results in a projection that reflects a neutral aim at accuracy since it accounts for expected growth in the near future by using historical data that is free of any subjective bias. In previous years, we used the same general methodology for CNG/LNG derived from biogas as for liquid cellulosic biofuel, but used different percentile values to project CNG/LNG derived from biogas and liquid cellulosic biofuels, reflecting the more established nature of the CNG/LNG industry relative to liquid cellulosic biofuel production. For 2018, EPA proposed using an industry-wide approach, rather than an approach that projects volumes for individual companies or facilities, to project the production of CNG/LNG derived from biogas. This updated approach reflects the fact that this industry is far more 42 Additional information on our current projection of cellulosic biofuel production for 2017 can be found in ‘‘Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel Production,’’ memorandum from Dallas Burkholder to EPA Air Docket EPA–HQ–OAR–2017–0091. PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 mature than the liquid cellulosic biofuel industry, and that there are a large number of facilities registered to generate cellulosic biofuel RINs from biogas, rendering a facility-by-facility analysis difficult and unnecessary for purposes of accuracy.43 As described in Section III.D.2 below, EPA is instead calculating a year-over-year rate of growth in the renewable CNG/LNG industry by comparing RIN generation for CNG/LNG derived from biogas from October 2015–September 2016 to the RIN generation for these same fuels from October 2016–September 2017 (the most recent month for which data are available. We then apply this year-overyear growth rate to the total number of cellulosic RINs available for compliance from CNG/LNG in 2016 (the most recent year for which complete data are available), to estimate the production of CNG/LNG derived from biogas in 2018.44 The remainder of this section discusses the companies and facilities EPA expects to be in a position to produce commercial-scale volumes of cellulosic biofuel by the end of 2018 and describes in more detail the methodology EPA is using to project cellulosic biofuel production in 2018 (including a review of cellulosic biofuel production and the accuracy of the projection methodology in previous years). 1. Potential Domestic Producers There are a number of companies and facilities 45 located in the U.S. that have either already begun producing cellulosic biofuel for use as transportation fuel, heating oil, or jet fuel at a commercial scale, or are anticipated to be in a position to do so 43 EPA received a large number of affidavits from companies that produce (or intend to produce) CNG/LNG derived from biogas as comments on our proposed rule. These affidavits are publicly available as part of the comments submitted by the Coalition for Renewable Natural Gas. EPA reviewed and considered the information contained in these affidavits in establishing the required volume of cellulosic biofuel for 2018. These affidavits confirmed that it was reasonable to believe that the relatively high year-over-year rate of growth used to project volumes of CNG/LNG derived from biogas for 2018 could be achieved based on a number of project expansions and new projects expected to begin producing CNG/LNG derived from biogas in 2018. 44 Historically RIN generation for CNG/LNG derived from biogas has increased each year. It is possible, however, that RIN generation for these fuels in the most recent 12 months for which data are available could be lower than the preceding 12 months. We believe our methodology accounts for this possibility. In such a case, the calculated rate of growth would be negative. 45 The volume projection from CNG/LNG producers does not represent production from a single company or facility, but rather a group of facilities utilizing the same production technology. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations at some time during 2018. The financial incentive provided by cellulosic biofuel RINs,46 combined with the facts that to date nearly all cellulosic biofuel produced in the U.S. has been used domestically 47 and all the domestic facilities we have contacted in deriving our projections intend to produce fuel on a commercial scale for domestic consumption and plan to use approved pathways, gives us a high degree of confidence that cellulosic biofuel RINs will be generated for any fuel produced by domestic commercial scale facilities. In order to generate RINs, each of these facilities must be registered with EPA under the RFS program and comply with all the regulatory requirements. This includes using an approved RINgenerating pathway and verifying that their feedstocks meet the definition of renewable biomass. Most of the domestic companies and facilities considered in our assessment of potential cellulosic biofuel producers in 2018 have already successfully completed facility registration, and many have successfully generated RINs.48 A brief description of each of the domestic companies (or group of companies for cellulosic CNG/LNG producers) that EPA believes may produce commercial-scale volumes of RIN generating cellulosic biofuel by the end of 2018 can be found in a memorandum to the docket for this final rule.49 General information on each of these companies or group of companies considered in our projection of the potentially available volume of cellulosic biofuel in 2018 is summarized in Table III.B.3–1 below. ethrower on DSK3G9T082PROD with RULES 2. Potential Foreign Sources of Cellulosic Biofuel In addition to the potential sources of cellulosic biofuel located in the U.S., there are several foreign cellulosic 46 According to data from Argus Media, the price for 2017 cellulosic biofuel RINs averaged $2.73 in 2017 (through September 2017). Alternatively, obligated parties can obtain a RIN value equivalent to a cellulosic biofuel RIN by purchasing an advanced (or biomass-based diesel) RIN and a cellulosic waiver credit. The price for 2017 advanced biofuel RINs averaged $1.00 in 2017 (through September 2017) while the price for a 2017 cellulosic waiver credit is $2.00. 47 The only known exception was a small volume of fuel produced at a demonstration scale facility exported to be used for promotional purposes. 48 Many of the facilities listed in Table III.B.3–1 are registered to produce cellulosic (D3 or D7) RINs with the exception of several of the producers of CNG/LNG derived from biogas, many of the facilities projected to produce cellulosic ethanol using Edeniq’s technology, Enerkem’s Edmonton facility, and Ensyn’s Port-Cartier, Quebec facility. 49 ‘‘Cellulosic Biofuel Producer Company Descriptions (November 2017),’’ memorandum from Dallas Burkholder to EPA Air Docket EPA–HQ– OAR–2017–0091. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 biofuel companies that may produce cellulosic biofuel in 2018. These include facilities owned and operated by Beta Renewables, Enerkem, Ensyn, GranBio, and Raizen. All of these facilities use fuel production pathways that have been approved by EPA for cellulosic RIN generation provided eligible sources of renewable feedstock are used and other regulatory requirements are satisfied. These companies would therefore be eligible to register their facilities under the RFS program and generate RINs for any qualifying fuel imported into the U.S. While these facilities may be able to generate RINs for any volumes of cellulosic biofuel they import into the U.S., demand for the cellulosic biofuels they produce is expected to be high in their own local markets. EPA is charged with projecting the volume of cellulosic biofuel that will be produced or imported into the U.S.50 For the purposes of this final rule we have considered all of the registered foreign facilities under the RFS program to be potential sources of cellulosic biofuel in 2018. We believe that due to the strong demand for cellulosic biofuel in local markets, the significant technical challenges associated with the operation of cellulosic biofuel facilities, and the time necessary for potential foreign cellulosic biofuel producers to register under the RFS program and arrange for the importation of cellulosic biofuel to the U.S., cellulosic biofuel imports from foreign facilities not currently registered to generate cellulosic biofuel RINs are generally highly unlikely in 2018. For purposes of our 2018 cellulosic biofuel projection we have, with two exceptions (described below), excluded potential volumes from foreign cellulosic biofuel production facilities that are not currently registered under the RFS program. Cellulosic biofuel produced at four foreign facilities (Ensyn’s Renfrew facility, GranBio’s Brazilian facility, and the CNG/LNG facilities Complexe Enviro Progressive Ltee and SaintThomas Biomethane Plant) generated 50 EPA has consistently interpreted the ‘‘projected volume of cellulosic biofuel production’’ required in CAA section 211(o)(7)(D) to include volumes of cellulosic biofuel likely to be made available in the United States, including from both domestic production and imports (see 80 FR 77420 (December 14, 2015) and 81 FR 89746 (December 12, 2016)). We do not believe it would be reasonable to include in the projection all cellulosic biofuel produced throughout the world, regardless of likelihood of import to the United States, since volumes that are not imported would not be available to obligated parties for compliance and including them in the projection would render the resulting volume requirement and percentage standards unachievable. PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 58497 cellulosic biofuel RINs for fuel exported to the U.S. in 2017; projected volumes from each of these facilities are included in our projection of available volumes for 2018. EPA has also included projected volume from two foreign facilities (Enerkem’s Canadian facility and Ensyn’s Port-Cartier, Quebec facility) that are not currently registered to generate cellulosic biofuel RINs under the RFS program. We believe that it is appropriate to include volume from these facilities in light of their proximity to the U.S., the proven technology used by these facilities, the volumes of cellulosic biofuel exported to the U.S. by the company in previous years (in the case of Ensyn), and the company’s stated intentions to market fuel produced at these facilities to qualifying markets in the U.S. One additional foreign facility (Raizen’s Costa Pinto) has registered as a cellulosic biofuel producer, but has not yet generated any cellulosic RINs. EPA attempted to contact representatives from this facility to inquire about their intentions to export cellulosic biofuel to the U.S. in 2018, but received no response. We have therefore not projected any cellulosic biofuel exports from this facility to the U.S. in 2018. All of the facilities included in EPA’s cellulosic biofuel projection for 2018 are listed in Table III.B.3–1 below. 3. Summary of Volume Projections for Individual Companies General information on each of the cellulosic biofuel producers (or group of producers in the case of producers of CNG/LNG derived from biogas and liquid cellulosic biofuel facilities using Edeniq’s technology) that factored into our projection of cellulosic biofuel production for 2018 is shown in Table III.B.3–1. This table includes both facilities that have already generated cellulosic RINs, as well as those that have not yet generated cellulosic RINs, but are projected to do so by the end of 2018. As discussed above, we have focused on commercial-scale cellulosic biofuel production facilities. Each of these facilities (or group of facilities) is discussed further in a memorandum to the docket.51 In addition to the facilities (or groups of facilities) discussed in Table III.B.3–1 below, EPA is aware of an additional technology that may be used to produce qualifying cellulosic biofuel in 2018. Multiple companies, in addition to Edeniq and Quad County Corn Processors, are working to 51 ‘‘Cellulosic Biofuel Producer Company Descriptions (November 2017),’’ memorandum from Dallas Burkholder to EPA Air Docket EPA–HQ– OAR–2017–0091. E:\FR\FM\12DER2.SGM 12DER2 58498 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations commercialize technology to convert corn kernel fiber to cellulosic ethanol at existing corn ethanol facilities. At this point, however, none of these other companies have successfully registered a facility to generate cellulosic RINs using their technology.52 In light of the significant challenges associated with accurately and reliably determining the conversion of cellulosic feedstocks to biofuel in processes that simultaneously convert both cellulosic and noncellulosic feedstocks, EPA has included volumes of cellulosic biofuel associated with the simultaneous conversion of corn kernel fiber and corn starch only in cases where the facilities intend to use a technology with a methodology for quantifying the volume of ethanol produced form the cellulosic fraction of corn fiber that has been approved by EPA (Quad County Corn Processors and facilities using Edeniq’s technology). TABLE III.B.3–1—PROJECTED PRODUCERS OF CELLULOSIC BIOFUEL BY 2018 Company name Location Feedstock Fuel Facility capacity (million gallons per year) 53 Construction start date First production 54 CNG/LNG Producers 55. Edeniq .................... Enerkem ................. Various ................ Biogas ................. CNG/LNG ............ Various ................ N/A ...................... August 2014. Various ................ Edmonton, AL, Canada. Renfrew, ON, Canada. Port-Cartier, QC, Canada. ˜ Sao Miguel dos Campos, Brazil. Emmetsburg, IA .. Galva, IA ............. Corn Kernel Fiber Separated MSW .. Ethanol ................ Ethanol ................ Various ................ 10 56 .................... Various ................ 2012 .................... Wood Waste ....... Heating Oil .......... 3 .......................... N/A ...................... October 2016. September 2017.57 2014. Wood Waste ....... Heating Oil .......... 10.5 ..................... June 2016 ........... January 2018. Sugarcane bagasse. Corn Stover ......... Corn Kernel Fiber Ethanol ................ 21 ........................ Mid 2012 ............. September 2014. Ethanol ................ Ethanol ................ 20 ........................ 4 .......................... March 2012 ......... Late 2013 ............ 4Q 2015. October 2014. Ensyn ..................... Ensyn ..................... GranBio .................. Poet-DSM .............. QCCP ..................... Section 211(o)(3)(A) of the CAA requires EIA to ‘‘. . . provide to the Administrator of the Environmental Protection Agency an estimate, with respect to the following calendar year, of the volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold or introduced into commerce in the U.S.’’ EIA provided these estimates to EPA on October 11, 2017.58 With regard to cellulosic biofuel, the EIA estimated that the available volume in 2018 would be 13 million gallons. In their letter, EIA did not identify the facilities on which their estimate of cellulosic biofuel production was based. EIA did, however, indicate in their letter that they included neither estimates of cellulosic biofuel produced by foreign entities and imported into the U.S., nor estimates of cellulosic heating oil or CNG/LNG produced from biogas, which together represent approximately 96 percent of our projected cellulosic biofuel volume for 2017. When limiting the scope of our projection to the companies assessed by EIA, we note that while our volume projections are not identical, they are very similar. EPA projects approximately 10 million gallons of liquid cellulosic biofuel will be produced domestically in 2017 (when excluding heating oil, as EIA did in their estimate of cellulosic biofuel production). EIA did not provide detail on the basis of their projections, so we cannot say precisely why EPA and EIA’s projections differ. We further note that if we used EIA’s projections for domestic liquid cellulosic biofuel production without modification in place of our own assessment of these facilities the impact on the cellulosic biofuel standard overall for 2018 would be approximately 1%.59 52 A significant issue that must be resolved to register a facility to produce cellulosic biofuel from corn kernel fiber at an existing ethanol production facility is the quantification of the volume of ethanol produced from cellulosic feedstocks rather than non-cellulosic feedstocks such as starch. Until these companies develop a methodology for quantifying cellulosic biofuel production that is approved by EPA we do not believe it is appropriate to include an estimate of cellulosic biofuel production from these facilities in our projection of cellulosic biofuel production in 2018. 53 The Facility Capacity is generally equal to the nameplate capacity provided to EPA by company representatives or found in publicly available information. If the facility has completed registration and the total permitted capacity is lower than the nameplate capacity then this lower volume is used as the facility capacity. For companies generating RINs for CNG/LNG derived from biogas the Facility Capacity is equal to the lower of the annualized rate of production of CNG/ LNG from the facility at the time of facility registration or the sum of the volume of contracts in place for the sale of CNG/LNG for use as transportation fuel (reported as the actual peak capacity for these producers). 54 Where a quarter is listed for the first production date EPA has assumed production begins in the middle month of the quarter (i.e., August for the 3rd quarter) for the purposes of projecting volumes. 55 For more information on these facilities see ‘‘November 2017 Assessment of Cellulosic Biofuel Production from Biogas (2018),’’ memorandum from Dallas Burkholder to EPA Air Docket EPA–HQ– OAR–2017–0091. 56 The nameplate capacity of Enerkem’s facility is 10 million gallons per year. However, we anticipate that a portion of their feedstock will be nonbiogenic MSW. RINs cannot be generated for the portion of the fuel produced from non-biogenic feedstocks. We have taken this into account in our production projection for this facility. 57 This date reflects the first production of ethanol from this facility. The facility began production of methanol in 2015. 58 ’’Letter from EIA to EPA on 2018 projected volumes,’’ available in docket EPA–HQ–OAR– 2017–0091. 59 If EPA increased our projection of liquid cellulosic biofuel produced in the United States in 2018 (excluding heating oil) to 13 million gallons to be consistent with EIA’s projection our total projected volume of cellulosic biofuel would increase by 3 million gallons. This is approximately 1% of the total volume of cellulosic biofuel projected to be produced in 2018 (3/288 = 0.01). ethrower on DSK3G9T082PROD with RULES C. Projection From the Energy Information Administration VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 D. Cellulosic Biofuel Volume for 2018 1. Liquid Cellulosic Biofuel For our 2018 liquid cellulosic biofuel projection, we use the same general approach as we have in projecting these volumes in previous years. We begin by first categorizing potential liquid cellulosic biofuel producers in 2018 according to whether or not they have achieved consistent commercial scale production of cellulosic biofuel to date. Next we define a range of likely production volumes for 2018 for each group of companies. Finally, we use a percentile value to project from the established range a single projected production volume for each group of E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations companies in 2018. As explained below, however, we are using a different approach to selection of the appropriate percentile values for purposes of this rule than we have used in prior years. In this final rule we have used the most recent data available to determine which facilities are likely to produce liquid cellulosic biofuel in 2018, categorize the companies according to whether or not they have consistently produced commercial scale volumes of liquid cellulosic biofuels, adjust the projected production range for each group of companies, and adjust the percentile values used for each group of companies. This methodology is briefly described here, and is described in detail in memos to the docket.60 Consistent with our approach in previous years, we separated the list of potential producers of cellulosic biofuel (listed in Table III.B.3–1) into two groups according to whether or not the facilities have achieved consistent commercial-scale production and cellulosic biofuel RIN generation. We next defined a range of likely production volumes for each group of potential cellulosic biofuel producers. The low end of the range for each group of producers reflects actual RIN generation data over the last 12 months 58499 for which data are available at the time our technical assessment was completed (October 2016–September 2017). For potential producers that have not yet generated any cellulosic RINs, the low end of the range is zero. For the high end of the range of production volumes for companies expected to produce liquid cellulosic biofuel we considered a variety of factors, including the expected start-up date and ramp-up period,61 facility capacity. The projected range for the groups of companies considered in our 2018 cellulosic biofuel projection are shown in Tables III.D.1–1 and III.D.1–2 below.62 TABLE III.D.1–1—2018 PRODUCTION RANGES FOR LIQUID CELLULOSIC BIOFUEL PRODUCERS WITHOUT CONSISTENT COMMERCIAL SCALE PRODUCTION [Million gallons] Companies included Low end of the range High end of the range a Facilities using Edeniq’s technology (new facilities), Enerkem, Ensyn (Port Cartier facility) ................................. 0 47 a Rounded to the nearest million gallons. TABLE III.D.1–2—2018 PRODUCTION RANGES FOR LIQUID CELLULOSIC BIOFUEL PRODUCERS WITH CONSISTENT COMMERCIAL SCALE PRODUCTION [Million gallons] Companies included Low end of the range a High end of the range a Facilities using Edeniq’s technology (active facilities), Ensyn (Renfrew facility), Poet-DSM, GranBio, Quad County Corn Processors ...................................................................................................................................... 7 24 a Rounded to the nearest million gallons. ethrower on DSK3G9T082PROD with RULES After defining likely production ranges for each group of companies we next considered the percentile values to use in projecting a production volume for each group of companies. In the proposed rule, we used the 1st and 43rd percentile to project production from facilities that had not yet achieved consistent commercial scale production of liquid cellulosic biofuels and those that had, respectively, based on data indicating what percentile of production from within the 2016 projected range facilities included in our 2016 cellulosic biofuel projection actually achieved. However, for this final rule we are adjusting the percentile values used to project liquid cellulosic biofuel production from within the range of projected production values, by using data on actual liquid cellulosic biofuel production from both 2016 and 2017 (through September). We believe an adjustment to the percentile values used to generate a projected production volume from the range of potential production volumes for each group of facilities is warranted. EPA’s estimates for liquid cellulosic biofuel exceeded actual production of liquid cellulosic biofuel in both 2015 and 2016.63 Further, as discussed in the NPRM we are considering additional RIN generation data from 2017 that was not available for the NPRM in this final rule. While we currently only have cellulosic biofuel production data through September 2017, additional data available from months after the release of our proposed rule suggests that further changes to the percentile values used in the NPRM are likely to result in more accurate projections of cellulosic biofuel production in 2018. We believe that the adjusted percentile values used 60 ‘‘November 2017 Liquid Cellulosic Biofuel Projections for 2018 CBI’’ and ‘‘Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel Production,’’ memorandums from Dallas Burkholder to EPA Air Docket EPA–HQ–OAR– 2017–0091. 61 As in our 2015–2017 projections, EPA calculated a high end of the range for each facility (or group of facilities) based on the expected startup date and a six-month straight line ramp-up period. The high end of the range for each facility (or group of facilities) is equal to the value calculated by EPA using this methodology, or the number of RINs the producer expects to generate in 2018, whichever is lower. 62 More information on the data and methods EPA used to calculate each of the ranges in these tables in contained in ‘‘November 2017 Liquid Cellulosic Biofuel Projections for 2018 CBI’’ memorandum from Dallas Burkholder to EPA Air Docket EPA– HQ–OAR–2017–0091. Unlike in previous years, we have not shown the projected ranges for each individual company. This is because the high end of the range for some of these companies are based on the company’s production projections, which they consider confidential business information (CBI). Additionally, the low end of the range for facilities that have achieved consistent commercial scale production is based on actual RIN generation data in the most recent 12 months, with is also claimed as CBI. EPA has included additional information on the calculations used to define the production ranges, including the production ranges for each individual company or facility, in a memo to the docket. 63 EPA notes that once standards are set based on these projections, cellulosic biofuel RINs can be generated for either type of cellulosic biofuel. Cellulosic biofuel RINs generated for liquid biofuels and CNG/LNG derived from biogas can be used to satisfy an obligated party’s cellulosic biofuel obligation. There are no separate standards for liquid and gaseous cellulosic biofuels. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 E:\FR\FM\12DER2.SGM 12DER2 58500 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations in this final rule will improve the accuracy of the production projection and will further EPA’s objective to project volumes with a ‘‘neutral aim at accuracy.’’ The projected ranges for liquid cellulosic biofuel production in 2016, along with the percentile values used to project a production volume within the calculated ranges the actual number of cellulosic RINs generated in 2016 that are available for compliance, and the percentile values that would have resulted in a projection equal to the actual production volume are shown in Table III.D.1–3 below. TABLE III.D.1–3—PROJECTED AND ACTUAL LIQUID CELLULOSIC BIOFUEL PRODUCTION IN 2016 [Million gallons] Low end of the range New Facilities ........................................... Consistent Producers 65 ........................... High end of the range 0 2 Since the actual production in 2016 was lower than the projected production for both new facilities and consistent producers, we determined that for the purposes of our proposed rule it would be appropriate to adjust the percentiles to attempt to make them more accurate. To this end, EPA calculated the percentile values that would have resulted in accurate production projections in 2016 based on the actual number of cellulosic biofuel RINs generated for liquid cellulosic biofuels and available for compliance in 2016. These calculated percentile values are the 1st percentile for new facilities (replacing in the NPRM the 25th percentile used for 2016 and 2017) and the 43rd percentile for consistent producers (replacing in the NPRM the 50th percentile used for 2016 and 2017). These percentile values, however, do not reflect the updated production data EPA has from liquid cellulosic biofuel producers in 2017. Percentile (2016 FRM) 76 5 Projected production 25th 50th EPA currently only has data on cellulosic biofuel production in 2017 through the end of September. While we believe that any final assessment of the accuracy of a projection method cannot be made until complete data for the year are available, we nevertheless believe it is appropriate to consider data from 2017 and adjust the percentile values used in the final rule as appropriate. To calculate the percentile values that would have resulted in a projection equal to the actual production volume for 2017 we first need to project the volume of cellulosic biofuel that will be produced in the 4th quarter of 2017 for each group of facilities.66 EPA projected cellulosic biofuel production in the 4th quarter of 2017 by first comparing cellulosic biofuel production in the 4th quarter of 2016 to the cellulosic biofuel production in the first 3 quarters of 2016. In 2016, cellulosic biofuel production in the 4th quarter (1.25 million gallons) was 40 percent of Actual production 64 19 4 1.06 3.28 Actual percentile 1st 43rd cellulosic biofuel production in the first 3 quarters (3.09 million gallons). We then used this factor, together with actual production data from the first 3 quarters of 2017 to project cellulosic biofuel production in the 4th quarter of 2017.67 The projected ranges for liquid cellulosic biofuel production in 2017, along with the percentile values used to project a production volume within the calculated ranges, the actual number of cellulosic RINs generated in 2017 that are available for compliance, and the percentile values that would have resulted in a projection equal to the actual production volume are shown in Table III.D.1–4 below. Note that the percentile value that would have resulted in the projected volume of cellulosic biofuel in 2017 is negative, as the projected volume is lower than the low end of the range from the 2017 final rule. TABLE III.D.1–4—PROJECTED AND ACTUAL LIQUID CELLULOSIC BIOFUEL PRODUCTION IN 2017 [Million gallons through September] Low end of the range New Facilities ........................................... Consistent Producers 69 ........................... High end of the range 0 3.5 Percentile (2017 FRM) 33 7 Projected production (2017 FRM) 25th 50th Projected production (2018 FRM) 68 8 5 6.07 2.85 Actual percentile 18th ¥18th ethrower on DSK3G9T082PROD with RULES The liquid cellulosic biofuel production data from 2017 indicates 64 Actual production is calculated by subtracting RINs retired for any reason other than compliance with the RFS standards from the total number of cellulosic RINs generated. 65 In the 2014–2016 Annual Rule EPA categorized Ensyn and Quad County Corn Processors as consistent cellulosic biofuel producers for 2016. All other companies were categorized as new facilities. This is in contrast to 2018, for which EPA has categorized additional facilities as consistent cellulosic biofuel producers. 66 Unlike in the case of CNG/LNG derived from biogas, discussed in Section III.D.2 below, EPA can only use calendar years, rather than consecutive 12 month periods to evaluate the accuracy of the VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 percentile values used in our projections in previous years. This is because the percentile values are used in conjunction with the calculated ranges to produce production estimates. The ranges were defined for the purpose of projecting cellulosic biofuel production in the context of our annual rules and therefore are specific to calendar years. Since production in any calendar year is not expected to be consistent (i.e., with equal production volumes each month) it is not possible to use the projected ranges from two calendar years to generate a range for a 12 month period that spans two calendar years. 67 More detail on these calculations can be found in ‘‘November 2017 Liquid Cellulosic Biofuel PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 Projections for 2018 CBI’’ memorandum from Dallas Burkholder to EPA Air Docket EPA–HQ–OAR– 2017–0091. 68 This number includes an updated projection of cellulosic biofuel production for each group of facilities in the 4th quarter of 2017 as described in the preceding paragraph. Note that the low end of the potential production range for companies that have achieved consistent commercial scale production (7 million gallons) is based on the most recent 12 months for which data is available (October 2016—September 2017) while the projected production number in this table is our E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations that adjustments to the percentile values used to project cellulosic biofuel production within the calculated range are appropriate. For this final rule EPA has projected cellulosic biofuel production from facilities that have not yet achieved consistent commercial scale production at the 10th percentile of the calculated range and projected cellulosic biofuel production from facilities that have achieved commercial scale production at the 12th percentile.70 These percentiles are calculated by averaging the percentiles that would have produced cellulosic biofuel projections equal to the volumes produced by each group of companies in 2016 and 2017, as shown in Table III.D.1–5 below. We have not considered data from years prior to 2016, as prior to 2016 a different methodology was used to project available volumes of cellulosic biofuel. In determining the percentile values to use for 2018 we have decided to weight the observed actual percentile values from 2016 and 2017 equally. While the percentile value from 2017 represents the most recent data available, it is also dependent on a projection of the volume of cellulosic biofuel that will be produced in the 4th quarter of 2017. Conversely, the percentile values from 2016 are calculated using actual data for the full 58501 year, however this data is older and may not reflect the current state of cellulosic biofuel production technologies and commercial scale facilities as data from 2017. We believe that an average of these percentile values appropriately incorporate the data available to EPA at the time of this rulemaking to project liquid cellulosic biofuel production with a neutral aim at accuracy. We will continue to monitor the accuracy of our projection methodology and will use updated data to adjust the percentile values and/or other elements of our methodology as appropriate.71 TABLE III.D.1–5—PERCENTILE VALUES THAT WOULD HAVE PRODUCED ACCURATE PROJECTION IN 2016 AND 2017 2016 New Facilities ............................................................................................................................... Consistent Producers .................................................................................................................. Finally, we used these percentile values, together with the ranges determined for each group of companies discussed above, to project a volume for each group of companies in 2018. These Average (Used to project volume in 2018) 2017 1st 43rd 18th ¥18th 10th 12th calculations are summarized in Table III.D.1–6 below. TABLE III.D.1–6—PROJECTED VOLUME OF LIQUID CELLULOSIC BIOFUEL IN 2018 [Million gallons] Low end of the range a Liquid Cellulosic Biofuel Producers; Producers without Consistent Commercial Scale Production ................................................................................... Liquid Cellulosic Biofuel Producers; Producers with Consistent Commercial Scale Production .......................................................................................... Total .......................................................................................................... a High end of the range a Percentile Projected volume a 0 47 10th 5 7 24 12th 9 N/A N/A N/A 14 Volumes rounded to the nearest million gallons. ethrower on DSK3G9T082PROD with RULES EPA also considered whether it would be appropriate to modify other individual components of the past methodology for projecting liquid cellulosic biofuel based on a narrow consideration of each factor, but we do not believe that such changes are warranted. Making the adjustment to the percentile values used in the methodology while keeping other components of the methodology constant should, we believe, provide an appropriate refinement of the methodology that reflects recent experience. We acknowledge, however, that using the calculated percentile values from previous years to project liquid cellulosic biofuel production in future years does not eliminate the possibility that actual production will differ from our projections. This is especially true for the liquid cellulosic biofuel industry, which is currently in the early stages of commercialization. Nevertheless, based on the record before us, we believe the ranges of projected production volumes for each company (or group of companies for those using the Edeniq technology) are reasonable, and that projecting overall production in 2018 in the manner described above results in a neutral estimate (neither biased to produce a projection that is too high or too low) of likely liquid cellulosic biofuel production in 2018 (14 million gallons). current projection for calendar year 2017 based on RIN generation data through September 2017. 69 In the 2014–2016 Annual Rule, EPA categorized Ensyn and Quad County Corn Processors as consistent cellulosic biofuel producers for 2016. All other companies were categorized as new facilities. This is in contrast to 2018, for which EPA has categorized additional facilities as consistent cellulosic biofuel producers. 70 The percentile value for 2018 for facilities that have not yet achieved consistent commercial scale production (10th percentile) is higher than the percentile used in the proposed rule (1st percentile) but lower than the percentile used in the 2017 rule (25th percentile). The percentile value for 2018 for facilities that have achieved consistent commercial scale production (12th percentile) is lower than both the percentile used in both the proposed rule (43rd percentile) and the percentile used in the 2017 rule (50th percentile). 71 Additional information on the calculation of the percentile values for 2016 and 2017 can be found in ‘‘Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel Production,’’ memorandum from Dallas Burkholder to EPA Air Docket EPA–HQ–OAR–2017–0091. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 2. CNG/LNG Derived From Biogas For 2018, EPA is using a new methodology to project production of CNG/LNG derived from biogas used as transportation fuel. We believe a new E:\FR\FM\12DER2.SGM 12DER2 58502 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations methodology is warranted for purposes of this rule for two primary reasons: the over-projection of CNG/LNG derived from biogas in 2016 (and the likely overprojection of CNG/LNG derived from biogas in 2017), and the relative maturity of the CNG/LNG industry relative to the liquid cellulosic biofuel industry. EPA’s projection of the production of CNG/LNG derived from biogas in 2016 was 207 million ethanolequivalent gallons. Actual production of cellulosic biofuel RINs for CNG/LNG derived from biogas that were available for compliance in 2016 was 185 million gallons, indicating that the approach we took to projecting CNG/LNG derived from biogas in 2016 resulted in an overestimate by 22 million ethanolequivalent gallons (12 percent). Similarly, EPA’s projection of the production of CNG/LNG derived from biogas in 2017 was 298 million ethanolequivalent gallons. Actual production of cellulosic biofuel RINs for CNG/LNG derived from biogas that has been produced in 2017 (through the end of September, the most recent month for which data are available) is 151 million gallons. While data for all of 2017 are not available at this time, and despite the observed historical pattern of higher RIN generation for CNG/LNG derived from biogas in the latter months of the year relative to the earlier months of the year, the available data strongly suggests that actual RIN generation from CNG/ LNG derived from biogas in 2017 is likely to fall short of our projections in the 2017 final rule. RIN generation of CNG/LNG derived from biogas from January 2017—September 2017 is 22 percent higher than RIN generation in the same months in 2016. In order to meet the projected volume for 2017 (298 million gallons), however, RIN generation in the remainder of 2017 would need to be 58 percent higher in 2017 than the total RIN generation from these fuels in 2016. EPA received many comments on our proposed approach to projecting production of CNG/LNG derived from biogas in 2018. Some commenters critiqued EPA’s calculation of a yearover-year rate of growth based on production during the first five months of 2017 (relative to production in the first five months of 2016) and suggested that EPA use updated production data in the final rule, or that EPA calculate the annual rate of growth based on comparisons of time periods no less than 12 months. Many commenters characterized EPA’s proposed approach as inappropriately ‘‘backwards looking,’’ and claimed that while this approach may adequately project production from facilities that are currently producing CNG/LNG derived from biogas it did not adequately consider the new facilities the industry expects will begin production in 2018. Many of these commenters provided facility specific information on facilities capable of producing CNG/LNG derived from biogas in 2018 for both facilities that are currently producing CNG/LNG and those that expect to begin producing in 2018.72 Many of these commenters requested that EPA use the facility by facility approach used by EPA in our 2017 final rule to project the production of CNG/LNG derived from biogas in 2018. In this final rule EPA has used updated data in projecting the production of CNG/LNG derived from biogas, consistent with our stated intentions in the proposed rule and as requested by several commenters. At the time the analyses were performed for this final rule, EPA had data available through the end of September 2017. EPA has adjusted our calculated yearover-year rate of growth based on this new data. EPA also agrees with commenters who stated that it is more appropriate to calculate a year-over-year rate of growth using a full year’s (12 months) worth of data, as this captures any seasonality and would (in future years) minimize the opportunity for producers of CNG/LNG derived from biogas to attempt to influence the projected growth rate for the next year by intentionally shifting production to particular months of the year. For this final rule, EPA has calculated the year-over-year growth rate in CNG/ LNG derived from biogas by comparing RIN generation from October 2016– September 2017 (the most recent 12 months for which data are available) to RIN generation in the 12 months that immediately precede this time period (October 2015–September 2016). These RIN generation volumes are shown in Table III.C.2–1 below. TABLE III.D.2–1—GENERATION OF CELLULOSIC BIOFUEL RINS FOR CNG/LNG DERIVED FROM BIOGAS [Million gallons] RIN generation (October 2015–September 2016) RIN generation (October 2016–September 2017) Year-over-year increase 177.28 215.52 21.6% ethrower on DSK3G9T082PROD with RULES EPA then applied this 21.6 percent year-over-year growth rate to the total number of 2016 cellulosic RINs generated for CNG/LNG that were available for compliance (185.14 million) to project the production of cellulosic RINs from these fuels in 2017, and then repeated the calculation to arrive at a projection for 2018. This methodology results in a projection of 273.6 million gallons of CNG/LNG derived from biogas in 2018.73 We believe that projecting the production of CNG/LNG derived from biogas in this manner appropriately takes into consideration the actual recent rate of growth of this industry, and that this growth rate accounts for both the potential for future growth and the challenges associated with increasing RIN generation from these fuels in future years. While this methodology may not be appropriate to use once the projected volume of CNG/LNG derived from biogas approaches the total volume of CNG/LNG that is used as transportation fuel, this is not currently a constraint as our projection for 2018 is well below the total volume of CNG/ LNG that is currently used as transportation fuel.74 The comments 72 The Coalition for Renewable Natural Gas collected and submitted a large number of affidavits from project owners and operators of facilities that are currently producing CNG/LNG derived from biogas, as well as those that anticipate beginning production in 2018. Many of these affidavits are publicly available in the docket, while others have claimed these submissions as confidential business information. 73 To calculate this value, EPA multiplied the total number of 2016 RINs generated for CNG/LNG derived from biogas and available for compliance by 1.216 (representing a 21.6% year-over-year increase), and then multiplied the product by 1.216 a second time (to project the annual production volume in 2018, rather than 2017). The number 2016 of RINs generated for CNG/LNG derived from biogas and available for compliance (185.14) is based on EMTS data. 74 EPA projects that 580 million ethanolequivalent gallons of CNG/LNG will be used as transportation fuel in 2018 based on EIA’s October 2017 Short Term Energy Outlook (STEO). To VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ethrower on DSK3G9T082PROD with RULES submitted to EPA on our proposed rule contained information related to a number of production facilities expected to begin producing CNG/LNG derived from biogas in 2018 (and the final few months of 2017). Although commenters generally believed that this information supported a different approach for projecting production of CNG/LNG derived from biogas in 2018, we believe that these comments generally support our projection of CNG/LNG for 2018, insofar as they demonstrate that there is reason to expect that the significant rate of growth observed in the production of CNG/LNG derived from biogas in recent years will continue throughout 2018. EPA disagrees with commenters who claimed that a facility-by-facility approach to projecting cellulosic RIN generation for CNG/LNG derived from biogas would necessarily result in a more accurate projection than an industry-wide projection methodology. We continue to believe that in case of nascent industries with a small number of participants, such as the liquid cellulosic biofuel industry, industry wide projection methodologies may be inappropriate as they do not capture the specific circumstances that may impact each participant. In industries where the number of participants is small, failing to adequately assess each individual participant can have a significant impact on the overall accuracy of industry projections. However, as the number of market participants grows the impact of any single participant on the overall performance of the industry decreases. In these cases, industry-wide projection methods are more accurate than a more individualized approach, especially as macro market and economic factors become more influential on total production than the success or challenges at any single facility. Further, the accuracy of a facility by facility approach to projecting production is heavily dependent on the accuracy of the information available to EPA on the projected RIN generation volumes of each of the potential production facilities for 2018. Conversely, the market wide approach used by EPA in this final rule relies on actual RIN generation data, rather than calculate this estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom Table Builder (0.12 billion cubic feet/day in 2018). This projection includes all CNG/LNG used as transportation fuel from both renewable and non-renewable sources. EIA does not project the amount of CNG/LNG from biogas used as transportation fuel. To convert billion cubic feet/day to ethanol-equivalent gallons EPA used conversion factors of 1020 BTU per cubic foot of natural gas and 77,000 BTU of natural gas per ethanol-equivalent gallon. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 individual company projections for 2018, to calculate a demonstrated rate of growth. As the number of potential production facilities increases, EPA’s ability to verify the accuracy of the information we receive, and make a determination about the likelihood that the producers will produce CNG/LNG derived from biogas at the projected levels decreases. This is especially challenging in situations where there are a large number of potential producers that have previously overestimated the actual production from their facilities. In our 2017 final rule, EPA projected that 26 new facilities would begin producing CNG/ LNG derived from biogas in 2017, largely based on information we received from the renewable CNG/LNG industry through the Coalition for Renewable Natural Gas. While we currently only have data available for the first 9 months of 2017, to date only two new facilities have generated cellulosic RINs for CNG/LNG derived from biogas in 2017. While additional new facilities may generate cellulosic RINs for CNG/LNG derived from biogas in the final 3 months of 2017, many projected that they would be producing cellulosic RINs by this point in the year, and it is highly unlikely that all 26 of these facilities will successfully generate cellulosic RINs by the end of 2017. The failure of these new facilities to generate cellulosic RINs in 2017, together with the over-projection by many of the facilities that have generated cellulosic RINs in 2017 resulted in the facility specific approach recommended by many commenters appearing to have significantly overestimated the production of CNG/LNG in 2017. EPA has therefore used an alternative methodology based on actual production data in previous years, rather than production projections by individual facilities, to project production of CNG/LNG derived from biogas in this final rule. We believe the production of CNG/LNG derived from biogas has matured to a point where an industry wide projection methodology is more appropriate than a facility by facility approach, and is likely to result in a more accurate projection. We will monitor the success of this new approach, and will make appropriate modifications in the future if warranted. We also disagree with commenters who claim that our proposed projection methodology does not appropriately account for new facilities expected to begin producing CNG/LNG derived from biogas in 2018. The methodology used by EPA in this final rule compared the total projection of CNG/LNG derived PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 58503 from biogas from October 2016– September 2017 to production in the 12 months that immediately precede this time period (October 2015–September 2016). The production increases observed in October 2016–September 2017, as compared to the preceding 12 months, were the result of both increased production from facilities that had previously produced CNG/LNG derived from biogas as well as production from facilities that had not previously produced this fuel. For example, from October 2015–September 2016 a total of 34 facilities generated cellulosic RINs for CNG/LNG derived from biogas. From October 2016– September 2017 the number of facilities that produced cellulosic RINs for CNG/ LNG derived from biogas increased to 41. We believe, therefore, that while our projection methodology uses a growth rate based on historical data it adequately anticipates higher production volumes in future years, including both increased production from existing facilities as well as production from new facilities. In this way it is a forward, rather than backward looking methodology that satisfies our charge to project future cellulosic biofuel production in a reasonable manner, and with neutrality. 3. Total Cellulosic Biofuel in 2018 After projecting production of cellulosic biofuel from liquid cellulosic biofuel production facilities and producers of CNG/LNG derived from biogas, EPA combined these projections to project total cellulosic biofuel production for 2018. These projections are shown in Table III.D.3–1. Using the methodologies described in this section, we project that 288 million ethanolequivalent gallons of cellulosic biofuel will be produced in 2018. We believe that projecting overall production in 2018 in the manner described above results in a neutral estimate (neither biased to produce a projection that is too high nor too low) of likely cellulosic biofuel production in 2018. TABLE III.D.3–1—PROJECTED VOLUME OF CELLULOSIC BIOFUEL IN 2018 [Million gallons] Projected volume a Liquid Cellulosic Biofuel Producers; Producers without Consistent Commercial Scale Production ............... Liquid Cellulosic Biofuel Producers; Producers with Consistent Commercial Scale Production ............... E:\FR\FM\12DER2.SGM 12DER2 5 9 58504 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations TABLE III.D.3–1—PROJECTED VOLUME We then address total renewable fuel in OF CELLULOSIC BIOFUEL IN 2018— the context of our interpretation, articulated in previous annual Continued [Million gallons] Projected volume a CNG/LNG Derived from Biogas ............................... 274 Total ............................... 288 a Volumes rounded to the nearest million gallons. Further discussion of the individual companies we believe will produce cellulosic biofuel and make it commercially available in 2018 can be found in a memorandum to the docket.75 ethrower on DSK3G9T082PROD with RULES IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2018 The national volume targets for advanced biofuel and total renewable fuel to be used under the RFS program each year through 2022 are specified in CAA section 211(o)(2)(B)(i)(I) and (II). Congress set annual renewable fuel volume targets that envisioned growth at a pace that far exceeded historical growth and, for years after 2011, prioritized that growth as occurring principally in advanced biofuels (contrary to previous growth patterns where most growth was in conventional renewable fuel, principally cornethanol). Congressional intent is evident in the fact that the portion of the total renewable fuel volume target in the statutory volume tables that is not required to be advanced biofuel is 15 billion gallons for all years after 2014, while the advanced volumes, driven by growth in cellulosic volumes, continue to grow through 2022 to a total of 21 billion gallons. In this Section we discuss our use of the discretion afforded by the cellulosic waiver authority at CAA section 211(o)(7)(D)(i) to reduce volumes of advanced biofuel and total renewable fuel. We first discuss our assessment of advanced biofuel and the considerations, including comments received in response to the proposal and October 4 document, which have led us to conclude that the advanced biofuel volume target in the statute should be reduced by the full amount permitted under the cellulosic waiver authority. 75 ‘‘Cellulosic Biofuel Producer Company Descriptions (November 2017),’’ memorandum from Dallas Burkholder to EPA Air Docket EPA–HQ– OAR–2017–0091. In the case of cellulosic biofuel produced from CNG/LNG and facilities using Edeniq’s technology we have discussed the production potential from these facilities as a group rather than individually. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 rulemakings, that advanced biofuel and total renewable fuel should be reduced by the same amount under the cellulosic waiver authority. In Section V we discuss our consideration of additional reductions for both advanced biofuel and total renewable fuel beyond those permitted under the cellulosic waiver authority, using other waiver authorities provided by the statute. To begin, we have evaluated the capabilities of the market and are making a finding that the 11.0 billion gallons specified in the statute for advanced biofuel cannot be reached in 2018. This is primarily due to the expected continued shortfall in cellulosic biofuel; production of this fuel type has consistently fallen short of the statutory targets by 95 percent or more, and as described in Section III, we project that it will fall far short of the statutory target of 7.0 billion gallons again in 2018. In addition, although for the 2016 and 2017 standards we determined that the projected reasonably attainable supply of noncellulosic advanced biofuel and other considerations justified establishing standards that included a partial backfill of the shortfall in cellulosic biofuel with advanced biofuel, for reasons described in this section we are reducing the advanced biofuel applicable volume by the full amount of the shortfall in cellulosic biofuel for 2018. In previous years when exercising the cellulosic waiver authority to determine the required volume of advanced biofuel, we have taken into account the availability of advanced biofuels, their energy security and GHG impacts, and the apparent intent of Congress as reflected in the statutory volumes tables to substantially increase the use of advanced biofuels over time, as well as factors such as increased costs associated with the use of advanced biofuels and the environmental and food competition concerns raised by some commenters. In considering these factors, in those years, we have concluded that it was appropriate to set the advanced biofuel standard in a manner that would allow the partial backfilling of missing cellulosic volumes with non-cellulosic advanced biofuels. For purposes of this final rule we have again taken these factors into consideration, but rely more heavily on consideration of cost as a result of a stronger policy focus on the economic impacts of the RFS program to conclude that such backfilling with non-cellulosic advanced biofuel volumes should not be required in 2018. In other words, we are PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 reducing the statutory volume target for advanced biofuel by the same amount as the reduction in cellulosic biofuel. This results in the non-cellulosic component of the advanced biofuel volume requirement being equal to the implied statutory volume of 4.00 billion gallons. We believe this new approach to balancing relevant considerations and exercising our discretion under the cellulosic waiver authority is permissible under the statute, and consistent with the principles articulated in FCC v. Fox TV Stations (556 US. 502, 514–15 (2009)), regarding circumstances when an agency may appropriately depart from prior policy. In making this final determination for 2018, we have considered comments on the appropriate balancing of factors under the cellulosic waiver authority that were provided by stakeholders in response to the proposal and the October 4 document, as discussed in the accompanying RTC document. We note that the predominant noncellulosic advanced biofuels available in the near term are advanced biodiesel and renewable diesel.76 We expect a decreasing rate of growth in the availability of feedstocks used to produce these fuel types. In addition, we expect diminishing GHG benefits and higher per gallon costs as the required volumes of advanced biodiesel and renewable diesel increase. These outcomes are a result of the fact that the lowest cost and most easily available feedstocks are typically used first, and each additional increment of advanced biodiesel and renewable diesel requires the use of feedstocks that are incrementally more costly and/or more difficult to obtain. Moreover, to the extent that higher advanced biofuel requirements cannot be satisfied through growth in the production of advanced biofuel feedstocks, they would instead be satisfied through a redirection of such feedstocks from competing uses. Parties that were formerly using these feedstocks are likely to replace the advanced biofuel feedstocks with the lowest cost alternatives, likely derived from palm or petroleum sources, leading to lower overall GHG emission benefits. There would also likely be market disruptions and increased burden associated with shifting feedstocks among the wide range of companies that are relying on them today and which have optimized their processes to use them. Higher 76 While sugarcane ethanol can also contribute to the supply of advanced biofuel, in recent years, supply of sugarcane ethanol has been considerably lower than supply of advanced biodiesel or renewable diesel. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations advanced biofuel standards could also be satisfied by diversion of foreign advanced biofuel from foreign markets, and there would likely be diminished benefits associated with such diversions. Taking these considerations into account, we believe, as discussed in more detail below, that we should not exercise our discretion under the cellulosic waiver authority to set the advanced biofuel volume requirement at a level that would lead to such diversions. Furthermore, two other factors have added uncertainty regarding advanced biofuel volumes that are reasonably attainable and appropriate. The first is the fact that the tax credit for biodiesel has not been renewed, and if renewed could be in the form of a producer’s tax credit rather than a blender’s tax credit.77 The second is the preliminary determination by the Department of Commerce that countervailing duties should be imposed on biodiesel imports from Argentina and Indonesia.78 We believe that the factors and considerations noted above are all appropriately considered in our exercise of the broad discretion provided under the cellulosic waiver authority, and that a comprehensive consideration of these factors supports our use of the authority. Some of the considerations discussed in this final rule are related to the availability of non-cellulosic advanced biofuels (e.g., historic data on domestic supply, expiration of the biodiesel blenders’ tax credit, potential imports of biodiesel in light of the Commerce Departments preliminary determination on countervailing duties on biodiesel imports from Argentina and Indonesia, potential imports of sugarcane ethanol, and anticipated decreasing growth in production of feedstocks for advanced biodiesel and renewable diesel), while others focus on the potential benefits and costs of requiring use of available volumes (e.g., relative cost of advanced biofuels to the petroleum fuels they displace, GHG reduction benefits and energy security benefits). Having determined that we should not exercise the discretion afforded EPA under the cellulosic waiver authority so as to require the use of advanced biofuel volumes that would lead to diversion of advanced feedstocks from other uses or diversion of advanced biofuels from foreign sources, our analytical approach to identifying the appropriate volume requirement is to first identify volumes that we believe would be reasonably attainable in 2018 without such feedstock or fuel diversions, and then discuss whether or not other considerations, such as cost and GHG impacts, indicate that it would be appropriate to set the advanced biofuel volume requirement so as to require use of such volumes to partially backfill for missing cellulosic volumes. The net impact of our exercise of the cellulosic waiver authority is that after waiving the cellulosic biofuel volume down to the projected available level, and applying the same volume reduction to the statutory volume target for advanced biofuel, the resulting volume requirement for advanced biofuel for 2018 is 10 million gallons more than the applicable volume used to derive the 2017 percentage standard. Furthermore, after applying the same reduction to the statutory volume target 58505 for total renewable fuel, the volume requirement for total renewable fuel is also 10 million gallons more than the applicable volume used to derive the 2017 percentage standard. The remainder of this section provides our justification for this approach to the determination of the volume requirements for advanced biofuel and total renewable fuel. Section V discusses our consideration of further reductions in either advanced biofuel or total renewable fuel using either the general waiver authority or the BBD waiver authority, and our justification for not applying such further reductions. A. Volumetric Limitation on Use of the Cellulosic Waiver Authority As described in Section II.A, when making reductions in advanced biofuel and total renewable fuel under the cellulosic waiver authority, the statute limits those reductions to no more than the reduction in cellulosic biofuel. As described in Section III.D, we are establishing a 2018 applicable volume for cellulosic biofuel of 288 million gallons, representing a reduction of 6,712 million gallons from the statutory target of 7,000 million gallons. As a result, 6,711 million gallons is the maximum volume reduction for advanced biofuel and total renewable fuel that is permissible using the cellulosic waiver authority. Use of the cellulosic waiver authority to this maximum extent would result in volumes of 4.29 and 19.29 billion gallons for advanced biofuel and total renewable fuel, respectively.79 TABLE IV.A–1—LOWEST PERMISSIBLE VOLUMES USING ONLY THE CELLULOSIC WAIVER AUTHORITY [million gallons] Advanced biofuel ethrower on DSK3G9T082PROD with RULES Statutory target ........................................................................................................................................................ Maximum reduction permitted under the cellulosic waiver authority ...................................................................... Lowest 2018 volume requirement permitted using only the cellulosic waiver authority ......................................... 11,000 6,712 4,288 Total renewable fuel 26,000 6,712 19,288 We are authorized under the cellulosic waiver authority to reduce the advanced biofuel and total renewable fuel volumes ‘‘by the same or a lesser’’ amount as the reduction in the cellulosic biofuel volume. As discussed in Section II.A, EPA has broad discretion in using the cellulosic waiver authority in instances where its use is authorized under the statute, since Congress did not specify factors that EPA must consider in determining whether to use the authority or what the appropriate volume reductions (within the range permitted by statute) should be. This broad discretion was affirmed in both Monroe and ACE.80 Thus, EPA could potentially set the 2018 advanced biofuel standard at a level that is designed to partially backfill for the shortfall in cellulosic biofuel. As discussed below, doing so would result in perhaps an additional 110 million gallons of advanced biofuel. However, 77 See American Renewable Fuel and Job Creation Act of 2017, S.944, 115th Cong. (2017). 78 ‘‘Commerce Finds Countervailable Subsidization of Imports of Biodiesel from Argentina and Indonesia,’’ available in EPA docket number EPA–HQ–OAR–2017–0091. 79 When expressing volumes in billion gallons, we use standard rounding methods to two decimal places, as done in previous annual standard-setting rulemakings. Volumes are sometimes shown in million gallons for clarity, but it is volumes in billion gallons that are used to calculate the applicable percentage standards. 80 See ACE at 730–35. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 E:\FR\FM\12DER2.SGM 12DER2 58506 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations based on our consideration of the factors described in more detail below, we are using the full extent of the cellulosic waiver authority in deriving volume requirements for 2018.81 B. Reasonably Attainable Volumes of Advanced Biofuel It is appropriate to consider the availability of advanced biofuel, both to inform our exercise of the cellulosic waiver authority and to ascertain whether there might be an ‘‘inadequate domestic supply’’ justifying use of the general waiver authority. As the Court noted in ACE, EPA may consider demand-side considerations in addition to supply-side considerations when it assesses ‘‘reasonably attainable’’ volumes for purposes of its cellulosic waiver assessment. However, EPA may not consider demand-side factors in assessing whether there is an ‘‘inadequate domestic supply’’ that would justify use of the general waiver authority.82 Our assessment of reasonably attainable volumes of advanced biofuel is described below. In ACE, the Court noted that in assessing what volumes are ‘‘reasonably attainable,’’ EPA had considered the availability of feedstocks, domestic production capacity, imports, and market capacity to produce, distribute, and consume renewable fuel.83 We are taking a similar approach for 2018, with the added consideration of the possibility that higher volume requirements would lead to ‘‘feedstock switching’’ or diversion of advanced ethrower on DSK3G9T082PROD with RULES 81 We specify the volume requirements as billion gallons with two decimal places to be consistent with the volume targets as given in the statute. The only exception is for cellulosic biofuel which we specify in million gallons due to the substantial reduction from the statutory target. However, calculations are typically shown in million gallons for all four standards for clarity. 82 See ACE at 734 and 696. 83 ACE at 735–36. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 biofuels from use in other countries, which we took into account in setting the 2017 volume requirements and, we believe, are appropriate considerations under the broad discretion provided by the cellulosic waiver authority. As noted above, a higher advanced biofuel volume requirement has a greater potential to increase the incentive for switching advanced biofuel feedstocks from existing uses to biofuel production. Such market reactions could cause disruptions and/or price increases in the nonbiofuel markets that currently use these feedstocks. Increasing the required volumes of advanced biofuels without giving the market adequate time to adjust by increasing supplies could also result in diversion of advanced biofuels from foreign countries to the U.S. without increasing total global volumes. We believe it is likely that the parties that formerly used advanced biofuel feedstocks would seek to replace the advanced biofuel feedstocks with the cheapest alternatives, likely products derived from palm oil or petroleum, rather than forgoing the use of oil-based products. Increasing volumes of advanced biofuels used in the U.S. in this way (by shifting the end use of advanced feedstocks to biofuel production and satisfying the current markets for these advanced feedstocks with non-qualifying or petroleum based feedstocks, or by simply shifting advanced biodiesel or renewable diesel from foreign to domestic use—referred to for simplicity as ‘‘feedstock/fuel diversions’’) would therefore likely not produce the GHG benefits that would otherwise be expected. We have decided not to set the advanced biofuel volume requirement at a level that would require such feedstock/fuel diversions. Our individual assessments of reasonably attainable volumes of advanced biofuels reflect this approach. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 That is, while we refer to them as ‘‘reasonably attainable’’ volumes for convenience, they represent those volumes that are not likely to lead to feedstock/fuel diversions. Greater volumes could likely be made available if such diversions were not of concern. 1. Imported Sugarcane Ethanol The predominant available source of advanced biofuel other than cellulosic biofuel and BBD is imported sugarcane ethanol. In setting both the 2016 and 2017 standards, we determined that 200 million gallons of imported sugarcane ethanol would be reasonably attainable. In deriving this estimate of sugarcane ethanol, we attempted to balance indications of lower potential imports from recent data with indications that higher volumes were possible based on older data. We also pointed to the high variability in ethanol import volumes in the past (including of Brazilian sugarcane ethanol, the predominant form of imported ethanol, and the only significant source of imported advanced ethanol), increasing gasoline consumption in Brazil, and variability in Brazilian production of sugar as reasons that it would be inappropriate to assume that sugarcane ethanol imports would reach the much higher levels suggested by some stakeholders. The data on 2016 ethanol imports suggests that we overestimated the volume of sugarcane ethanol imports for that year. Despite the fact that the applicable standards for 2016 were set prior to the beginning of 2016, and despite suggestions from UNICA 84 that 2016 imports could reach as high as 2 billion gallons, total ethanol imports only reached 34 million gallons. 84 UNICA is the Brazilian Sugarcane Industry Association. E:\FR\FM\12DER2.SGM 12DER2 Available data for imports in 2017 similarly suggests that imports are again likely to fall well below the 200 million gallons that we assumed when setting the 2017 standards; for January through August of 2017, total imports of sugarcane ethanol were 75 million gallons; by the end of 2017, total imports of sugarcane ethanol might be about 100 million gallons.85 The combined experience for 2016 and 2017 suggests that 200 million gallons is too high for the purposes of projecting reasonably attainable volumes of advanced biofuel for 2018. At the same time, higher import volumes than those which occurred in 2016 are clearly possible, as reflected by imports seen in prior years. Taking all of these considerations into account, we are using 100 million gallons of imported sugarcane ethanol for the purposes of projecting reasonably attainable volumes of advanced biofuel for 2018. This level reflects a balancing of the information available to EPA at this time; both the lower import volumes that have occurred more recently with the higher volumes that are possible based on earlier years. We note that the future projection of imports of sugarcane ethanol is inherently imprecise, and that actual imports in 2018 could be lower or 85 ‘‘Imports of ethanol 2011–2017,’’ available in docket EPA–HQ–OAR–2017–0091. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 higher than 100 million gallons. Factors that could result in import volumes below 100 million gallons include weather and harvests in Brazil, world ethanol demand and prices, and constraints associated with the E10 blendwall in the U.S. Also, global sugar consumption has continued to increase steadily, while production has decreased. If the trend continues, Brazilian production of sugar could increase, with a concurrent reduction in production of ethanol.86 On the other hand, the world average price of sugar has been projected to remain relatively flat between 2016 and 2018, suggesting little change in sugar production and implying that ethanol production in Brazil might likewise remain unchanged.87 After considering these factors, and in light of the high degree of variability in historical imports of sugarcane ethanol, we believe that 100 million gallons is a reasonable projection for 2018. 2. Biodiesel and Renewable Diesel With regard to biodiesel and renewable diesel, there are many different factors that could potentially influence the total reasonably attainable volume of these fuels (including both advanced and non-advanced forms) 86 ‘‘Sugar—World Markets and Trade,’’ USDA, November 2016. 87 ‘‘Commodity Markets Outlook,’’ World Bank Group, January 2017. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 58507 used as transportation fuel or heating oil in the U.S.88 These factors could include the availability of qualifying biodiesel and renewable diesel feedstocks, and the production capacity of biodiesel and renewable diesel facilities (both in the U.S. and internationally). The degree to which these and other factors may affect the total supply of both advanced and conventional forms of biodiesel and renewable diesel in 2018, is discussed in a memo to the docket.89 However, the primary considerations in our determination of the reasonably attainable volumes of advanced biodiesel and renewable diesel for 2018 are data on the use of advanced biodiesel and renewable diesel in previous years, the uncertain impact of the continued absence of the biodiesel tax credit and proposed tariffs on biodiesel from certain countries on biodiesel production and importation, the projected growth in production of advanced biodiesel and renewable 88 For a further discussion of the factors that influence the availability of biodiesel and renewable diesel see Section V.B.2 of the preamble and a further discussion of these factors from the 2017 final rule (81 FR 89781–89789, December 12, 2016). 89 ‘‘Market impacts of biofuels,’’ memorandum from David Korotney to docket EPA–HQ–OAR– 2017–0091. E:\FR\FM\12DER2.SGM 12DER2 ER12DE17.000</GPH> ethrower on DSK3G9T082PROD with RULES Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations 58508 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations diesel feedstocks in 2018.90 A review of the volumes of advanced biodiesel and renewable diesel used in previous years is especially useful in projecting the potential for growth in the production and use of such fuels, since for these fuels there are a number of complex and inter-related factors beyond simply the total production capacity for biodiesel and renewable diesel and ability to distribute these fuels (including the availability of advanced feedstocks, the expiration of the biodiesel tax credit, and other market-based factors) that are likely to affect the total supply. We also believe the likely growth in production of feedstocks used to produce these fuels is an important factor to consider. This is because the energy security and GHG reduction value associated with the growth in the use of advanced biofuels is greater when that growth is associated with an increase in advanced feedstock production, rather than a switching of existing advanced feedstocks from other uses or the diversion of advanced biodiesel and renewable diesel from foreign markets if the parties that previously used the advanced biofuel or feedstocks replace these oils with low cost palm or petroleum derived products, as we believe would likely be the case in 2018. Such feedstock switching or fuel diversion could result in unintended negative consequences, such as market disruption in other markets where such oils are used, which could offset some of the anticipated benefits of the production and use of advanced biofuels. The volume of advanced biodiesel and renewable diesel projected to be available based on a consideration of these factors is less than the maximum volume of biodiesel and renewable diesel we believe could be produced (based solely on an assessment of the available production capacity) or consumed (based on an assessment of the ability of the market to distribute and use biodiesel and renewable diesel). Production capacity and the ability for the market to distribute and use biodiesel and renewable diesel are therefore not constraining factors in our assessment of the reasonably attainable volume of advanced biodiesel and renewable diesel in 2018. Before considering the projected growth in the production of qualifying feedstocks that could be used to produce advanced biodiesel and renewable diesel, it is helpful to review the volumes of biodiesel and renewable diesel that have been used in the U.S. in recent years. While historic data and trends alone are insufficient to project the volumes of biodiesel and renewable diesel that could be provided in future years, historic data can serve as a useful frame of reference in considering future volumes. Past experience suggests that a high percentage of the biodiesel and renewable diesel used in the U.S. (from both domestic production and imports) qualifies as advanced biofuel.91 In previous years, biodiesel and renewable diesel produced in the U.S. has been almost exclusively advanced biofuel.92 Imports of advanced biodiesel have increased in recent years, however, as seen in Table IV.B.2–1. Volumes of imported advanced biodiesel and renewable diesel have varied significantly from year to year, as they are impacted both by domestic and foreign policies, as well as economic factors. TABLE IV.B.2–1—ADVANCED (D4 AND D5) BIODIESEL AND RENEWABLE DIESEL FROM 2011 TO 2016 [Million gallons] a 2011 2012 2013 2014 b 2015 b 2016 Domestic Biodiesel (Annual Change) ...... Domestic Renewable Diesel (Annual Change) ................................................ Imported Biodiesel (Annual Change) ....... Imported Renewable Diesel (Annual Change) ................................................ Exported Biodiesel and Renewable Diesel (Annual Change) ............................ 967 (N/A) 1,014 (+47) 1,376 (+362) 1,303 (¥73) 1,253 (¥50) 1,633 (+380) 58 (N/A) 44 (N/A) 11 (¥47) 40 (¥4) 92 (+81) 156 (+116) 155 (+63) 130 (¥26) 175 (+20) 261 (+131) 221 (+46) 561 (+300) 0 (N/A) 28 (+28) 145 (+117) 129 (¥16) 121 (¥8) 170 (+49) 48 (N/A) 102 (+54) 125 (+23) 134 (+9) 133 (¥1) 129 (¥4) Total (Annual Change) ..................... 1021 (N/A) 991 (¥30) 1,644 (+653) 1,583 (¥61) 1,677 (+94) 2,456 (+779) a All data for 2011–2016 from EMTS. EPA reviewed all advanced biodiesel and renewable diesel RINs retired for reasons other than demonstrating compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the supply in each year. b RFS required volumes for these years were not established until December 2015. TABLE IV.B.2–2—CONVENTIONAL (D6) BIODIESEL AND RENEWABLE DIESEL FROM 2011 TO 2016 [Million gallons] a 2011 ethrower on DSK3G9T082PROD with RULES Domestic Biodiesel (Annual Change) ...... Domestic Renewable Diesel (Annual Change) ................................................ Imported Biodiesel (Annual Change) ....... 22:42 Dec 11, 2017 Jkt 244001 2013 2014 b 2015 b 2016 0 (N/A) 0 (+0) 6 (+6) 1 (¥5) 0 (+0) 0 (+0) 0 (N/A) 0 (N/A) 90 Throughout this section we refer to advanced biodiesel and renewable diesel as well as advanced biodiesel and renewable diesel feedstocks. In this context, advanced biodiesel and renewable diesel refer to any biodiesel or renewable diesel for which RINs can be generated that satisfy an obligated party’s advanced biofuel obligation (i.e., D4 or D5 RINs). An advanced biodiesel or renewable feedstock refers to any of the biodiesel, renewable diesel, jet fuel, and heating oil feedstocks listed in Table 1 to § 80.1426 or in petition approvals issued VerDate Sep<11>2014 2012 0 (+0) 0 (+0) 0 (+0) 31 (+31) 0 (+0) 52 (+21) 0 (+0) 74 (+22) 0 (+0) 113 (+39) pursuant to § 80.1416, that can be used to produce fuel that qualifies for D4 or D5 RINs. These feedstocks include, for example, soy bean oil; oil from annual cover crops; oil from algae grown photosynthetically; biogenic waste oils/fats/greases; non-food grade corn oil; camelina sativa oil; and canola/rapeseed oil (See pathways F, G, and H of Table 1 to § 80.1426). 91 From 2011 through 2016 over 95% of all biodiesel and renewable diesel supplied to the U.S. (including domestically-produced and imported PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 biodiesel and renewable diesel) qualified as advanced biodiesel and renewable diesel (9,372 million gallons of the 9,850 million gallons) according to EMTS data. 92 From 2011 through 2016 over 99.9% of all the domestically produced biodiesel and renewable diesel supplied to the U.S. qualified as advanced biodiesel and renewable diesel (8,258 million gallons of the 8,265 million gallons) according to EMTS data. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations 58509 TABLE IV.B.2–2—CONVENTIONAL (D6) BIODIESEL AND RENEWABLE DIESEL FROM 2011 TO 2016—Continued [Million gallons] a 2011 2012 2013 2014 b 2015 b 2016 Imported Renewable Diesel (Annual Change) ................................................ Exported Biodiesel and Renewable Diesel (Annual Change) ............................ 0 (N/A) 0 (+0) 53 (+53) 0 (¥53) 106 (+106) 43 (¥63) 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 1 (+1) Total (Annual Change) ..................... 0 (N/A) 0 (+0) 90 (+90) 53 (¥37) 180 (+127) 155 (¥25) a All ethrower on DSK3G9T082PROD with RULES data for 2011–2016 from EMTS. EPA reviewed all conventional biodiesel and renewable diesel RINs retired for reasons other than demonstrating compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the supply in each year. b RFS required volumes for these years were not established until December 2015. Since 2011 the year-over-year changes in the volume of advanced biodiesel and renewable diesel in the U.S. have varied greatly, from a low of negative 61 million gallons from 2011 to 2012 to a high of 779 million gallons from 2015 to 2016. These changes were likely influenced by a number of factors such as the cost of biodiesel feedstocks and petroleum diesel, the status of the biodiesel blenders tax credit, growth in marketing of biodiesel at high volume truck stops and centrally fueled fleet locations, demand for biodiesel and renewable diesel in other countries, biofuel policies in both the U.S. and foreign countries, and the volumes of renewable fuels (particularly advanced biofuels) required by the RFS. This historical information does not indicate that the maximum previously observed increase of 779 million gallons of advanced biodiesel and renewable diesel would be reasonable to expect from 2017 to 2018, nor does it indicate that the low growth rates observed in other years represent the limit of potential growth in 2018. Rather, these data illustrate both the magnitude of the increases in advanced biodiesel and renewable diesel in previous years and the significant variability in these increases. The historic data indicates that the biodiesel tax policy in the U.S. can have a significant impact on the supply of biodiesel and renewable diesel in any given year. While the biodiesel blenders tax credit has applied in each year from 2010–2016, it has only been in effect during the calendar year in 2011, 2013 and 2016, while other years it has been applied retroactively. The biodiesel blenders tax credit expired at the end of 2009 and was re-instated in December 2010 to apply retroactively in 2010 and extend through the end of 2011. Similarly, after expiring at the end of 2011, 2013, and 2014 the tax credit was re-instated in January 2013 (for 2012 and 2013), December 2014 (for 2014), and December 2015 (for 2015 and 2016). VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 Each of the years in which the biodiesel blenders tax credit was in effect during the calendar year (2013 and 2016) resulted in significant increases in the supply of advanced biodiesel and renewable diesel over the previous year (653 million gallons and 779 million gallons respectively). However, following this large increase in 2013, the increase in the supply of advanced biodiesel and renewable diesel in 2014 and 2015 was minimal, only 33 million gallons from 2013 to 2015. This pattern is likely the result of both accelerated production and/or importation of biodiesel and renewable diesel in the final few months of 2013 to take advantage of the expiring tax credit as well as relatively lower volumes of biodiesel and renewable diesel production and import in 2014 and 2015 than would have occurred if the tax credit had been in place.93 We believe it is reasonable to anticipate a similar production pattern in 2016 through 2018 as observed in 2013 through 2015; that increases in the volumes of advanced biodiesel and renewable diesel will be modest in 2017 and 2018, following the significant increase in 2016. In 2013 the tax credit was in place through the entire year. This was followed by two years (2014 and 2015) in which the tax credit was not in place, but was eventually reinstated retroactively. Similarly, the tax credit in place through 2016, but at the time of this rulemaking not applicable to 2017 or 2018.94 Available RIN generation data further supports this pattern. Very high volumes of advanced biodiesel and renewable diesel were supplied in the last quarter 93 We also acknowledge that the fact that EPA did not finalize the required volumes of renewable fuel under the RFS program for 2014 and 2015 until December 2015 likely had an impact on the volume of advanced biodiesel and renewable diesel supplied in these years. 94 At this time, it is uncertain whether the tax credit would be retroactively applied to 2017 or applied in any manner (prospectively or retroactively) in 2018. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 of 2016, likely driven by a desire to capture the expiring tax credit, while significantly smaller volumes of these fuels were supplied in the first quarter of 2017.95 Data on advanced biodiesel and renewable diesel RIN generation in 2017 was available through September at the time the analyses were performed for this rulemaking. Our review of this data suggests that the generation of RINs for advanced biodiesel and renewable diesel in 2017 (through September) is slightly higher than RIN generation for these fuels during the same time period in 2016 (see Figure IV.B.2–1 below). Total 2016 RIN generation for advanced biodiesel and renewable diesel through September 2016 was 2.76 billion RINs, while total 2017 RIN generation for these fuels through September 2017 was 2.82 billion RINs. Total supply of advanced biodiesel and renewable diesel in 2016 was 2.46 billion gallons, suggesting that a total supply of approximately 2.5 billion gallons in 2017 (slightly higher than the volume supplied in 2016) is likely.96 This is consistent with our projection of advanced biodiesel and renewable diesel in the 2017 rule (2.4 billion gallons) and expectations based on RIN generation patterns in previous years of modest increases in the supply of advanced biodiesel and renewable diesel in the years following the 95 According to data on EPA’s public Web site, RINs were generated for 823 million gallons of biomass-based diesel in the last quarter of 2016 while RINs were generated for 444 million gallons of biomass-based diesel in the first quarter of 2017. The vast majority of advanced biodiesel and renewable diesel qualifies as biomass-based diesel. 96 The supply of advanced biodiesel and renewable diesel in 2016 accounts for all RIN generation, as well as all RIN retirements for reasons other than compliance with the annual standards. At this time, we do not have sufficient data to compare RIN retirements for reasons other than compliance with the annual standards in 2017 to those in 2016, as this data often lags RIN generation by several months. However, at this time we have no reason to believe RINs retired for reasons other than compliance with the annual standards in 2017 would be significantly different that retirements for the same reasons in 2017. E:\FR\FM\12DER2.SGM 12DER2 58510 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations increases from the reasonably attainable volumes of these fuels in 2016 and 2017. It is not clear from this data whether or not higher RFS volume requirements alone would be sufficient to drive significant increases in the supply of advanced biodiesel and renewable diesel in the absence of a tax credit. After reviewing the historical supply of advanced biodiesel and renewable diesel and consideration of the possible impact of the expiration of the biodiesel tax credit (discussed above), EPA next considered the expected increase in the availability of advanced biodiesel and renewable diesel feedstocks in 2018. We acknowledge that an increase in the required use of advanced biodiesel and renewable diesel could be realized through a diversion of advanced feedstocks from other uses, or a diversion of advanced biodiesel and renewable diesel from existing markets in other countries. We perceive the net benefits associated with such increased advanced biofuel and renewable fuel volumes to be significantly less than the net benefits associated with the production of additional advanced biodiesel and renewable diesel with the use of newly-available advanced feedstocks due to the likelihood that parties that previously used advanced biofuel feedstocks will replace them with low cost palm or petroleum derived products. This is both because of the potential disruption and associated cost impacts to other industries resulting from feedstock switching, and a reduced GHG reduction benefit related to use of feedstocks for biofuel production that would have been used for other purposes and which must then be backfilled with other feedstocks with potentially greater GHG emissions. Similarly, increasing the supply of biodiesel and renewable diesel to the U.S. by diverting fuel that would otherwise have been used in other countries results in lesser GHG benefits than if the supply of these fuels was increased through additional biofuel production, especially if this diversion results in increased consumption of petroleum fuels in the countries that would have otherwise consumed the biodiesel or renewable diesel. By focusing our assessment of the potential growth in the reasonably attainable volume of biodiesel and renewable diesel on the expected growth in the production of advanced feedstocks (rather than the total supply of these feedstocks in 2018, which would include feedstocks currently being used for non-biofuel purposes), we are attempting to minimize the incentives for the RFS program to increase the supply of advanced biodiesel and renewable diesel through feedstock switching or diverting biodiesel and renewable diesel from foreign market to the U.S. Advanced biodiesel and renewable diesel feedstocks include both waste oils, fats and greases and oils from planted crops. While we believe a small increase in supply of waste oils, fats, and greases may be possible in 2018, we believe this increase is limited as most of these oils, fats, and greases are already being recovered and used in biodiesel and renewable diesel production or for other purposes. Many of the planted crops that supply vegetable oil for advanced biodiesel and renewable diesel production are primarily grown for purposes other than providing feedstocks for biodiesel and renewable diesel, such as for livestock feed with the oil that is used as feedstock for renewable fuel production a co-product or by-product.97 This is true for soy beans and corn, which are the two largest sources of feedstock from planted crops used for biodiesel production in the U.S.98 We do not believe that the increased demand for soybean oil or corn oil will result in an VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 97 For example, corn oil is a co-product of corn grown primarily for feed or ethanol production, while soy and canola oil are primarily grown as livestock feed. 98 According to EIA data 6,096 million pounds of soy bean oil and 1,306 million pounds of corn oil were used to produce biodiesel in the U.S. in 2016. Other significant sources of feedstock were yellow grease (1,389 million pounds), canola oil (1,130 million pounds), white grease (578 million pounds), tallow (332 million pounds), and poultry fat (220 million pounds). Numbers from EIA’s February 2017 Monthly Biodiesel Production Report. Available at https://www.eia.gov/biofuels/biodiesel/ production/archive/2016/2016_12/biodiesel.pdf. E:\FR\FM\12DER2.SGM 12DER2 ER12DE17.001</GPH> ethrower on DSK3G9T082PROD with RULES expiration of the biodiesel tax credit. This data also supports our expectation that the reasonably attainable volume of advanced biodiesel and renewable diesel in 2018 will reflect modest ethrower on DSK3G9T082PROD with RULES Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations increase in soybean or corn prices large enough to induce significant changes in agricultural activity, at least for the relatively modest changes in advanced biodiesel and renewable diesel feedstock demand that we envision as a result of the RVOs we are finalizing in this rule. The vegetable oils produced are not the primary source of revenue for these crops, meaning that the planted acres of these crops are likely to be based on broader economic factors, rather than on demand for vegetable oil to produce biofuels or for other markets. Increasing the demand for advanced biodiesel and renewable diesel beyond the volumes that could be made from the projected increase in the feedstocks used to produce these fuels would likely require diverting volumes of advanced biodiesel and renewable diesel (or the feedstocks used to produce these fuels) from existing markets to be used to produce biofuels supplied to the U.S. Increasing the short-term supply of advanced biodiesel and renewable diesel to the U.S. in this manner (simply shifting the end use of advanced feedstocks to biodiesel and renewable diesel production and meeting nonbiofuel demand for these feedstocks with conventional renewable and/or petroleum based feedstocks or diverting advanced biodiesel and renewable diesel from foreign markets to the U.S.) may not advance the full GHG or energy security goals of the RFS program. In a worst case scenario, higher standards could cause supply disruptions to a number of markets as biodiesel and renewable diesel producers seek additional supplies of advanced feedstocks and the parties that previously used these feedstocks, both within and outside of the fuels marketplace, seek out alternative feedstocks. Similarly, advanced biodiesel and renewable diesel could be diverted to the U.S. from foreign countries and displaced with petroleum fuels. These actions could result in significant cost increases, for both biodiesel and renewable diesel as well as other products produced from renewable oils, with reduced GHG benefits. We believe the most reliable source for projecting the expected increase in vegetable oils in the U.S. is USDA’s World Agricultural Supply and Demand Estimates (WASDE). According to the September 2017 WASDE report, domestic vegetable oil production is expected to increase by 0.33 million metric tons in 2018, from 11.42 million metric tons in the 2016/2017 agricultural marketing year to 11.75 million metric tons in the 2017/2018 VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 agricultural marketing year.99 This quantity of vegetable oils (0.33 million metric tons) could be used to produce approximately 94 million gallons of advanced biodiesel or renewable diesel.100 In addition to virgin vegetable oils, we also expect increasing volumes of distillers corn oil 101 to be available for use in 2018. The WASDE report does not project distillers corn oil production, so EPA must use an alternative source to project the growth in the production of this feedstock. EPA is using the results of the World Agricultural Economic and Environmental Services (WAEES) model to project the growth in the production of distillers corn oil.102 In assessing the likely increase in the availability of distillers corn oil from 2017 to 2018, the authors of the WAEES model considered the impacts of an increasing adoption rate of distillers corn oil extraction technologies at domestic ethanol production facilities, as well as increased corn oil extraction rates enabled by advances in this technology. The WAEES model projects that production of distillers corn oil in 2018 will increase by 316 million pounds, from 2,299 million pounds in agricultural marketing year 2016/2017 to 2,615 million pounds in agricultural marketing year 2017/2018. According to the WAEES model, this projected increase in the production of distillers corn oil, if devoted entirely to biofuel production, could be used to produce approximately 39 million gallons of biodiesel or renewable diesel in 2018. We believe that this is a reasonable projection. While the vast majority of the increase in advanced biodiesel and renewable diesel feedstocks produced in the U.S. from 2016 to 2017 is expected to come from virgin vegetable oils and distillers corn oil, increases in the 99 For this assessment we have assumed the vegetable oils produced in the 2017/2018 agricultural marketing year are the feedstocks most likely to be used to produce biodiesel and renewable diesel in 2018. 100 To calculate this volume we have used a conversion of 7.7 pounds of feedstock per gallon of biodiesel. This is based on the expected conversion of soy oil (http://extension.missouri.edu/p/G1990), which is the largest source of feedstock used to produce advanced biodiesel and renewable diesel. We believe that it is also a reasonable conversion factor to use for all virgin vegetable oils. 101 Distillers corn oil is non-food grade corn oil produced by ethanol production facilities 102 For the purposes of this final rule, EPA relied on WAEES modeling results submitted as comments by the National Biodiesel Board on the 2018 final rule (Kruse, J., ‘‘Implications of an Alternative Advanced and Biomass Based Diesel Volume Obligation for Global Agriculture and Biofuels’’, August 21, 2017, World Agricultural Economic and Environmental Services (WAEES), EPA–HQ–OAR–2017–0091–3880). PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 58511 supply of other sources of advanced biodiesel and renewable diesel feedstocks, such as biogenic waste oils, fats, and greases, may also occur. These increases, however, are expected to be modest, as many of these feedstocks that can be recovered economically are already being used for the production of biodiesel or renewable diesel, or in other markets. In total, we expect that increases in feedstocks produced in the U.S. are sufficient to produce approximately 150 million more gallons of advanced biodiesel and renewable diesel in 2018 relative to 2017.103 We have also considered the expected increase in the imports of advanced biodiesel and renewable diesel produced in other countries. In previous years, significant volumes of foreign produced advanced biodiesel and renewable diesel have been supplied to markets in the U.S. (see Table IV.B.2–1 above). These significant imports were likely the result of a strong U.S. demand for advanced biodiesel and renewable diesel, supported by the RFS standards, the LCFS in California, the biodiesel blenders tax credit, and the opportunity for imported biodiesel and renewable diesel to realize these incentives. At this time the impact of the expiration of the biodiesel blenders tax credit on the volumes of foreign-produced biodiesel and renewable diesel imported into the U.S., is highly uncertain. Additionally, in August 2017 the Department of Commerce announced a preliminary determination that it would be appropriate to place countervailing duties of 41 percent to 68 percent on biodiesel imported from Argentina and Indonesia. According to data from EIA, biodiesel imports from Argentina were 10,679 thousand barrels in 2016 (approximately 449 million gallons) and 5,601 billion barrels (approximately 235 103 This projection includes a projected increase in the availability fats and oils other than virgin vegetable oils and distillers corn oil sufficient to produce approximately 15 million gallons of biodiesel. The WAEES model projects an increase in the quantity of ‘‘other fats and oils’’ (including inedible tallow, lard & white grease, yellow grease, brown grease, poultry fat, and other) sufficient to produce 31 million gallons of biodiesel. It is not clear from the WAEES model, however, if the projected increased use of other fats and oils as feedstock for biodiesel production is the result of increased production/collection of these feedstocks or diverting them from other uses. We therefore think our slightly more conservative projected increase in these feedstocks sufficient to produce 15 million gallons of biodiesel (without diverting feedstocks from existing uses) is appropriate. We note, however, using the slightly higher projection from the WAEES model (feedstock increase sufficient to produce 31 million gallons of biodiesel) has a very minimal impact on our assessment of the reasonably attainable volume of advanced biodiesel and renewable diesel in 2018, and would have no impact on the required volume of advanced biofuel for 2018. E:\FR\FM\12DER2.SGM 12DER2 58512 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations million gallons) through July 2017 (the most recent month for which data were available at the time of this assessment). Biodiesel imports from Indonesia were 2,554 thousand barrels in 2016 (approximately 107 million gallons), with no biodiesel imported in 2017 through July 2017. At this time, it is uncertain whether or not the preliminary determination by the Department of Commerce will be finalized, and it is uncertain what impact the finalization of these duties would have on overall imports of advanced biodiesel and renewable diesel to the U.S. In recent years imports of advanced biodiesel and renewable diesel have increased year-over-year, and absent these actions it may be reasonable to anticipate continued increases in the imported volume of these fuels. In light of this uncertainty, however, we do not believe it would be reasonable at this point to either increase or decrease our projection of the reasonably attainable volume of biodiesel and renewable diesel for 2018 as compared to the levels we projected for 2017.104 After a careful consideration of the factors discussed above, EPA has determined, for the purposes of this final rule, that approximately 2.55 billion gallons of advanced biodiesel and renewable diesel is reasonably attainable for use in our determination of the appropriate applicable volume of advanced biofuel to require for 2018. This volume is 150 million gallons higher than the volume of advanced biodiesel and renewable diesel determined to be reasonably attainable and appropriate for the purposes of deriving the advanced biofuel standard in 2017. The 150 million gallon increase in advanced biodiesel and renewable diesel that we project will be reasonably attainable for 2018 represents a smaller annual increase in advanced biodiesel and renewable diesel than we assumed in deriving the 2017 advanced biofuel standard (approximately 300 million gallons over 2016 levels). We believe that this reflects that the circumstances presented with respect to 2018 are different from those we anticipated for 2017. The primary differences are a smaller projected increase in advanced feedstock production in the U.S., the continued absence of the biodiesel tax credit, and the preliminary determination placing duties on biodiesel imported from Argentina and Indonesia. 3. Other Advanced Biofuel In addition to cellulosic biofuel, imported sugarcane ethanol, and advanced biodiesel and renewable diesel, there are other advanced biofuels that can be counted in the determination of reasonably attainable volumes of advanced biofuel for 2018. These other advanced biofuels include biogas, naphtha, heating oil, butanol, jet fuel, and domestically-produced advanced ethanol.105 However, the supply of these fuels has been relatively low in the last several years. TABLE IV.B.3–1—HISTORICAL SUPPLY OF OTHER ADVANCED BIOFUELS [Million ethanol-equivalent gallons] CNG 2013 2014 2015 2016 ......................................................... ......................................................... ......................................................... ......................................................... Heating oil 26 20 0 0 Renewable diesel a Naphtha 0 0 1 2 3 18 24 26 64 15 8 8 Domestic ethanol Total 23 26 25 27 116 79 58 63 ethrower on DSK3G9T082PROD with RULES a Some renewable diesel generates D5 rather than D4 RINs as a result of being produced through co-processing with petroleum or being produced from the non-cellulosic portions of separated food waste or annual cover crops. The downward trend over time in biogas as advanced biofuel with a D code of 5 is due to the re-categorization in 2014 of landfill biogas from advanced (D code 5) to cellulosic (D code 3).106 Apart from biogas, total supply of advanced biofuel other than imported sugarcane ethanol has been relatively constant during 2014–2016. Based on this historical record, we find that 60 million gallons would be reasonably attainable in 2018.107 This represents the approximate average of the two most recent years (2015 and 2016) for which complete data are available. We recognize that the potential exists for additional volumes of advanced biofuel from sources such as jet fuel, liquefied petroleum gas (LPG), and liquefied natural gas (as distinct from 104 We further note that there have been recent efforts to reinstate the biodiesel tax credit as a producers’ tax credit, rather than a blenders tax credit. If the biodiesel tax credit were reinstated as a producers’ tax credit it would not apply to foreign biodiesel producers, further limiting the likely VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 compressed natural gas), as well as noncellulosic biogas such as from digesters. However, since they have been produced in only de minimis and sporadic amounts in the past, we do not have a basis for projecting substantial volumes from these sources in 2018.108 4. Total Advanced Biofuel The total volume of advanced biofuel that we believe is reasonably attainable in 2018 is the combination of cellulosic biofuel and the sources described above: imported sugarcane ethanol, biodiesel and renewable diesel which qualifies as BBD, and other advanced biofuels such as advanced biogas that does not qualify as cellulosic biofuel, heating oil, naphtha, domestic advanced ethanol, and advanced renewable diesel that supply of imported advanced biodiesel and renewable diesel. 105 Advanced biofuel with a D code of 5. 106 79 FR 42128, July 18, 2014. 107 For the purposes of determining the availability of total renewable fuel, we are using a PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 does not qualify as BBD. Our assessment of the reasonably attainable volumes of these sources, discussed in the preceding sections, is summarized below. We note that the reasonably attainable volumes of each of these advanced biofuels cannot themselves be viewed as volume requirements. The volumes for each advanced biofuel type represent one significant factor that is considered in the analysis used to determine the reasonably attainable volumes of advanced biofuel. As discussed in more detail in a memorandum to the docket, there are many ways that the market could respond to the percentage standards we establish, including use of higher or lower volumes of these fuel types than volume of 40 million gallons of non-ethanol other advanced biofuel and 20 million gallons of advanced domestic ethanol (see discussion in Section V.B.2). 108 For instance, no RIN-generating volumes of these other advanced biofuels were produced in 2016, and less than 1 mill gal total in prior years. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations and soybean biodiesel in 2018, the two advanced biofuels that would be most likely to provide the marginal increase in volumes of advanced biofuel in 2018 in comparison to 2017. Sugarcane ethanol results in a cost increase TABLE IV.B.4–1—REASONABLY AT- compared to gasoline that ranges from TAINABLE VOLUMES OF ADVANCED $0.61–$1.56 per ethanol-equivalent gallon.112 Soybean biodiesel results in a BIOFUEL IN 2018 cost increase compared to diesel fuel [Million ethanol-equivalent gallons except as that ranges from $0.95–$1.30 per noted] ethanol-equivalent gallon.113 The cost of these renewable fuels is high as Cellulosic biofuel ................... 288 compared to the petroleum fuels they Advanced biodiesel and redisplace. In light of these comparative newable diesel (ethanolcosts, we believe it is reasonable to forgo equivalent volume/physical volume) ............................. 3,953/2,550 the marginal benefit that might be Imported sugarcane ethanol 100 achieved by establishing the advanced Other advanced .................... 60 biofuel standard to require an additional 110 million gallons. See Section IV.E for Total advanced biofuel ...... 4,401 a further discussion of the projected cost of this final rule. C. Exercise of Cellulosic Waiver Based on consideration of the Authority for Advanced Biofuel volumes that may be reasonably Based on the information presented attainable in 2018, along with a balancing of the costs and benefits above, we believe that 4.40 billion associated with the option of setting the gallons of advanced biofuel would be advanced biofuel standard at a level that reasonably attainable in 2018. This would require use of all volumes that volume is 110 million gallons higher we have estimated could be reasonably than the 4.29 billion gallons that would attainable, we are exercising our result from reducing the applicable volume of advanced biofuel by the same cellulosic waiver authority to reduce amount as the reduction to the statutory advanced biofuel volumes to 4.29 billion gallons for 2018.114 This applicable volume of cellulosic biofuel advanced biofuel volume requirement (see Section III for a discussion of the for 2018 is similar to the requirement for cellulosic biofuel volume requirement 2017 when we allowed a portion of the for 2018). In exercising the cellulosic shortfall in cellulosic biofuel to be waiver authority in past years, we determined it was appropriate to require backfilled with other advanced biofuel. It should be noted that by exercising a partial backfilling of missing cellulosic volumes with volumes of non-cellulosic the full cellulosic waiver authority for advanced biofuel, the implied statutory advanced biofuel we determined to be volume target for non-cellulosic reasonably attainable and appropriate, advanced biofuel of 4.0 billion gallons notwithstanding the increase in costs in 2018 is maintained. Although the associated with this decision.110 However, this year we are balancing the implied volume for non-cellulosic advanced biofuel in the statute increases various considerations in a different from 3.5 billion gallons in 2017 to 4.0 manner in setting the 2018 standards, billion gallons in 2018, the applicable placing a greater emphasis on cost volume requirements for 2017 as considerations.111 In Section IV.E we present illustrative finalized by EPA included an allowance for 4.0 billion gallons of non-cellulosic cost projections for sugarcane ethanol advanced biofuel, one year before envisioned by the statute. Through our 109 ‘‘Market impacts of biofuels,’’ memorandum ethrower on DSK3G9T082PROD with RULES discussed in this section.109 In addition, as discussed below, we do not believe it would be appropriate to require use of all volumes we have determined to be reasonably attainable. from David Korotney to docket EPA–HQ–OAR– 2017–0091. 110 See, e.g., Response to Comments Document for the 2014–16 Rule, pages 628–631, available at https://www.epa.gov/sites/production/files/201512/documents/420r15024.pdf. 111 EPA notes that while the factors considered under the cellulosic waiver authority to reduce volumes could apply to volumes beyond the reduction in cellulosic biofuel, EPA is limited in the exercise of its cellulosic waiver authority to reductions up to the amount of the reduction in cellulosic biofuel. Any further reductions would require a determination under the general waiver authority that the volumes would result in severe economic or environmental harm, or that there is an inadequate domestic supply, as discussed in Section V below. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 112 Sugarcane ethanol results in a projected cost increase of $0.92–$2.34 per gasoline-equivalent gallon. The projected cost of gasoline in 2018 is $1.64 per gallon based on EIA Short-Term Energy Outlook, October 2017, Custom Table Builder, ‘‘Refiner Wholesale Gasoline Price.’’ 113 Soybean biodiesel results in a projected cost increase of $1.62–$2.22 per diesel-equivalent gallon. The projected cost of diesel in 2018 is $1.74 per gallon based on EIA Short-Term Energy Outlook, October 2017, Custom Table Builder, ‘‘Diesel Fuel Refiner Wholesale Price.’’ 114 EPA also considered the availability of advanced carryover RINs in determining whether reduced use of the cellulosic waiver authority would be warranted. For the reasons described in Section II.B, we do not believe this to be the case. PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 58513 2017 action, we effectively required early use of the 0.5 billion gallon increment of non-cellulosic advanced volume that Congress envisioned would be first used in 2018. The net result of our action for 2018, after deciding that no further reductions beyond those obtained by exercise of the cellulosic waiver authority are appropriate (see Section V), is that the advanced biofuel volume requirement for 2018 is 10 million gallons higher than the advanced biofuel volume requirement for 2017, but the portion of this volume requirement that may be satisfied with non-cellulosic biofuels remains constant. D. Exercise of Cellulosic Waiver Authority for Total Renewable Fuel As discussed in Section II.A.1, we believe that the cellulosic waiver provision is best interpreted to provide equal reductions in advanced biofuel and total renewable fuel. We have consistently articulated this interpretation.115 We believe this interpretation is consistent with the statutory language and best effectuates the objectives of the statute. If EPA were to reduce the total renewable fuel volume requirement by a lesser amount than the advanced biofuel volume requirement, we would effectively increase the opportunity for conventional biofuels to participate in the RFS program beyond the implied statutory cap of 15 billion gallons.116 Applying an equal reduction of 6.71 billion gallons to both the statutory target for advanced biofuel and the statutory target for total renewable fuel results in a total renewable fuel volume of 19.29 billion gallons as shown in Table IV.A–1.117 If we were to determine that there is a basis to exercise the general waiver authority or 115 For instance, see discussion in the final rules setting the 2013, 2014–2016, and 2017 standards: 78 FR 49809–49810, August 15, 2013; 80 FR 77434, December 14, 2015; 81 FR 89752–89753, December 12, 2016. We incorporate by reference the rationale for this interpretation that was articulated in these prior rules. 116 Since the advanced biofuel volume requirement is nested within the total renewable fuel volume requirement, the statutory implied volume for conventional renewable fuel in the statutory tables can be discerned by subtracting the applicable volume of advanced biofuel from that of total renewable fuel. Performing this calculation with respect to the tables in CAA section 211(o)(2)(B) indicates a Congressional expectation that in the time period 2015–2022, advanced biofuel volumes would grow from 5.5 to 21 billion gallons, while the implied volume for conventional renewable fuel would remain constant at 15 billion gallons. 117 EPA also considered the availability of carryover RINs in determining whether reduced use of the cellulosic waiver authority would be warranted. For the reasons described in Section II.B, we do not believe this to be the case. E:\FR\FM\12DER2.SGM 12DER2 58514 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations the biomass-based diesel waiver authority, we could provide further reductions to the total renewable fuel volume. However, as described in more detail below in Section V, we believe that there is not sufficient justification for such further reductions in 2018. ethrower on DSK3G9T082PROD with RULES E. Impacts of 2018 Standards on Costs In this section, EPA presents its assessment of the illustrative costs of the final 2018 RFS rule. It is important to note that these illustrative costs do not attempt to capture the full impacts of this final rule. These estimates are provided solely for the purpose of showing how the cost to produce a gallon of a ‘‘representative’’ renewable fuel compares to the cost of petroleum fuel. There are a significant number of caveats that must be considered when interpreting these cost estimates. There are a number of different feedstocks that could be used to produce biofuels, and there is a significant amount of heterogeneity in the costs associated with these different feedstocks and fuels. Some renewable fuels may be cost competitive with the petroleum fuel they replace; however, we do not have cost data on every type of feedstock and every type of fuel. Therefore, we do not attempt to capture this range of potential costs in our illustrative estimates. The annual standard-setting process encourages consideration of the RFS program on a piecemeal (i.e., year-toyear) basis, which may not reflect the full, long-term costs and benefits of the program. For the purposes of this final rule, other than the estimates of costs of producing a ‘‘representative’’ renewable fuel compared to cost of petroleum fuel, EPA did not quantitatively assess other direct and indirect costs or benefits of changes in renewable fuel volumes. These direct and indirect costs and benefits include infrastructure costs, investment, GHG emissions and air quality impacts, or energy security benefits, which all are to some degree affected by the annual standards. While some of these impacts were analyzed in the 2010 final rulemaking that established the current RFS program,118 we have not analyzed these impacts for the 2018 volume requirements. We framed the analyses we have performed for this final rule as ‘‘illustrative’’ so as not to give the impression of comprehensive estimates. 118 RFS2 Regulatory Impact Analysis (RIA). U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA–420–R– 10–006. February 2010. Docket EPA–HQ–OAR– 2009–0472–11332. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 1. Illustrative Cost Savings Associated With Reducing Statutory Cellulosic Volumes To provide an illustrative estimate of the cost of the 2018 cellulosic biofuel requirements, EPA has compared the 2018 cellulosic biofuel volume requirements to the statutory volume that would be required absent the exercise of our cellulosic waiver authority under CAA section 211(o)(7)(D)(i).119 As described in other sections of this final rule, we believe that the additional 6.71 billion gallons of cellulosic biofuel envisioned by the statute will not be produced in 2018. Therefore, estimating costs of this volume reduction is inherently challenging. However, we have taken the relatively straightforward methodology of multiplying the pergallon costs associated with the volumes that would be required under this final rule by the amount of cellulosic renewable fuel that is being waived. This comparison results in a cost savings estimated to be $5.3–$15.9 billion. To estimate the overall cost savings from waiving the cellulosic biofuel volumes, EPA has taken the following steps. First, EPA determined the magnitude of the volume reduction of cellulosic biofuel we are establishing in this rule, relative to the statutory volume. In this rule we are reducing the required volume of cellulosic biofuel by 6.71 billion gallons, with corresponding reductions in the advanced biofuel and total renewable fuel standards. Second, we estimated the per-gallon costs of producing cellulosic ethanol derived from corn kernel fiber that would be expected in complying with the standards. Third, the per-gallon costs of cellulosic biofuel from corn fiber were multiplied by 6.71 billion gallons. While there may be growth in other cellulosic biofuel sources, for this exercise we believe it is appropriate to use corn kernel fiber as the representative cellulosic biofuel. The majority of liquid cellulosic biofuel in 2018 is expected to be produced using this technology, and application of this technology in the future could result in significant incremental volumes of cellulosic biofuel. In addition, as explained in Section III.D.2, we believe that production of the major alternative cellulosic biofuel—CNG/LNG derived from biogas—is limited to 119 EPA is also using its discretion to reduce the advanced biofuel and total renewable fuel requirements using the cellulosic waiver authority. This discretionary action is based partially on the costs of advanced biofuels and provides additional cost savings. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 approximately 580 million gallons due to a limitation in the number of vehicles capable of using this form of fuel.120 EPA uses a ‘‘bottom-up’’ engineering cost analysis to quantify the costs of producing a gallon of cellulosic ethanol derived from corn kernel fiber. There are multiple processes that could yield cellulosic ethanol from corn kernel fiber. EPA assumes a cellulosic ethanol production process that generates biofuel using distiller’s grains, a coproduct of generating corn starch ethanol that is commonly dried and sold into the feed market as distillers dried grains with solubles (DDGS), as the renewable biomass feedstock. We assume an enzymatic hydrolysis process with cellulosic enzymes to break down the cellulosic components of the distiller’s grains. This process for generating cellulosic ethanol is similar to approaches currently used by industry to generate cellulosic ethanol at a commercial scale, and we believe these costs estimates are likely representative of the range of different technology options being developed to produce ethanol from corn kernel fiber. We then compare the per-gallon wholesale costs of the cellulosic ethanol to the petroleum fuels that would be replaced. These cost estimates do not consider taxes, retail margins, or other costs or transfers that occur at or after the point of blending (transfers are payments within society and are not additional costs). We do not attempt to estimate potential cost savings related to avoided infrastructure costs (e.g., the cost savings of not having to provide pumps and storage tanks associated with higher-level ethanol blends). When estimating per-gallon costs, we consider the costs of gasoline on an energy equivalent basis as compared to ethanol, since more ethanol gallons must be consumed to go the same distance as gasoline due to the ethanol’s lower energy content. Table IV.E.1–1 below presents the cost savings associated with this final rule that are estimated using this approach.121 The statutory cellulosic 120 To calculate this estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom Table Builder (0.12 billion cubic feet/day in 2018). This projection includes all CNG/LNG used as transportation fuel from both renewable and nonrenewable sources. EIA does not project the amount of CNG/LNG from biogas used as transportation fuel. To convert billion cubic feet/day to ethanolequivalent gallons, EPA used conversion factors of 1020 BTU per cubic foot of natural gas and 77,000 BTU of natural gas per ethanol-equivalent gallon. 121 Details of the data and assumptions used can be found in a Memorandum available in the docket entitled ‘‘Cost Impacts of the Final 2018 Annual Renewable Fuel Standards’’, Memorandum from E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations biofuel target in EISA for 2018 is seven billion gallons (ethanol equivalent). The cellulosic biofuel volume used in this rule to establish the 2018 cellulosic biofuel percentage standard is 288 million gallons. The amount of cellulosic biofuel being waived is 6.71 billion gallons. The per-gallon cost difference estimates for cellulosic ethanol ranges from $0.79–$2.37 per ethanol equivalent gallon.122 Given that cellulosic ethanol production is just starting to become commercially available, the cost estimates have a 58515 significant range. Multiplying those pergallon cost differences by the amount of cellulosic biofuel waived in this final rule, 6.71 billion gallons, results in approximately $5.3–$15.9 billion in cost savings. TABLE IV.E–1—IMPACTS OF THE DIFFERENCE BETWEEN EISA VOLUMES FOR THE CELLULOSIC BIOFUEL STANDARD AND FINAL CELLULOSIC VOLUME IN 2018 2018 EISA cellulosic volume standard Cellulosic Volume Required (Million Ethanol-Equivalent Gallons) 123 ............................................................. Change in Required Cellulosic Biofuels (Million Gallons as Ethanol) ............................................................ Cost Difference Between Cellulosic Corn Fiber-Derived Ethanol and Gasoline Per Gallon ($/EGE) 124 ...... Estimated Cost Difference in Meeting Cellulosic Biofuel Volume (Billion $) 125 ............................................. 2. Illustrative Cost Analysis of Advanced Biofuels Using 2017 as the Baseline We recognize that for the purpose of estimating the cost of the 2018 RFS volume requirements that a number of different scenarios using different ‘‘baselines’’ would be of interest to stakeholders. Therefore, in this section, we are also providing an illustrative cost analysis that shows the costs of the advanced biofuel standard as compared to those associated with the preceding year’s standard, which as discussed in section IV.C. will lead to an increase of 10 million gallons of advanced biofuel in 2018 in comparison to 2017.126 EPA is providing an illustrative cost analysis for the increase in the overall advanced biofuel volume of 10 million ethanol equivalent gallons (as compared to 2017 volumes) using four different scenarios, assuming this increase in advanced biofuel volumes is comprised of: (1) cellulosic biofuel from CNG/LNG, (2) cellulosic biofuel from corn kernel fiber, (3) soybean oil BBD, or (4) sugarcane ethanol from Brazil. Showing the illustrative costs of soybean oil BBD and sugarcane ethanol is consistent with the methodology EPA developed for previous rulemakings. However, this discussion should not be interpreted as suggesting that the various renewable fuel types discussed are necessarily available in the marketplace. The availability of different types of renewable fuel is discussed in other sections of this preamble; in this section we assess costs as if the different fuel types are available, without intending to suggest that they are. In previous annual RFS rules, EPA provided an illustrative cost estimate for the entire change in the total renewable fuel volume standard assuming it was satisfied with conventional (i.e., nonadvanced) corn ethanol. As there is no change in the 2018 implied conventional volume relative to the 2017 volume, all of the changes in both the advanced and total renewable fuel volumes are properly attributed to advanced biofuel. 7,000 ........................ ........................ ........................ 2018 Final cellulosic volume 288 (6,712) $0.79–$2.37 $(5.3)–$(15.9) As described earlier, we are focusing on the wholesale level in our cost scenarios, and do not consider taxes, retail margins, additional infrastructure, or other costs or transfers that occur at or after the point of blending. More background information on this section, including details of the data sources used and assumptions made for each of the scenarios, can be found in a memorandum available in the docket.127 Table IV.E.2–1 below presents estimates of per energy-equivalent gallon costs for producing soybean biodiesel, Brazilian sugarcane ethanol, CNG/LNG derived from landfill biogas, and cellulosic ethanol derived from corn fiber relative to the petroleum fuels they replace at the wholesale level. For each of the four scenarios, these pergallon costs are then multiplied by the 10 million ethanol-equivalent gallon increase in the 2018 advanced standard relative to the previous 2017 standard to obtain an overall cost estimate. TABLE IV.E.2–1—ILLUSTRATIVE COSTS OF THE 10 MILLION GALLON INCREASE IN THE ADVANCED BIOFUEL VOLUME REQUIREMENT IN 2018 RELATIVE TO THE 2017 VOLUME REQUIREMENT Soybean Biodiesel Scenario Cost Difference Between Soybean Biodiesel and Petroleum Diesel Per Gallon ($/EGE) 128 .................................................... Annual Change in Overall Costs (Million $) 129 ........................................................................................................................... $0.89–$1.22 $9–$12 Brazilian Sugarcane Ethanol Scenario ethrower on DSK3G9T082PROD with RULES Cost Difference Between Sugarcane Ethanol and Gasoline Per Gallon ($/EGE) ...................................................................... Michael Shelby, Dallas Burkholder, and Aaron Sobel to EPA Docket EPA–HQ–OAR–2017–0091. 122 For the purposes of the cost estimates in this section, EPA has not attempted to adjust the price of the petroleum fuels to account for the impact of the RFS program, since the changes in the renewable fuel volume are relatively modest. Rather, we have simply used the wholesale price projections for gasoline and diesel as reported in EIA’s October 2017 STEO. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 123 Overall fuel volumes may not match due to rounding. 124 Approximate costs are rounded to the cents place. 125 Approximate costs are rounded to the first decimal place. 126 There is also an increase of 10 million gallons in the 2018 applicable volume of total renewable fuel as compared to the 2017 volume. However, in PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 $0.61–$1.56 light of the nested standards, that increase is entirely attributable to the increase in the advanced volume. 127 ‘‘Cost Impacts of the Final 2018 Annual Renewable Fuel Standards’’, Memorandum from Michael Shelby, Dallas Burkholder, and Aaron Sobel to EPA Docket EPA–HQ–OAR–2017–0091. E:\FR\FM\12DER2.SGM 12DER2 58516 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations TABLE IV.E.2–1—ILLUSTRATIVE COSTS OF THE 10 MILLION GALLON INCREASE IN THE ADVANCED BIOFUEL VOLUME REQUIREMENT IN 2018 RELATIVE TO THE 2017 VOLUME REQUIREMENT—Continued Annual Change in Overall Costs (Million $) ................................................................................................................................ $6–$16 CNG/LNG Derived from Landfill Biogas Scenario Cost Difference Between CNG/LNG Derived from Biogas and Natural Gas ($/EGE) 130 .......................................................... Annual Change in Overall Costs (Million $) ................................................................................................................................ $(0.04)–$0.07 $(0.4)–$0.7 Corn Fiber-Derived Ethanol Scenario Cost Difference Between Cellulosic Corn Fiber-Derived Ethanol and Gasoline Per Gallon ($/EGE) ........................................ Annual Change in Overall Costs (Million $) ................................................................................................................................ Based on this illustrative analysis of four separate hypothetical scenarios, EPA estimates that the costs for changes in the advanced fuel volumes compared to 2017 could range from $(0.4)–$24 million in 2018. It is important to note that these illustrative costs do not take into consideration the benefits of the program.131 For the purpose of this annual rulemaking, we have not quantified benefits for the 2018 standards. For example, we do not have a quantified estimate of the GHG or energy security benefits for a single year (e.g., 2018). Also, there are impacts that are difficult to quantify, such as rural economic development and employment changes from more diversified fuel sources, that are not quantified in this rulemaking. V. Consideration of Additional Reductions Using Other Waiver Authorities ethrower on DSK3G9T082PROD with RULES As discussed in previous sections, we are reducing the statutory volume target for cellulosic biofuel to reflect the projected production volume of that fuel type in 2018, and we are reducing both advanced biofuel and total renewable fuel by the maximum permissible amount authorized under the cellulosic waiver authority in CAA section 211(o)(7)(D)(i). We have also considered whether it would be appropriate to provide further reductions for these renewable fuel categories pursuant to the general waiver authority in CAA section 211(o)(7)(A), or for these renewable fuel 128 Per-gallon cost differences compare illustrative biofuels to their petroleum fuel counterparts on an ethanol gallon equivalent (EGE) basis, accounting for the differences in energy content between fuels, and then multiplied by the total RINs needed to meet the change in volume obligations. 129 Overall costs may not match per-gallon costs times volumes due to rounding. 130 CNG/LNG derived from biogas and natural gas costs are compared on an ethanol gallon equivalent (EGE) energy content basis. 131 The small negative cost estimate is likely a result of the methodology undertaken for these illustrative costs. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 categories and the 2018 BBD using the BBD waiver authority in CAA section 211(o)(7)(E). We have concluded that further reductions in volumes using any of these other waiver authorities are not warranted. We note that in the October 4 Federal Register document we solicited comment on possible new interpretations of the general waiver authority for inadequate domestic supply and severe economic harm and of the biomass-based diesel waiver authority.132 We find it unnecessary to resolve whether to adopt such interpretations at this point in time because under any approach we would find exercise of these waiver authorities not appropriate based on the record before us. As a result, we are finalizing advanced biofuel and total renewable fuel volume requirements resulting from the exercise of the cellulosic biofuel waiver authority alone, and we are not modifying the 2018 BBD applicable volume of 2.1 billion gallons established through a prior rulemaking. The implied volume for conventional renewable fuel (calculated by subtracting the advanced volume from the total volume) will be 15.0 billion gallons, consistent with the statutory target provided in the statute for 2018. A. Inadequate Domestic Supply On July 21, 2017, we proposed to reduce the 2018 statutory volume targets for advanced biofuel and total renewable fuel by the maximum permissible amount using the cellulosic waiver authority, and not to reduce these volumes further using other authorities. However, we requested comment on the possible additional use of the general waiver authority or other authorities to provide further reductions in the proposed volume requirements.133 To evaluate the possibility for using the general waiver authority on the basis of a finding of inadequate domestic supply, we 132 82 133 82 PO 00000 FR 46174, October 4, 2017. FR 34206 at 34213, October 4, 2017. Frm 00032 Fmt 4701 Sfmt 4700 $0.79–$2.37 $8–$24 considered the projected volumes of renewable fuel that can be supplied to refiners, importers, and blenders in 2018 from both domestic production and imports. In addition, consistent with the approach identified for consideration in the October 4 document, we considered the projected volumes of renewable fuel that can be supplied to refiners and blenders solely from domestic production. Under either approach we conclude a waiver is not warranted. In Section III we discussed our projection that 288 million gallons of cellulosic biofuel will be made available in 2018. In Section IV we described our assessment that about 4.40 billion gallons of advanced biofuel would be reasonably attainable in 2018 from both domestic production and imports but that, after considering a number of factors, such as the potential for feedstock/fuel diversions and cost of advanced biofuel, we would exercise our discretion to use the full cellulosic waiver authority to reduce the applicable volume to 4.29 billion gallons.134 As a result, we do not anticipate an inadequate domestic supply of advanced biofuels to meet a volume requirement of 4.29 billion gallons for advanced biofuel, when both domestic production and imports are considered. Having determined that there will not be an inadequate domestic supply of advanced biofuel, we further considered whether there may be an inadequate domestic supply to satisfy the portion of the total renewable fuel volume requirement that can be satisfied with non-advanced (conventional) renewable fuel. After application of the full cellulosic waiver authority to the advanced biofuel and total renewable 134 Because EPA’s authority under the cellulosic waiver authority affords EPA more discretion to reduce volumes of advanced and total renewable fuel than the general waiver authority under an evaluation of inadequate domestic supply, EPA has evaluated the supply of advanced biofuel for purposes of a determination on the adequacy of supply without consideration of these factors. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ethrower on DSK3G9T082PROD with RULES fuel statutory volume targets, the implied statutory volume for conventional renewable fuel is 15.0 billion gallons. The total domestic production capacity of corn ethanol in the U.S. is about 16 billion gallons, and total production of denatured and undenatured ethanol from these facilities in 2016 exceeded 15 billion gallons.135 As a result, there does not appear to be an inadequate domestic supply of renewable fuel to satisfy the implied 15 billion gallon conventional renewable fuel volume that results from full application of the cellulosic waiver authority to reduce statutory volume targets for advanced biofuel and total renewable fuel. We note that this assessment does not include imported volumes of fuel, such as conventional biodiesel, which could also be used to satisfy the volume requirements. In light of this finding, we conclude that there is not an inadequate domestic supply of volumes than can be used to meet the 15 billion gallon implied volume for conventional renewable fuel, and thus that further reductions of the 19.29 billion gallon total renewable fuel volume requirement derived through use of the cellulosic waiver authority would not appropriate when taking into account both domestic production and imports. In the October 4 document, we discussed comments on the proposal suggesting that EPA should interpret the undefined term ‘‘domestic’’ in the phrase ‘‘inadequate domestic supply’’ to account for only volumes of renewable fuel that are produced domestically. If EPA were to adopt this interpretation, we could exclude potential imports of renewable fuel in our assessment of domestic supply but, even if we found domestic supply to be inadequate, could take factors such as potential imports and the availability of carryover RINs into account in determining the extent to which we should exercise our discretion to grant a waiver on the basis of inadequate domestic supply.136 As described in more detail in the RTC document, stakeholders who addressed this issue provided varying perspectives 135 ‘‘2017 Ethanol Industry Outlook’’ by the Renewable Fuels Association indicates that 2017 nationwide production capacity is 16.0 bill gal and actual production in 2016 was 15.25 bill gal. ‘‘US Fuel Ethanol Plant Production Capacity from EIA,’’ estimates 2017 nameplate production capacity at 15.51 bill gal. In ‘‘Ethanol Production in 2016 from EIA,’’ EIA indicates that 2016 actual production was 15.45 bill gal. All documents are available in docket EPA–HQ–OAR–2017–0091. 136 EPA’s current regulations provide that qualifying imported biofuel may be used for compliance with the RFS standards; EPA’s response to comments on this approach to imported biofuels is provided in the RTC document. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 on the extent to which such an interpretation would have a relevant impact on renewable fuel supply. In light of the fact that the domestic production capacity of conventional biofuel volumes is in excess of 15 billion gallons, whether we were to exclude imported biofuels from our consideration of domestic supply would primarily impact our assessment of the supply of cellulosic biofuel and advanced biofuel volumes, not conventional renewable fuel. With respect to cellulosic biofuel, we note that the vast majority of the supply in 2018 is expected to come from domestic sources. In fact, if EPA excluded consideration of projected cellulosic biofuel imports, our projection of the available volume of cellulosic biofuel in 2018 would be reduced by only 2 million gallons or less than 1 percent of our projection that 288 million cellulosic biofuel gallons will be made available in 2018. Given the importance that Congress placed on the growth of cellulosic biofuel volumes, our projection that compliance with a 288 million gallon requirement is feasible using RINs generated in 2018, and the availability of carryover cellulosic biofuel RINs and cellulosic waiver credits for additional compliance flexibility, EPA would not exercise its discretion to lower the 288 million gallon projected cellulosic biofuel volume by 2 million gallons even if EPA were to interpret the term ‘‘domestic supply’’ to exclude imported volumes. With respect to the available supply of advanced biofuel in 2018 in the context of an interpretation of inadequate domestic supply that excludes imports, several commenters noted the data provided by EPA in the October 4 document indicating that a significant portion of the advanced biofuel available in previous years has been from imported biofuels, particularly imported biodiesel and renewable diesel. Some commenters pointed to total domestic production capacity and feedstock availability to argue that domestic producers are capable of compensating for volumes that would not be provided through imports, so that even under an interpretation of ‘‘domestic supply’’ that excluded imports, EPA would not be justified in reducing volumes on the basis of inadequate domestic supply to a level below what was proposed. Others suggested that, without imported volumes, the domestic industry could not ramp up production quickly enough to compensate for the exclusion of imports from our analysis and provide a ‘‘domestic supply’’ equal to the PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 58517 proposed 2018 volume requirements.137 We believe, based on the record before us, that there is uncertainty regarding the capability of the domestic advanced biofuel industry to compensate in 2018 for volumes that would not be provided through imports. Taking this uncertainty into account (including the distinct possibility that the domestic industry could compensate for exclusion of imports), as well as the availability of imported volumes and carryover RINs, EPA would not choose to exercise its authority to grant a waiver on the basis of inadequate domestic supply for 2018 even if it interpreted the term ‘‘domestic supply’’ to exclude imports. In light of this determination, we need not resolve at this time the interpretive issue regarding whether the term ‘‘domestic supply’’ should include consideration of imports. B. Severe Economic Harm The proposal and October 4 document requested comment on the possibility of further reductions in the proposed volume requirements, including on the basis of a severe economic harm. We received comments from stakeholders both in support of, and opposed to, further reductions in the advanced biofuel and/or total renewable fuel volume requirements based on a finding of severe economic harm. For instance, several obligated parties stated that the purchase of RINs to comply with the applicable standards represents a significant economic burden to their companies. Some also indicated that they are considering filing for bankruptcy. However, these commenters did not provide sufficient evidence that the purchase of RINs, as opposed to other market factors, is responsible for the company’s difficult economic circumstances, or why they cannot recoup the cost of RINs through higher prices of their products, or the arguments presented were unconvincing.138 None of the 137 The ‘‘domestic supply’’ of BBD for 2018 would likely be adequate to meet the 2018 standard of 2.1 billion gallons. Domestic production of BBD would need to increase by approximately 300 million gallons as compared to the 2016 production. As discussed above, EPA believes this increase is possible and received comments suggesting this volume increase could be met by domestic production. Additionally, carryover RINs and imported volumes could still be used to meet the standard. Therefore, EPA would not chose to exercise its authority to grant a waiver on the basis of inadequate domestic supply for BBD for 2018 even if it interpreted the term ‘‘domestic supply’’ to exclude imports. 138 We further note that before exercising the general waiver authority on the basis of severe economic harm to a State, a Region or the U.S., EPA E:\FR\FM\12DER2.SGM Continued 12DER2 58518 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ethrower on DSK3G9T082PROD with RULES commenters provided compelling evidence that the proposed RFS volume requirements for 2018 would be likely to cause severe economic harm to a region, State, or the U.S.139 Further discussion of these comments can be found in the RTC document. In addition to reviewing comments on the proposed rule and the October 4 document, EPA also reviewed market data from 2017 and previous years to see if there was evidence that the RFS standards are currently causing severe economic harm, or would be likely to cause severe economic harm in 2018. Given that the 2018 volumes generated through the maximum reduction permitted under the cellulosic waiver authority are nearly the same as the volume requirements for 2017, we considered: 1. Whether severe economic harm has occurred to date or is likely to occur in 2017, and 2. whether the economic conditions in 2018 might be expected to be substantially different than those in 2017. To determine whether severe economic harm has occurred to date or is likely to occur in in 2017, we investigated several possible indicators. These included RIN generation for 2017 relative to 2016, refinery closures, retail fuel prices, and corn and soybean prices. Based on our investigation, we do not believe that severe economic harm has occurred thus far in 2017 to any State, region, or the U.S. as a result of the 2017 standards, or is likely occur by the end of 2017. Details of this investigation can be found in a memorandum to the docket.140 To determine whether the economic conditions in 2018 might be expected to be substantially different than those in 2017 in ways that could affect the economic impact of compliance with the RFS program, we investigated projections of two primary drivers of the cost of compliance: Crop-based would need to consider whether a waiver that would affect the standards applicable to all obligated parties, and would take into account any negative economic impacts to farmers and biofuel producers from a waiver, would be of significant benefit to individual obligated parties facing financial difficulties. 139 In the October 4 document, we solicited comment on EPA’s prior interpretation of the term ‘‘severe economic harm.’’ As discussed in the RTC document accompanying this action, we believe that the evidence in the record would be insufficient to support a finding of severe economic harm under any reasonable interpretation of the phrase advanced by commenters, so do not find it necessary to assess changes to our interpretation of the phrase at this time. 140 ‘‘Assessment of waivers for severe economic harm or BBD prices for 2018,’’ memorandum from David Korotney to docket EPA–HQ–OAR–2017– 0091. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 feedstock futures prices, and projected gasoline demand. We also investigated the potential market impacts of the final 2018 standards, most specifically in terms of ethanol and biodiesel consumption.141 Based on the record before us, we do not believe that there is sufficient evidence to conclude that severe economic harm is occurring currently in 2017 in any State, region, or the United States, and we do not believe that market conditions in 2018 are likely to cause compliance with the applicable standards to be more economically challenging than it is in 2017. Given that the 2018 standards are very similar to the 2017 standards, then, we do not believe that further reductions in the 2018 volume requirements on the basis of severe economic harm are warranted. C. Severe Environmental Harm EPA received comments in response to the proposal asserting that there are negative environmental impacts that may be associated with the RFS program. A significant portion of these concerns center on feedstock production. Although we are authorized to reduce the statutory volume targets on the basis of a finding that the requirements would ‘‘severely harm the . . . environment of a State, region, or the United States,’’ commenters have not presented evidence sufficient to support a determination to make a reduction on this basis for 2018. EPA is not making reductions on this basis for 2018. EPA’s response to comments related to perceived environmental harms of the RFS program is set forth in the RTC document accompanying this rule. D. Biomass-Based Diesel Waiver Authority The BBD waiver authority in CAA section 211(o)(7)(E)(ii) provides that if EPA determines that there is a significant renewable feedstock disruption or other market circumstance that would make the price of BBD increase significantly, then EPA shall, in consultation with the Secretary of Energy and the Secretary of Agriculture, issue an order to reduce, for up to a 60day period, the annual volume requirement for BBD by an appropriate quantity that does not exceed 15 percent. If EPA reduces the annual volume requirement for BBD using this waiver authority, we may also reduce the applicable volume of advanced biofuel and total renewable fuel by an 141 ‘‘Market impacts of biofuels,’’ memorandum from David Korotney to docket EPA–HQ–OAR– 2017–0091. PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 equal or lesser volume than the reduction in BBD. In the October 4 document we requested comment on the expected impact on the price of BBD of the expiration of the biodiesel blenders tax credit, proposed import duties on biodiesel from Argentina and Indonesia, or any other factors. We further requested comment on whether any expected impacts should be considered significant for the purposes of the BBD waiver authority. To investigate whether a reduction in the 2018 BBD volume requirement would be warranted under CAA section 211(o)(7)(E)(ii), we considered current and historical prices of unblended biodiesel (B100), the price of blended biodiesel (in particular, B20), and BBD (D4) RIN prices. The results of this investigation are described in a memorandum to the docket.142 EPA discussed in the October 4 document the fact that the Department of Commerce had imposed preliminary tariffs on biodiesel imported from Argentina and Indonesia, and that such tariffs could impact the price of BBD. However, these tariffs have not yet been finalized, nor has EPA observed any significant impact of the announcement of the preliminary tariffs on the price of biomass-based diesel.143 Based on the information before us, including the results of our investigation and information and comments submitted in response to the October 4 document, we have concluded that there is not sufficient evidence of a significant increase to the price of BBD due to feedstock disruption or other relevant market circumstances to justify reductions to the 2018 BBD volume requirement using the biomass-based diesel waiver authority. VI. Final Biomass-Based Diesel Volume for 2019 In this section we discuss the BBD applicable volume for 2019. We are establishing this volume in advance of those for other renewable fuel categories in light of the statutory requirement in CAA section 211(o)(2)(B)(ii) to establish the applicable volume of BBD for years after 2012 no later than 14 months before the applicable volume will apply. We are not at this time establishing the BBD percentage standards that would apply to obligated parties in 2019 but 142 ‘‘Assessment of waivers for severe economic harm or BBD prices for 2018,’’ memorandum from David Korotney to docket EPA–HQ–OAR–2017– 0091. 143 ‘‘Assessment of waivers for severe economic harm or BBD prices for 2018,’’ memorandum from David Korotney to docket EPA–HQ–OAR–2017– 0091. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations intend to do so in late 2018, after receiving EIA’s estimate of gasoline and diesel consumption for 2019. Although the BBD applicable volume sets a floor for required BBD use, because the BBD volume requirement is nested within both the advanced biofuel and the total renewable fuel volume requirements, any BBD produced beyond the mandated 2019 BBD volume can be used to satisfy both of these other applicable volume requirements. A. Statutory Requirements The statute establishes applicable volume targets for years through 2022 for cellulosic biofuel, advanced biofuel, and total renewable fuel. For BBD, applicable volume targets are specified in the statute only through 2012. For years after those for which volumes are specified in the statute, EPA is required under CAA section 211(o)(2)(B)(ii) to determine the applicable volume of BBD, in coordination with the Secretary of Energy and the Secretary of Agriculture, based on a review of the implementation of the program during calendar years for which the statute specifies the volumes and an analysis of the following factors: 1. The impact of the production and use of renewable fuels on the environment, including on air quality, climate change, conversion of wetlands, ecosystems, wildlife habitat, water quality, and water supply; 2. The impact of renewable fuels on the energy security of the United States; 3. The expected annual rate of future commercial production of renewable fuels, including advanced biofuels in each category (cellulosic biofuel and BBD); 4. The impact of renewable fuels on the infrastructure of the United States, including deliverability of materials, goods, and products other than renewable fuel, and the sufficiency of infrastructure to deliver and use renewable fuel; 5. The impact of the use of renewable fuels on the cost to consumers of transportation fuel and on the cost to transport goods; and 6. The impact of the use of renewable fuels on other factors, including job creation, the price and supply of agricultural commodities, rural economic development, and food prices. The statute also specifies that the volume requirement for BBD cannot be less than the applicable volume specified in the statute for calendar year 2012, which is 1.0 billion gallons. The statute does not, however, establish any other numeric criteria, or provide any guidance on how the EPA should weigh the importance of the often competing factors, and the overarching goals of the statute when the EPA sets the applicable volumes of BBD in years after those for which the statute specifies such volumes. In the period 2013–2022, the statute specifies increasing applicable volumes of cellulosic biofuel, advanced biofuel, and total renewable fuel, but provides no guidance, beyond the 1.0 58519 billion gallon minimum, on the level at which BBD volumes should be set. In establishing the BBD and cellulosic standards as nested within the advanced biofuel standard, Congress clearly intended to support development of BBD and especially cellulosic biofuels, while also providing an incentive for the growth of other non-specified types of advanced biofuels. That is, the advanced biofuel standard provides an opportunity for other advanced biofuels (advanced biofuels that do not qualify as cellulosic biofuel or BBD) to compete with cellulosic biofuel and BBD to satisfy the advanced biofuel standard after the cellulosic biofuel and BBD standards have been met. B. Determination of the 2019 Applicable Volume of Biomass-Based Diesel One of the primary considerations in determining the BBD volume for 2019 is a review of the implementation of the program to date, as it affects BBD. This review is required by the CAA, and also provides insight into the capabilities of the industry to produce, import, export, and distribute BBD. It also helps us to understand what factors, beyond the BBD standard, may incentivize the production and import of BBD. The number of BBD RINs generated, along with the number of RINs retired due to export or for reasons other than compliance with the annual BBD standards from 2011–2018 are shown in Table VI.B.1–1 below. TABLE VI.B.1–1—BIOMASS-BASED (D4) RIN GENERATION AND STANDARDS IN 2011–2018 [million RINs or gallons] 144 BBD RINs generated 2011 2012 2013 2014 2015 2016 2017 2018 ......................................................... ......................................................... ......................................................... ......................................................... ......................................................... ......................................................... ......................................................... ......................................................... Exported BBD (RINs) 1,692 1,737 2,739 2,710 2,796 4,008 N/A N/A BBD RINs retired, non-compliance reasons 72 102 124 134 145 203 N/A N/A Available BBD RINs a BBD standard (gallons) BBD standard (RINs) 1,522 1,545 2,514 2,484 2,619 3,709 N/A N/A 800 1,000 1,280 1,630 1,730 1,900 2,000 2,100 1,200 1,500 1,920 b 2,490 b 2,655 2,850 3,000 3,150 98 90 101 92 32 96 N/A N/A ethrower on DSK3G9T082PROD with RULES a Available BBD RINs may not be exactly equal to BBD RINs Generated minus Exported RINs and BBD RINs Retired, Non-Compliance Reasons, due to rounding. b Each gallon of biodiesel qualifies for 1.5 RINs due to its higher energy content per gallon than ethanol. Renewable diesel qualifies for between 1.5 and 1.7 RINs per gallon, but generally has an equivalence value of 1.7. In 2014 and 2015 the number of RINs in the BBD Standard column is not exactly equal to 1.5 times the BBD volume standard as these standards were established based on actual RIN generation data for 2014 and a combination of actual data and a projection of RIN generation for the last three months of the year for 2015. Some of the volume used to meet the BBD standard was renewable diesel. 144 Available BBD RINs Generated, Exported BBD RINs, and BBD RINs Retired for Non-Compliance Reasons information from EMTS. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 E:\FR\FM\12DER2.SGM 12DER2 58520 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations In reviewing historical BBD RIN generation and use, we see that the number of RINs available for compliance purposes exceeded the volume required to meet the BBD standard in 2011, 2012, 2013, and 2016. Additional production and use of biodiesel was likely driven by a number of factors, including demand to satisfy the advanced biofuel and total renewable fuels standards, the biodiesel tax credit,145 and favorable blending economics. The number of RINs available in 2014 and 2015 was approximately equal to the number required for compliance in those years, as the standards for these years were finalized at the end of November 2015 and EPA’s intent at that time was to set the standards for 2014 and 2015 to reflect actual BBD use. In 2016, with RFS standards established prior to the beginning of the year and the blenders tax credit in place, available BBD RINs exceeded the volume required by the BBD standard by 859 million RINs (30 percent). This indicates that in appropriate circumstances there is demand for BBD beyond the required volume of BBD. ethrower on DSK3G9T082PROD with RULES 145 The biodiesel tax credit was reauthorized in January 2013. It applied retroactively for 2012 and for the remainder of 2013. It was once again extended in December 2014 and applied retroactively to all of 2014 as well as to the remaining weeks of 2014. In December 2015 the biodiesel tax credit was authorized and applied retroactively for all of 2015 as well as through the end of 2016. 146 This is because when an obligated party retires a BBD RIN to help satisfy their BBD obligation, the nested nature of the BBD standard means that this RIN also counts towards satisfying their advanced and total renewable fuel obligations. Advanced RINs count towards both the advanced and total renewable fuel obligations, while conventional RINs (D6) count towards only the total renewable fuel obligation. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 The prices paid for advanced biofuel and BBD RINs beginning in early 2013 through the end of 2016 also support the conclusion that advanced biofuel and/or total renewable fuel standards provide a sufficient incentive for additional biodiesel volume beyond what is required by the BBD standard. Because the BBD standard is nested within the advanced biofuel and total renewable fuel standards, and therefore can help to satisfy three RVOs, we would expect the price of BBD RINs to exceed that of advanced and conventional renewable RINs.146 If, however, BBD RINs are being used by obligated parties to satisfy their advanced biofuel obligations, above and beyond the BBD standard, we would expect the prices of advanced biofuel and BBD RINs to converge.147 Further, if BBD RINs are being used (or are expected to be used) to satisfy obligated parties’ total renewable fuel obligation, above and beyond their BBD and advanced biofuel requirements we would expect the price for all three RIN types to converge. When examining RIN price data from 2012 through September 2017, shown in Figure VI.B.2–1 below, we see that beginning in early 2013 and through September 2017 the advanced RIN price and BBD RIN prices were approximately equal. Similarly, from early 2013 through late 2016 the conventional renewable fuel and BBD RIN prices were approximately equal. This suggests that the advanced biofuel standard and/ or total renewable fuel standard are 147 We would still expect D4 RINs to be valued at a slight premium to D5 and D6 RINs in this case (and D5 RINs at a slight premium to D6 RINs) to reflect the greater flexibility of the D4 RINs to be used towards the BBD, advanced biofuel, and total renewable fuel standard. This pricing has been observed over the past several years. PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 capable of incentivizing increased BBD volumes beyond the BBD standard, and operated in this manner starting in 2013.148 While final standards were not in place throughout 2014 and most of 2015, EPA had issued proposed rules for both of these years. In each year, the market response was to supply volumes of BBD that exceeded the proposed BBD standard in order to help satisfy the proposed advanced and total biofuel standards.149 Additionally, the RIN prices in these years strongly suggests that obligated parties and other market participants anticipated the need for BBD RINs to meet their advanced and total biofuel obligations, and responded by purchasing advanced biofuel and BBD RINs at approximately equal prices. We do note, however, that in 2012 the BBD RIN price was significantly higher than both the advanced biofuel and conventional renewable fuel RIN prices. In 2012 the E10 blendwall had not yet been reached, and it was likely more cost effective for most obligated parties to satisfy the portion of the advanced biofuel requirement that exceeded the BBD and cellulosic biofuel requirements with advanced ethanol. 148 Although we did not issue a rule establishing the final 2013 standards until August of 2013, we believe that the market anticipated the final standards, based on EPA’s July 2011 proposal and the volume targets for advanced and total renewable fuel established in the statute. (76 FR 38844, 38843, July 1, 2011). 149 EPA proposed a BBD standard of 1.28 billion gallons (1.92 billion RINs) for 2014 in our November 2013 proposed rule. The number of BBD RINs available in 2014 was 2.67 billion. EPA proposed a BBD standard of 1.70 billion gallons (2.55 billion RINs) for 2015 in our June 2015 proposed rule. The number of BBD RINs available in 2015 was 2.92 billion. E:\FR\FM\12DER2.SGM 12DER2 In raising the 2013 BBD volume above the 1 billion gallon minimum mandated by Congress, the EPA sought to ‘‘create greater certainty for both producers of BBD and obligated parties’’ while also acknowledging that, ‘‘the potential for somewhat increased costs is appropriate in light of the additional certainty of GHG reductions and enhanced energy security provided by the advanced biofuel volume requirement of 2.75 billion gallons.’’ 150 Unknown at that time was the degree to which the required volumes of advanced biofuel and total renewable fuel could incentivize volumes of BBD that exceeded the BBD standard. In 2012 the available supply of BBD RINs exceeded the required volume of BBD by a very small margin (1,545 million BBD RINs were made available for compliance towards meeting the BBD requirement of 1,500 million BBD RINs). The remainder of the 2.0 billion-gallon advanced biofuel requirement was satisfied with advanced ethanol, which was largely imported from Brazil.151 From 2012 to 2013 the statutory advanced biofuel requirement increased by 750 million gallons. If EPA had not increased the required volume of BBD for 2013, and the advanced biofuel standard had proved insufficient to increase the supply of BBD beyond the statutory minimum of 1.0 billion gallons, an additional 750 million gallons of non-BBD advanced biofuels 150 77 FR 59458, 59462 (September 27, 2012). million advanced ethanol RINs were generated in in 2012. 151 594 VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 beyond the BBD standard would have been needed to meet the advanced biofuel volume requirement. The only advanced biofuel other than BBD available in appreciable quantities in 2012 and 2013 was advanced ethanol, the vast majority of which was imported sugarcane ethanol. EPA had significant concerns as to whether or not the supply of advanced ethanol could increase this significantly (750 million gallons) in a single year. These concerns were heightened by the approaching E10 blendwall, which increased the challenges associated with supplying increasing volumes of ethanol to the U.S. If neither BBD volumes nor advanced ethanol volumes increased sufficiently, EPA was concerned that some obligated parties might be unable to acquire the advanced biofuel RINs necessary to demonstrate compliance with their RVOs in 2013. Therefore, as discussed above, EPA increased the volume requirement for BBD in 2013 to help create greater certainty for BBD producers (by ensuring demand for their product above the 1.0 billion gallon statutory minimum) and obligated parties (by ensuring that sufficient RINs would be available to satisfy their advanced biofuel RVOs). Since 2013, however, EPA has gained significant experience implementing the RFS program. As discussed above, RIN generation data has consistently demonstrated that the advanced biofuel volume requirement, and to a lesser degree the total renewable fuel volume requirement, are capable of incentivizing the supply of BBD above PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 58521 and beyond the BBD volume requirement. Finally, we note that the BBD industry in the U.S and abroad has matured since EPA first increased the required volume of BBD beyond the statutory minimum in 2013. To assess the maturity of the biodiesel industry, EPA compared information on BBD RIN generation by company from 2012 and 2016 (the most recent year for which complete RIN generation is available). In 2012, the annual average RIN generation per company producing BBD was about 11 million RINs (about 7.3 million gallons) with approximately 50 percent of companies producing less the 1 million gallons of BBD a year. The agency heard from multiple commenters during the 2012 and 2013 rulemakings that higher volume requirements for BBD would provide greater certainty for the emerging BBD industry and encourage further investment. Since that time, the BBD industry has matured in a number of critical areas, including growth in the size of companies, the consolidation of the industry, and more stable funding and access to capital. In 2012, the BBD industry was characterized by smaller companies with dispersed market share. By 2016, the average BBD RIN generation per company had climbed to almost 33 million RINs (22 million gallons) annually, a 3-fold increase. Only 27 percent of the companies produced less than 1 million gallons of BBD. We are conscious of public comments claiming that BBD volume requirements that are a significant portion of the E:\FR\FM\12DER2.SGM 12DER2 ER12DE17.002</GPH> ethrower on DSK3G9T082PROD with RULES Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations 58522 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ethrower on DSK3G9T082PROD with RULES advanced volume requirements effectively dis-incentivize the future development of other promising advanced biofuel pathways. A variety of different types of advanced biofuels, rather than a single type such as BBD, would positively impact energy security (e.g., by increasing the diversity of feedstock sources used to make biofuels, thereby reducing the impacts associated with a shortfall in a particular type of feedstock) and increase the likelihood of the development of lower cost advanced biofuels that meet the same GHG reduction threshold as BBD.152 With the considerations discussed above and in Section IV.B.2 in mind, as well as our analysis of the factors specified in the statute, we are setting the applicable volume of BBD at 2.1 billion gallons for 2019. We believe this volume sets the appropriate floor for BBD, and that the volume of advanced biodiesel and renewable diesel actually used in 2019 will be driven by the level of the advanced biofuel and total renewable fuel standards that the Agency will establish for 2019. We have considered the required statutory factors in reaching our decision, as summarized in Section C, below, and in a memorandum to the docket (the ‘‘2019 BBD docket memorandum’’).153 We believe our final 2019 BBD volume requirement strikes the appropriate balance between providing a market environment where the development of other advanced biofuels is incentivized, while also maintaining support for the BBD industry. Based on our review of the data, and the nested nature of the BBD standard within the advanced standard, we conclude that the advance standard continues to drive the ultimate volume of BBD supplied. Given the success of the industry in the past few years, as well as the substantial increases in the BBD volume being driven by the advanced standard, we have determined that a volume requirement greater than 2.1 billion gallons for BBD in 2019 is not necessary to provide support for the BBD industry. Setting the BBD standard in this manner continues to allow a considerable portion of the advanced biofuel volume to be satisfied by either additional gallons of BBD or by other unspecified and potentially less costly types of qualifying advanced biofuels. 152 All types of advanced biofuel, including BBD, must achieve lifecycle GHG reductions of at least 50 percent. 153 ‘‘Memorandum to docket: Draft Statutory Factors Assessment for the 2019 Biomass-Based Diesel (BBD) Applicable Volumes.’’ See Docket EPA–HQ–OAR–2017–0091. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 C. Consideration of Statutory Factors Set Forth in CAA Section 211(o)(2)(B)(ii)(I)–(VI) for 2019 As noted earlier in Section IV.B., the BBD volume requirement is nested within the advanced biofuel requirement and the advanced biofuel requirement is, in turn, nested within the total renewable fuel volume requirement. This means that any BBD produced beyond the mandated BBD volume can be used to satisfy both these other applicable volume requirements. The result is that in considering the statutory factors we must consider the potential impacts of increasing or decreasing BBD in comparison to other advanced biofuels.154 For a given advanced biofuel standard, greater or lesser BBD volume requirements do not change the amount of advanced biofuel used to displace petroleum fuels; rather, increasing the BBD requirement may result in the displacement of other types of advanced biofuels that could have been used to meet the advanced biofuels volume requirement. While in recent years EPA has annually increased the BBD volume requirement, EPA is, as we proposed, maintaining the 2.1 billion gallon standard for 2019 based on our review of the statutory factors and the considerations noted above and in the 2018 BBD Docket Memorandum. In particular, as EPA noted above in section VI.B., the BBD industry is more mature, and we have increased BBD volumes significantly in recent years so that the BBD standard is now over twice the minimum statutory volume required in CAA section 211(o)(2)(B)(i). In these circumstances we do not believe that an additional increase in the required BBD required volume is necessary to support the industry in 2019. Consistent with our approach in setting the final BBD volume requirement for 2018, EPA’s primary assessment of the statutory factors for the 2019 BBD applicable volume is that because the BBD requirement is nested within the advanced biofuel volume requirement, we expect that the 2019 advanced volume requirement, when set next year, will determine the level of BBD production and imports that occur in 2019.155 Therefore, EPA continues to 154 While excess BBD production could also displace conventional renewable fuel under the total renewable standard, as long as the BBD applicable volume is significantly lower than the advanced biofuel applicable volume our action in setting the BBD applicable volume is not expected to displace conventional renewable fuel under the total renewable standard, but rather other advanced biofuels. 155 Even though we are not setting the 2019 advanced biofuel volume requirement as part of this rulemaking, we expect that the 2019 advanced PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 believe that the same overall volume of BBD would likely be supplied in 2019 even if we were to mandate a somewhat lower or higher BBD volume for 2019 in this final rule. Thus, we do not expect our 2019 BBD volume requirement to result in a difference in the factors we consider pursuant to CAA section 211(o)(2)(B)(ii)(I)–(VI). As an additional supplementary assessment, we have considered the potential impacts of selecting an applicable volume of BBD other than 2.1 billion gallons in 2019. Setting a requirement higher or lower than 2.1 billion gallons in 2019 would only be expected to impact BBD volumes on the margin, protecting to a greater or lesser degree BBD from competition with other potential advanced biofuels. In this supplementary assessment we have considered all of the statutory factors found in CAA section 211(2)(B)(ii), and as described in the 2019 BBD docket memorandum, our assessment does not appear, based on available information, to provide a reasonable basis for setting a higher or lower volume requirement for BBD than 2.1 billion gallons for 2019. Overall and as described in the 2019 BBD docket memorandum, we have determined that both the primary assessment and the supplemental assessment of the statutory factors specified in CAA section 211(o)(2)(B)(ii)(I)–(VI) for the year 2019 does not provide significant support for setting the BBD standard at a level higher or lower than 2.1 billion gallons in 2019. VII. Percentage Standards for 2018 The renewable fuel standards are expressed as volume percentages and are used by each obligated party to determine their Renewable Volume Obligations (RVOs). Since there are four separate standards under the RFS program, there are likewise four separate RVOs applicable to each obligated party. Each standard applies to the sum of all non-renewable gasoline and diesel produced or imported. The percentage standards are set so that if every obligated party meets the percentages by acquiring and retiring an appropriate number of RINs, then the amount of renewable fuel, cellulosic biofuel, BBD, and advanced biofuel used will meet the applicable volume requirements on a nationwide basis. volume requirement will be considerably higher than the 2019 BBD requirement, consistent with past practice and, therefore, that the BBD volume requirement for 2019 would not be expected to impact the volume of BBD that is actually produced and imported during the 2019-time period. E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations standards, and volumes of such fuels are not used in calculating the annual percentage standards. Since under the regulations the standards apply only to producers and importers of gasoline and diesel, these are the transportation fuels TABLE VII–1—VOLUMES FOR USE IN used to set the percentage standards, as SETTING THE 2018 APPLICABLE well as to determine the annual volume obligations of an individual gasoline or PERCENTAGE STANDARDS diesel producer or importer. [Billion gallons] As specified in the RFS2 final rule,157 Cellulosic biofuel ................... 0.288 the percentage standards are based on Biomass-based diesel a ........ 2.10 energy-equivalent gallons of renewable Advanced biofuel .................. 4.29 fuel, with the cellulosic biofuel, Renewable fuel ..................... 19.29 advanced biofuel, and total renewable fuel standards based on ethanol a Represents physical volume. equivalence and the BBD standard For the purposes of converting these based on biodiesel equivalence. volumes into percentage standards, we However, all RIN generation is based on generally use two decimal places to be ethanol-equivalence. For example, the consistent with the volume targets as RFS regulations provide that production given in the statute, and similarly two or import of a gallon of qualifying decimal places in the percentage biodiesel will lead to the generation of standards. However, for cellulosic 1.5 RINs. The formula specified in the biofuel we use three decimal places in regulations for calculation of the BBD both the volume requirement and percentage standard is based on percentage standards to more precisely biodiesel-equivalence, and thus assumes capture the smaller volume projections that all BBD used to satisfy the BBD and the unique methodology that in standard is biodiesel and requires that some cases results in estimates of only the applicable volume requirement be a few million gallons for a single multiplied by 1.5. However, BBD often producer. contains some renewable diesel, and a A. Calculation of Percentage Standards gallon of renewable diesel typically To calculate the percentage standards, generates 1.7 RINs.158 In addition, there we are following the same methodology is often some renewable diesel in the conventional renewable fuel pool. As a for 2018 as we have in all prior years. result, the actual number of RINs The formulas used to calculate the generated by biodiesel and renewable percentage standards applicable to producers and importers of gasoline and diesel is used in the context of our assessing reasonably attainable volumes diesel are provided in 40 CFR 80.1405. for purposes of deriving the applicable The formulas rely on estimates of the volume requirements and associated volumes of gasoline and diesel fuel, for percentage standards for advanced both highway and nonroad uses, which biofuel and total renewable fuel, and are projected to be used in the year in likewise in obligated parties’ which the standards will apply. The determination of compliance with any projected gasoline and diesel volumes of the applicable standards. While there are provided by EIA, and include is a difference in the treatment of projections of ethanol and biodiesel biodiesel and renewable diesel in the used in transportation fuel. Since the context of determining the percentage percentage standards apply only to the standard for BBD versus determining non-renewable gasoline and diesel the percentage standard for advanced produced or imported, the volumes of ethanol and biodiesel are subtracted out biofuel and total renewable fuel, it is not a significant one given our approach to of the EIA projections of gasoline and determining the BBD volume diesel. Transportation fuels other than requirement. Our intent in setting the gasoline or diesel, such as natural gas, BBD applicable volume is to provide a propane, and electricity from fossil level of guaranteed volume for BBD, but fuels, are not currently subject to the as described in Section VI.B, we do not ethrower on DSK3G9T082PROD with RULES Sections III through V provide our rationale and basis for the volume requirements for 2018.156 The volumes used to determine the percentage standards are shown in Table VII–1. 156 The 2018 volume requirement for BBD was established in the 2017 final rule. 157 See 75 FR 14670 (March 26, 2010). 158 Although in some cases a gallon of renewable diesel generates either 1.5 or 1.6 RINs. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 159 A small refiner that meets the requirements of 40 CFR 80.1442 may also be eligible for an exemption. 160 Further discussion of this issue can be found in the Response to Comments document in the docket for this action. PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 58523 expect the BBD standard to be binding. That is, we expect that actual supply of BBD, as well as supply of conventional biodiesel and renewable diesel, will be driven by the advanced biofuel and total renewable fuel standards. B. Small Refineries and Small Refiners In CAA section 211(o)(9), enacted as part of the Energy Policy Act of 2005, and amended by the Energy Independence and Security Act of 2007, Congress provided a temporary exemption to small refineries 159 through December 31, 2010. Congress provided that small refineries could receive a temporary extension of the exemption beyond 2010 based either on the results of a required DOE study, or based on an EPA determination of ‘‘disproportionate economic hardship’’ on a case-by-case basis in response to small refinery petitions. In reviewing petitions, EPA, in consultation with the Department of Energy, evaluates whether the small refinery has demonstrated either disproportionate impacts or viability impairment, and may grant refineries exemptions upon demonstration of either criterion. EPA has granted exemptions pursuant to this process in the past. However, at this time no exemptions have been approved for 2018, and therefore we have calculated the percentage standards for 2018 without any adjustment for exempted volumes. EPA is maintaining its approach that any exemptions for 2018 that are granted after the final rule is released will not be reflected in the percentage standards that apply to all gasoline and diesel produced or imported in 2018.160 C. Final Standards The formulas in 40 CFR 80.1405 for the calculation of the percentage standards require the specification of a total of 14 variables covering factors such as the renewable fuel volume requirements, projected gasoline and diesel demand for all states and territories where the RFS program applies, renewable fuels projected by EIA to be included in the gasoline and diesel demand, and exemptions for small refineries. The values of all the variables used for this final rule are shown in Table VII.C–1.161 161 To determine the 49-state values for gasoline and diesel, the amounts of these fuels used in Alaska is subtracted from the totals provided by DOE because petroleum based fuels used in Alaska do not incur RFS obligations. The Alaska fractions are determined from the June 29, 2016 EIA State Energy Data System (SEDS), Energy Consumption Estimates. E:\FR\FM\12DER2.SGM 12DER2 58524 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations TABLE VII.C–1—VALUES FOR TERMS IN CALCULATION OF THE 2018 STANDARDS 162 [Billion gallons] Term Description RFVCB ............... RFVBBD ............. RFVAB ............... RFVRF ............... G ....................... D ....................... RG .................... RD .................... GS .................... RGS .................. DS ..................... RDS .................. GE .................... DE ..................... Required volume of cellulosic biofuel ................................................................................................................... Required volume of biomass-based diesel .......................................................................................................... Required volume of advanced biofuel .................................................................................................................. Required volume of renewable fuel ..................................................................................................................... Projected volume of gasoline ............................................................................................................................... Projected volume of diesel ................................................................................................................................... Projected volume of renewables in gasoline ........................................................................................................ Projected volume of renewables in diesel ............................................................................................................ Projected volume of gasoline for opt-in areas ..................................................................................................... Projected volume of renewables in gasoline for opt-in areas .............................................................................. Projected volume of diesel for opt-in areas ......................................................................................................... Projected volume of renewables in diesel for opt-in areas .................................................................................. Projected volume of gasoline for exempt small refineries ................................................................................... Projected volume of diesel for exempt small refineries ....................................................................................... individual recordkeeping and reporting related to documenting that their feedstocks come from qualifying lands, unless EPA determines through one of its annual evaluations that the 2007 baseline acreage of 402 million acres agricultural land has been exceeded. In the 2010 RFS2 rulemaking, EPA committed to make an annual finding concerning whether the 2007 baseline amount of U.S. agricultural land has TABLE VII.C–2—FINAL PERCENTAGE been exceeded in a given year. If the STANDARDS FOR 2018 baseline is found to have been exceeded, then producers using U.S. Cellulosic biofuel ................... 0.159 planted crops and crop residue as Biomass-based diesel .......... 1.74 feedstocks for renewable fuel Advanced biofuel .................. 2.37 production would be required to Renewable fuel ..................... 10.67 comply with individual recordkeeping and reporting requirements to verify VIII. Administrative Actions that their feedstocks are renewable biomass. A. Assessment of the Domestic Aggregate Compliance Approach The Aggregate Compliance methodology provided for the exclusion The RFS regulations specify an of acreage enrolled in the Grassland ‘‘aggregate compliance’’ approach for Reserve Program (GRP) and the demonstrating that planted crops and Wetlands Reserve Program (WRP) from crop residue from the U.S. complies the estimated total U.S. agricultural with the ‘‘renewable biomass’’ land. However, the 2014 Farm Bill requirements that address lands from terminated the GRP and WRP as of 2013 which qualifying feedstocks may be and USDA established the Agriculture harvested.163 In the 2010 RFS2 Conservation Easement Program (ACEP) rulemaking, EPA established a baseline with wetlands and land easement number of acres for U.S. agricultural components. The ACEP is a voluntary land in 2007 (the year of EISA enactment) and determined that as long program that provides financial and as this baseline number of acres was not technical assistance to help conserve exceeded, it was unlikely that new land agricultural lands and wetlands and their related benefits. Under the outside of the 2007 baseline would be Agricultural Land Easements (ACEP– devoted to crop production based on ALE) component, USDA helps Indian historical trends and economic considerations. The regulations specify, tribes, state and local governments, and therefore, that renewable fuel producers non-governmental organizations protect working agricultural lands and limit using planted crops or crop residue non-agricultural uses of the land. Under from the U.S. as feedstock in renewable the Wetlands Reserve Easements fuel production need not undertake (ACEP–WRE) component, USDA helps to restore, protect and enhance enrolled 162 See ‘‘Calculation of final % standards for wetlands. The WRP was a voluntary 2018’’ in docket EPA–HQ–OAR–2017–0091. 163 40 CFR 80.1454(g). program that offered landowners the Projected volumes of gasoline and diesel, and the renewable fuels contained within them, were provided by EIA on October 11, 2017, as required in the statute at CAA section 211(o)(3)(A). Using the volumes shown in Table VII.C–1, we have calculated the percentage standards for 2018 as shown in Table VII.C–2. ethrower on DSK3G9T082PROD with RULES Value VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 0.288 2.10 4.29 19.29 143.22 54.76 14.71 2.53 0 0 0 0 0.00 0.00 opportunity to protect, restore, and enhance wetlands on their property. The GRP was a voluntary conservation program that emphasized support for working grazing operations, enhancement of plant and animal biodiversity, and protection of grassland under threat of conversion to other uses. USDA and EPA concur that the ACEP–WRE and ACEP–ALE represent a continuation in basic objectives and goals of the original WRP and GRP. Therefore, in preparing this year’s assessment of the total U.S. acres of agricultural land, the acreage enrolled in the ACEP–WRE and ACEP–ALE was excluded. Based on data provided by the USDA Farm Service Agency (FSA) and Natural Resources Conservation Service (NRCS), we have estimated that U.S. agricultural land reached approximately 376 million acres in 2017, and thus did not exceed the 2007 baseline acreage. This acreage estimate is based on the same methodology used to set the 2007 baseline acreage for U.S. agricultural land in the RFS2 final rulemaking, with the GRP and WRP substitution as noted above. Specifically, we started with FSA crop history data for 2017, from which we derived a total estimated acreage of 379,220,752 acres. We then subtracted the ACEP–ALE and ACEP–WRE enrolled areas by the end of Fiscal Year 2017, 2,777,887 acres, to yield an estimate of 376,442,865 acres or approximately 376 million acres of U.S. agricultural land in 2017. The USDA data used to make this derivation can be found in the docket to this rule.164 164 As in 2016, USDA again provided EPA with 2017 data from the discontinued GRP and WRP programs. Given this data, EPA estimated the total U.S. agricultural land both including and omitting the GRP and WRP acreage. In 2017, combined land under GRP and WRP totaled 349,146 acres. Subtracting the GRP, WRP, ACEP–WRE, and ACEP– ALE acreage yields an estimate of 376,093,719 acres E:\FR\FM\12DER2.SGM 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ethrower on DSK3G9T082PROD with RULES B. Assessment of the Canadian Aggregate Compliance Approach The RFS regulations specify a petition process through which EPA may approve the use of an aggregate compliance approach for planted crops and crop residue from foreign countries.165 On September 29, 2011, EPA approved such a petition from the Government of Canada. The total agricultural land in Canada in 2017 is estimated at 117.8 million acres. This total agricultural land area includes 95.5 million acres of cropland and summer fallow, 12.5 million acres of pastureland and 9.8 million acres of agricultural land under conservation practices. This acreage estimate is based on the same methodology used to set the 2007 baseline acreage for Canadian agricultural land in EPA’s response to Canada’s petition. The data used to make this calculation can be found in the docket to this rule. C. RIN Market Operation Some stakeholders have expressed concerns that the current regulatory provisions related to RIN trading render the RFS program vulnerable to market manipulation. The EPA takes such issues seriously. The RIN system was originally designed with an open trading market in order to maximize its liquidity and ensure a robust marketplace for RINs. However, the EPA is interested in assessing whether and how the current trading structure provides an opportunity for market manipulation. To that effect, the EPA sought comment and input on this issue, including on potential changes to the RIN trading system that might help address these concerns. We received comments from stakeholders suggesting a number changes to the RIN trading system. While EPA received many comments that are helpful to highlight opportunities for improvement to the RIN system, we are not in a position to make significant changes to the RIN system at this time. However, we intend to explore these suggested changes and are open to suggestions for making changes in the future that are within our authority and would help to improve the function and liquidity of the RIN system. Separate from evaluating the RIN trading options in the RFS program, the EPA is working with appropriate market regulators to analyze targeted concerns of some stakeholders. Although the EPA or approximately 376 million total acres of U.S. agricultural land in 2017. Omitting the GRP and WRP data yields approximately the same 376 million acres of U.S. agricultural land in 2017. 165 40 CFR 80.1457. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 has not seen evidence of manipulation in the RIN market, the EPA is not a commodity market regulatory agency, and thus we do not have expertise in this field. Claims of market manipulation prompted the EPA to execute a memorandum of understanding (MOU) with the U.S. Commodity Futures Trading Commission (CFTC), which has the authority and expertise to investigate such claims. In the meantime, the EPA has continued to explore additional ways to increase program transparency in order to support the program and share data with all stakeholders. The EPA already publishes RFS program data on our Web site, including data related to RIN generation, sales and holdings, and annual compliance.166 We are interested in providing more information, to the extent consistent with our obligations to protect confidential business information (CBI). The EPA sought comment on specific data elements and posting frequency that stakeholders believe would be useful to help with market transparency and liquidity. We received comments from stakeholders suggesting a number of different types of data that commenters suggested would be useful to the industry and public. The EPA will need to further evaluate each of these suggestions to determine which information we can be post and, if so, whether we can post it at the frequency that was suggested by the commenters. Our decisions with respect to these suggestions must necessarily strike a balance between achieving the greatest transparency possible, while working within the limitations of our authority and resources (including technology systems), and protecting information that is claimed as CBI. IX. Public Participation Many interested parties participated in the rulemaking process that culminates with this final rule. This process provided opportunity for submitting written public comments following the proposal that we published on July 21, 2017 (82 FR 34206), and we also held a public hearing on August 1, 2017, at which many parties provided both verbal and written testimony. All comments received, both verbal and written, are available in Docket ID No. EPA–HQ– OAR–2017–0091 and we considered these comments in developing the final rule. Public comments and EPA 166 For public data on the RFS and other EPA fuel programs, refer to: https://www.epa.gov/fuelsregistration-reporting-and-compliance-help/publicdata-and-registration-lists-fuel-programs. PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 58525 responses are discussed throughout this preamble and in the accompanying Response to Comment document, which is available in the docket for this action. X. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review This action is an economically significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review. Any changes made in response to OMB recommendations have been documented in the docket. The EPA prepared an analysis of illustrative costs associated with this action. This analysis is presented in Section IV.E of this preamble. B. Executive Order 13771: Reducing Regulations and Controlling Regulatory Costs This action is considered an Executive Order 13771 regulatory action. Details on the estimated costs of this final rule can be found in EPA’s analysis of the illustrative costs associated with this action. This analysis is presented in Section IV.E of this preamble. C. Paperwork Reduction Act (PRA) This action does not impose any new information collection burden under the PRA. OMB has previously approved the information collection activities contained in the existing regulations and has assigned OMB control numbers 2060–0637 and 2060–0640. The final standards will not impose new or different reporting requirements on regulated parties than already exist for the RFS program. D. Regulatory Flexibility Act (RFA) I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. In making this determination, the impact of concern is any significant adverse economic impact on small entities. An agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, has no net burden, or otherwise has a positive economic effect on the small entities subject to the rule. The small entities directly regulated by the RFS program are small refiners, which are defined at 13 CFR 121.201. We have evaluated the impacts of this final rule on small entities from two perspectives: As if the 2018 standards E:\FR\FM\12DER2.SGM 12DER2 58526 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations ethrower on DSK3G9T082PROD with RULES were a standalone action or if they are a part of the overall impacts of the RFS program as a whole. When evaluating the standards as if they were a standalone action separate and apart from the original rulemaking which established the RFS2 program, then the standards could be viewed as increasing the advanced and total renewable fuel volumes required of obligated parties by 10 million gallons between 2017 and 2018. To evaluate the impacts of the volume requirements on small entities relative to 2017, EPA has conducted a screening analysis 167 to assess whether it should make a finding that this action would not have a significant economic impact on a substantial number of small entities. Currently available information shows that the impact on small entities from implementation of this rule would not be significant. EPA has reviewed and assessed the available information, which shows that obligated parties, including small entities, are generally able to recover the cost of acquiring the RINs necessary for compliance with the RFS standards through higher sales prices of the petroleum products they sell than would be expected in the absence of the RFS program.168 169 This is true whether they acquire RINs by purchasing renewable fuels with attached RINs or purchase separated RINs. The costs of the RFS program are thus generally being passed on to consumers in the highly competitive marketplace. Even if we were to assume that the cost of acquiring RINs were not recovered by obligated parties, and we used the maximum values of the illustrative costs discussed in Section IV.E of this preamble and the gasoline and diesel fuel volume projections and wholesale prices from the October 2017 version of EIA’s Short-Term Energy Outlook, and current wholesale fuel prices, a cost-to-sales ratio test shows that the costs to small entities of the RFS standards are far less than 1 percent of the value of their sales. 167 ‘‘Screening Analysis for the Final Renewable Fuel Standard Program Renewable Volume Obligations for 2018,’’ memorandum from Dallas Burkholder, Nick Parsons, and Tia Sutton to EPA Air Docket EPA–HQ–OAR–2017–0091. 168 For a further discussion of the ability of obligated parties to recover the cost of RINs see ‘‘A Preliminary Assessment of RIN Market Dynamics, RIN Prices, and Their Effects,’’ Dallas Burkholder, Office of Transportation and Air Quality, US EPA. May 14, 2015, EPA Air Docket EPA–HQ–OAR– 2015–0111. 169 Knittel, Christopher R., Ben S. Meiselman, and James H. Stock. ‘‘The Pass-Through of RIN Prices to Wholesale and Retail Fuels under the Renewable Fuel Standard.’’ Working Paper 21343. NBER Working Paper Series. Available online at http:// www.nber.org/papers/w21343.pdf. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 While the screening analysis described above supports a certification that this rule would not have a significant economic impact on small refiners, we continue to believe that it is more appropriate to consider the standards as a part of ongoing implementation of the overall RFS program. When considered this way, the impacts of the RFS program as a whole on small entities were addressed in the RFS2 final rule (75 FR 14670, March 26, 2010), which was the rule that implemented the entire program required by the Energy Independence and Security Act of 2007 (EISA 2007). As such, the Small Business Regulatory Enforcement Fairness Act (SBREFA) panel process that took place prior to the 2010 rule was also for the entire RFS program and looked at impacts on small refiners through 2022. For the SBREFA process for the RFS2 final rule, EPA conducted outreach, fact-finding, and analysis of the potential impacts of the program on small refiners, which are all described in the Final Regulatory Flexibility Analysis, located in the rulemaking docket (EPA–HQ–OAR–2005–0161). This analysis looked at impacts to all refiners, including small refiners, through the year 2022 and found that the program would not have a significant economic impact on a substantial number of small entities, and that this impact was expected to decrease over time, even as the standards increased. For gasoline and/or diesel small refiners subject to the standards, the analysis included a costto-sales ratio test, a ratio of the estimated annualized compliance costs to the value of sales per company. From this test, it was estimated that all directly regulated small entities would have compliance costs that are less than one percent of their sales over the life of the program (75 FR 14862, March 26, 2010). We have determined that this final rule will not impose any additional requirements on small entities beyond those already analyzed, since the impacts of this rule are not greater or fundamentally different than those already considered in the analysis for the RFS2 final rule assuming full implementation of the RFS program. This rule establishes the 2018 advanced and total renewable fuel volume requirements at levels 10 million gallons higher than the 2017 volume requirements, and significantly below the statutory volume targets. This exercise of EPA’s waiver authority reduces burdens on small entities, as compared to the burdens that would be imposed under the volumes specified in PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 the Clean Air Act in the absence of waivers—which are the volumes that we assessed in the screening analysis that we prepared for implementation of the full program. Regarding the BBD standard, we are maintaining the volume requirement for 2019 at the same level as 2018. While this volume is an increase over the statutory minimum value of 1 billion gallons, the BBD standard is a nested standard within the advanced biofuel category, which we are significantly reducing from the statutory volume targets. As discussed in Section VI, we are setting the 2019 BBD volume requirement at a level below what is anticipated will be produced and used to satisfy the reduced advanced biofuel requirement. The net result of the standards being established in this action is a reduction in burden as compared to implementation of the statutory volume targets, as was assumed in the RFS2 final rule analysis. While the rule will not have a significant economic impact on a substantial number of small entities, there are compliance flexibilities in the program that can help to reduce impacts on small entities. These flexibilities include being able to comply through RIN trading rather than renewable fuel blending, 20 percent RIN rollover allowance (up to 20 percent of an obligated party’s RVO can be met using previous-year RINs), and deficit carryforward (the ability to carry over a deficit from a given year into the following year, providing that the deficit is satisfied together with the next year’s RVO). In the RFS2 final rule, we discussed other potential small entity flexibilities that had been suggested by the SBREFA panel or through comments, but we did not adopt them, in part because we had serious concerns regarding our authority to do so. Additionally, as we realize that there may be cases in which a small entity may be in a difficult financial situation and the level of assistance afforded by the program flexibilities is insufficient. For such circumstances, the program provides hardship relief provisions for small entities (small refiners), as well as for small refineries.170 As required by the statute, the RFS regulations include a hardship relief provision (at 40 CFR 80.1441(e)(2)) that allows for a small refinery to petition for an extension of its small refinery exemption at any time based on a showing that compliance with the requirements of the RFS program would result in the refinery experiencing a ‘‘disproportionate economic hardship.’’ EPA regulations 170 See E:\FR\FM\12DER2.SGM CAA section 211(o)(9)(B). 12DER2 Federal Register / Vol. 82, No. 237 / Tuesday, December 12, 2017 / Rules and Regulations provide similar relief to small refiners that are not eligible for small refinery relief (see 40 CFR 80.1442(h)). EPA evaluates these petitions on a case-bycase basis and may approve such petitions if it finds that a disproportionate economic hardship exists. In evaluating such petitions, EPA consults with the U.S. Department of Energy, and takes the findings of DOE’s 2011 Small Refinery Study and other economic factors into consideration. EPA successfully implemented these provisions by evaluating petitions for exemption from 14 small refineries for the 2016 RFS standards.171 Given that this final rule would not impose additional requirements on small entities, would decrease burden via a reduction in required volumes as compared to statutory volume targets, would not change the compliance flexibilities currently offered to small entities under the RFS program (including the small refinery hardship provisions we continue to successfully implement), and available information shows that the impact on small entities from implementation of this rule would not be significant viewed either from the perspective of it being a standalone action or a part of the overall RFS program, we have therefore concluded that this action would have no net regulatory burden for directly regulated small entities. E. Unfunded Mandates Reform Act (UMRA) This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531–1538, and does not significantly or uniquely affect small governments. This action implements mandates specifically and explicitly set forth in CAA section 211(o) and we believe that this action represents the least costly, most cost-effective approach to achieve the statutory requirements of the rule. ethrower on DSK3G9T082PROD with RULES F. Executive Order 13132: Federalism This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. G. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments This action does not have tribal implications as specified in Executive 171 EPA is currently evaluating 2 additional 2016 petitions, bringing the total number of petitions for 2016 to 16. VerDate Sep<11>2014 22:42 Dec 11, 2017 Jkt 244001 Order 13175. This final rule will be implemented at the Federal level and affects transportation fuel refiners, blenders, marketers, distributors, importers, exporters, and renewable fuel producers and importers. Tribal governments would be affected only to the extent they produce, purchase, and use regulated fuels. Thus, Executive Order 13175 does not apply to this action. H. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks The EPA interprets Executive Order 13045 as applying only to those regulatory actions that concern environmental health or safety risks that the EPA has reason to believe may disproportionately affect children, per the definition of ‘‘covered regulatory action’’ in section 2–202 of the Executive Order. This action is not subject to Executive Order 13045 because it implements specific standards established by Congress in statutes (CAA section 211(o)) and does not concern an environmental health risk or safety risk. I. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This action is not a ‘‘significant energy action’’ because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. This action establishes the required renewable fuel content of the transportation fuel supply for 2018, consistent with the CAA and waiver authorities provided therein. The RFS program and this rule are designed to achieve positive effects on the nation’s transportation fuel supply, by increasing energy independence and lowering lifecycle GHG emissions of transportation fuel. J. National Technology Transfer and Advancement Act (NTTAA) This rulemaking does not involve technical standards. K. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations The EPA believes that this action does not have disproportionately high and adverse human health or environmental effects on minority populations, lowincome populations, and/or indigenous peoples, as specified in Executive Order 12898 (59 FR 7629, February 16, 1994). This final rule does not affect the level of protection provided to human health PO 00000 Frm 00043 Fmt 4701 Sfmt 9990 58527 or the environment by applicable air quality standards. This action does not relax the control measures on sources regulated by the RFS regulations and therefore will not cause emissions increases from these sources. L. Congressional Review Act (CRA) This action is subject to the CRA, and the EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is a ‘‘major rule’’ as defined by 5 U.S.C. 804(2). XI. Statutory Authority Statutory authority for this action comes from section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural and compliance related aspects of this final rule comes from sections 114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a). List of Subjects in 40 CFR Part 80 Environmental protection, Administrative practice and procedure, Air pollution control, Diesel fuel, Fuel additives, Gasoline, Imports, Oil imports, Petroleum, Renewable fuel. Dated: November 30, 2017. E. Scott Pruitt, Administrator. For the reasons set forth in the preamble, EPA amends 40 CFR part 80 as follows: PART 80—REGULATION OF FUELS AND FUEL ADDITIVES 1. The authority citation for part 80 continues to read as follows: ■ Authority: 42 U.S.C. 7414, 7521, 7542, 7545, and 7601(a). Subpart M—Renewable Fuel Standard 2. Section 80.1405 is amended by adding paragraph (a)(9) to read as follows: ■ § 80.1405 What are the Renewable Fuel Standards? (a) * * * (9) Renewable Fuel Standards for 2018. (i) The value of the cellulosic biofuel standard for 2018 shall be 0.159 percent. (ii) The value of the biomass-based diesel standard for 2018 shall be 1.74 percent. (iii) The value of the advanced biofuel standard for 2018 shall be 2.37 percent. (iv) The value of the renewable fuel standard for 2018 shall be 10.67 percent. * * * * * [FR Doc. 2017–26426 Filed 12–11–17; 8:45 am] BILLING CODE 6560–50–P E:\FR\FM\12DER2.SGM 12DER2

Agencies

[Federal Register Volume 82, Number 237 (Tuesday, December 12, 2017)]
[Rules and Regulations]
[Pages 58486-58527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26426]



[[Page 58485]]

Vol. 82

Tuesday,

No. 237

December 12, 2017

Part II





Environmental Protection Agency





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40 CFR Part 80





Renewable Fuel Standard Program: Standards for 2018 and Biomass-Based 
Diesel Volume for 2019; Rule

Federal Register / Vol. 82 , No. 237 / Tuesday, December 12, 2017 / 
Rules and Regulations

[[Page 58486]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2017-0091; FRL-9971-73-OAR]
RIN 2060-AT04


Renewable Fuel Standard Program: Standards for 2018 and Biomass-
Based Diesel Volume for 2019

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under section 211 of the Clean Air Act, the Environmental 
Protection Agency (EPA) is required to set renewable fuel percentage 
standards every year. This action establishes the annual percentage 
standards for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel that apply to gasoline and diesel 
transportation fuel produced or imported in the year 2018. Relying on 
statutory waiver authority that is available when projected cellulosic 
biofuel production volumes are less than the applicable volume 
specified in the statute, the EPA is establishing volume requirements 
for cellulosic biofuel, advanced biofuel, and total renewable fuel that 
are below the statutory volume targets. In this action, we are also 
establishing the applicable volume of biomass-based diesel for 2019.

DATES: This final rule is effective on February 12, 2018.

ADDRESSES: The EPA has established a docket for this action under 
Docket ID No. EPA-HQ-OAR-2017-0091. All documents in the docket are 
listed on the http://www.regulations.gov Web site. 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, is not placed on the 
internet and will be publicly available only in hard copy form. 
Publicly available docket materials are available electronically 
through http://www.regulations.gov.

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; email address: 
[email protected].

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

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                                         NAICS 1 codes    SIC 2 codes
               Category                                                                    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..............................          221210            4925  Manufactured gas production and distribution.
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 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your entity would be regulated by this action, you should carefully 
examine the applicability criteria in 40 CFR part 80. If you have any 
questions regarding the applicability of this action to a particular 
entity, consult the person listed in the FOR FURTHER INFORMATION 
CONTACT section.

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Approach to Setting Volume Requirements
    2. Cellulosic Biofuel
    3. Advanced Biofuel
    4. Total Renewable Fuel
    6. 2019 Biomass-Based Diesel
    7. Annual Percentage Standards
II. Authority and Need for Waiver of Statutory Applicable Volumes
    A. Statutory Authorities for Reducing Volume Targets
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    B. Treatment of Carryover RINs
    1. Updated Projection of Carryover RIN Volume
    2. EPA's Decision Regarding the Treatment of Carryover RINs
III. Cellulosic Biofuel Volume for 2018
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Projection from the Energy Information Administration
    D. Cellulosic Biofuel Volume for 2018
    1. Liquid Cellulosic Biofuel
    2. CNG/LNG Derived From Biogas
    3. Total Cellulosic Biofuel in 2018
IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2018
    A. Volumetric Limitation on Use of the Cellulosic Waiver 
Authority
    B. Reasonably Attainable Volumes of Advanced Biofuel
    1. Imported Sugarcane Ethanol
    2. Biodiesel and Renewable Diesel
    3. Other Advanced Biofuel
    4. Total Advanced Biofuel
    C. Exercise of Cellulosic Waiver Authority for Advanced Biofuel
    D. Exercise of Cellulosic Waiver Authority for Total Renewable 
Fuel
    E. Impacts of 2018 Standards on Costs
    1. Illustrative Cost Savings Associated With Reducing Statutory 
Cellulosic Volumes
    2. Illustrative Cost Analysis of Advanced Biofuels Using 2017 as 
the Baseline
V. Consideration of Additional Reductions Using Other Waiver 
Authorities
    A. Inadequate Domestic Supply
    B. Severe Economic Harm
    C. Severe Environmental Harm
    D. Biomass-Based Diesel Waiver Authority
VI. Final Biomass-Based Diesel Volume for 2019
    A. Statutory Requirements
    B. Determination of the 2019 Applicable Volume of Biomass-Based 
Diesel
    C. Consideration of Statutory Factors set forth in CAA Section 
211(o)(2)(B)(ii)(I)-(VI) for 2019
VII. Percentage Standards for 2018
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Final Standards
VIII. Administrative Actions
    A. Assessment of the Domestic Aggregate Compliance Approach

[[Page 58487]]

    B. Assessment of the Canadian Aggregate Compliance Approach
    C. RIN Market Operation
IX. Public Participation
X. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Executive Order 13771: Reducing Regulations and Controlling 
Regulatory Costs
    C. Paperwork Reduction Act (PRA)
    D. Regulatory Flexibility Act (RFA)
    E. Unfunded Mandates Reform Act (UMRA)
    F. Executive Order 13132: Federalism
    G. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    H. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    I. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    J. National Technology Transfer and Advancement Act (NTTAA)
    K. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    L. Congressional Review Act (CRA)
XI. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to 
the requirements in Clean Air Act (CAA) section 211(o) that were added 
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), leading to the 
publication of major revisions to the regulatory requirements on March 
26, 2010.\1\ EISA's stated goals include moving the United States (U.S) 
toward ``greater energy independence and security [and] to increase the 
production of clean renewable fuels.'' Today, nearly all gasoline used 
for transportation purposes contains 10 percent ethanol (E10), and on 
average diesel fuel contains more than 4 percent biodiesel and/or 
renewable diesel.\2\
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    \1\ 75 FR 14670, March 26, 2010.
    \2\ Average biodiesel and/or renewable diesel blend percentages 
based on EIA's October 2017 Short Term Energy Outlook (STEO).
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    The statute includes annual volume targets, and requires EPA to 
translate those volume targets (or alternative volume requirements 
established by EPA in accordance with statutory waiver authorities) 
into compliance obligations that obligated parties must meet every 
year. In this action, we are establishing the annual percentage 
standards for cellulosic biofuel, biomass-based diesel (BBD), advanced 
biofuel, and total renewable fuel that would apply to all gasoline and 
diesel produced or imported in 2018. We are also establishing the 
applicable volume of BBD for 2019.
    Real-world challenges, in particular the slower-than-expected 
development of the cellulosic biofuel industry, has slowed progress 
towards meeting Congressional goals for renewable fuels. Given the 
nested nature of the standards, the shortfall in cellulosic biofuels 
has made the volume targets established by Congress for 2018 for 
advanced biofuels and total renewable fuels beyond reach. On July 21, 
2017, EPA published a proposed rulemaking, containing proposed volume 
requirements for the RFS Program's four categories of renewable fuels 
that would apply in 2018 (and 2019 for BBD).\3\ On August 1, EPA hosted 
a public hearing on the proposed rule, and EPA received over 235,000 
written comments on the proposed rule as well. On October 4, 2017 (82 
FR 46174), EPA published an ``Availability of Supplemental Information; 
Request for Further Comment,'' (hereinafter, ``October 4 document'') 
seeking further comment on the possible use of other waiver authorities 
in the final rule. Transcripts of the public hearing, along with all 
the comments received on the proposed rule and the October 4 document 
are available in the docket. After careful review of the information 
before us we are finalizing volume requirements for 2018 for cellulosic 
biofuel, advanced biofuel and total renewable fuel that are lower than 
the statutory targets, but nevertheless will ensure these renewable 
fuels will continue to play a critical role as a complement to our 
petroleum-based fuels. The final rule modifies the volume requirements 
slightly relative to the proposed rule, and in this notice we explain 
where and why such modifications were made.
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    \3\ 82 FR 34206, July 21, 2017.
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    In this action, we are finalizing volume requirements for 
cellulosic biofuel at the level we project to be available for 2018. We 
are using the ``cellulosic waiver authority'' provided by the statute 
to finalize volume requirements for advanced biofuel and total 
renewable fuel that are lower than the statutory targets by the same 
magnitude as the reduction in the cellulosic biofuel reduction (i.e., 
the volumes we are finalizing for cellulosic biofuel, advanced biofuel, 
and total renewable fuel are all 6.71 billion gallons lower than the 
statutory volumes). We are not reducing volumes through use of the 
general waiver authority or the biomass-based diesel waiver 
authority.\4\ We note that while we are reducing the required volume of 
total renewable fuel, advanced biofuel and cellulosic biofuel below 
statutory levels, the required volumes in this rule would achieve the 
implied statutory volumes for conventional biofuel \5\ and non-
cellulosic advanced biofuel \6\ for 2018.
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    \4\ See 42 U.S.C. 7545(o)(7)(A)(i-ii). See also the discussion 
of the general waiver authority in Section II.A.2. below.
    \5\ Throughout this final rule conventional biofuel refers to 
biofuel that qualifies as renewable fuel, but does not qualify as an 
advanced biofuel. RINs generated for conventional biofuels have a D 
code of 6.
    \6\ Throughout this final rule non-cellulosic advanced biofuel 
refers to biofuel that qualifies as advanced biofuel, but does not 
qualify as cellulosic biofuel. RINs generated for non-cellulosic 
advanced biofuels have a D code of 4 or 5.
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    The final volume requirements for 2018 are shown in Table I-1 
below. Relative to the levels finalized for 2017, the 2018 volume 
requirements for advanced biofuel and total renewable fuel are higher 
by 10 million gallons. EPA is reducing the advanced biofuel and total 
renewable fuel statutory volumes by the same amount as we are reducing 
the cellulosic biofuel volume. These reductions effectively preserve 
the implied statutory volumes for conventional renewable fuel and non-
cellulosic advanced biofuels. We are establishing the volume 
requirement for BBD for 2019 at the proposed volume of 2.1 billion 
gallons.

                 Table I-1--Final Volume Requirements a
------------------------------------------------------------------------
                                               2018            2019
------------------------------------------------------------------------
Cellulosic biofuel (million gallons)....             288             n/a
Biomass-based diesel (billion gallons)..           b 2.1             2.1
Advanced biofuel (billion gallons)......            4.29             n/a

[[Page 58488]]

 
Renewable fuel (billion gallons)........           19.29             n/a
------------------------------------------------------------------------
a All values are ethanol-equivalent on an energy content basis, except
  for BBD which is biodiesel-equivalent.
\b\ The 2018 BBD volume requirement was established in the 2017 final
  rule (81 FR 89746, December 12, 2016).

A. Purpose of This Action

    The national volume targets of renewable fuel that are intended to 
be achieved under the RFS program each year (absent an adjustment or 
waiver by EPA) are specified in CAA section 211(o)(2). The statutory 
volume targets for 2018 are shown in Table I.A-1, along with the 2017 
targets for comparison. The cellulosic biofuel and BBD categories are 
nested within the advanced biofuel category, which is itself nested 
within the total renewable fuel category. This means, for example, that 
each gallon of cellulosic biofuel or BBD that is used to satisfy the 
individual volume requirements for those fuel types can also be used to 
satisfy the requirements for advanced biofuel and total renewable fuel.

  Table I.A-1--Applicable Volume Targets Specified in the Clean Air Act
                           [Billion gallons] a
------------------------------------------------------------------------
                                               2017            2018
------------------------------------------------------------------------
Cellulosic biofuel......................             5.5             7.0
Biomass-based diesel....................           >=1.0           >=1.0
Advanced biofuel........................             9.0            11.0
Renewable fuel..........................            24.0            26.0
------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except
  values for BBD which are given in actual gallons.

    Under the RFS program, EPA is required to determine and publish 
annual percentage standards for each compliance year. The percentage 
standards are calculated to ensure use in transportation fuel of the 
national ``applicable volumes'' of the four types of biofuel 
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel) 
that are set forth in the statute or established by EPA in accordance 
with the Act's requirements. The percentage standards are used by 
obligated parties (generally, producers and importers of gasoline and 
diesel fuel) to calculate their individual compliance obligations. Each 
of the four percentage standards is applied to the volume of non-
renewable gasoline and diesel that each obligated party produces or 
imports during the specified calendar year to determine their 
individual volume obligations with respect to the four renewable fuel 
types. The individual volume obligations determine the number of 
Renewable Identification Numbers (RINs) of each renewable fuel type 
that each obligated party must acquire and retire to demonstrate 
compliance.
    EPA is establishing the annual applicable volume requirements for 
cellulosic biofuel, advanced biofuel, and total renewable fuel for 
2018, and for BBD for 2019.\7\ Table I.A-2 lists the statutory 
provisions and associated criteria relevant to determining the national 
applicable volumes used to set the percentage standards in this final 
rule.
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    \7\ The 2018 BBD volume requirement was established in the 2017 
final rule.

    Table I.A-2--Statutory Provisions for Determination of Applicable
                                 Volumes
------------------------------------------------------------------------
                                                    Criteria provided in
                                  Clean Air Act         statute for
      Applicable volumes            reference         determination of
                                                     applicable volume
------------------------------------------------------------------------
Cellulosic biofuel............  211(o)(7)(D)(i)..  Required volume must
                                                    be lesser of volume
                                                    specified in CAA
                                                    211(o)(2)(B)(i)(III)
                                                    or EPA's projected
                                                    volume.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Biomass-based diesel..........  211(o)(2)(B)(ii)   Required volume for
                                 and (v).           years after 2012
                                                    must be at least 1.0
                                                    billion gallons, and
                                                    must be based on a
                                                    review of
                                                    implementation of
                                                    the program,
                                                    coordination with
                                                    other federal
                                                    agencies, and an
                                                    analysis of
                                                    specified factors.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
                                211(o)(7)(E).....  EPA in consultation
                                                    with other federal
                                                    agencies shall issue
                                                    a temporary waiver
                                                    of applicable
                                                    volumes of BBD where
                                                    there is a
                                                    significant
                                                    feedstock disruption
                                                    or other market
                                                    circumstance that
                                                    would make the price
                                                    of BBD fuel increase
                                                    significantly. When
                                                    exercising this
                                                    authority, EPA is
                                                    also authorized to
                                                    reduce the
                                                    applicable volumes
                                                    of advanced and
                                                    total renewable fuel
                                                    by the same or a
                                                    lesser volume.

[[Page 58489]]

 
Advanced biofuel..............  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
                                211(o)(7)(E).....  If applicable volume
                                                    of biomass-based
                                                    diesel is reduced,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume.
Total renewable fuel..........  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
                                211(o)(7)(E).....  If applicable volume
                                                    of biomass-based
                                                    diesel is reduced,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume.
------------------------------------------------------------------------

    As shown in Table I.A-2, the statutory authorities allowing EPA to 
modify or set the applicable volumes differ for the four categories of 
renewable fuel. Under the statute, EPA must annually determine the 
projected volume of cellulosic biofuel production for the following 
year. If the projected volume of cellulosic biofuel production is less 
than the applicable volume specified in CAA section 
211(o)(2)(B)(i)(III) of the statute, EPA must lower the applicable 
volume used to set the annual cellulosic biofuel percentage standard to 
the projected production volume. In Section III of this final rule, we 
present our analysis of cellulosic biofuel production and the 
applicable volume for 2018. This analysis is based primarily on the 
estimate of cellulosic biofuel production for 2018 conducted by the 
Energy Information Administration (EIA),\8\ information reported to EPA 
through our Electronic Moderated Transaction System (EMTS), comments 
received on our proposed rule, and an evaluation of producers' 
production plans and progress to date following discussions with 
cellulosic biofuel producers.
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    \8\ ``Letter from EIA to EPA on 2018 projected volumes,'' 
available in docket EPA-HQ-OAR-2017-0091.
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    With regard to BBD, CAA section 211(o)(2)(B) specifies the 
applicable volumes of BBD to be used in the RFS program only through 
year 2012. For subsequent years the statute sets a minimum volume of 1 
billion gallons, and directs EPA, in coordination with the U.S. 
Departments of Agriculture (USDA) and Energy (DOE), to determine the 
required volume after review of implementation of the renewable fuels 
program and consideration of a number of factors. The BBD volume 
requirement must be established 14 months before the year in which it 
will apply. In the 2017 final rule we established the BBD volume for 
2018. In Section VI of this preamble we discuss our assessment of 
statutory and other relevant factors and our final volume requirement 
for BBD for 2019, which has been developed in coordination with USDA 
and DOE. We are establishing an applicable volume of 2.1 billion 
gallons of BBD for use in deriving the BBD percentage standard in 2019. 
This volume is equal to the applicable volume of BBD established in a 
prior rulemaking for 2018, and would provide continued support to an 
industry that is a significant contributor to the pool of advanced 
biofuel, while at the same time setting the volume requirement in a 
manner anticipated to provide a continued incentive for the development 
of other types of advanced biofuel.
    Regarding advanced biofuel and total renewable fuel, Congress 
provided several mechanisms through which the statutory targets could 
be reduced if necessary. If we reduce the applicable volume of 
cellulosic biofuel below the volume specified in CAA section 
211(o)(2)(B)(i)(III), we also have the authority to reduce the 
applicable volumes of advanced biofuel and total renewable fuel by the 
same or a lesser amount. We refer to this as the ``cellulosic waiver 
authority.'' We may also reduce the applicable volumes of any of the 
four renewable fuel types using the ``general waiver authority'' 
provided in CAA section 211(o)(7)(A) if EPA, in consultation with USDA 
and DOE, finds that implementation of the statutory volumes would 
severely harm the economy or environment of a State, region, or the 
U.S., or if there is inadequate domestic supply. We are also authorized 
under CAA section 211(o)(7)(E) to reduce the applicable volume of BBD 
established for 2018, and to make equal or lesser reductions in the 
2018 applicable volumes of advanced biofuel and total renewable fuel, 
if we determine that there is a significant renewable feedstock 
disruption or other market circumstance that would make the price of 
BBD increase significantly. Sections II and IV of this final rule 
describe our use of the cellulosic waiver authority alone to derive the 
volumes of advanced biofuel and total renewable fuel that are below the 
statutory target volumes, and our assessment that the resulting volumes 
can be met. We believe that reductions in the statutory targets for 
cellulosic biofuel, advanced biofuel and total renewable fuel for 2018 
are necessary. However, in light of our review of available 
information, we are making those reductions under the cellulosic waiver 
authority alone and are not reducing them further under other waiver 
authorities. Thus, the reductions in both the advanced and total

[[Page 58490]]

renewable fuel standards are directly attributable to the significant 
shortfall in cellulosic biofuel production, as compared to the 
statutory targets. A discussion of our consideration of the general 
waiver authority and biomass-based diesel waiver authority to further 
reduce the required biofuel volumes in 2018 can be found in Section V.

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this final 
rule. We are establishing applicable volume requirements and associated 
percentage standards for cellulosic biofuel, advanced biofuel, and 
total renewable fuel for 2018; for BBD we are establishing the 
percentage standard for 2018 and the applicable volume requirement for 
2019.
1. Approach to Setting Volume Requirements
    The approach we have taken in this final rule of using the 
cellulosic waiver authority to reduce advanced biofuel and total 
renewable fuel by the same amount as the reduction in the required 
volume of cellulosic biofuel is the same approach as in our proposed 
rule, but is a departure from our approach to using the cellulosic 
biofuel waiver authority in previous years. In previous years we have 
used the cellulosic waiver authority to reduce the advanced biofuel and 
total renewable fuel volume requirements by a lesser amount than the 
reduction in the cellulosic biofuel volume requirement to allow 
reasonably attainable volumes of advanced biofuels to partially 
backfill for missing cellulosic biofuel volumes. However, the approach 
we have taken for 2018 does not result in a reduction in the volume 
requirement for non-cellulosic advanced biofuel. While the implied 
statutory volume for non-cellulosic advanced biofuel increased by 500 
million gallons from 2017 to 2018, through our 2017 action we 
effectively required early use of approximately 0.5 billion gallons of 
non-cellulosic advanced volume that Congress envisioned would be first 
used in 2018.\9\ Therefore, despite using the cellulosic waiver 
authority to reduce the volume of advanced biofuel by the same amount 
as cellulosic biofuel, the advanced biofuel volume requirement for 2018 
is 10 million gallons higher than the advanced biofuel volume 
requirement in 2017. In this rule we are reducing all three volume 
requirements by the same amount after considering the greenhouse gas 
(GHG), energy security benefits, and anticipated costs of advanced 
biofuels that would occur at levels beyond those being finalized today.
---------------------------------------------------------------------------

    \9\ The statutory advanced biofuel and cellulosic biofuel 
requirements for 2018 are 11.0 and 7.0 billion gallons respectively. 
This implies a non-cellulosic advanced biofuel statutory volume of 
4.0 billion gallons. The statutory advanced biofuel and cellulosic 
biofuel requirements for 2017 are 9.0 and 5.5 billion gallons 
respectively. This implies a non-cellulosic advanced biofuel 
statutory volume of 3.5 billion gallons. In 2017 EPA established 
required volumes of advanced biofuel and cellulosic biofuel of 4.28 
billion and 311 million gallons respectively, implying a non-
cellulosic advanced biofuel volume of 3.97 billion gallons.
---------------------------------------------------------------------------

    Section II provides a general description of our approach to 
setting volume requirements in today's rule, including a review of the 
statutory waiver authorities and our consideration of carryover RINs. 
Section III provides our assessment of the 2018 cellulosic biofuel 
volume, based on a projection of production that reflects a neutral aim 
at accuracy. Sections IV and V describe our assessments of advanced 
biofuel and total renewable fuel, and consideration of the general and 
biomass-based diesel waiver authorities. Finally, Section VI provides 
our determination regarding the 2019 BBD volume requirement, and 
reflects an analysis of a set of factors stipulated in CAA section 
211(o)(2)(B)(ii).
2. Cellulosic Biofuel
    In the past several years the cellulosic biofuel industry has 
continued to make progress towards increased commercial scale 
production. Cellulosic biofuel production reached record levels in 2016 
and has continued to grow throughout 2017, driven largely by compressed 
natural gas (CNG) and liquefied natural gas (LNG) derived from biogas. 
Liquid cellulosic biofuels, while produced in much smaller quantities 
than CNG/LNG derived from biogas, have been produced at steady but 
relatively small volumes throughout 2017. In this rule we are 
establishing a cellulosic biofuel volume requirement of 288 million 
ethanol-equivalent gallons for 2018 based on our production projection. 
Our projection reflects consideration of a production estimate from 
EIA, RIN generation data available to EPA through EMTS, comments we 
received on the proposed rule, the information we have received 
regarding individual facilities' capacities, production start dates and 
biofuel production plans, a review of cellulosic biofuel production 
relative to EPA's projections in previous annual rules, and EPA's own 
engineering judgment. To project cellulosic biofuel production for 2018 
we used the same basic methodology described in the proposed rule. 
However, we have used updated data to derive percentile values used in 
our production projection for liquid cellulosic biofuels and to derive 
the year-over-year change in the rate of production of CNG/LNG derived 
from biogas that is used in the projection for CNG/LNG. (See Section 
III for further detail on the methodology used to project cellulosic 
biofuel production.)
    In estimating the volume of liquid cellulosic biofuel that will be 
made available in the U.S. in 2018, we considered all potential 
production sources by company and facility. This included facilities 
still in the commissioning or start-up phases, as well as facilities 
already producing some volume of cellulosic biofuel.\10\ From this 
universe of potential liquid cellulosic biofuel sources, we identified 
the subset that is expected to produce commercial volumes of qualifying 
liquid cellulosic biofuel for use as transportation fuel, heating oil, 
or jet fuel by the end of 2018. To arrive at projected volumes, we 
collected relevant information on each facility. We then developed 
projected production ranges based on factors such as progress towards 
construction and production goals, facility registration status, 
production volumes achieved, and other significant factors that could 
potentially impact fuel production or the ability of the produced fuel 
to qualify for cellulosic biofuel RINs. We also used this information 
to group these companies based on production history and to select a 
value within the aggregated projected production ranges that we believe 
best represents the most likely production volume from each group of 
companies in 2018.
---------------------------------------------------------------------------

    \10\ Facilities primarily focused on research and development 
(R&D) were not the focus of our assessment, as production from these 
facilities represents very small volumes of cellulosic biofuel, and 
these facilities typically have not generated RINs for the fuel they 
have produced.
---------------------------------------------------------------------------

    For 2018, we are using an industry wide, rather than a facility-by-
facility approach to project the production of CNG/LNG derived from 
biogas. We believe this approach is appropriate due to the mature state 
of this technology, the large number of facilities that are registered 
to produce cellulosic biofuel RINs for these fuels, and the fact that 
their volumes are likely to be affected more by market wide factors 
than individual company situations. Further discussion on our 
projection of cellulosic biofuel production in 2018, including the 
factors considered and the way these factors were used to determine our 
final cellulosic biofuel projection, can be found in Section III.

[[Page 58491]]

3. Advanced Biofuel
    We are finalizing required advanced biofuel requirements using the 
same approach used in the July proposed rulemaking. As was the case at 
the time of proposal, the conditions that compelled us to reduce the 
2017 volume requirement for advanced biofuel below the statutory target 
remain relevant in 2018. As for 2017, we investigated the ability of 
volumes of non-cellulosic advanced biofuels to backfill unavailable 
volumes of cellulosic biofuel in 2018. We took into account the various 
constraints on the ability of the market to make advanced biofuels 
available, the ability of the standards we set to bring about market 
changes in the time available, the potential impacts associated with 
diverting biofuels and/or biofuel feedstocks from current use to the 
production of advanced biofuel used in the U.S., the fact that the 
biodiesel tax credit is currently not available for 2018, the proposed 
countervailing duties on imports of biodiesel from Argentina and 
Indonesia, as well as the cost of advanced biofuels. Based on these 
considerations we have decided to reduce the applicable volume of 
advanced biofuel by the same amount as we are reducing the applicable 
volume of cellulosic biofuels. This results in an advanced biofuel 
volume for 2018 that is 10 million gallons higher than the advanced 
biofuel volume for 2017. Although we determined that a small amount of 
reasonably attainable volumes of advanced biofuel could be used to 
backfill a portion of the missing cellulosic biofuel, for reasons 
described in Section IV, we are not exercising the discretion provided 
under the cellulosic waiver authority in a manner that would lead to 
that result.
    As mentioned above, we are exercising our cellulosic waiver 
authority to reduce the statutory applicable volume of advanced biofuel 
to a volume requirement of 4.29 billion gallons for 2018. This 
applicable volume for 2018 is 10 million gallons higher than the 
applicable volume for advanced biofuel for 2017.
4. Total Renewable Fuel
    Following our determination of the appropriate volume reduction for 
advanced biofuel for 2018 using the cellulosic waiver authority, we 
calculated what the total renewable fuel volume would be if we provide 
the same level of reduction using the cellulosic waiver authority. The 
resulting volume is 19.29 billion gallons.
5. Other Waiver Authorities
    We have evaluated whether additional reductions in cellulosic 
biofuel, biomass-based diesel, advanced biofuel, or total renewable 
fuel are warranted for 2018 using either the general waiver authority 
or the BBD waiver authority and have determined that additional 
reductions are not warranted at this time.
6. 2019 Biomass-Based Diesel
    In EISA, Congress specified increasing applicable volumes of BBD 
through 2012. Beyond 2012 Congress stipulated that EPA, in coordination 
with DOE and USDA, was to establish the BBD volume taking into 
consideration implementation of the program to date and various 
specified factors, providing that the required volume for BBD could not 
be less than 1.0 billion gallons. For 2013, EPA established an 
applicable volume of 1.28 billion gallons. For 2014 and 2015 we 
established the BBD volume requirement to reflect the actual volume for 
each of these years of 1.63 and 1.73 billion gallons.\11\ For 2016 and 
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons 
respectively. Finally, for 2018 the BBD volume requirement was set at 
2.1 billion gallons. We proposed to maintain this level for 2019.
---------------------------------------------------------------------------

    \11\ The 2015 BBD standard was based on actual data for the 
first 9 months of 2015 and on projections for the latter part of the 
year for which data on actual use was not available at the time.
---------------------------------------------------------------------------

    Given current and recent market conditions, the advanced biofuel 
volume requirement is driving the production and use of biodiesel and 
renewable diesel volumes over and above volumes required through the 
separate BBD standard, and we expect this to continue. For 2019, EPA 
continues to believe that it would still be appropriate to provide a 
floor above the statutory minimum of 1 billion gallons to provide a 
guaranteed level of support for the continued production and use of 
BBD. However, we also believe that the volume of BBD supplied in 
previous years demonstrates that the advanced biofuel standard is 
capable of incentivizing additional supply of these fuels above the 
volume required by the BBD standard. Thus, based on a review of the 
implementation of the program to date and all the factors required 
under the statute, and in coordination with USDA and DOE, we are 
finalizing an applicable volume of BBD for 2019 at the proposed volume 
of 2.1 billion gallons.
7. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage 
and are used by each producer and importer of fossil-based gasoline or 
diesel to determine their renewable fuel volume obligations.
    Four separate percentage standards are required under the RFS 
program, corresponding to the four separate renewable fuel categories 
shown in Table I.A-1. The specific formulas we use in calculating the 
renewable fuel percentage standards are contained in the regulations at 
40 CFR 80.1405. The percentage standards represent the ratio of the 
national applicable volume of renewable fuel volume to the national 
projected non-renewable gasoline and diesel volume less any gasoline 
and diesel attributable to small refineries granted an exemption prior 
to the date that the standards are set. The volume of transportation 
gasoline and diesel used to calculate the percentage standards was 
based on a letter provided to the EPA by EIA, as required by 
statute.\12\ The percentage standards for 2018 are shown in Table 
I.B.7-1. Detailed calculations can be found in Section VII, including 
the projected gasoline and diesel volumes used.
---------------------------------------------------------------------------

    \12\ ``Letter from EIA to EPA on 2018 projected volumes,'' 
available in docket EPA-HQ-OAR-2017-0091.

             Table I.B.7-1--Final 2018 Percentage Standards
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................          0.159%
Biomass-based diesel....................................           1.74%
Advanced biofuel........................................           2.37%
Renewable fuel..........................................          10.67%
------------------------------------------------------------------------

8. Assessment of Aggregate Compliance
    By November 30 of each year we are required to assess the status of 
the aggregate compliance approach to land use restrictions under the 
definition of renewable biomass for both the U.S. and Canada. In 
today's action we are providing the final announcements for these 
administrative actions. As described in Section VIII.A, based on data 
provided by the USDA and using the methodology in place since 2014, we 
have estimated that U.S. agricultural land totaled approximately 376 
million acres in 2017 and thus did not exceed the 2007 baseline 
acreage. This assessment means that the aggregate compliance provision 
can continue to be used in the U.S. for calendar year 2018.
    On September 29, 2011, EPA approved the use of a similar aggregate 
compliance approach for planted crops and crop residue grown in Canada. 
As

[[Page 58492]]

described in Section VIII.B, based on data provided by Canada, we have 
estimated that Canadian agricultural land totaled approximately 117.8 
million acres in 2017 and thus did not exceed the 2007 baseline 
acreage. This assessment means that the aggregate compliance provision 
can continue to be used in Canada for calendar year 2018.

II. Authority and Need for Waiver of Statutory Applicable Volumes

    The CAA provides EPA with the authority to enact volume 
requirements below the applicable volume targets specified in the 
statute under specific circumstances. This section discusses those 
authorities.

A. Statutory Authorities for Reducing Volume Targets

    In CAA section 211(o)(2), Congress specified increasing annual 
volume targets for total renewable fuel, advanced biofuel, and 
cellulosic biofuel for each year through 2022, and for BBD through 
2012, and authorized EPA to set volume requirements for subsequent 
years in coordination with USDA and DOE, and after consideration of 
specified factors. However, Congress also recognized that under certain 
circumstances it would be appropriate for EPA to set volume 
requirements at a lower level than reflected in the statutory volume 
targets, and thus provided waiver provisions in CAA section 211(o)(7).
1. Cellulosic Waiver Authority
    Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines 
that the projected volume of cellulosic biofuel production for a given 
year is less than the applicable volume specified in the statute, that 
EPA must reduce the applicable volume of cellulosic biofuel required to 
the projected production volume for that calendar year. In making this 
projection, EPA may not ``adopt a methodology in which the risk of 
overestimation is set deliberately to outweigh the risk of 
underestimation'' and must make a projection that ``aims at accuracy.'' 
API v. EPA, 706 F.3d 474, 479 (D.C. Cir. 2013). Pursuant to this 
provision, EPA has set the cellulosic biofuel requirement lower than 
the statutory volumes for each year since 2010. As described in Section 
III.D, the projected volume of cellulosic biofuel production for 2018 
is less than the 7.0 billion gallon volume target in the statute. 
Therefore, for 2018, we are setting the cellulosic biofuel volume 
requirement at a level lower than the statutory applicable volume, in 
accordance with this provision.
    CAA section 211(o)(7)(D)(i) also provides EPA with the authority to 
reduce the applicable volume of total renewable fuel and advanced 
biofuel in years when it reduces the applicable volume of cellulosic 
biofuel under that provision. The reduction must be less than or equal 
to the reduction in cellulosic biofuel. For 2018, we are also reducing 
the applicable volumes of advanced biofuel and total renewable fuel 
under this authority.
    The cellulosic waiver authority is discussed in detail in the 
preamble to the 2017 final rule and that discussion is incorporated by 
reference.\13\ See also, API v. EPA, 706 F.3d 474 (D.C. Cir. 2013) 
(requiring that EPA's cellulosic biofuel projections reflect a neutral 
aim at accuracy), Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014) 
(affirming EPA's broad discretion under the cellulosic waiver authority 
to reduce volumes of advanced biofuel and total renewable fuel), and 
Americans for Clean Energy v. EPA (``ACE''), 864 F.3d 691 (D.C. Cir. 
2017) (discussed below).
---------------------------------------------------------------------------

    \13\ See 81 FR 89752-89753 (December 12, 2016).
---------------------------------------------------------------------------

    In ACE, the court evaluated EPA's use of the cellulosic waiver 
authority in the 2014-2016 annual rulemaking to reduce the advanced 
biofuel and total renewable fuel volumes for 2014, 2015, and 2016. 
There, EPA used the cellulosic waiver authority to reduce the standard 
for advanced biofuel to a volume that was reasonably attainable, and 
then provided a comparable reduction under this authority for total 
renewable fuel.\14\ The Court of Appeals for the District of Columbia, 
relying on the analysis in Monroe Energy, reaffirmed that EPA enjoys 
``broad discretion'' under the cellulosic waiver authority ``to 
consider a variety of factors--including demand-side constraints in the 
advanced biofuels market.'' \15\ The Court noted that the only textual 
limitation on the use of the cellulosic waiver authority is that it 
cannot exceed the amount of the reduction in cellulosic biofuel.\16\ 
The Court contrasted the general waiver authority under CAA section 
211(o)(7)(A) and the biomass based diesel waiver authority under CAA 
section 211(o)(7)(E), which ``detail the considerations and procedural 
steps that EPA must take before waiving fuel requirements,'' with the 
cellulosic waiver authority, which identifies no factors regarding 
reductions in advanced and total renewable fuel other than the 
limitation that any such reductions may not exceed the reduction in 
cellulosic biofuel volumes.\17\ The Court also concluded that the scope 
of EPA's discretionary authority to reduce advanced and total volumes 
is the same under the cellulosic waiver provision whether EPA is 
declining to exercise its authority to waive volumes, or choosing to do 
so.\18\
---------------------------------------------------------------------------

    \14\ See 80 FR 77433-34 (December 14, 2015).
    \15\ ACE at 730.
    \16\ Id. at 733.
    \17\ Id.
    \18\ Id.
---------------------------------------------------------------------------

    In this action we are reducing the statutory volume targets for 
advanced biofuels and total renewable fuel by equal amounts, as was our 
approach in using the cellulosic waiver authority in setting the 2014-
2017 standards. EPA's reasoning for an equal reduction is explained in 
the 2017 final rule.\19\ We have made a determination, as described in 
Section IV, that the applicable volume for advanced biofuels specified 
in the statute for 2018 cannot be achieved and we are exercising our 
cellulosic waiver authority to lower the applicable volume of advanced 
biofuel, and to provide an equal reduction in the applicable volume of 
total renewable fuel. In addition, we have determined that there is 
likely to be adequate supply to satisfy the total renewable fuel volume 
derived through applying an equal volume reduction as for advanced 
biofuel as discussed in Section V. Therefore, we have determined that 
no further reductions of the total renewable fuel volume requirement 
are necessary to address supply concerns.\20\ The resulting volumes of 
advanced and total renewable fuel resulting from this exercise of the 
cellulosic waiver authority provide for an implied volume allowance for 
conventional biofuel of fifteen billion gallons, equal to that 
envisioned by Congress for 2018.
---------------------------------------------------------------------------

    \19\ See 81 FR 89752-89753 (December 12, 2016). See also, 78 FR 
49809-49810 (August 15, 2013); 80 FR 77434 (December 14, 2015).
    \20\ As described in the Response to Comments document 
accompanying this action, we have also determined that additional 
waivers are not appropriate to address either severe economic or 
severe environmental harm.
---------------------------------------------------------------------------

2. General Waiver Authority
    Section 211(o)(7)(A) of the CAA provides that EPA, in consultation 
with the Secretary of Agriculture and the Secretary of Energy, may 
waive the applicable volumes specified in the Act in whole or in part 
based on a petition by one or more States, by any person subject to the 
requirements of the Act, or by the EPA Administrator on his own motion. 
Such a waiver must be based on a determination by the Administrator, 
after public notice and opportunity for comment that: (1) 
Implementation of the requirement would severely harm the

[[Page 58493]]

economy or the environment of a State, a region, or the United States; 
or (2) there is an inadequate domestic supply.
    In the October 4 document, EPA sought comment on the possible use 
of the general waiver authority to reduce volumes of advanced biofuel 
and total renewable fuel for the 2018 standards below the levels 
proposed in the 2018 NPRM.\21\ The October 4 document provided 
information on historic domestic production, imports, and exports of 
advanced biofuel, as well as additional information, and sought comment 
on how that information could inform a potential determination of 
inadequate domestic supply or severe economic harm.
---------------------------------------------------------------------------

    \21\ See 82 FR 46174 (October 4, 2017).
---------------------------------------------------------------------------

    Based on an evaluation of supply and potential economic impact of 
the volumes of advanced and total renewable fuel that result after use 
of the cellulosic waiver authority, comments from stakeholders, and as 
further discussed in Section V, EPA is not using the general waiver 
authority on the basis of severe economic or environmental harm or 
inadequate domestic supply to further reduce those volumes for 2018. 
EPA's response to comments addressing possible use of the general 
waiver authority are provided in a memorandum to the docket \22\ and in 
the Response to Comments (RTC) document accompanying this action.
---------------------------------------------------------------------------

    \22\ ``Assessment of waivers for severe economic harm or BBD 
prices for 2018,'' memorandum from David Korotney to docket EPA-HQ-
OAR-2017-0091.
---------------------------------------------------------------------------

3. Biomass-Based Diesel Waiver Authority
    Section 211(o)(7)(E)(ii) of the CAA provides that if EPA determines 
that there is a significant renewable feedstock disruption or other 
market circumstance that would make the price of BBD increase 
significantly, EPA shall, in consultation with the Secretary of Energy, 
and the Secretary of Agriculture, issue an order to reduce, for up to a 
60-day period, the annual volume requirement for BBD by an appropriate 
quantity that does not exceed 15 percent. The statute also stipulates 
that EPA is authorized to reduce applicable volumes of advanced biofuel 
and total renewable fuel by the same or a lesser volume than the 
reduction in BBD.
    In the October 4 document, EPA sought comment on potential 
interpretations of this authority, as well as the potential use of the 
BBD waiver authority to reduce the 2018 volume requirement for BBD by 
as much as 315 million gallons, and to concurrently reduce the advanced 
biofuel and total renewable fuel volume requirements by as much as 473 
million gallons. The notice provided information on the price of 
biodiesel in light of the expiration of the federal tax credit, and the 
potential imposition of new duties on imports of biodiesel from 
Argentina and Indonesia.
    As described in the RTC document, EPA has determined that it would 
not be appropriate at this time to use the BBD waiver authority. Based 
on information provided in comments, as well its own analysis discussed 
in Section V, EPA believes that there is an insufficient basis to 
support a finding that the biomass based diesel prices currently in the 
marketplace, or reasonably anticipated in the immediate future, 
represent a ``significant'' increase in prices that would justify use 
of this waiver authority.

B. Treatment of Carryover RINs

    Consistent with our approach in the 2013, 2014-16, and 2017 final 
rules, we have also considered the availability and role of carryover 
RINs in evaluating whether we should exercise our discretion to use the 
cellulosic waiver authority in setting the cellulosic, advanced, and 
total volume requirements for 2018. Neither the statute nor EPA 
regulations specify how or whether EPA should consider the availability 
of carryover RINs in exercising the cellulosic waiver authority.\23\ As 
noted in the context of the rules establishing the 2014-16 and 2017 RFS 
standards, we believe that a bank of carryover RINs is extremely 
important in providing obligated parties compliance flexibility in the 
face of substantial uncertainties in the transportation fuel 
marketplace, and in providing a liquid and well-functioning RIN market 
upon which success of the entire program depends.\24\ Carryover RINs 
provide flexibility in the face of a variety of circumstances that 
could limit the availability of RINs, including weather-related damage 
to renewable fuel feedstocks and other circumstances potentially 
affecting the production and distribution of renewable fuel.\25\ On the 
other hand, carryover RINs can be used for compliance purposes, and in 
the context of the 2013 RFS rulemaking we noted that an abundance of 
carryover RINs available in that year, together with possible increases 
in renewable fuel production and import, justified maintaining the 
advanced and total renewable fuel volume requirements for that year at 
the levels specified in the statute.\26\ EPA's approach to the 
consideration of carryover RINs in exercising our cellulosic waiver 
authority was affirmed in Monroe Energy and ACE.\27\
---------------------------------------------------------------------------

    \23\ CAA section 211(o)(5) requires that EPA establish a credit 
program as part of its RFS regulations, and that the credits be 
valid to show compliance for 12 months as of the date of generation. 
EPA implemented this requirement though the use of RINs, which can 
be used to demonstrate compliance for the year in which they are 
generated or the subsequent compliance year. Obligated parties can 
obtain more RINs than they need in a given compliance year, allowing 
them to ``carry over'' these excess RINs for use in the subsequent 
compliance year, although use of these carryover RINs is limited to 
20% of the obligated party's RVO. For the bank of carryover RINs to 
be preserved from one year to the next, individual carryover RINs 
are used for compliance before they expire and are essentially 
replaced with newer vintage RINs that are then held for use in the 
next year. For example, if the volume of the collective carryover 
RIN bank is to remain unchanged from 2017 to 2018, then all of the 
vintage 2017 carryover RINs must be used for compliance in 2018, or 
they will expire. However, the same volume of 2018 RINs can then be 
``banked'' for use in the next year.
    \24\ See 80 FR 77482-87 (December 14, 2015) and 81 FR 89754-55 
(December 12, 2016).
    \25\ See id., and 72 FR 23900 (May 1, 2007).
    \26\ See 79 FR 49794 (August 15, 2013).
    \27\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE at 
713.
---------------------------------------------------------------------------

    In the 2018 NPRM, EPA estimated that the size of the carryover RIN 
bank was then approximately 2.06 billion carryover RINs (including all 
D codes).\28\ We proposed that in light of this relatively limited 
volume and the important functions provided by the RIN bank, that we 
would not set the volume requirements for 2018 in a manner that would 
intentionally lead to a drawdown in the bank of carryover RINs. In 
their comments on the 2018 NPRM, parties generally expressed two 
opposing points of view. Commenters representing obligated parties 
supported EPA's proposed decision to not assume a drawdown in the bank 
of carryover RINs in determining the appropriate volume requirements. 
These commenters reiterated the importance of maintaining the carryover 
RIN bank in order to provide obligated parties with necessary 
compliance flexibilities, better market trading liquidity, and a 
cushion against future program uncertainty. Commenters representing 
renewable fuel producers, however, contended that carryover RINs 
represent actual supply and should be accounted

[[Page 58494]]

for when establishing the annual volume standards. These commenters 
stated that not accounting for carryover RINs goes against 
Congressional intent of the RFS program, deters investment in next-
generation biofuels, and ignores other programmatic buffers and 
flexibilities such as carry-forward deficits and small refinery 
hardship exemptions.\29\
---------------------------------------------------------------------------

    \28\ This was an increase of 520 million RINs from the previous 
estimate of 1.54 billion carryover RINs in the 2017 final rule. This 
increase in the carryover RIN bank compared to that projected in the 
2017 final rule was not due to an underestimate by EPA in the amount 
of gasoline, diesel fuel, or ethanol that was consumed in 2016, but 
rather was driven almost entirely by a combination of over-
compliance by biodiesel producers facing an expiring biodiesel tax 
credit at the end of 2016 and approximately 390 million RINs that 
small refineries granted a hardship exemption for 2016 were not 
required to retire.
    \29\ A full description of comments received, and our detailed 
responses to them, is available in the Response to Comments document 
in the docket.
---------------------------------------------------------------------------

1. Updated Projection of Carryover RIN Volume
    Based on currently available information, our estimate of the 
carryover RIN bank has increased to 2.22 billion RINs, an increase of 
160 million RINs from the previous estimate of 2.06 billion carryover 
RINs in the 2018 NPRM.\30\ Part of the update considers small refinery 
hardship exemptions for 2016 that were granted since the 2018 NPRM was 
issued. These additional small refinery hardship exemptions led to the 
return to the RIN marketplace of approximately 125 million 2016 RINs 
that would otherwise have been required for compliance by the small 
refineries granted an exemption for 2016.
---------------------------------------------------------------------------

    \30\ The calculations performed to estimate the number of 
carryover RINs currently available can be found in the memorandum, 
``Carryover RIN Bank Calculations for 2018 Final Rule,'' available 
in the docket.
---------------------------------------------------------------------------

    The carryover RIN volume is 11.5 percent of the total renewable 
fuel volume requirement that EPA is finalizing for 2018, which is less 
than the 20 percent maximum limit permitted by the regulations to be 
carried over for use in complying with the 2018 standards.\31\ However, 
there remains considerable uncertainty surrounding this number for a 
number of reasons, including the possible impact of an action to 
address the remand in ACE, the possibility of additional small refinery 
exemptions, and the impact of 2017 RFS compliance on the bank of 
carryover RINs. In addition, we note that there have been enforcement 
actions in past years that have resulted in the retirement of carryover 
RINs to make up for the generation and use of invalid RINs and/or the 
failure to retire RINs for exported renewable fuel. Future enforcement 
actions could have similar results, and require that obligated parties 
and/or renewable fuel exporters settle past enforcement-related 
obligations in addition to the annual standards, thereby potentially 
creating demand for RINs greater than can be accommodated through 
actual renewable fuel blending in 2018. Collectively, the result of 
satisfying RFS obligations in 2017 and settling enforcement-related 
accounts could be an effective reduction in the size of the collective 
bank of carryover RINs. In light of these uncertainties, it is possible 
that the net result would be a bank of carryover RINs larger or smaller 
than 11.5 percent of the final 2018 total renewable fuel volume 
requirement.
---------------------------------------------------------------------------

    \31\ See 40 CFR 80.1427(a)(5).
---------------------------------------------------------------------------

2. EPA's Decision Regarding the Treatment of Carryover RINs
    EPA has decided to maintain the proposed approach, and not set the 
volume requirements in the final rule with the intention or expectation 
of drawing down the current bank of carryover RINs. In addition, we do 
not believe that the availability of carryover RINs, together with the 
potential supply of renewable fuel in volumes higher than we are 
requiring though this final rule, should lead us to increase the volume 
requirements. In finalizing this approach, we carefully considered the 
comments received, including on the role of carryover RINs under our 
waiver authorities and the policy implications of our decision. While 
we have not assumed an intentional drawdown in the overall bank of 
carryover RINs owned by obligated parties collectively in establishing 
the volume requirements for 2018, we understand that some obligated 
parties may choose to sell or use all or part of their individual banks 
of carryover RINs. To the extent that they do, other obligated parties 
would be in a position to bank carryover RINs by using available 
renewable fuel or purchasing RINs representing such fuel, with the 
expected net result that the standards adopted in this action will have 
no effect on the size of the overall bank of carryover RINs that is 
owned collectively by obligated parties.\32\
---------------------------------------------------------------------------

    \32\ We expect that any renewable fuel produced in the U.S. that 
is not used to satisfy the 2018 renewable fuel standards will be 
exported, thereby not leading to an increase in the bank of 2018 
RINs or carryover RINs.
---------------------------------------------------------------------------

    We believe that a balanced consideration of the possible role of 
carryover RINs in achieving the statutory volume objectives for 
advanced and total renewable fuels, versus maintaining an adequate bank 
of carryover RINs for important programmatic functions, is appropriate 
when EPA exercises its discretion under the cellulosic waiver 
authority, and that the statute does not specify the extent to which 
EPA should require a drawdown in the bank of carryover RINs when it 
exercises this authority.
    An adequate RIN bank serves to make the RIN market liquid. Just as 
the economy as a whole functions best when individuals and businesses 
prudently plan for unforeseen events by maintaining inventories and 
reserve money accounts, we believe that the RFS program functions best 
when sufficient carryover RINs are held in reserve for potential use by 
the RIN holders themselves, or for possible sale to others that may not 
have established their own carryover RIN reserves. Were there to be no 
RINs in reserve, then even minor disruptions causing shortfalls in 
renewable fuel production or distribution, or higher than expected 
transportation fuel demand (requiring greater volumes of renewable fuel 
to comply with the percentage standards that apply to all volumes of 
transportation fuel, including the unexpected volumes) could lead to 
the need for a new waiver of the standards, undermining the market 
certainty so critical to the RFS program. However, a significant 
drawdown of the carryover RIN bank leading to a scarcity of RINs may 
stop the market from functioning in an efficient manner (i.e., one in 
which there are a sufficient number of reasonably available RINs for 
obligated parties seeking to purchase them), even where the market 
overall could satisfy the standards. For all of these reasons, the 
collective carryover RIN bank provides a needed programmatic buffer 
that both facilitates individual compliance and provides for smooth 
overall functioning of the program.\33\ We have evaluated the volume of 
carryover RINs likely available for 2018, and we believe it is prudent 
not to intentionally draw down this volume of carryover RINs in 
establishing the 2018 standards. In addition, we have considered 
whether the current bank of carryover RINs, together with the 
additional supply of renewable fuel available in 2018 above the levels 
we are requiring be used, would justify reduced use of the cellulosic 
waiver authority. For the reasons described above and in Sections IV.C 
and D, we do not believe this to be the case.
---------------------------------------------------------------------------

    \33\ Here we use the term ``buffer'' as shorthand reference to 
all of the benefits that are provided by a sufficient bank of 
carryover RINs.
---------------------------------------------------------------------------

    Therefore, for the reasons noted above, and consistent with the 
approach we took in the 2014-2016 and 2017 final rules, we are making a 
determination that, under current circumstances, an intentional 
drawdown of the carryover RIN bank should not be assumed in 
establishing the 2018 volume requirements. In addition, we do not 
believe that the

[[Page 58495]]

presence of the current bank of carryover RINs, together with 
additional potential supplies of renewable fuel in 2018, justifies 
reduced use of the cellulosic waiver authority in setting the 2018 
advanced biofuel and total renewable fuel volumes. However, we note 
that we may or may not take a similar approach in future years; we will 
assess the situation on a case-by-case basis going forward, and take 
into account the size of the carryover RIN bank in the future and any 
lessons learned from implementing past rules.

III. Cellulosic Biofuel Volume for 2018

    In the past several years the cellulosic biofuel industry has 
continued to make progress towards increased commercial-scale 
production. Cellulosic biofuel production reached record levels in 
2016, driven largely by CNG and LNG derived from biogas. Production 
volumes have continued to increase in 2017.\34\ While multiple large 
cellulosic ethanol facilities struggled to achieve production rates 
consistent with their nameplate capacity, several facilities 
consistently produced cellulosic ethanol from corn kernel fiber at a 
smaller scale during 2016 and 2017. This section describes our 
assessment of the volume of cellulosic biofuel that we project will be 
produced or imported into the U.S. in 2018, and some of the 
uncertainties associated with those volumes.
---------------------------------------------------------------------------

    \34\ The majority of the cellulosic RINs generated for CNG/LNG 
are sourced from biogas from landfills; however, the biogas may come 
from a variety of sources including municipal wastewater treatment 
facility digesters, agricultural digesters, separated MSW digesters, 
and the cellulosic components of biomass processed in other waste 
digesters.
---------------------------------------------------------------------------

    In the July NPRM, EPA proposed cellulosic volumes based on a 
methodology that differed in a couple of important ways from the 
approach we used in 2017. We proposed changes to the percentile values 
used to project liquid cellulosic biofuel production and a new 
industry-wide methodology for projecting the production of CNG/LNG 
derived from biogas. For this action, we are finalizing volumes for 
2018 based on an approach that is similar, but not identical, to what 
we proposed. We discuss the changes we made from proposal to final 
below. In our RTC document, we respond to the multiple comments EPA 
received on the changes to the cellulosic projection methodology we 
proposed in July.
    In order to project the volume of cellulosic biofuel production in 
2018 we considered EIA's projection of cellulosic biofuel 
production,\35\ comments received on the 2018 NPRM, data reported to 
EPA through EMTS, and information we collected through meetings with 
representatives of facilities that have produced or have the potential 
to produce qualifying volumes of cellulosic biofuel for consumption as 
transportation fuel, heating oil, or jet fuel in the U.S. in 2018. 
There are two main parts to this projection. To project the range of 
potential production volumes of liquid cellulosic biofuel we used the 
same methodology as the methodology used in the 2017 final rule. 
However, we have adjusted the percentile values used to select a point 
estimate within a projected production range for each group of 
companies based on recent information, and with the objective of 
improving the accuracy of the projections. To project the production of 
cellulosic biofuel RINs for CNG/LNG derived from biogas we use the 
methodology discussed in the proposed rule with updated data. This 
methodology reflects the mature status of this industry, the large 
number of facilities registered to generate cellulosic biofuel RINs 
from these fuels, and EPA's continued attempts to refine its 
methodology to yield estimates that are as accurate as possible. This 
methodology is an improvement on the methodology that EPA used to 
project cellulosic biofuel production for CNG/LNG derived from biogas 
in the 2017 final rule. EPA has updated the list of potential 
cellulosic biofuel producers, projected facility start-up dates, 
facility capacities, production volumes, and other relevant information 
with the most recent information available. The methodologies used to 
project the production of liquid cellulosic biofuels and cellulosic 
CNG/LNG derived from biogas are described in more detail in Sections 
III.D-1 and III.D-2 below.
---------------------------------------------------------------------------

    \35\ ``Letter from EIA to EPA on 2018 projected volumes,'' 
available in docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    After a brief description of the statutory requirements in Section 
III.A, we discuss the companies the EPA reviewed in the process of 
projecting qualifying cellulosic biofuel production in the U.S. in 2018 
in Section III.B. Section III.C discusses the projection of cellulosic 
biofuel production provided to EPA by EIA, and Section III.D discusses 
the methodologies used by EPA to project cellulosic biofuel production 
in 2018 and the resulting projection of 288 million ethanol-equivalent 
gallons.

A. Statutory Requirements

    The volumes of renewable fuel to be produced and used as 
transportation fuel under the RFS program each year (absent an 
adjustment or waiver by EPA) are specified in CAA section 
211(o)(2)(B)(i)(III). The volume of cellulosic biofuel specified in the 
statute for 2018 is 7.0 billion gallons. The statute provides that if 
EPA determines, based on a letter provided to the EPA by EIA, that the 
projected volume of cellulosic biofuel production in a given year is 
less than the statutory volume, then EPA shall reduce the applicable 
volume of cellulosic biofuel to the projected volume available during 
that calendar year.\36\
---------------------------------------------------------------------------

    \36\ The U.S. Court of Appeals for the District of Columbia 
Circuit evaluated this requirement in API v. EPA 706 F.3d 474, 479-
480 (D.C. Cir. 2013), in the context of a challenge to the 2012 
cellulosic biofuel standard. The Court stated that in projecting 
potentially available volumes of cellulosic biofuel EPA must apply 
an ``outcome-neutral methodology'' aimed at providing a prediction 
of ``what will actually happen.''
---------------------------------------------------------------------------

    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 volumes of advanced 
biofuels and total renewable fuel by the same or a lesser volume, and 
we are required to make cellulosic waiver credits available.\37\ Our 
consideration of the 2018 volume requirements for advanced biofuel and 
total renewable fuel is presented in Section IV.
---------------------------------------------------------------------------

    \37\ See 40 CFR 80.1456.
---------------------------------------------------------------------------

B. Cellulosic Biofuel Industry Assessment

    In order to project cellulosic biofuel production for 2018, we have 
tracked the progress of several dozen potential cellulosic biofuel 
production facilities. As we have done in previous years, we have 
focused on facilities with the potential to produce commercial-scale 
volumes of cellulosic biofuel rather than small research and 
development (R&D) or pilot-scale facilities. Larger commercial-scale 
facilities are much more likely to generate RINs for the fuel they 
produce and the volumes they produce will have a far greater impact on 
the cellulosic biofuel standard for 2018. The volume of cellulosic 
biofuel produced from R&D and pilot-scale facilities is quite small in 
relation to that expected from the commercial-scale facilities. R&D and 
demonstration-scale facilities have also generally not generated RINs 
for the fuel they have produced in the past. Their focus is on 
developing and demonstrating the technology, not producing commercial 
volumes. RIN generation from R&D and pilot-scale facilities in previous 
years has not contributed significantly to the overall number of 
cellulosic RINs generated.\38\ We have therefore not

[[Page 58496]]

considered production from R&D and pilot-scale facilities in our 
projection of cellulosic biofuel production for 2018.
---------------------------------------------------------------------------

    \38\ While a few small R&D and pilot scale facilities have 
registered as cellulosic RIN generators, total production from each 
of these facilities from 2011 through September 2017 has been less 
than 150,000 RINs. This is approximately 1% of all liquid cellulosic 
biofuel production through September 2017.
---------------------------------------------------------------------------

    From this list of commercial-scale facilities we used information 
from EMTS, publicly available information (including press releases and 
news reports), comments on the 2018 NPRM, information from EIA, and 
information provided by representatives of potential cellulosic biofuel 
producers, to make a determination of which facilities are most likely 
to produce liquid cellulosic biofuel and generate cellulosic biofuel 
RINs in 2018. Each of these companies was investigated further in order 
to determine the current status of its facilities and its likely 
cellulosic biofuel production and RIN generation volumes for 2018. Both 
in our discussions with representatives of individual companies and as 
part of our internal evaluation process we gathered and analyzed 
information including, but not limited to, the funding status of these 
facilities, current status of the production technologies, anticipated 
construction and production ramp-up periods, facility registration 
status, and annual fuel production and RIN generation targets.
    As an initial matter, it is useful to review the success of EPA's 
recent cellulosic biofuel projections. EPA used a consistent 
methodology to project cellulosic biofuel production in the final three 
months of 2015 and in 2016 and 2017.\39\ The record of actual 
production indicates that EPA's projection was lower than the actual 
number of cellulosic RINs made available in 2015,\40\ and higher than 
the actual number of RINs made available in 2016.\41\ While we 
currently only have data available through September 2017, it appears 
likely that the number of cellulosic RINs made available in 2017 will 
fall short of EPA's projection in our 2017 final rule.\42\ The fact 
that the projections made using this methodology have been somewhat 
inaccurate, under-estimating the actual number of RINs made available 
in 2015 and over-estimating in 2016 and (most likely) 2017, reflects 
the inherent difficulty with projecting cellulosic biofuel production. 
It also emphasizes the importance of continuing to make refinements to 
our projection methodology in an effort to produce accurate 
projections.
---------------------------------------------------------------------------

    \39\ This methodology is most recently described in the 2017 
final rule. See 81 FR 89746, 89755 (December 12, 2016).
    \40\ EPA only projected cellulosic biofuel production for the 
final three months of 2015, since data on the availability of 
cellulosic biofuel RINs (D3+D7) for the first nine months of the 
year were available at the time the analyses were completed for the 
final rule.
    \41\ EPA projected that 123 million and 230 million cellulosic 
RINs would be generated in 2015 and 2016, respectively. The number 
of available cellulosic RINs in these years (RINs generated minus 
RINs retired for non-compliance reasons) was 140 and 190 million 
RINs. See ``Assessment of the Accuracy of Cellulosic Biofuel 
Production Projections in 2015 and 2016 (June 2017 Update),'' 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091 for more detail.
    \42\ Additional information on our current projection of 
cellulosic biofuel production for 2017 can be found in ``Calculating 
the Percentile Values Used to Project Liquid Cellulosic Biofuel 
Production,'' memorandum from Dallas Burkholder to EPA Air Docket 
EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    EPA's projections of liquid cellulosic biofuel were higher than the 
actual volume of liquid cellulosic biofuel produced in both 2015 and 
2016, and appear likely to be higher than actual liquid cellulosic 
biofuel production in 2017. We believe this recent data warrants a 
change to the percentile values used to project liquid cellulosic 
biofuel from the percentile values used in prior years in an effort to 
take into account the most recent data available and make the 
projections for 2018 more accurate. We are therefore adjusting the 
percentile values used to project liquid cellulosic biofuel production 
based on actual liquid cellulosic biofuel production in 2016 and 
through September 2017. Use of this updated data also results in 
different percentile values than we proposed to use for 2018. We 
believe that the use of the methodology (described in the 2018 NPRM and 
in Section III.D.1 below), with the adjusted approach to developing the 
percentile values used to project production volumes for liquid 
cellulosic biofuels, results in a projection that reflects a neutral 
aim at accuracy since it accounts for expected growth in the near 
future by using historical data that is free of any subjective bias.
    In previous years, we used the same general methodology for CNG/LNG 
derived from biogas as for liquid cellulosic biofuel, but used 
different percentile values to project CNG/LNG derived from biogas and 
liquid cellulosic biofuels, reflecting the more established nature of 
the CNG/LNG industry relative to liquid cellulosic biofuel production. 
For 2018, EPA proposed using an industry-wide approach, rather than an 
approach that projects volumes for individual companies or facilities, 
to project the production of CNG/LNG derived from biogas. This updated 
approach reflects the fact that this industry is far more mature than 
the liquid cellulosic biofuel industry, and that there are a large 
number of facilities registered to generate cellulosic biofuel RINs 
from biogas, rendering a facility-by-facility analysis difficult and 
unnecessary for purposes of accuracy.\43\ As described in Section 
III.D.2 below, EPA is instead calculating a year-over-year rate of 
growth in the renewable CNG/LNG industry by comparing RIN generation 
for CNG/LNG derived from biogas from October 2015-September 2016 to the 
RIN generation for these same fuels from October 2016-September 2017 
(the most recent month for which data are available. We then apply this 
year-over-year growth rate to the total number of cellulosic RINs 
available for compliance from CNG/LNG in 2016 (the most recent year for 
which complete data are available), to estimate the production of CNG/
LNG derived from biogas in 2018.\44\
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    \43\ EPA received a large number of affidavits from companies 
that produce (or intend to produce) CNG/LNG derived from biogas as 
comments on our proposed rule. These affidavits are publicly 
available as part of the comments submitted by the Coalition for 
Renewable Natural Gas. EPA reviewed and considered the information 
contained in these affidavits in establishing the required volume of 
cellulosic biofuel for 2018. These affidavits confirmed that it was 
reasonable to believe that the relatively high year-over-year rate 
of growth used to project volumes of CNG/LNG derived from biogas for 
2018 could be achieved based on a number of project expansions and 
new projects expected to begin producing CNG/LNG derived from biogas 
in 2018.
    \44\ Historically RIN generation for CNG/LNG derived from biogas 
has increased each year. It is possible, however, that RIN 
generation for these fuels in the most recent 12 months for which 
data are available could be lower than the preceding 12 months. We 
believe our methodology accounts for this possibility. In such a 
case, the calculated rate of growth would be negative.
---------------------------------------------------------------------------

    The remainder of this section discusses the companies and 
facilities EPA expects to be in a position to produce commercial-scale 
volumes of cellulosic biofuel by the end of 2018 and describes in more 
detail the methodology EPA is using to project cellulosic biofuel 
production in 2018 (including a review of cellulosic biofuel production 
and the accuracy of the projection methodology in previous years).
1. Potential Domestic Producers
    There are a number of companies and facilities \45\ located in the 
U.S. that have either already begun producing cellulosic biofuel for 
use as transportation fuel, heating oil, or jet fuel at a commercial 
scale, or are anticipated to be in a position to do so

[[Page 58497]]

at some time during 2018. The financial incentive provided by 
cellulosic biofuel RINs,\46\ combined with the facts that to date 
nearly all cellulosic biofuel produced in the U.S. has been used 
domestically \47\ and all the domestic facilities we have contacted in 
deriving our projections intend to produce fuel on a commercial scale 
for domestic consumption and plan to use approved pathways, gives us a 
high degree of confidence that cellulosic biofuel RINs will be 
generated for any fuel produced by domestic commercial scale 
facilities. In order to generate RINs, each of these facilities must be 
registered with EPA under the RFS program and comply with all the 
regulatory requirements. This includes using an approved RIN-generating 
pathway and verifying that their feedstocks meet the definition of 
renewable biomass. Most of the domestic companies and facilities 
considered in our assessment of potential cellulosic biofuel producers 
in 2018 have already successfully completed facility registration, and 
many have successfully generated RINs.\48\ A brief description of each 
of the domestic companies (or group of companies for cellulosic CNG/LNG 
producers) that EPA believes may produce commercial-scale volumes of 
RIN generating cellulosic biofuel by the end of 2018 can be found in a 
memorandum to the docket for this final rule.\49\ General information 
on each of these companies or group of companies considered in our 
projection of the potentially available volume of cellulosic biofuel in 
2018 is summarized in Table III.B.3-1 below.
---------------------------------------------------------------------------

    \45\ The volume projection from CNG/LNG producers does not 
represent production from a single company or facility, but rather a 
group of facilities utilizing the same production technology.
    \46\ According to data from Argus Media, the price for 2017 
cellulosic biofuel RINs averaged $2.73 in 2017 (through September 
2017). Alternatively, obligated parties can obtain a RIN value 
equivalent to a cellulosic biofuel RIN by purchasing an advanced (or 
biomass-based diesel) RIN and a cellulosic waiver credit. The price 
for 2017 advanced biofuel RINs averaged $1.00 in 2017 (through 
September 2017) while the price for a 2017 cellulosic waiver credit 
is $2.00.
    \47\ The only known exception was a small volume of fuel 
produced at a demonstration scale facility exported to be used for 
promotional purposes.
    \48\ Many of the facilities listed in Table III.B.3-1 are 
registered to produce cellulosic (D3 or D7) RINs with the exception 
of several of the producers of CNG/LNG derived from biogas, many of 
the facilities projected to produce cellulosic ethanol using 
Edeniq's technology, Enerkem's Edmonton facility, and Ensyn's Port-
Cartier, Quebec facility.
    \49\ ``Cellulosic Biofuel Producer Company Descriptions 
(November 2017),'' memorandum from Dallas Burkholder to EPA Air 
Docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located 
in the U.S., there are several foreign cellulosic biofuel companies 
that may produce cellulosic biofuel in 2018. These include facilities 
owned and operated by Beta Renewables, Enerkem, Ensyn, GranBio, and 
Raizen. All of these facilities use fuel production pathways that have 
been approved by EPA for cellulosic RIN generation provided eligible 
sources of renewable feedstock are used and other regulatory 
requirements are satisfied. These companies would therefore be eligible 
to register their facilities under the RFS program and generate RINs 
for any qualifying fuel imported into the U.S. While these facilities 
may be able to generate RINs for any volumes of cellulosic biofuel they 
import into the U.S., demand for the cellulosic biofuels they produce 
is expected to be high in their own local markets.
    EPA is charged with projecting the volume of cellulosic biofuel 
that will be produced or imported into the U.S.\50\ For the purposes of 
this final rule we have considered all of the registered foreign 
facilities under the RFS program to be potential sources of cellulosic 
biofuel in 2018. We believe that due to the strong demand for 
cellulosic biofuel in local markets, the significant technical 
challenges associated with the operation of cellulosic biofuel 
facilities, and the time necessary for potential foreign cellulosic 
biofuel producers to register under the RFS program and arrange for the 
importation of cellulosic biofuel to the U.S., cellulosic biofuel 
imports from foreign facilities not currently registered to generate 
cellulosic biofuel RINs are generally highly unlikely in 2018. For 
purposes of our 2018 cellulosic biofuel projection we have, with two 
exceptions (described below), excluded potential volumes from foreign 
cellulosic biofuel production facilities that are not currently 
registered under the RFS program.
---------------------------------------------------------------------------

    \50\ EPA has consistently interpreted the ``projected volume of 
cellulosic biofuel production'' required in CAA section 211(o)(7)(D) 
to include volumes of cellulosic biofuel likely to be made available 
in the United States, including from both domestic production and 
imports (see 80 FR 77420 (December 14, 2015) and 81 FR 89746 
(December 12, 2016)). We do not believe it would be reasonable to 
include in the projection all cellulosic biofuel produced throughout 
the world, regardless of likelihood of import to the United States, 
since volumes that are not imported would not be available to 
obligated parties for compliance and including them in the 
projection would render the resulting volume requirement and 
percentage standards unachievable.
---------------------------------------------------------------------------

    Cellulosic biofuel produced at four foreign facilities (Ensyn's 
Renfrew facility, GranBio's Brazilian facility, and the CNG/LNG 
facilities Complexe Enviro Progressive Ltee and Saint-Thomas Biomethane 
Plant) generated cellulosic biofuel RINs for fuel exported to the U.S. 
in 2017; projected volumes from each of these facilities are included 
in our projection of available volumes for 2018. EPA has also included 
projected volume from two foreign facilities (Enerkem's Canadian 
facility and Ensyn's Port-Cartier, Quebec facility) that are not 
currently registered to generate cellulosic biofuel RINs under the RFS 
program. We believe that it is appropriate to include volume from these 
facilities in light of their proximity to the U.S., the proven 
technology used by these facilities, the volumes of cellulosic biofuel 
exported to the U.S. by the company in previous years (in the case of 
Ensyn), and the company's stated intentions to market fuel produced at 
these facilities to qualifying markets in the U.S. One additional 
foreign facility (Raizen's Costa Pinto) has registered as a cellulosic 
biofuel producer, but has not yet generated any cellulosic RINs. EPA 
attempted to contact representatives from this facility to inquire 
about their intentions to export cellulosic biofuel to the U.S. in 
2018, but received no response. We have therefore not projected any 
cellulosic biofuel exports from this facility to the U.S. in 2018. All 
of the facilities included in EPA's cellulosic biofuel projection for 
2018 are listed in Table III.B.3-1 below.
3. Summary of Volume Projections for Individual Companies
    General information on each of the cellulosic biofuel producers (or 
group of producers in the case of producers of CNG/LNG derived from 
biogas and liquid cellulosic biofuel facilities using Edeniq's 
technology) that factored into our projection of cellulosic biofuel 
production for 2018 is shown in Table III.B.3-1. This table includes 
both facilities that have already generated cellulosic RINs, as well as 
those that have not yet generated cellulosic RINs, but are projected to 
do so by the end of 2018. As discussed above, we have focused on 
commercial-scale cellulosic biofuel production facilities. Each of 
these facilities (or group of facilities) is discussed further in a 
memorandum to the docket.\51\ In addition to the facilities (or groups 
of facilities) discussed in Table III.B.3-1 below, EPA is aware of an 
additional technology that may be used to produce qualifying cellulosic 
biofuel in 2018. Multiple companies, in addition to Edeniq and Quad 
County Corn Processors, are working to

[[Page 58498]]

commercialize technology to convert corn kernel fiber to cellulosic 
ethanol at existing corn ethanol facilities. At this point, however, 
none of these other companies have successfully registered a facility 
to generate cellulosic RINs using their technology.\52\ In light of the 
significant challenges associated with accurately and reliably 
determining the conversion of cellulosic feedstocks to biofuel in 
processes that simultaneously convert both cellulosic and non-
cellulosic feedstocks, EPA has included volumes of cellulosic biofuel 
associated with the simultaneous conversion of corn kernel fiber and 
corn starch only in cases where the facilities intend to use a 
technology with a methodology for quantifying the volume of ethanol 
produced form the cellulosic fraction of corn fiber that has been 
approved by EPA (Quad County Corn Processors and facilities using 
Edeniq's technology).
---------------------------------------------------------------------------

    \51\ ``Cellulosic Biofuel Producer Company Descriptions 
(November 2017),'' memorandum from Dallas Burkholder to EPA Air 
Docket EPA-HQ-OAR-2017-0091.
    \52\ A significant issue that must be resolved to register a 
facility to produce cellulosic biofuel from corn kernel fiber at an 
existing ethanol production facility is the quantification of the 
volume of ethanol produced from cellulosic feedstocks rather than 
non-cellulosic feedstocks such as starch. Until these companies 
develop a methodology for quantifying cellulosic biofuel production 
that is approved by EPA we do not believe it is appropriate to 
include an estimate of cellulosic biofuel production from these 
facilities in our projection of cellulosic biofuel production in 
2018.

                                           Table III.B.3-1--Projected Producers of Cellulosic Biofuel by 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Facility capacity
          Company name                 Location            Feedstock             Fuel          (million gallons   Construction start   First production
                                                                                                per year) \53\           date                \54\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \55\..........  Various...........  Biogas............  CNG/LNG...........  Various...........  N/A...............  August 2014.
Edeniq..........................  Various...........  Corn Kernel Fiber.  Ethanol...........  Various...........  Various...........  October 2016.
Enerkem.........................  Edmonton, AL,       Separated MSW.....  Ethanol...........  10 \56\...........  2012..............  September
                                   Canada.                                                                                             2017.\57\
Ensyn...........................  Renfrew, ON,        Wood Waste........  Heating Oil.......  3.................  N/A...............  2014.
                                   Canada.
Ensyn...........................  Port-Cartier, QC,   Wood Waste........  Heating Oil.......  10.5..............  June 2016.........  January 2018.
                                   Canada.
GranBio.........................  S[atilde]o Miguel   Sugarcane bagasse.  Ethanol...........  21................  Mid 2012..........  September 2014.
                                   dos Campos,
                                   Brazil.
Poet-DSM........................  Emmetsburg, IA....  Corn Stover.......  Ethanol...........  20................  March 2012........  4Q 2015.
QCCP............................  Galva, IA.........  Corn Kernel Fiber.  Ethanol...........  4.................  Late 2013.........  October 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Projection From the Energy Information Administration
---------------------------------------------------------------------------

    \53\ The Facility Capacity is generally equal to the nameplate 
capacity provided to EPA by company representatives or found in 
publicly available information. If the facility has completed 
registration and the total permitted capacity is lower than the 
nameplate capacity then this lower volume is used as the facility 
capacity. For companies generating RINs for CNG/LNG derived from 
biogas the Facility Capacity is equal to the lower of the annualized 
rate of production of CNG/LNG from the facility at the time of 
facility registration or the sum of the volume of contracts in place 
for the sale of CNG/LNG for use as transportation fuel (reported as 
the actual peak capacity for these producers).
    \54\ Where a quarter is listed for the first production date EPA 
has assumed production begins in the middle month of the quarter 
(i.e., August for the 3rd quarter) for the purposes of projecting 
volumes.
    \55\ For more information on these facilities see ``November 
2017 Assessment of Cellulosic Biofuel Production from Biogas 
(2018),'' memorandum from Dallas Burkholder to EPA Air Docket EPA-
HQ-OAR-2017-0091.
    \56\ The nameplate capacity of Enerkem's facility is 10 million 
gallons per year. However, we anticipate that a portion of their 
feedstock will be non-biogenic MSW. RINs cannot be generated for the 
portion of the fuel produced from non-biogenic feedstocks. We have 
taken this into account in our production projection for this 
facility.
    \57\ This date reflects the first production of ethanol from 
this facility. The facility began production of methanol in 2015.
---------------------------------------------------------------------------

    Section 211(o)(3)(A) of the CAA requires EIA to ``. . . provide to 
the Administrator of the Environmental Protection Agency an estimate, 
with respect to the following calendar year, of the volumes of 
transportation fuel, biomass-based diesel, and cellulosic biofuel 
projected to be sold or introduced into commerce in the U.S.'' EIA 
provided these estimates to EPA on October 11, 2017.\58\ With regard to 
cellulosic biofuel, the EIA estimated that the available volume in 2018 
would be 13 million gallons.
---------------------------------------------------------------------------

    \58\ ''Letter from EIA to EPA on 2018 projected volumes,'' 
available in docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    In their letter, EIA did not identify the facilities on which their 
estimate of cellulosic biofuel production was based. EIA did, however, 
indicate in their letter that they included neither estimates of 
cellulosic biofuel produced by foreign entities and imported into the 
U.S., nor estimates of cellulosic heating oil or CNG/LNG produced from 
biogas, which together represent approximately 96 percent of our 
projected cellulosic biofuel volume for 2017. When limiting the scope 
of our projection to the companies assessed by EIA, we note that while 
our volume projections are not identical, they are very similar. EPA 
projects approximately 10 million gallons of liquid cellulosic biofuel 
will be produced domestically in 2017 (when excluding heating oil, as 
EIA did in their estimate of cellulosic biofuel production). EIA did 
not provide detail on the basis of their projections, so we cannot say 
precisely why EPA and EIA's projections differ. We further note that if 
we used EIA's projections for domestic liquid cellulosic biofuel 
production without modification in place of our own assessment of these 
facilities the impact on the cellulosic biofuel standard overall for 
2018 would be approximately 1%.\59\
---------------------------------------------------------------------------

    \59\ If EPA increased our projection of liquid cellulosic 
biofuel produced in the United States in 2018 (excluding heating 
oil) to 13 million gallons to be consistent with EIA's projection 
our total projected volume of cellulosic biofuel would increase by 3 
million gallons. This is approximately 1% of the total volume of 
cellulosic biofuel projected to be produced in 2018 (3/288 = 0.01).
---------------------------------------------------------------------------

D. Cellulosic Biofuel Volume for 2018

1. Liquid Cellulosic Biofuel
    For our 2018 liquid cellulosic biofuel projection, we use the same 
general approach as we have in projecting these volumes in previous 
years. We begin by first categorizing potential liquid cellulosic 
biofuel producers in 2018 according to whether or not they have 
achieved consistent commercial scale production of cellulosic biofuel 
to date. Next we define a range of likely production volumes for 2018 
for each group of companies. Finally, we use a percentile value to 
project from the established range a single projected production volume 
for each group of

[[Page 58499]]

companies in 2018. As explained below, however, we are using a 
different approach to selection of the appropriate percentile values 
for purposes of this rule than we have used in prior years. In this 
final rule we have used the most recent data available to determine 
which facilities are likely to produce liquid cellulosic biofuel in 
2018, categorize the companies according to whether or not they have 
consistently produced commercial scale volumes of liquid cellulosic 
biofuels, adjust the projected production range for each group of 
companies, and adjust the percentile values used for each group of 
companies. This methodology is briefly described here, and is described 
in detail in memos to the docket.\60\
---------------------------------------------------------------------------

    \60\ ``November 2017 Liquid Cellulosic Biofuel Projections for 
2018 CBI'' and ``Calculating the Percentile Values Used to Project 
Liquid Cellulosic Biofuel Production,'' memorandums from Dallas 
Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    Consistent with our approach in previous years, we separated the 
list of potential producers of cellulosic biofuel (listed in Table 
III.B.3-1) into two groups according to whether or not the facilities 
have achieved consistent commercial-scale production and cellulosic 
biofuel RIN generation. We next defined a range of likely production 
volumes for each group of potential cellulosic biofuel producers. The 
low end of the range for each group of producers reflects actual RIN 
generation data over the last 12 months for which data are available at 
the time our technical assessment was completed (October 2016-September 
2017). For potential producers that have not yet generated any 
cellulosic RINs, the low end of the range is zero. For the high end of 
the range of production volumes for companies expected to produce 
liquid cellulosic biofuel we considered a variety of factors, including 
the expected start-up date and ramp-up period,\61\ facility capacity. 
The projected range for the groups of companies considered in our 2018 
cellulosic biofuel projection are shown in Tables III.D.1-1 and 
III.D.1-2 below.\62\
---------------------------------------------------------------------------

    \61\ As in our 2015-2017 projections, EPA calculated a high end 
of the range for each facility (or group of facilities) based on the 
expected start-up date and a six-month straight line ramp-up period. 
The high end of the range for each facility (or group of facilities) 
is equal to the value calculated by EPA using this methodology, or 
the number of RINs the producer expects to generate in 2018, 
whichever is lower.
    \62\ More information on the data and methods EPA used to 
calculate each of the ranges in these tables in contained in 
``November 2017 Liquid Cellulosic Biofuel Projections for 2018 CBI'' 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091. Unlike in previous years, we have not shown the projected 
ranges for each individual company. This is because the high end of 
the range for some of these companies are based on the company's 
production projections, which they consider confidential business 
information (CBI). Additionally, the low end of the range for 
facilities that have achieved consistent commercial scale production 
is based on actual RIN generation data in the most recent 12 months, 
with is also claimed as CBI. EPA has included additional information 
on the calculations used to define the production ranges, including 
the production ranges for each individual company or facility, in a 
memo to the docket.

  Table III.D.1-1--2018 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                         Low end of the  High end of the
          Companies included                 range          range \a\
------------------------------------------------------------------------
Facilities using Edeniq's technology                 0               47
 (new facilities), Enerkem, Ensyn
 (Port Cartier facility)..............
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.


  Table III.D.1-2--2018 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                         Low end of the  High end of the
          Companies included               range \a\        range \a\
------------------------------------------------------------------------
Facilities using Edeniq's technology                 7               24
 (active facilities), Ensyn (Renfrew
 facility), Poet-DSM, GranBio, Quad
 County Corn Processors...............
------------------------------------------------------------------------
\a \ Rounded to the nearest million gallons.

    After defining likely production ranges for each group of companies 
we next considered the percentile values to use in projecting a 
production volume for each group of companies. In the proposed rule, we 
used the 1st and 43rd percentile to project production from facilities 
that had not yet achieved consistent commercial scale production of 
liquid cellulosic biofuels and those that had, respectively, based on 
data indicating what percentile of production from within the 2016 
projected range facilities included in our 2016 cellulosic biofuel 
projection actually achieved. However, for this final rule we are 
adjusting the percentile values used to project liquid cellulosic 
biofuel production from within the range of projected production 
values, by using data on actual liquid cellulosic biofuel production 
from both 2016 and 2017 (through September). We believe an adjustment 
to the percentile values used to generate a projected production volume 
from the range of potential production volumes for each group of 
facilities is warranted. EPA's estimates for liquid cellulosic biofuel 
exceeded actual production of liquid cellulosic biofuel in both 2015 
and 2016.\63\ Further, as discussed in the NPRM we are considering 
additional RIN generation data from 2017 that was not available for the 
NPRM in this final rule. While we currently only have cellulosic 
biofuel production data through September 2017, additional data 
available from months after the release of our proposed rule suggests 
that further changes to the percentile values used in the NPRM are 
likely to result in more accurate projections of cellulosic biofuel 
production in 2018. We believe that the adjusted percentile values used

[[Page 58500]]

in this final rule will improve the accuracy of the production 
projection and will further EPA's objective to project volumes with a 
``neutral aim at accuracy.''
---------------------------------------------------------------------------

    \63\ EPA notes that once standards are set based on these 
projections, cellulosic biofuel RINs can be generated for either 
type of cellulosic biofuel. Cellulosic biofuel RINs generated for 
liquid biofuels and CNG/LNG derived from biogas can be used to 
satisfy an obligated party's cellulosic biofuel obligation. There 
are no separate standards for liquid and gaseous cellulosic 
biofuels.
---------------------------------------------------------------------------

    The projected ranges for liquid cellulosic biofuel production in 
2016, along with the percentile values used to project a production 
volume within the calculated ranges the actual number of cellulosic 
RINs generated in 2016 that are available for compliance, and the 
percentile values that would have resulted in a projection equal to the 
actual production volume are shown in Table III.D.1-3 below.

                                   Table III.D.1-3--Projected and Actual Liquid Cellulosic Biofuel Production in 2016
                                                                    [Million gallons]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Actual
                                                          Low end of the    High end of     Percentile       Projected      production        Actual
                                                               range         the range      (2016 FRM)      production         \64\         percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
New Facilities..........................................               0              76            25th              19            1.06             1st
Consistent Producers \65\...............................               2               5            50th               4            3.28            43rd
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Since the actual production in 2016 was lower than the projected 
production for both new facilities and consistent producers, we 
determined that for the purposes of our proposed rule it would be 
appropriate to adjust the percentiles to attempt to make them more 
accurate. To this end, EPA calculated the percentile values that would 
have resulted in accurate production projections in 2016 based on the 
actual number of cellulosic biofuel RINs generated for liquid 
cellulosic biofuels and available for compliance in 2016. These 
calculated percentile values are the 1st percentile for new facilities 
(replacing in the NPRM the 25th percentile used for 2016 and 2017) and 
the 43rd percentile for consistent producers (replacing in the NPRM the 
50th percentile used for 2016 and 2017). These percentile values, 
however, do not reflect the updated production data EPA has from liquid 
cellulosic biofuel producers in 2017.
---------------------------------------------------------------------------

    \64\ Actual production is calculated by subtracting RINs retired 
for any reason other than compliance with the RFS standards from the 
total number of cellulosic RINs generated.
    \65\ In the 2014-2016 Annual Rule EPA categorized Ensyn and Quad 
County Corn Processors as consistent cellulosic biofuel producers 
for 2016. All other companies were categorized as new facilities. 
This is in contrast to 2018, for which EPA has categorized 
additional facilities as consistent cellulosic biofuel producers.
---------------------------------------------------------------------------

    EPA currently only has data on cellulosic biofuel production in 
2017 through the end of September. While we believe that any final 
assessment of the accuracy of a projection method cannot be made until 
complete data for the year are available, we nevertheless believe it is 
appropriate to consider data from 2017 and adjust the percentile values 
used in the final rule as appropriate. To calculate the percentile 
values that would have resulted in a projection equal to the actual 
production volume for 2017 we first need to project the volume of 
cellulosic biofuel that will be produced in the 4th quarter of 2017 for 
each group of facilities.\66\ EPA projected cellulosic biofuel 
production in the 4th quarter of 2017 by first comparing cellulosic 
biofuel production in the 4th quarter of 2016 to the cellulosic biofuel 
production in the first 3 quarters of 2016. In 2016, cellulosic biofuel 
production in the 4th quarter (1.25 million gallons) was 40 percent of 
cellulosic biofuel production in the first 3 quarters (3.09 million 
gallons). We then used this factor, together with actual production 
data from the first 3 quarters of 2017 to project cellulosic biofuel 
production in the 4th quarter of 2017.\67\ The projected ranges for 
liquid cellulosic biofuel production in 2017, along with the percentile 
values used to project a production volume within the calculated 
ranges, the actual number of cellulosic RINs generated in 2017 that are 
available for compliance, and the percentile values that would have 
resulted in a projection equal to the actual production volume are 
shown in Table III.D.1-4 below. Note that the percentile value that 
would have resulted in the projected volume of cellulosic biofuel in 
2017 is negative, as the projected volume is lower than the low end of 
the range from the 2017 final rule.
---------------------------------------------------------------------------

    \66\ Unlike in the case of CNG/LNG derived from biogas, 
discussed in Section III.D.2 below, EPA can only use calendar years, 
rather than consecutive 12 month periods to evaluate the accuracy of 
the percentile values used in our projections in previous years. 
This is because the percentile values are used in conjunction with 
the calculated ranges to produce production estimates. The ranges 
were defined for the purpose of projecting cellulosic biofuel 
production in the context of our annual rules and therefore are 
specific to calendar years. Since production in any calendar year is 
not expected to be consistent (i.e., with equal production volumes 
each month) it is not possible to use the projected ranges from two 
calendar years to generate a range for a 12 month period that spans 
two calendar years.
    \67\ More detail on these calculations can be found in 
``November 2017 Liquid Cellulosic Biofuel Projections for 2018 CBI'' 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091.

                                   Table III.D.1-4--Projected and Actual Liquid Cellulosic Biofuel Production in 2017
                                                           [Million gallons through September]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Projected
                                                          Low end of the    High end of     Percentile       Projected      production        Actual
                                                               range         the range      (2017 FRM)      production      (2018 FRM)      percentile
                                                                                                            (2017 FRM)         \68\
--------------------------------------------------------------------------------------------------------------------------------------------------------
New Facilities..........................................               0              33            25th               8            6.07            18th
Consistent Producers \69\...............................             3.5               7            50th               5            2.85           -18th
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The liquid cellulosic biofuel production data from 2017 indicates

[[Page 58501]]

that adjustments to the percentile values used to project cellulosic 
biofuel production within the calculated range are appropriate. For 
this final rule EPA has projected cellulosic biofuel production from 
facilities that have not yet achieved consistent commercial scale 
production at the 10th percentile of the calculated range and projected 
cellulosic biofuel production from facilities that have achieved 
commercial scale production at the 12th percentile.\70\ These 
percentiles are calculated by averaging the percentiles that would have 
produced cellulosic biofuel projections equal to the volumes produced 
by each group of companies in 2016 and 2017, as shown in Table III.D.1-
5 below. We have not considered data from years prior to 2016, as prior 
to 2016 a different methodology was used to project available volumes 
of cellulosic biofuel. In determining the percentile values to use for 
2018 we have decided to weight the observed actual percentile values 
from 2016 and 2017 equally. While the percentile value from 2017 
represents the most recent data available, it is also dependent on a 
projection of the volume of cellulosic biofuel that will be produced in 
the 4th quarter of 2017. Conversely, the percentile values from 2016 
are calculated using actual data for the full year, however this data 
is older and may not reflect the current state of cellulosic biofuel 
production technologies and commercial scale facilities as data from 
2017. We believe that an average of these percentile values 
appropriately incorporate the data available to EPA at the time of this 
rulemaking to project liquid cellulosic biofuel production with a 
neutral aim at accuracy. We will continue to monitor the accuracy of 
our projection methodology and will use updated data to adjust the 
percentile values and/or other elements of our methodology as 
appropriate.\71\
---------------------------------------------------------------------------

    \68\ This number includes an updated projection of cellulosic 
biofuel production for each group of facilities in the 4th quarter 
of 2017 as described in the preceding paragraph. Note that the low 
end of the potential production range for companies that have 
achieved consistent commercial scale production (7 million gallons) 
is based on the most recent 12 months for which data is available 
(October 2016--September 2017) while the projected production number 
in this table is our current projection for calendar year 2017 based 
on RIN generation data through September 2017.
    \69\ In the 2014-2016 Annual Rule, EPA categorized Ensyn and 
Quad County Corn Processors as consistent cellulosic biofuel 
producers for 2016. All other companies were categorized as new 
facilities. This is in contrast to 2018, for which EPA has 
categorized additional facilities as consistent cellulosic biofuel 
producers.
    \70\ The percentile value for 2018 for facilities that have not 
yet achieved consistent commercial scale production (10th 
percentile) is higher than the percentile used in the proposed rule 
(1st percentile) but lower than the percentile used in the 2017 rule 
(25th percentile). The percentile value for 2018 for facilities that 
have achieved consistent commercial scale production (12th 
percentile) is lower than both the percentile used in both the 
proposed rule (43rd percentile) and the percentile used in the 2017 
rule (50th percentile).
    \71\ Additional information on the calculation of the percentile 
values for 2016 and 2017 can be found in ``Calculating the 
Percentile Values Used to Project Liquid Cellulosic Biofuel 
Production,'' memorandum from Dallas Burkholder to EPA Air Docket 
EPA-HQ-OAR-2017-0091.

        Table III.D.1-5--Percentile Values That Would Have Produced Accurate Projection in 2016 and 2017
----------------------------------------------------------------------------------------------------------------
                                                                                                   Average (Used
                                                                                                    to project
                                                                       2016            2017          volume in
                                                                                                       2018)
----------------------------------------------------------------------------------------------------------------
New Facilities..................................................             1st            18th            10th
Consistent Producers............................................            43rd           -18th            12th
----------------------------------------------------------------------------------------------------------------

    Finally, we used these percentile values, together with the ranges 
determined for each group of companies discussed above, to project a 
volume for each group of companies in 2018. These calculations are 
summarized in Table III.D.1-6 below.

                     Table III.D.1-6--Projected Volume of Liquid Cellulosic Biofuel in 2018
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                     range \a\     the range \a\    Percentile      volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers                 0              47            10th               5
 without Consistent Commercial Scale Production.
Liquid Cellulosic Biofuel Producers; Producers                 7              24            12th               9
 with Consistent Commercial Scale Production....
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A              14
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.

    EPA also considered whether it would be appropriate to modify other 
individual components of the past methodology for projecting liquid 
cellulosic biofuel based on a narrow consideration of each factor, but 
we do not believe that such changes are warranted. Making the 
adjustment to the percentile values used in the methodology while 
keeping other components of the methodology constant should, we 
believe, provide an appropriate refinement of the methodology that 
reflects recent experience. We acknowledge, however, that using the 
calculated percentile values from previous years to project liquid 
cellulosic biofuel production in future years does not eliminate the 
possibility that actual production will differ from our projections. 
This is especially true for the liquid cellulosic biofuel industry, 
which is currently in the early stages of commercialization. 
Nevertheless, based on the record before us, we believe the ranges of 
projected production volumes for each company (or group of companies 
for those using the Edeniq technology) are reasonable, and that 
projecting overall production in 2018 in the manner described above 
results in a neutral estimate (neither biased to produce a projection 
that is too high or too low) of likely liquid cellulosic biofuel 
production in 2018 (14 million gallons).
2. CNG/LNG Derived From Biogas
    For 2018, EPA is using a new methodology to project production of 
CNG/LNG derived from biogas used as transportation fuel. We believe a 
new

[[Page 58502]]

methodology is warranted for purposes of this rule for two primary 
reasons: the over-projection of CNG/LNG derived from biogas in 2016 
(and the likely over-projection of CNG/LNG derived from biogas in 
2017), and the relative maturity of the CNG/LNG industry relative to 
the liquid cellulosic biofuel industry. EPA's projection of the 
production of CNG/LNG derived from biogas in 2016 was 207 million 
ethanol-equivalent gallons. Actual production of cellulosic biofuel 
RINs for CNG/LNG derived from biogas that were available for compliance 
in 2016 was 185 million gallons, indicating that the approach we took 
to projecting CNG/LNG derived from biogas in 2016 resulted in an 
overestimate by 22 million ethanol-equivalent gallons (12 percent). 
Similarly, EPA's projection of the production of CNG/LNG derived from 
biogas in 2017 was 298 million ethanol-equivalent gallons. Actual 
production of cellulosic biofuel RINs for CNG/LNG derived from biogas 
that has been produced in 2017 (through the end of September, the most 
recent month for which data are available) is 151 million gallons. 
While data for all of 2017 are not available at this time, and despite 
the observed historical pattern of higher RIN generation for CNG/LNG 
derived from biogas in the latter months of the year relative to the 
earlier months of the year, the available data strongly suggests that 
actual RIN generation from CNG/LNG derived from biogas in 2017 is 
likely to fall short of our projections in the 2017 final rule. RIN 
generation of CNG/LNG derived from biogas from January 2017--September 
2017 is 22 percent higher than RIN generation in the same months in 
2016. In order to meet the projected volume for 2017 (298 million 
gallons), however, RIN generation in the remainder of 2017 would need 
to be 58 percent higher in 2017 than the total RIN generation from 
these fuels in 2016.
    EPA received many comments on our proposed approach to projecting 
production of CNG/LNG derived from biogas in 2018. Some commenters 
critiqued EPA's calculation of a year-over-year rate of growth based on 
production during the first five months of 2017 (relative to production 
in the first five months of 2016) and suggested that EPA use updated 
production data in the final rule, or that EPA calculate the annual 
rate of growth based on comparisons of time periods no less than 12 
months. Many commenters characterized EPA's proposed approach as 
inappropriately ``backwards looking,'' and claimed that while this 
approach may adequately project production from facilities that are 
currently producing CNG/LNG derived from biogas it did not adequately 
consider the new facilities the industry expects will begin production 
in 2018. Many of these commenters provided facility specific 
information on facilities capable of producing CNG/LNG derived from 
biogas in 2018 for both facilities that are currently producing CNG/LNG 
and those that expect to begin producing in 2018.\72\ Many of these 
commenters requested that EPA use the facility by facility approach 
used by EPA in our 2017 final rule to project the production of CNG/LNG 
derived from biogas in 2018.
---------------------------------------------------------------------------

    \72\ The Coalition for Renewable Natural Gas collected and 
submitted a large number of affidavits from project owners and 
operators of facilities that are currently producing CNG/LNG derived 
from biogas, as well as those that anticipate beginning production 
in 2018. Many of these affidavits are publicly available in the 
docket, while others have claimed these submissions as confidential 
business information.
---------------------------------------------------------------------------

    In this final rule EPA has used updated data in projecting the 
production of CNG/LNG derived from biogas, consistent with our stated 
intentions in the proposed rule and as requested by several commenters. 
At the time the analyses were performed for this final rule, EPA had 
data available through the end of September 2017. EPA has adjusted our 
calculated year-over-year rate of growth based on this new data. EPA 
also agrees with commenters who stated that it is more appropriate to 
calculate a year-over-year rate of growth using a full year's (12 
months) worth of data, as this captures any seasonality and would (in 
future years) minimize the opportunity for producers of CNG/LNG derived 
from biogas to attempt to influence the projected growth rate for the 
next year by intentionally shifting production to particular months of 
the year.
    For this final rule, EPA has calculated the year-over-year growth 
rate in CNG/LNG derived from biogas by comparing RIN generation from 
October 2016-September 2017 (the most recent 12 months for which data 
are available) to RIN generation in the 12 months that immediately 
precede this time period (October 2015-September 2016). These RIN 
generation volumes are shown in Table III.C.2-1 below.

   Table III.D.2-1--Generation of Cellulosic Biofuel RINs for CNG/LNG
                           Derived From Biogas
                            [Million gallons]
------------------------------------------------------------------------
                                    RIN generation
  RIN generation (October 2015-     (October 2016-      Year-over-year
         September 2016)            September 2017)        increase
 
------------------------------------------------------------------------
177.28..........................  215.52............  21.6%
------------------------------------------------------------------------

    EPA then applied this 21.6 percent year-over-year growth rate to 
the total number of 2016 cellulosic RINs generated for CNG/LNG that 
were available for compliance (185.14 million) to project the 
production of cellulosic RINs from these fuels in 2017, and then 
repeated the calculation to arrive at a projection for 2018. This 
methodology results in a projection of 273.6 million gallons of CNG/LNG 
derived from biogas in 2018.\73\ We believe that projecting the 
production of CNG/LNG derived from biogas in this manner appropriately 
takes into consideration the actual recent rate of growth of this 
industry, and that this growth rate accounts for both the potential for 
future growth and the challenges associated with increasing RIN 
generation from these fuels in future years. While this methodology may 
not be appropriate to use once the projected volume of CNG/LNG derived 
from biogas approaches the total volume of CNG/LNG that is used as 
transportation fuel, this is not currently a constraint as our 
projection for 2018 is well below the total volume of CNG/LNG that is 
currently used as transportation fuel.\74\ The comments

[[Page 58503]]

submitted to EPA on our proposed rule contained information related to 
a number of production facilities expected to begin producing CNG/LNG 
derived from biogas in 2018 (and the final few months of 2017). 
Although commenters generally believed that this information supported 
a different approach for projecting production of CNG/LNG derived from 
biogas in 2018, we believe that these comments generally support our 
projection of CNG/LNG for 2018, insofar as they demonstrate that there 
is reason to expect that the significant rate of growth observed in the 
production of CNG/LNG derived from biogas in recent years will continue 
throughout 2018.
---------------------------------------------------------------------------

    \73\ To calculate this value, EPA multiplied the total number of 
2016 RINs generated for CNG/LNG derived from biogas and available 
for compliance by 1.216 (representing a 21.6% year-over-year 
increase), and then multiplied the product by 1.216 a second time 
(to project the annual production volume in 2018, rather than 2017). 
The number 2016 of RINs generated for CNG/LNG derived from biogas 
and available for compliance (185.14) is based on EMTS data.
    \74\ EPA projects that 580 million ethanol-equivalent gallons of 
CNG/LNG will be used as transportation fuel in 2018 based on EIA's 
October 2017 Short Term Energy Outlook (STEO). To calculate this 
estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom 
Table Builder (0.12 billion cubic feet/day in 2018). This projection 
includes all CNG/LNG used as transportation fuel from both renewable 
and non-renewable sources. EIA does not project the amount of CNG/
LNG from biogas used as transportation fuel. To convert billion 
cubic feet/day to ethanol-equivalent gallons EPA used conversion 
factors of 1020 BTU per cubic foot of natural gas and 77,000 BTU of 
natural gas per ethanol-equivalent gallon.
---------------------------------------------------------------------------

    EPA disagrees with commenters who claimed that a facility-by-
facility approach to projecting cellulosic RIN generation for CNG/LNG 
derived from biogas would necessarily result in a more accurate 
projection than an industry-wide projection methodology. We continue to 
believe that in case of nascent industries with a small number of 
participants, such as the liquid cellulosic biofuel industry, industry 
wide projection methodologies may be inappropriate as they do not 
capture the specific circumstances that may impact each participant. In 
industries where the number of participants is small, failing to 
adequately assess each individual participant can have a significant 
impact on the overall accuracy of industry projections. However, as the 
number of market participants grows the impact of any single 
participant on the overall performance of the industry decreases. In 
these cases, industry-wide projection methods are more accurate than a 
more individualized approach, especially as macro market and economic 
factors become more influential on total production than the success or 
challenges at any single facility.
    Further, the accuracy of a facility by facility approach to 
projecting production is heavily dependent on the accuracy of the 
information available to EPA on the projected RIN generation volumes of 
each of the potential production facilities for 2018. Conversely, the 
market wide approach used by EPA in this final rule relies on actual 
RIN generation data, rather than individual company projections for 
2018, to calculate a demonstrated rate of growth. As the number of 
potential production facilities increases, EPA's ability to verify the 
accuracy of the information we receive, and make a determination about 
the likelihood that the producers will produce CNG/LNG derived from 
biogas at the projected levels decreases. This is especially 
challenging in situations where there are a large number of potential 
producers that have previously overestimated the actual production from 
their facilities. In our 2017 final rule, EPA projected that 26 new 
facilities would begin producing CNG/LNG derived from biogas in 2017, 
largely based on information we received from the renewable CNG/LNG 
industry through the Coalition for Renewable Natural Gas. While we 
currently only have data available for the first 9 months of 2017, to 
date only two new facilities have generated cellulosic RINs for CNG/LNG 
derived from biogas in 2017. While additional new facilities may 
generate cellulosic RINs for CNG/LNG derived from biogas in the final 3 
months of 2017, many projected that they would be producing cellulosic 
RINs by this point in the year, and it is highly unlikely that all 26 
of these facilities will successfully generate cellulosic RINs by the 
end of 2017. The failure of these new facilities to generate cellulosic 
RINs in 2017, together with the over-projection by many of the 
facilities that have generated cellulosic RINs in 2017 resulted in the 
facility specific approach recommended by many commenters appearing to 
have significantly over-estimated the production of CNG/LNG in 2017. 
EPA has therefore used an alternative methodology based on actual 
production data in previous years, rather than production projections 
by individual facilities, to project production of CNG/LNG derived from 
biogas in this final rule. We believe the production of CNG/LNG derived 
from biogas has matured to a point where an industry wide projection 
methodology is more appropriate than a facility by facility approach, 
and is likely to result in a more accurate projection. We will monitor 
the success of this new approach, and will make appropriate 
modifications in the future if warranted.
    We also disagree with commenters who claim that our proposed 
projection methodology does not appropriately account for new 
facilities expected to begin producing CNG/LNG derived from biogas in 
2018. The methodology used by EPA in this final rule compared the total 
projection of CNG/LNG derived from biogas from October 2016-September 
2017 to production in the 12 months that immediately precede this time 
period (October 2015-September 2016). The production increases observed 
in October 2016-September 2017, as compared to the preceding 12 months, 
were the result of both increased production from facilities that had 
previously produced CNG/LNG derived from biogas as well as production 
from facilities that had not previously produced this fuel. For 
example, from October 2015-September 2016 a total of 34 facilities 
generated cellulosic RINs for CNG/LNG derived from biogas. From October 
2016-September 2017 the number of facilities that produced cellulosic 
RINs for CNG/LNG derived from biogas increased to 41. We believe, 
therefore, that while our projection methodology uses a growth rate 
based on historical data it adequately anticipates higher production 
volumes in future years, including both increased production from 
existing facilities as well as production from new facilities. In this 
way it is a forward, rather than backward looking methodology that 
satisfies our charge to project future cellulosic biofuel production in 
a reasonable manner, and with neutrality.
3. Total Cellulosic Biofuel in 2018
    After projecting production of cellulosic biofuel from liquid 
cellulosic biofuel production facilities and producers of CNG/LNG 
derived from biogas, EPA combined these projections to project total 
cellulosic biofuel production for 2018. These projections are shown in 
Table III.D.3-1. Using the methodologies described in this section, we 
project that 288 million ethanol-equivalent gallons of cellulosic 
biofuel will be produced in 2018. We believe that projecting overall 
production in 2018 in the manner described above results in a neutral 
estimate (neither biased to produce a projection that is too high nor 
too low) of likely cellulosic biofuel production in 2018.

     Table III.D.3-1--Projected Volume of Cellulosic Biofuel in 2018
                            [Million gallons]
------------------------------------------------------------------------
                                                             Projected
                                                            volume \a\
------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers without                 5
 Consistent Commercial Scale Production.................
Liquid Cellulosic Biofuel Producers; Producers with                    9
 Consistent Commercial Scale Production.................

[[Page 58504]]

 
CNG/LNG Derived from Biogas.............................             274
                                                         ---------------
    Total...............................................             288
------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.

    Further discussion of the individual companies we believe will 
produce cellulosic biofuel and make it commercially available in 2018 
can be found in a memorandum to the docket.\75\
---------------------------------------------------------------------------

    \75\ ``Cellulosic Biofuel Producer Company Descriptions 
(November 2017),'' memorandum from Dallas Burkholder to EPA Air 
Docket EPA-HQ-OAR-2017-0091. In the case of cellulosic biofuel 
produced from CNG/LNG and facilities using Edeniq's technology we 
have discussed the production potential from these facilities as a 
group rather than individually.
---------------------------------------------------------------------------

IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2018

    The national volume targets for advanced biofuel and total 
renewable fuel to be used under the RFS program each year through 2022 
are specified in CAA section 211(o)(2)(B)(i)(I) and (II). Congress set 
annual renewable fuel volume targets that envisioned growth at a pace 
that far exceeded historical growth and, for years after 2011, 
prioritized that growth as occurring principally in advanced biofuels 
(contrary to previous growth patterns where most growth was in 
conventional renewable fuel, principally corn-ethanol). Congressional 
intent is evident in the fact that the portion of the total renewable 
fuel volume target in the statutory volume tables that is not required 
to be advanced biofuel is 15 billion gallons for all years after 2014, 
while the advanced volumes, driven by growth in cellulosic volumes, 
continue to grow through 2022 to a total of 21 billion gallons.
    In this Section we discuss our use of the discretion afforded by 
the cellulosic waiver authority at CAA section 211(o)(7)(D)(i) to 
reduce volumes of advanced biofuel and total renewable fuel. We first 
discuss our assessment of advanced biofuel and the considerations, 
including comments received in response to the proposal and October 4 
document, which have led us to conclude that the advanced biofuel 
volume target in the statute should be reduced by the full amount 
permitted under the cellulosic waiver authority. We then address total 
renewable fuel in the context of our interpretation, articulated in 
previous annual rulemakings, that advanced biofuel and total renewable 
fuel should be reduced by the same amount under the cellulosic waiver 
authority. In Section V we discuss our consideration of additional 
reductions for both advanced biofuel and total renewable fuel beyond 
those permitted under the cellulosic waiver authority, using other 
waiver authorities provided by the statute.
    To begin, we have evaluated the capabilities of the market and are 
making a finding that the 11.0 billion gallons specified in the statute 
for advanced biofuel cannot be reached in 2018. This is primarily due 
to the expected continued shortfall in cellulosic biofuel; production 
of this fuel type has consistently fallen short of the statutory 
targets by 95 percent or more, and as described in Section III, we 
project that it will fall far short of the statutory target of 7.0 
billion gallons again in 2018. In addition, although for the 2016 and 
2017 standards we determined that the projected reasonably attainable 
supply of non-cellulosic advanced biofuel and other considerations 
justified establishing standards that included a partial backfill of 
the shortfall in cellulosic biofuel with advanced biofuel, for reasons 
described in this section we are reducing the advanced biofuel 
applicable volume by the full amount of the shortfall in cellulosic 
biofuel for 2018.
    In previous years when exercising the cellulosic waiver authority 
to determine the required volume of advanced biofuel, we have taken 
into account the availability of advanced biofuels, their energy 
security and GHG impacts, and the apparent intent of Congress as 
reflected in the statutory volumes tables to substantially increase the 
use of advanced biofuels over time, as well as factors such as 
increased costs associated with the use of advanced biofuels and the 
environmental and food competition concerns raised by some commenters. 
In considering these factors, in those years, we have concluded that it 
was appropriate to set the advanced biofuel standard in a manner that 
would allow the partial backfilling of missing cellulosic volumes with 
non-cellulosic advanced biofuels. For purposes of this final rule we 
have again taken these factors into consideration, but rely more 
heavily on consideration of cost as a result of a stronger policy focus 
on the economic impacts of the RFS program to conclude that such 
backfilling with non-cellulosic advanced biofuel volumes should not be 
required in 2018. In other words, we are reducing the statutory volume 
target for advanced biofuel by the same amount as the reduction in 
cellulosic biofuel. This results in the non-cellulosic component of the 
advanced biofuel volume requirement being equal to the implied 
statutory volume of 4.00 billion gallons. We believe this new approach 
to balancing relevant considerations and exercising our discretion 
under the cellulosic waiver authority is permissible under the statute, 
and consistent with the principles articulated in FCC v. Fox TV 
Stations (556 US. 502, 514-15 (2009)), regarding circumstances when an 
agency may appropriately depart from prior policy. In making this final 
determination for 2018, we have considered comments on the appropriate 
balancing of factors under the cellulosic waiver authority that were 
provided by stakeholders in response to the proposal and the October 4 
document, as discussed in the accompanying RTC document.
    We note that the predominant non-cellulosic advanced biofuels 
available in the near term are advanced biodiesel and renewable 
diesel.\76\ We expect a decreasing rate of growth in the availability 
of feedstocks used to produce these fuel types. In addition, we expect 
diminishing GHG benefits and higher per gallon costs as the required 
volumes of advanced biodiesel and renewable diesel increase. These 
outcomes are a result of the fact that the lowest cost and most easily 
available feedstocks are typically used first, and each additional 
increment of advanced biodiesel and renewable diesel requires the use 
of feedstocks that are incrementally more costly and/or more difficult 
to obtain. Moreover, to the extent that higher advanced biofuel 
requirements cannot be satisfied through growth in the production of 
advanced biofuel feedstocks, they would instead be satisfied through a 
re-direction of such feedstocks from competing uses. Parties that were 
formerly using these feedstocks are likely to replace the advanced 
biofuel feedstocks with the lowest cost alternatives, likely derived 
from palm or petroleum sources, leading to lower overall GHG emission 
benefits. There would also likely be market disruptions and increased 
burden associated with shifting feedstocks among the wide range of 
companies that are relying on them today and which have optimized their 
processes to use them. Higher

[[Page 58505]]

advanced biofuel standards could also be satisfied by diversion of 
foreign advanced biofuel from foreign markets, and there would likely 
be diminished benefits associated with such diversions. Taking these 
considerations into account, we believe, as discussed in more detail 
below, that we should not exercise our discretion under the cellulosic 
waiver authority to set the advanced biofuel volume requirement at a 
level that would lead to such diversions.
---------------------------------------------------------------------------

    \76\ While sugarcane ethanol can also contribute to the supply 
of advanced biofuel, in recent years, supply of sugarcane ethanol 
has been considerably lower than supply of advanced biodiesel or 
renewable diesel.
---------------------------------------------------------------------------

    Furthermore, two other factors have added uncertainty regarding 
advanced biofuel volumes that are reasonably attainable and 
appropriate. The first is the fact that the tax credit for biodiesel 
has not been renewed, and if renewed could be in the form of a 
producer's tax credit rather than a blender's tax credit.\77\ The 
second is the preliminary determination by the Department of Commerce 
that countervailing duties should be imposed on biodiesel imports from 
Argentina and Indonesia.\78\
---------------------------------------------------------------------------

    \77\ See American Renewable Fuel and Job Creation Act of 2017, 
S.944, 115th Cong. (2017).
    \78\ ``Commerce Finds Countervailable Subsidization of Imports 
of Biodiesel from Argentina and Indonesia,'' available in EPA docket 
number EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    We believe that the factors and considerations noted above are all 
appropriately considered in our exercise of the broad discretion 
provided under the cellulosic waiver authority, and that a 
comprehensive consideration of these factors supports our use of the 
authority. Some of the considerations discussed in this final rule are 
related to the availability of non-cellulosic advanced biofuels (e.g., 
historic data on domestic supply, expiration of the biodiesel blenders' 
tax credit, potential imports of biodiesel in light of the Commerce 
Departments preliminary determination on countervailing duties on 
biodiesel imports from Argentina and Indonesia, potential imports of 
sugarcane ethanol, and anticipated decreasing growth in production of 
feedstocks for advanced biodiesel and renewable diesel), while others 
focus on the potential benefits and costs of requiring use of available 
volumes (e.g., relative cost of advanced biofuels to the petroleum 
fuels they displace, GHG reduction benefits and energy security 
benefits). Having determined that we should not exercise the discretion 
afforded EPA under the cellulosic waiver authority so as to require the 
use of advanced biofuel volumes that would lead to diversion of 
advanced feedstocks from other uses or diversion of advanced biofuels 
from foreign sources, our analytical approach to identifying the 
appropriate volume requirement is to first identify volumes that we 
believe would be reasonably attainable in 2018 without such feedstock 
or fuel diversions, and then discuss whether or not other 
considerations, such as cost and GHG impacts, indicate that it would be 
appropriate to set the advanced biofuel volume requirement so as to 
require use of such volumes to partially backfill for missing 
cellulosic volumes.
    The net impact of our exercise of the cellulosic waiver authority 
is that after waiving the cellulosic biofuel volume down to the 
projected available level, and applying the same volume reduction to 
the statutory volume target for advanced biofuel, the resulting volume 
requirement for advanced biofuel for 2018 is 10 million gallons more 
than the applicable volume used to derive the 2017 percentage standard. 
Furthermore, after applying the same reduction to the statutory volume 
target for total renewable fuel, the volume requirement for total 
renewable fuel is also 10 million gallons more than the applicable 
volume used to derive the 2017 percentage standard. The remainder of 
this section provides our justification for this approach to the 
determination of the volume requirements for advanced biofuel and total 
renewable fuel. Section V discusses our consideration of further 
reductions in either advanced biofuel or total renewable fuel using 
either the general waiver authority or the BBD waiver authority, and 
our justification for not applying such further reductions.

A. Volumetric Limitation on Use of the Cellulosic Waiver Authority

    As described in Section II.A, when making reductions in advanced 
biofuel and total renewable fuel under the cellulosic waiver authority, 
the statute limits those reductions to no more than the reduction in 
cellulosic biofuel. As described in Section III.D, we are establishing 
a 2018 applicable volume for cellulosic biofuel of 288 million gallons, 
representing a reduction of 6,712 million gallons from the statutory 
target of 7,000 million gallons. As a result, 6,711 million gallons is 
the maximum volume reduction for advanced biofuel and total renewable 
fuel that is permissible using the cellulosic waiver authority. Use of 
the cellulosic waiver authority to this maximum extent would result in 
volumes of 4.29 and 19.29 billion gallons for advanced biofuel and 
total renewable fuel, respectively.\79\
---------------------------------------------------------------------------

    \79\ When expressing volumes in billion gallons, we use standard 
rounding methods to two decimal places, as done in previous annual 
standard-setting rulemakings. Volumes are sometimes shown in million 
gallons for clarity, but it is volumes in billion gallons that are 
used to calculate the applicable percentage standards.

   Table IV.A-1--Lowest Permissible Volumes Using Only the Cellulosic
                            Waiver Authority
                            [million gallons]
------------------------------------------------------------------------
                                             Advanced          Total
                                              biofuel     renewable fuel
------------------------------------------------------------------------
Statutory target........................          11,000          26,000
Maximum reduction permitted under the              6,712           6,712
 cellulosic waiver authority............
Lowest 2018 volume requirement permitted           4,288          19,288
 using only the cellulosic waiver
 authority..............................
------------------------------------------------------------------------

    We are authorized under the cellulosic waiver authority to reduce 
the advanced biofuel and total renewable fuel volumes ``by the same or 
a lesser'' amount as the reduction in the cellulosic biofuel volume. As 
discussed in Section II.A, EPA has broad discretion in using the 
cellulosic waiver authority in instances where its use is authorized 
under the statute, since Congress did not specify factors that EPA must 
consider in determining whether to use the authority or what the 
appropriate volume reductions (within the range permitted by statute) 
should be. This broad discretion was affirmed in both Monroe and 
ACE.\80\ Thus, EPA could potentially set the 2018 advanced biofuel 
standard at a level that is designed to partially backfill for the 
shortfall in cellulosic biofuel. As discussed below, doing so would 
result in perhaps an additional 110 million gallons of advanced 
biofuel. However,

[[Page 58506]]

based on our consideration of the factors described in more detail 
below, we are using the full extent of the cellulosic waiver authority 
in deriving volume requirements for 2018.\81\
---------------------------------------------------------------------------

    \80\ See ACE at 730-35.
---------------------------------------------------------------------------

B. Reasonably Attainable Volumes of Advanced Biofuel

    It is appropriate to consider the availability of advanced biofuel, 
both to inform our exercise of the cellulosic waiver authority and to 
ascertain whether there might be an ``inadequate domestic supply'' 
justifying use of the general waiver authority. As the Court noted in 
ACE, EPA may consider demand-side considerations in addition to supply-
side considerations when it assesses ``reasonably attainable'' volumes 
for purposes of its cellulosic waiver assessment. However, EPA may not 
consider demand-side factors in assessing whether there is an 
``inadequate domestic supply'' that would justify use of the general 
waiver authority.\82\ Our assessment of reasonably attainable volumes 
of advanced biofuel is described below.
---------------------------------------------------------------------------

    \81\ We specify the volume requirements as billion gallons with 
two decimal places to be consistent with the volume targets as given 
in the statute. The only exception is for cellulosic biofuel which 
we specify in million gallons due to the substantial reduction from 
the statutory target. However, calculations are typically shown in 
million gallons for all four standards for clarity.
    \82\ See ACE at 734 and 696.
---------------------------------------------------------------------------

    In ACE, the Court noted that in assessing what volumes are 
``reasonably attainable,'' EPA had considered the availability of 
feedstocks, domestic production capacity, imports, and market capacity 
to produce, distribute, and consume renewable fuel.\83\ We are taking a 
similar approach for 2018, with the added consideration of the 
possibility that higher volume requirements would lead to ``feedstock 
switching'' or diversion of advanced biofuels from use in other 
countries, which we took into account in setting the 2017 volume 
requirements and, we believe, are appropriate considerations under the 
broad discretion provided by the cellulosic waiver authority.
---------------------------------------------------------------------------

    \83\ ACE at 735-36.
---------------------------------------------------------------------------

    As noted above, a higher advanced biofuel volume requirement has a 
greater potential to increase the incentive for switching advanced 
biofuel feedstocks from existing uses to biofuel production. Such 
market reactions could cause disruptions and/or price increases in the 
non-biofuel markets that currently use these feedstocks. Increasing the 
required volumes of advanced biofuels without giving the market 
adequate time to adjust by increasing supplies could also result in 
diversion of advanced biofuels from foreign countries to the U.S. 
without increasing total global volumes. We believe it is likely that 
the parties that formerly used advanced biofuel feedstocks would seek 
to replace the advanced biofuel feedstocks with the cheapest 
alternatives, likely products derived from palm oil or petroleum, 
rather than forgoing the use of oil-based products. Increasing volumes 
of advanced biofuels used in the U.S. in this way (by shifting the end 
use of advanced feedstocks to biofuel production and satisfying the 
current markets for these advanced feedstocks with non-qualifying or 
petroleum based feedstocks, or by simply shifting advanced biodiesel or 
renewable diesel from foreign to domestic use--referred to for 
simplicity as ``feedstock/fuel diversions'') would therefore likely not 
produce the GHG benefits that would otherwise be expected. We have 
decided not to set the advanced biofuel volume requirement at a level 
that would require such feedstock/fuel diversions. Our individual 
assessments of reasonably attainable volumes of advanced biofuels 
reflect this approach. That is, while we refer to them as ``reasonably 
attainable'' volumes for convenience, they represent those volumes that 
are not likely to lead to feedstock/fuel diversions. Greater volumes 
could likely be made available if such diversions were not of concern.
1. Imported Sugarcane Ethanol
    The predominant available source of advanced biofuel other than 
cellulosic biofuel and BBD is imported sugarcane ethanol. In setting 
both the 2016 and 2017 standards, we determined that 200 million 
gallons of imported sugarcane ethanol would be reasonably attainable. 
In deriving this estimate of sugarcane ethanol, we attempted to balance 
indications of lower potential imports from recent data with 
indications that higher volumes were possible based on older data. We 
also pointed to the high variability in ethanol import volumes in the 
past (including of Brazilian sugarcane ethanol, the predominant form of 
imported ethanol, and the only significant source of imported advanced 
ethanol), increasing gasoline consumption in Brazil, and variability in 
Brazilian production of sugar as reasons that it would be inappropriate 
to assume that sugarcane ethanol imports would reach the much higher 
levels suggested by some stakeholders.
    The data on 2016 ethanol imports suggests that we overestimated the 
volume of sugarcane ethanol imports for that year. Despite the fact 
that the applicable standards for 2016 were set prior to the beginning 
of 2016, and despite suggestions from UNICA \84\ that 2016 imports 
could reach as high as 2 billion gallons, total ethanol imports only 
reached 34 million gallons.
---------------------------------------------------------------------------

    \84\ UNICA is the Brazilian Sugarcane Industry Association.

---------------------------------------------------------------------------

[[Page 58507]]

[GRAPHIC] [TIFF OMITTED] TR12DE17.000

    Available data for imports in 2017 similarly suggests that imports 
are again likely to fall well below the 200 million gallons that we 
assumed when setting the 2017 standards; for January through August of 
2017, total imports of sugarcane ethanol were 75 million gallons; by 
the end of 2017, total imports of sugarcane ethanol might be about 100 
million gallons.\85\ The combined experience for 2016 and 2017 suggests 
that 200 million gallons is too high for the purposes of projecting 
reasonably attainable volumes of advanced biofuel for 2018. At the same 
time, higher import volumes than those which occurred in 2016 are 
clearly possible, as reflected by imports seen in prior years. Taking 
all of these considerations into account, we are using 100 million 
gallons of imported sugarcane ethanol for the purposes of projecting 
reasonably attainable volumes of advanced biofuel for 2018. This level 
reflects a balancing of the information available to EPA at this time; 
both the lower import volumes that have occurred more recently with the 
higher volumes that are possible based on earlier years.
---------------------------------------------------------------------------

    \85\ ``Imports of ethanol 2011-2017,'' available in docket EPA-
HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    We note that the future projection of imports of sugarcane ethanol 
is inherently imprecise, and that actual imports in 2018 could be lower 
or higher than 100 million gallons. Factors that could result in import 
volumes below 100 million gallons include weather and harvests in 
Brazil, world ethanol demand and prices, and constraints associated 
with the E10 blendwall in the U.S. Also, global sugar consumption has 
continued to increase steadily, while production has decreased. If the 
trend continues, Brazilian production of sugar could increase, with a 
concurrent reduction in production of ethanol.\86\ On the other hand, 
the world average price of sugar has been projected to remain 
relatively flat between 2016 and 2018, suggesting little change in 
sugar production and implying that ethanol production in Brazil might 
likewise remain unchanged.\87\ After considering these factors, and in 
light of the high degree of variability in historical imports of 
sugarcane ethanol, we believe that 100 million gallons is a reasonable 
projection for 2018.
---------------------------------------------------------------------------

    \86\ ``Sugar--World Markets and Trade,'' USDA, November 2016.
    \87\ ``Commodity Markets Outlook,'' World Bank Group, January 
2017.
---------------------------------------------------------------------------

2. Biodiesel and Renewable Diesel
    With regard to biodiesel and renewable diesel, there are many 
different factors that could potentially influence the total reasonably 
attainable volume of these fuels (including both advanced and non-
advanced forms) used as transportation fuel or heating oil in the 
U.S.\88\ These factors could include the availability of qualifying 
biodiesel and renewable diesel feedstocks, and the production capacity 
of biodiesel and renewable diesel facilities (both in the U.S. and 
internationally). The degree to which these and other factors may 
affect the total supply of both advanced and conventional forms of 
biodiesel and renewable diesel in 2018, is discussed in a memo to the 
docket.\89\
---------------------------------------------------------------------------

    \88\ For a further discussion of the factors that influence the 
availability of biodiesel and renewable diesel see Section V.B.2 of 
the preamble and a further discussion of these factors from the 2017 
final rule (81 FR 89781-89789, December 12, 2016).
    \89\ ``Market impacts of biofuels,'' memorandum from David 
Korotney to docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    However, the primary considerations in our determination of the 
reasonably attainable volumes of advanced biodiesel and renewable 
diesel for 2018 are data on the use of advanced biodiesel and renewable 
diesel in previous years, the uncertain impact of the continued absence 
of the biodiesel tax credit and proposed tariffs on biodiesel from 
certain countries on biodiesel production and importation, the 
projected growth in production of advanced biodiesel and renewable

[[Page 58508]]

diesel feedstocks in 2018.\90\ A review of the volumes of advanced 
biodiesel and renewable diesel used in previous years is especially 
useful in projecting the potential for growth in the production and use 
of such fuels, since for these fuels there are a number of complex and 
inter-related factors beyond simply the total production capacity for 
biodiesel and renewable diesel and ability to distribute these fuels 
(including the availability of advanced feedstocks, the expiration of 
the biodiesel tax credit, and other market-based factors) that are 
likely to affect the total supply. We also believe the likely growth in 
production of feedstocks used to produce these fuels is an important 
factor to consider. This is because the energy security and GHG 
reduction value associated with the growth in the use of advanced 
biofuels is greater when that growth is associated with an increase in 
advanced feedstock production, rather than a switching of existing 
advanced feedstocks from other uses or the diversion of advanced 
biodiesel and renewable diesel from foreign markets if the parties that 
previously used the advanced biofuel or feedstocks replace these oils 
with low cost palm or petroleum derived products, as we believe would 
likely be the case in 2018. Such feedstock switching or fuel diversion 
could result in unintended negative consequences, such as market 
disruption in other markets where such oils are used, which could 
offset some of the anticipated benefits of the production and use of 
advanced biofuels.
---------------------------------------------------------------------------

    \90\ Throughout this section we refer to advanced biodiesel and 
renewable diesel as well as advanced biodiesel and renewable diesel 
feedstocks. In this context, advanced biodiesel and renewable diesel 
refer to any biodiesel or renewable diesel for which RINs can be 
generated that satisfy an obligated party's advanced biofuel 
obligation (i.e., D4 or D5 RINs). An advanced biodiesel or renewable 
feedstock refers to any of the biodiesel, renewable diesel, jet 
fuel, and heating oil feedstocks listed in Table 1 to Sec.  80.1426 
or in petition approvals issued pursuant to Sec.  80.1416, that can 
be used to produce fuel that qualifies for D4 or D5 RINs. These 
feedstocks include, for example, soy bean oil; oil from annual cover 
crops; oil from algae grown photosynthetically; biogenic waste oils/
fats/greases; non-food grade corn oil; camelina sativa oil; and 
canola/rapeseed oil (See pathways F, G, and H of Table 1 to Sec.  
80.1426).
---------------------------------------------------------------------------

    The volume of advanced biodiesel and renewable diesel projected to 
be available based on a consideration of these factors is less than the 
maximum volume of biodiesel and renewable diesel we believe could be 
produced (based solely on an assessment of the available production 
capacity) or consumed (based on an assessment of the ability of the 
market to distribute and use biodiesel and renewable diesel). 
Production capacity and the ability for the market to distribute and 
use biodiesel and renewable diesel are therefore not constraining 
factors in our assessment of the reasonably attainable volume of 
advanced biodiesel and renewable diesel in 2018.
    Before considering the projected growth in the production of 
qualifying feedstocks that could be used to produce advanced biodiesel 
and renewable diesel, it is helpful to review the volumes of biodiesel 
and renewable diesel that have been used in the U.S. in recent years. 
While historic data and trends alone are insufficient to project the 
volumes of biodiesel and renewable diesel that could be provided in 
future years, historic data can serve as a useful frame of reference in 
considering future volumes. Past experience suggests that a high 
percentage of the biodiesel and renewable diesel used in the U.S. (from 
both domestic production and imports) qualifies as advanced 
biofuel.\91\ In previous years, biodiesel and renewable diesel produced 
in the U.S. has been almost exclusively advanced biofuel.\92\ Imports 
of advanced biodiesel have increased in recent years, however, as seen 
in Table IV.B.2-1. Volumes of imported advanced biodiesel and renewable 
diesel have varied significantly from year to year, as they are 
impacted both by domestic and foreign policies, as well as economic 
factors.
---------------------------------------------------------------------------

    \91\ From 2011 through 2016 over 95% of all biodiesel and 
renewable diesel supplied to the U.S. (including domestically-
produced and imported biodiesel and renewable diesel) qualified as 
advanced biodiesel and renewable diesel (9,372 million gallons of 
the 9,850 million gallons) according to EMTS data.
    \92\ From 2011 through 2016 over 99.9% of all the domestically 
produced biodiesel and renewable diesel supplied to the U.S. 
qualified as advanced biodiesel and renewable diesel (8,258 million 
gallons of the 8,265 million gallons) according to EMTS data.

                                  Table IV.B.2-1--Advanced (D4 and D5) Biodiesel and Renewable Diesel from 2011 to 2016
                                                                  [Million gallons] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2011            2012            2013          2014 \b\        2015 \b\          2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)......................       967 (N/A)     1,014 (+47)    1,376 (+362)     1,303 (-73)     1,253 (-50)    1,633 (+380)
Domestic Renewable Diesel (Annual Change)...............        58 (N/A)        11 (-47)        92 (+81)       155 (+63)       175 (+20)       221 (+46)
Imported Biodiesel (Annual Change)......................        44 (N/A)         40 (-4)      156 (+116)       130 (-26)      261 (+131)      561 (+300)
Imported Renewable Diesel (Annual Change)...............         0 (N/A)        28 (+28)      145 (+117)       129 (-16)        121 (-8)       170 (+49)
Exported Biodiesel and Renewable Diesel (Annual Change).        48 (N/A)       102 (+54)       125 (+23)        134 (+9)        133 (-1)        129 (-4)
                                                         -----------------------------------------------------------------------------------------------
    Total (Annual Change)...............................      1021 (N/A)       991 (-30)    1,644 (+653)     1,583 (-61)     1,677 (+94)    2,456 (+779)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data for 2011-2016 from EMTS. EPA reviewed all advanced biodiesel and renewable diesel RINs retired for reasons other than demonstrating
  compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the
  supply in each year.
\b\ RFS required volumes for these years were not established until December 2015.


                                   Table IV.B.2-2--Conventional (D6) Biodiesel and Renewable Diesel from 2011 to 2016
                                                                  [Million gallons] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2011            2012            2013          2014 \b\        2015 \b\          2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)......................         0 (N/A)          0 (+0)          6 (+6)          1 (-5)          0 (+0)          0 (+0)
Domestic Renewable Diesel (Annual Change)...............         0 (N/A)          0 (+0)          0 (+0)          0 (+0)          0 (+0)          0 (+0)
Imported Biodiesel (Annual Change)......................         0 (N/A)          0 (+0)        31 (+31)        52 (+21)        74 (+22)       113 (+39)

[[Page 58509]]

 
Imported Renewable Diesel (Annual Change)...............         0 (N/A)          0 (+0)        53 (+53)         0 (-53)      106 (+106)        43 (-63)
Exported Biodiesel and Renewable Diesel (Annual Change).         0 (N/A)          0 (+0)          0 (+0)          0 (+0)          0 (+0)          1 (+1)
                                                         -----------------------------------------------------------------------------------------------
    Total (Annual Change)...............................         0 (N/A)          0 (+0)        90 (+90)        53 (-37)      180 (+127)       155 (-25)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data for 2011-2016 from EMTS. EPA reviewed all conventional biodiesel and renewable diesel RINs retired for reasons other than demonstrating
  compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the
  supply in each year.
\b\ RFS required volumes for these years were not established until December 2015.

    Since 2011 the year-over-year changes in the volume of advanced 
biodiesel and renewable diesel in the U.S. have varied greatly, from a 
low of negative 61 million gallons from 2011 to 2012 to a high of 779 
million gallons from 2015 to 2016. These changes were likely influenced 
by a number of factors such as the cost of biodiesel feedstocks and 
petroleum diesel, the status of the biodiesel blenders tax credit, 
growth in marketing of biodiesel at high volume truck stops and 
centrally fueled fleet locations, demand for biodiesel and renewable 
diesel in other countries, biofuel policies in both the U.S. and 
foreign countries, and the volumes of renewable fuels (particularly 
advanced biofuels) required by the RFS. This historical information 
does not indicate that the maximum previously observed increase of 779 
million gallons of advanced biodiesel and renewable diesel would be 
reasonable to expect from 2017 to 2018, nor does it indicate that the 
low growth rates observed in other years represent the limit of 
potential growth in 2018. Rather, these data illustrate both the 
magnitude of the increases in advanced biodiesel and renewable diesel 
in previous years and the significant variability in these increases.
    The historic data indicates that the biodiesel tax policy in the 
U.S. can have a significant impact on the supply of biodiesel and 
renewable diesel in any given year. While the biodiesel blenders tax 
credit has applied in each year from 2010-2016, it has only been in 
effect during the calendar year in 2011, 2013 and 2016, while other 
years it has been applied retroactively. The biodiesel blenders tax 
credit expired at the end of 2009 and was re-instated in December 2010 
to apply retroactively in 2010 and extend through the end of 2011. 
Similarly, after expiring at the end of 2011, 2013, and 2014 the tax 
credit was re-instated in January 2013 (for 2012 and 2013), December 
2014 (for 2014), and December 2015 (for 2015 and 2016). Each of the 
years in which the biodiesel blenders tax credit was in effect during 
the calendar year (2013 and 2016) resulted in significant increases in 
the supply of advanced biodiesel and renewable diesel over the previous 
year (653 million gallons and 779 million gallons respectively). 
However, following this large increase in 2013, the increase in the 
supply of advanced biodiesel and renewable diesel in 2014 and 2015 was 
minimal, only 33 million gallons from 2013 to 2015. This pattern is 
likely the result of both accelerated production and/or importation of 
biodiesel and renewable diesel in the final few months of 2013 to take 
advantage of the expiring tax credit as well as relatively lower 
volumes of biodiesel and renewable diesel production and import in 2014 
and 2015 than would have occurred if the tax credit had been in 
place.\93\
---------------------------------------------------------------------------

    \93\ We also acknowledge that the fact that EPA did not finalize 
the required volumes of renewable fuel under the RFS program for 
2014 and 2015 until December 2015 likely had an impact on the volume 
of advanced biodiesel and renewable diesel supplied in these years.
---------------------------------------------------------------------------

    We believe it is reasonable to anticipate a similar production 
pattern in 2016 through 2018 as observed in 2013 through 2015; that 
increases in the volumes of advanced biodiesel and renewable diesel 
will be modest in 2017 and 2018, following the significant increase in 
2016. In 2013 the tax credit was in place through the entire year. This 
was followed by two years (2014 and 2015) in which the tax credit was 
not in place, but was eventually reinstated retroactively. Similarly, 
the tax credit in place through 2016, but at the time of this 
rulemaking not applicable to 2017 or 2018.\94\ Available RIN generation 
data further supports this pattern. Very high volumes of advanced 
biodiesel and renewable diesel were supplied in the last quarter of 
2016, likely driven by a desire to capture the expiring tax credit, 
while significantly smaller volumes of these fuels were supplied in the 
first quarter of 2017.\95\ Data on advanced biodiesel and renewable 
diesel RIN generation in 2017 was available through September at the 
time the analyses were performed for this rulemaking. Our review of 
this data suggests that the generation of RINs for advanced biodiesel 
and renewable diesel in 2017 (through September) is slightly higher 
than RIN generation for these fuels during the same time period in 2016 
(see Figure IV.B.2-1 below). Total 2016 RIN generation for advanced 
biodiesel and renewable diesel through September 2016 was 2.76 billion 
RINs, while total 2017 RIN generation for these fuels through September 
2017 was 2.82 billion RINs. Total supply of advanced biodiesel and 
renewable diesel in 2016 was 2.46 billion gallons, suggesting that a 
total supply of approximately 2.5 billion gallons in 2017 (slightly 
higher than the volume supplied in 2016) is likely.\96\ This is 
consistent with our projection of advanced biodiesel and renewable 
diesel in the 2017 rule (2.4 billion gallons) and expectations based on 
RIN generation patterns in previous years of modest increases in the 
supply of advanced biodiesel and renewable diesel in the years 
following the

[[Page 58510]]

expiration of the biodiesel tax credit. This data also supports our 
expectation that the reasonably attainable volume of advanced biodiesel 
and renewable diesel in 2018 will reflect modest increases from the 
reasonably attainable volumes of these fuels in 2016 and 2017. It is 
not clear from this data whether or not higher RFS volume requirements 
alone would be sufficient to drive significant increases in the supply 
of advanced biodiesel and renewable diesel in the absence of a tax 
credit.
---------------------------------------------------------------------------

    \94\ At this time, it is uncertain whether the tax credit would 
be retroactively applied to 2017 or applied in any manner 
(prospectively or retroactively) in 2018.
    \95\ According to data on EPA's public Web site, RINs were 
generated for 823 million gallons of biomass-based diesel in the 
last quarter of 2016 while RINs were generated for 444 million 
gallons of biomass-based diesel in the first quarter of 2017. The 
vast majority of advanced biodiesel and renewable diesel qualifies 
as biomass-based diesel.
    \96\ The supply of advanced biodiesel and renewable diesel in 
2016 accounts for all RIN generation, as well as all RIN retirements 
for reasons other than compliance with the annual standards. At this 
time, we do not have sufficient data to compare RIN retirements for 
reasons other than compliance with the annual standards in 2017 to 
those in 2016, as this data often lags RIN generation by several 
months. However, at this time we have no reason to believe RINs 
retired for reasons other than compliance with the annual standards 
in 2017 would be significantly different that retirements for the 
same reasons in 2017.
[GRAPHIC] [TIFF OMITTED] TR12DE17.001

    After reviewing the historical supply of advanced biodiesel and 
renewable diesel and consideration of the possible impact of the 
expiration of the biodiesel tax credit (discussed above), EPA next 
considered the expected increase in the availability of advanced 
biodiesel and renewable diesel feedstocks in 2018. We acknowledge that 
an increase in the required use of advanced biodiesel and renewable 
diesel could be realized through a diversion of advanced feedstocks 
from other uses, or a diversion of advanced biodiesel and renewable 
diesel from existing markets in other countries. We perceive the net 
benefits associated with such increased advanced biofuel and renewable 
fuel volumes to be significantly less than the net benefits associated 
with the production of additional advanced biodiesel and renewable 
diesel with the use of newly-available advanced feedstocks due to the 
likelihood that parties that previously used advanced biofuel 
feedstocks will replace them with low cost palm or petroleum derived 
products. This is both because of the potential disruption and 
associated cost impacts to other industries resulting from feedstock 
switching, and a reduced GHG reduction benefit related to use of 
feedstocks for biofuel production that would have been used for other 
purposes and which must then be backfilled with other feedstocks with 
potentially greater GHG emissions. Similarly, increasing the supply of 
biodiesel and renewable diesel to the U.S. by diverting fuel that would 
otherwise have been used in other countries results in lesser GHG 
benefits than if the supply of these fuels was increased through 
additional biofuel production, especially if this diversion results in 
increased consumption of petroleum fuels in the countries that would 
have otherwise consumed the biodiesel or renewable diesel. By focusing 
our assessment of the potential growth in the reasonably attainable 
volume of biodiesel and renewable diesel on the expected growth in the 
production of advanced feedstocks (rather than the total supply of 
these feedstocks in 2018, which would include feedstocks currently 
being used for non-biofuel purposes), we are attempting to minimize the 
incentives for the RFS program to increase the supply of advanced 
biodiesel and renewable diesel through feedstock switching or diverting 
biodiesel and renewable diesel from foreign market to the U.S.
    Advanced biodiesel and renewable diesel feedstocks include both 
waste oils, fats and greases and oils from planted crops. While we 
believe a small increase in supply of waste oils, fats, and greases may 
be possible in 2018, we believe this increase is limited as most of 
these oils, fats, and greases are already being recovered and used in 
biodiesel and renewable diesel production or for other purposes. Many 
of the planted crops that supply vegetable oil for advanced biodiesel 
and renewable diesel production are primarily grown for purposes other 
than providing feedstocks for biodiesel and renewable diesel, such as 
for livestock feed with the oil that is used as feedstock for renewable 
fuel production a co-product or by-product.\97\ This is true for soy 
beans and corn, which are the two largest sources of feedstock from 
planted crops used for biodiesel production in the U.S.\98\ We do not 
believe that the increased demand for soybean oil or corn oil will 
result in an

[[Page 58511]]

increase in soybean or corn prices large enough to induce significant 
changes in agricultural activity, at least for the relatively modest 
changes in advanced biodiesel and renewable diesel feedstock demand 
that we envision as a result of the RVOs we are finalizing in this 
rule. The vegetable oils produced are not the primary source of revenue 
for these crops, meaning that the planted acres of these crops are 
likely to be based on broader economic factors, rather than on demand 
for vegetable oil to produce biofuels or for other markets.
---------------------------------------------------------------------------

    \97\ For example, corn oil is a co-product of corn grown 
primarily for feed or ethanol production, while soy and canola oil 
are primarily grown as livestock feed.
    \98\ According to EIA data 6,096 million pounds of soy bean oil 
and 1,306 million pounds of corn oil were used to produce biodiesel 
in the U.S. in 2016. Other significant sources of feedstock were 
yellow grease (1,389 million pounds), canola oil (1,130 million 
pounds), white grease (578 million pounds), tallow (332 million 
pounds), and poultry fat (220 million pounds). Numbers from EIA's 
February 2017 Monthly Biodiesel Production Report. Available at 
https://www.eia.gov/biofuels/biodiesel/production/archive/2016/2016_12/biodiesel.pdf.
---------------------------------------------------------------------------

    Increasing the demand for advanced biodiesel and renewable diesel 
beyond the volumes that could be made from the projected increase in 
the feedstocks used to produce these fuels would likely require 
diverting volumes of advanced biodiesel and renewable diesel (or the 
feedstocks used to produce these fuels) from existing markets to be 
used to produce biofuels supplied to the U.S. Increasing the short-term 
supply of advanced biodiesel and renewable diesel to the U.S. in this 
manner (simply shifting the end use of advanced feedstocks to biodiesel 
and renewable diesel production and meeting non-biofuel demand for 
these feedstocks with conventional renewable and/or petroleum based 
feedstocks or diverting advanced biodiesel and renewable diesel from 
foreign markets to the U.S.) may not advance the full GHG or energy 
security goals of the RFS program. In a worst case scenario, higher 
standards could cause supply disruptions to a number of markets as 
biodiesel and renewable diesel producers seek additional supplies of 
advanced feedstocks and the parties that previously used these 
feedstocks, both within and outside of the fuels marketplace, seek out 
alternative feedstocks. Similarly, advanced biodiesel and renewable 
diesel could be diverted to the U.S. from foreign countries and 
displaced with petroleum fuels. These actions could result in 
significant cost increases, for both biodiesel and renewable diesel as 
well as other products produced from renewable oils, with reduced GHG 
benefits.
    We believe the most reliable source for projecting the expected 
increase in vegetable oils in the U.S. is USDA's World Agricultural 
Supply and Demand Estimates (WASDE). According to the September 2017 
WASDE report, domestic vegetable oil production is expected to increase 
by 0.33 million metric tons in 2018, from 11.42 million metric tons in 
the 2016/2017 agricultural marketing year to 11.75 million metric tons 
in the 2017/2018 agricultural marketing year.\99\ This quantity of 
vegetable oils (0.33 million metric tons) could be used to produce 
approximately 94 million gallons of advanced biodiesel or renewable 
diesel.\100\
---------------------------------------------------------------------------

    \99\ For this assessment we have assumed the vegetable oils 
produced in the 2017/2018 agricultural marketing year are the 
feedstocks most likely to be used to produce biodiesel and renewable 
diesel in 2018.
    \100\ To calculate this volume we have used a conversion of 7.7 
pounds of feedstock per gallon of biodiesel. This is based on the 
expected conversion of soy oil (http://extension.missouri.edu/p/G1990), which is the largest source of feedstock used to produce 
advanced biodiesel and renewable diesel. We believe that it is also 
a reasonable conversion factor to use for all virgin vegetable oils.
---------------------------------------------------------------------------

    In addition to virgin vegetable oils, we also expect increasing 
volumes of distillers corn oil \101\ to be available for use in 2018. 
The WASDE report does not project distillers corn oil production, so 
EPA must use an alternative source to project the growth in the 
production of this feedstock. EPA is using the results of the World 
Agricultural Economic and Environmental Services (WAEES) model to 
project the growth in the production of distillers corn oil.\102\ In 
assessing the likely increase in the availability of distillers corn 
oil from 2017 to 2018, the authors of the WAEES model considered the 
impacts of an increasing adoption rate of distillers corn oil 
extraction technologies at domestic ethanol production facilities, as 
well as increased corn oil extraction rates enabled by advances in this 
technology. The WAEES model projects that production of distillers corn 
oil in 2018 will increase by 316 million pounds, from 2,299 million 
pounds in agricultural marketing year 2016/2017 to 2,615 million pounds 
in agricultural marketing year 2017/2018. According to the WAEES model, 
this projected increase in the production of distillers corn oil, if 
devoted entirely to biofuel production, could be used to produce 
approximately 39 million gallons of biodiesel or renewable diesel in 
2018. We believe that this is a reasonable projection. While the vast 
majority of the increase in advanced biodiesel and renewable diesel 
feedstocks produced in the U.S. from 2016 to 2017 is expected to come 
from virgin vegetable oils and distillers corn oil, increases in the 
supply of other sources of advanced biodiesel and renewable diesel 
feedstocks, such as biogenic waste oils, fats, and greases, may also 
occur. These increases, however, are expected to be modest, as many of 
these feedstocks that can be recovered economically are already being 
used for the production of biodiesel or renewable diesel, or in other 
markets. In total, we expect that increases in feedstocks produced in 
the U.S. are sufficient to produce approximately 150 million more 
gallons of advanced biodiesel and renewable diesel in 2018 relative to 
2017.\103\
---------------------------------------------------------------------------

    \101\ Distillers corn oil is non-food grade corn oil produced by 
ethanol production facilities
    \102\ For the purposes of this final rule, EPA relied on WAEES 
modeling results submitted as comments by the National Biodiesel 
Board on the 2018 final rule (Kruse, J., ``Implications of an 
Alternative Advanced and Biomass Based Diesel Volume Obligation for 
Global Agriculture and Biofuels'', August 21, 2017, World 
Agricultural Economic and Environmental Services (WAEES), EPA-HQ-
OAR-2017-0091-3880).
    \103\ This projection includes a projected increase in the 
availability fats and oils other than virgin vegetable oils and 
distillers corn oil sufficient to produce approximately 15 million 
gallons of biodiesel. The WAEES model projects an increase in the 
quantity of ``other fats and oils'' (including inedible tallow, lard 
& white grease, yellow grease, brown grease, poultry fat, and other) 
sufficient to produce 31 million gallons of biodiesel. It is not 
clear from the WAEES model, however, if the projected increased use 
of other fats and oils as feedstock for biodiesel production is the 
result of increased production/collection of these feedstocks or 
diverting them from other uses. We therefore think our slightly more 
conservative projected increase in these feedstocks sufficient to 
produce 15 million gallons of biodiesel (without diverting 
feedstocks from existing uses) is appropriate. We note, however, 
using the slightly higher projection from the WAEES model (feedstock 
increase sufficient to produce 31 million gallons of biodiesel) has 
a very minimal impact on our assessment of the reasonably attainable 
volume of advanced biodiesel and renewable diesel in 2018, and would 
have no impact on the required volume of advanced biofuel for 2018.
---------------------------------------------------------------------------

    We have also considered the expected increase in the imports of 
advanced biodiesel and renewable diesel produced in other countries. In 
previous years, significant volumes of foreign produced advanced 
biodiesel and renewable diesel have been supplied to markets in the 
U.S. (see Table IV.B.2-1 above). These significant imports were likely 
the result of a strong U.S. demand for advanced biodiesel and renewable 
diesel, supported by the RFS standards, the LCFS in California, the 
biodiesel blenders tax credit, and the opportunity for imported 
biodiesel and renewable diesel to realize these incentives. At this 
time the impact of the expiration of the biodiesel blenders tax credit 
on the volumes of foreign-produced biodiesel and renewable diesel 
imported into the U.S., is highly uncertain. Additionally, in August 
2017 the Department of Commerce announced a preliminary determination 
that it would be appropriate to place countervailing duties of 41 
percent to 68 percent on biodiesel imported from Argentina and 
Indonesia. According to data from EIA, biodiesel imports from Argentina 
were 10,679 thousand barrels in 2016 (approximately 449 million 
gallons) and 5,601 billion barrels (approximately 235

[[Page 58512]]

million gallons) through July 2017 (the most recent month for which 
data were available at the time of this assessment). Biodiesel imports 
from Indonesia were 2,554 thousand barrels in 2016 (approximately 107 
million gallons), with no biodiesel imported in 2017 through July 2017. 
At this time, it is uncertain whether or not the preliminary 
determination by the Department of Commerce will be finalized, and it 
is uncertain what impact the finalization of these duties would have on 
overall imports of advanced biodiesel and renewable diesel to the U.S. 
In recent years imports of advanced biodiesel and renewable diesel have 
increased year-over-year, and absent these actions it may be reasonable 
to anticipate continued increases in the imported volume of these 
fuels. In light of this uncertainty, however, we do not believe it 
would be reasonable at this point to either increase or decrease our 
projection of the reasonably attainable volume of biodiesel and 
renewable diesel for 2018 as compared to the levels we projected for 
2017.\104\
---------------------------------------------------------------------------

    \104\ We further note that there have been recent efforts to 
reinstate the biodiesel tax credit as a producers' tax credit, 
rather than a blenders tax credit. If the biodiesel tax credit were 
reinstated as a producers' tax credit it would not apply to foreign 
biodiesel producers, further limiting the likely supply of imported 
advanced biodiesel and renewable diesel.
---------------------------------------------------------------------------

    After a careful consideration of the factors discussed above, EPA 
has determined, for the purposes of this final rule, that approximately 
2.55 billion gallons of advanced biodiesel and renewable diesel is 
reasonably attainable for use in our determination of the appropriate 
applicable volume of advanced biofuel to require for 2018. This volume 
is 150 million gallons higher than the volume of advanced biodiesel and 
renewable diesel determined to be reasonably attainable and appropriate 
for the purposes of deriving the advanced biofuel standard in 2017.
    The 150 million gallon increase in advanced biodiesel and renewable 
diesel that we project will be reasonably attainable for 2018 
represents a smaller annual increase in advanced biodiesel and 
renewable diesel than we assumed in deriving the 2017 advanced biofuel 
standard (approximately 300 million gallons over 2016 levels). We 
believe that this reflects that the circumstances presented with 
respect to 2018 are different from those we anticipated for 2017. The 
primary differences are a smaller projected increase in advanced 
feedstock production in the U.S., the continued absence of the 
biodiesel tax credit, and the preliminary determination placing duties 
on biodiesel imported from Argentina and Indonesia.
3. Other Advanced Biofuel
    In addition to cellulosic biofuel, imported sugarcane ethanol, and 
advanced biodiesel and renewable diesel, there are other advanced 
biofuels that can be counted in the determination of reasonably 
attainable volumes of advanced biofuel for 2018. These other advanced 
biofuels include biogas, naphtha, heating oil, butanol, jet fuel, and 
domestically-produced advanced ethanol.\105\ However, the supply of 
these fuels has been relatively low in the last several years.
---------------------------------------------------------------------------

    \105\ Advanced biofuel with a D code of 5.

                                              Table IV.B.3-1--Historical Supply of Other Advanced Biofuels
                                                          [Million ethanol-equivalent gallons]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Renewable       Domestic
                                                                CNG         Heating oil       Naphtha        diesel a         ethanol          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013....................................................              26               0               3              64              23             116
2014....................................................              20               0              18              15              26              79
2015....................................................               0               1              24               8              25              58
2016....................................................               0               2              26               8              27              63
--------------------------------------------------------------------------------------------------------------------------------------------------------
a Some renewable diesel generates D5 rather than D4 RINs as a result of being produced through co-processing with petroleum or being produced from the
  non-cellulosic portions of separated food waste or annual cover crops.

    The downward trend over time in biogas as advanced biofuel with a D 
code of 5 is due to the re-categorization in 2014 of landfill biogas 
from advanced (D code 5) to cellulosic (D code 3).\106\ Apart from 
biogas, total supply of advanced biofuel other than imported sugarcane 
ethanol has been relatively constant during 2014-2016. Based on this 
historical record, we find that 60 million gallons would be reasonably 
attainable in 2018.\107\ This represents the approximate average of the 
two most recent years (2015 and 2016) for which complete data are 
available.
---------------------------------------------------------------------------

    \106\ 79 FR 42128, July 18, 2014.
    \107\ For the purposes of determining the availability of total 
renewable fuel, we are using a volume of 40 million gallons of non-
ethanol other advanced biofuel and 20 million gallons of advanced 
domestic ethanol (see discussion in Section V.B.2).
---------------------------------------------------------------------------

    We recognize that the potential exists for additional volumes of 
advanced biofuel from sources such as jet fuel, liquefied petroleum gas 
(LPG), and liquefied natural gas (as distinct from compressed natural 
gas), as well as non-cellulosic biogas such as from digesters. However, 
since they have been produced in only de minimis and sporadic amounts 
in the past, we do not have a basis for projecting substantial volumes 
from these sources in 2018.\108\
---------------------------------------------------------------------------

    \108\ For instance, no RIN-generating volumes of these other 
advanced biofuels were produced in 2016, and less than 1 mill gal 
total in prior years.
---------------------------------------------------------------------------

4. Total Advanced Biofuel
    The total volume of advanced biofuel that we believe is reasonably 
attainable in 2018 is the combination of cellulosic biofuel and the 
sources described above: imported sugarcane ethanol, biodiesel and 
renewable diesel which qualifies as BBD, and other advanced biofuels 
such as advanced biogas that does not qualify as cellulosic biofuel, 
heating oil, naphtha, domestic advanced ethanol, and advanced renewable 
diesel that does not qualify as BBD. Our assessment of the reasonably 
attainable volumes of these sources, discussed in the preceding 
sections, is summarized below. We note that the reasonably attainable 
volumes of each of these advanced biofuels cannot themselves be viewed 
as volume requirements. The volumes for each advanced biofuel type 
represent one significant factor that is considered in the analysis 
used to determine the reasonably attainable volumes of advanced 
biofuel. As discussed in more detail in a memorandum to the docket, 
there are many ways that the market could respond to the percentage 
standards we establish, including use of higher or lower volumes of 
these fuel types than

[[Page 58513]]

discussed in this section.\109\ In addition, as discussed below, we do 
not believe it would be appropriate to require use of all volumes we 
have determined to be reasonably attainable.
---------------------------------------------------------------------------

    \109\ ``Market impacts of biofuels,'' memorandum from David 
Korotney to docket EPA-HQ-OAR-2017-0091.

  Table IV.B.4-1--Reasonably Attainable Volumes of Advanced Biofuel in
                                  2018
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................             288
Advanced biodiesel and renewable diesel (ethanol-            3,953/2,550
 equivalent volume/physical volume).....................
Imported sugarcane ethanol..............................             100
Other advanced..........................................              60
                                                         ---------------
  Total advanced biofuel................................           4,401
------------------------------------------------------------------------

C. Exercise of Cellulosic Waiver Authority for Advanced Biofuel

    Based on the information presented above, we believe that 4.40 
billion gallons of advanced biofuel would be reasonably attainable in 
2018. This volume is 110 million gallons higher than the 4.29 billion 
gallons that would result from reducing the applicable volume of 
advanced biofuel by the same amount as the reduction to the statutory 
applicable volume of cellulosic biofuel (see Section III for a 
discussion of the cellulosic biofuel volume requirement for 2018). In 
exercising the cellulosic waiver authority in past years, we determined 
it was appropriate to require a partial backfilling of missing 
cellulosic volumes with volumes of non-cellulosic advanced biofuel we 
determined to be reasonably attainable and appropriate, notwithstanding 
the increase in costs associated with this decision.\110\ However, this 
year we are balancing the various considerations in a different manner 
in setting the 2018 standards, placing a greater emphasis on cost 
considerations.\111\
---------------------------------------------------------------------------

    \110\ See, e.g., Response to Comments Document for the 2014-16 
Rule, pages 628-631, available at https://www.epa.gov/sites/production/files/2015-12/documents/420r15024.pdf.
    \111\ EPA notes that while the factors considered under the 
cellulosic waiver authority to reduce volumes could apply to volumes 
beyond the reduction in cellulosic biofuel, EPA is limited in the 
exercise of its cellulosic waiver authority to reductions up to the 
amount of the reduction in cellulosic biofuel. Any further 
reductions would require a determination under the general waiver 
authority that the volumes would result in severe economic or 
environmental harm, or that there is an inadequate domestic supply, 
as discussed in Section V below.
---------------------------------------------------------------------------

    In Section IV.E we present illustrative cost projections for 
sugarcane ethanol and soybean biodiesel in 2018, the two advanced 
biofuels that would be most likely to provide the marginal increase in 
volumes of advanced biofuel in 2018 in comparison to 2017. Sugarcane 
ethanol results in a cost increase compared to gasoline that ranges 
from $0.61-$1.56 per ethanol-equivalent gallon.\112\ Soybean biodiesel 
results in a cost increase compared to diesel fuel that ranges from 
$0.95-$1.30 per ethanol-equivalent gallon.\113\ The cost of these 
renewable fuels is high as compared to the petroleum fuels they 
displace. In light of these comparative costs, we believe it is 
reasonable to forgo the marginal benefit that might be achieved by 
establishing the advanced biofuel standard to require an additional 110 
million gallons. See Section IV.E for a further discussion of the 
projected cost of this final rule.
---------------------------------------------------------------------------

    \112\ Sugarcane ethanol results in a projected cost increase of 
$0.92-$2.34 per gasoline-equivalent gallon. The projected cost of 
gasoline in 2018 is $1.64 per gallon based on EIA Short-Term Energy 
Outlook, October 2017, Custom Table Builder, ``Refiner Wholesale 
Gasoline Price.''
    \113\ Soybean biodiesel results in a projected cost increase of 
$1.62-$2.22 per diesel-equivalent gallon. The projected cost of 
diesel in 2018 is $1.74 per gallon based on EIA Short-Term Energy 
Outlook, October 2017, Custom Table Builder, ``Diesel Fuel Refiner 
Wholesale Price.''
---------------------------------------------------------------------------

    Based on consideration of the volumes that may be reasonably 
attainable in 2018, along with a balancing of the costs and benefits 
associated with the option of setting the advanced biofuel standard at 
a level that would require use of all volumes that we have estimated 
could be reasonably attainable, we are exercising our cellulosic waiver 
authority to reduce advanced biofuel volumes to 4.29 billion gallons 
for 2018.\114\ This advanced biofuel volume requirement for 2018 is 
similar to the requirement for 2017 when we allowed a portion of the 
shortfall in cellulosic biofuel to be backfilled with other advanced 
biofuel.
---------------------------------------------------------------------------

    \114\ EPA also considered the availability of advanced carryover 
RINs in determining whether reduced use of the cellulosic waiver 
authority would be warranted. For the reasons described in Section 
II.B, we do not believe this to be the case.
---------------------------------------------------------------------------

    It should be noted that by exercising the full cellulosic waiver 
authority for advanced biofuel, the implied statutory volume target for 
non-cellulosic advanced biofuel of 4.0 billion gallons in 2018 is 
maintained. Although the implied volume for non-cellulosic advanced 
biofuel in the statute increases from 3.5 billion gallons in 2017 to 
4.0 billion gallons in 2018, the applicable volume requirements for 
2017 as finalized by EPA included an allowance for 4.0 billion gallons 
of non-cellulosic advanced biofuel, one year before envisioned by the 
statute. Through our 2017 action, we effectively required early use of 
the 0.5 billion gallon increment of non-cellulosic advanced volume that 
Congress envisioned would be first used in 2018. The net result of our 
action for 2018, after deciding that no further reductions beyond those 
obtained by exercise of the cellulosic waiver authority are appropriate 
(see Section V), is that the advanced biofuel volume requirement for 
2018 is 10 million gallons higher than the advanced biofuel volume 
requirement for 2017, but the portion of this volume requirement that 
may be satisfied with non-cellulosic biofuels remains constant.

D. Exercise of Cellulosic Waiver Authority for Total Renewable Fuel

    As discussed in Section II.A.1, we believe that the cellulosic 
waiver provision is best interpreted to provide equal reductions in 
advanced biofuel and total renewable fuel. We have consistently 
articulated this interpretation.\115\ We believe this interpretation is 
consistent with the statutory language and best effectuates the 
objectives of the statute. If EPA were to reduce the total renewable 
fuel volume requirement by a lesser amount than the advanced biofuel 
volume requirement, we would effectively increase the opportunity for 
conventional biofuels to participate in the RFS program beyond the 
implied statutory cap of 15 billion gallons.\116\
---------------------------------------------------------------------------

    \115\ For instance, see discussion in the final rules setting 
the 2013, 2014-2016, and 2017 standards: 78 FR 49809-49810, August 
15, 2013; 80 FR 77434, December 14, 2015; 81 FR 89752-89753, 
December 12, 2016. We incorporate by reference the rationale for 
this interpretation that was articulated in these prior rules.
    \116\ Since the advanced biofuel volume requirement is nested 
within the total renewable fuel volume requirement, the statutory 
implied volume for conventional renewable fuel in the statutory 
tables can be discerned by subtracting the applicable volume of 
advanced biofuel from that of total renewable fuel. Performing this 
calculation with respect to the tables in CAA section 211(o)(2)(B) 
indicates a Congressional expectation that in the time period 2015-
2022, advanced biofuel volumes would grow from 5.5 to 21 billion 
gallons, while the implied volume for conventional renewable fuel 
would remain constant at 15 billion gallons.
---------------------------------------------------------------------------

    Applying an equal reduction of 6.71 billion gallons to both the 
statutory target for advanced biofuel and the statutory target for 
total renewable fuel results in a total renewable fuel volume of 19.29 
billion gallons as shown in Table IV.A-1.\117\ If we were to determine 
that there is a basis to exercise the general waiver authority or

[[Page 58514]]

the biomass-based diesel waiver authority, we could provide further 
reductions to the total renewable fuel volume. However, as described in 
more detail below in Section V, we believe that there is not sufficient 
justification for such further reductions in 2018.
---------------------------------------------------------------------------

    \117\ EPA also considered the availability of carryover RINs in 
determining whether reduced use of the cellulosic waiver authority 
would be warranted. For the reasons described in Section II.B, we do 
not believe this to be the case.
---------------------------------------------------------------------------

E. Impacts of 2018 Standards on Costs

    In this section, EPA presents its assessment of the illustrative 
costs of the final 2018 RFS rule. It is important to note that these 
illustrative costs do not attempt to capture the full impacts of this 
final rule. These estimates are provided solely for the purpose of 
showing how the cost to produce a gallon of a ``representative'' 
renewable fuel compares to the cost of petroleum fuel. There are a 
significant number of caveats that must be considered when interpreting 
these cost estimates. There are a number of different feedstocks that 
could be used to produce biofuels, and there is a significant amount of 
heterogeneity in the costs associated with these different feedstocks 
and fuels. Some renewable fuels may be cost competitive with the 
petroleum fuel they replace; however, we do not have cost data on every 
type of feedstock and every type of fuel. Therefore, we do not attempt 
to capture this range of potential costs in our illustrative estimates.
    The annual standard-setting process encourages consideration of the 
RFS program on a piecemeal (i.e., year-to-year) basis, which may not 
reflect the full, long-term costs and benefits of the program. For the 
purposes of this final rule, other than the estimates of costs of 
producing a ``representative'' renewable fuel compared to cost of 
petroleum fuel, EPA did not quantitatively assess other direct and 
indirect costs or benefits of changes in renewable fuel volumes. These 
direct and indirect costs and benefits include infrastructure costs, 
investment, GHG emissions and air quality impacts, or energy security 
benefits, which all are to some degree affected by the annual 
standards. While some of these impacts were analyzed in the 2010 final 
rulemaking that established the current RFS program,\118\ we have not 
analyzed these impacts for the 2018 volume requirements. We framed the 
analyses we have performed for this final rule as ``illustrative'' so 
as not to give the impression of comprehensive estimates.
---------------------------------------------------------------------------

    \118\ RFS2 Regulatory Impact Analysis (RIA). U.S. EPA 2010, 
Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. 
EPA-420-R-10-006. February 2010. Docket EPA-HQ-OAR-2009-0472-11332.
---------------------------------------------------------------------------

1. Illustrative Cost Savings Associated With Reducing Statutory 
Cellulosic Volumes
    To provide an illustrative estimate of the cost of the 2018 
cellulosic biofuel requirements, EPA has compared the 2018 cellulosic 
biofuel volume requirements to the statutory volume that would be 
required absent the exercise of our cellulosic waiver authority under 
CAA section 211(o)(7)(D)(i).\119\ As described in other sections of 
this final rule, we believe that the additional 6.71 billion gallons of 
cellulosic biofuel envisioned by the statute will not be produced in 
2018. Therefore, estimating costs of this volume reduction is 
inherently challenging. However, we have taken the relatively 
straightforward methodology of multiplying the per-gallon costs 
associated with the volumes that would be required under this final 
rule by the amount of cellulosic renewable fuel that is being waived. 
This comparison results in a cost savings estimated to be $5.3-$15.9 
billion.
---------------------------------------------------------------------------

    \119\ EPA is also using its discretion to reduce the advanced 
biofuel and total renewable fuel requirements using the cellulosic 
waiver authority. This discretionary action is based partially on 
the costs of advanced biofuels and provides additional cost savings.
---------------------------------------------------------------------------

    To estimate the overall cost savings from waiving the cellulosic 
biofuel volumes, EPA has taken the following steps. First, EPA 
determined the magnitude of the volume reduction of cellulosic biofuel 
we are establishing in this rule, relative to the statutory volume. In 
this rule we are reducing the required volume of cellulosic biofuel by 
6.71 billion gallons, with corresponding reductions in the advanced 
biofuel and total renewable fuel standards. Second, we estimated the 
per-gallon costs of producing cellulosic ethanol derived from corn 
kernel fiber that would be expected in complying with the standards. 
Third, the per-gallon costs of cellulosic biofuel from corn fiber were 
multiplied by 6.71 billion gallons.
    While there may be growth in other cellulosic biofuel sources, for 
this exercise we believe it is appropriate to use corn kernel fiber as 
the representative cellulosic biofuel. The majority of liquid 
cellulosic biofuel in 2018 is expected to be produced using this 
technology, and application of this technology in the future could 
result in significant incremental volumes of cellulosic biofuel. In 
addition, as explained in Section III.D.2, we believe that production 
of the major alternative cellulosic biofuel--CNG/LNG derived from 
biogas--is limited to approximately 580 million gallons due to a 
limitation in the number of vehicles capable of using this form of 
fuel.\120\
---------------------------------------------------------------------------

    \120\ To calculate this estimate, EPA used the Natural Gas 
Vehicle Use from the STEO Custom Table Builder (0.12 billion cubic 
feet/day in 2018). This projection includes all CNG/LNG used as 
transportation fuel from both renewable and non-renewable sources. 
EIA does not project the amount of CNG/LNG from biogas used as 
transportation fuel. To convert billion cubic feet/day to ethanol-
equivalent gallons, EPA used conversion factors of 1020 BTU per 
cubic foot of natural gas and 77,000 BTU of natural gas per ethanol-
equivalent gallon.
---------------------------------------------------------------------------

    EPA uses a ``bottom-up'' engineering cost analysis to quantify the 
costs of producing a gallon of cellulosic ethanol derived from corn 
kernel fiber. There are multiple processes that could yield cellulosic 
ethanol from corn kernel fiber. EPA assumes a cellulosic ethanol 
production process that generates biofuel using distiller's grains, a 
co-product of generating corn starch ethanol that is commonly dried and 
sold into the feed market as distillers dried grains with solubles 
(DDGS), as the renewable biomass feedstock. We assume an enzymatic 
hydrolysis process with cellulosic enzymes to break down the cellulosic 
components of the distiller's grains. This process for generating 
cellulosic ethanol is similar to approaches currently used by industry 
to generate cellulosic ethanol at a commercial scale, and we believe 
these costs estimates are likely representative of the range of 
different technology options being developed to produce ethanol from 
corn kernel fiber. We then compare the per-gallon wholesale costs of 
the cellulosic ethanol to the petroleum fuels that would be replaced.
    These cost estimates do not consider taxes, retail margins, or 
other costs or transfers that occur at or after the point of blending 
(transfers are payments within society and are not additional costs). 
We do not attempt to estimate potential cost savings related to avoided 
infrastructure costs (e.g., the cost savings of not having to provide 
pumps and storage tanks associated with higher-level ethanol blends). 
When estimating per-gallon costs, we consider the costs of gasoline on 
an energy equivalent basis as compared to ethanol, since more ethanol 
gallons must be consumed to go the same distance as gasoline due to the 
ethanol's lower energy content.
    Table IV.E.1-1 below presents the cost savings associated with this 
final rule that are estimated using this approach.\121\ The statutory 
cellulosic

[[Page 58515]]

biofuel target in EISA for 2018 is seven billion gallons (ethanol 
equivalent). The cellulosic biofuel volume used in this rule to 
establish the 2018 cellulosic biofuel percentage standard is 288 
million gallons. The amount of cellulosic biofuel being waived is 6.71 
billion gallons. The per-gallon cost difference estimates for 
cellulosic ethanol ranges from $0.79-$2.37 per ethanol equivalent 
gallon.\122\ Given that cellulosic ethanol production is just starting 
to become commercially available, the cost estimates have a significant 
range. Multiplying those per-gallon cost differences by the amount of 
cellulosic biofuel waived in this final rule, 6.71 billion gallons, 
results in approximately $5.3-$15.9 billion in cost savings.
---------------------------------------------------------------------------

    \121\ Details of the data and assumptions used can be found in a 
Memorandum available in the docket entitled ``Cost Impacts of the 
Final 2018 Annual Renewable Fuel Standards'', Memorandum from 
Michael Shelby, Dallas Burkholder, and Aaron Sobel to EPA Docket 
EPA-HQ-OAR-2017-0091.
    \122\ For the purposes of the cost estimates in this section, 
EPA has not attempted to adjust the price of the petroleum fuels to 
account for the impact of the RFS program, since the changes in the 
renewable fuel volume are relatively modest. Rather, we have simply 
used the wholesale price projections for gasoline and diesel as 
reported in EIA's October 2017 STEO.

  Table IV.E-1--Impacts of the Difference between EISA Volumes for the
     Cellulosic Biofuel Standard and Final Cellulosic Volume in 2018
------------------------------------------------------------------------
                                         2018 EISA
                                        cellulosic        2018 Final
                                          volume      cellulosic  volume
                                         standard
------------------------------------------------------------------------
Cellulosic Volume Required (Million            7,000                 288
 Ethanol-Equivalent Gallons) 123....
Change in Required Cellulosic         ..............             (6,712)
 Biofuels (Million Gallons as
 Ethanol)...........................
Cost Difference Between Cellulosic    ..............         $0.79-$2.37
 Corn Fiber-Derived Ethanol and
 Gasoline Per Gallon ($/EGE) 124....
Estimated Cost Difference in Meeting  ..............      $(5.3)-$(15.9)
 Cellulosic Biofuel Volume (Billion
 $) 125.............................
------------------------------------------------------------------------

2. Illustrative Cost Analysis of Advanced Biofuels Using 2017 as the 
Baseline
    We recognize that for the purpose of estimating the cost of the 
2018 RFS volume requirements that a number of different scenarios using 
different ``baselines'' would be of interest to stakeholders. 
Therefore, in this section, we are also providing an illustrative cost 
analysis that shows the costs of the advanced biofuel standard as 
compared to those associated with the preceding year's standard, which 
as discussed in section IV.C. will lead to an increase of 10 million 
gallons of advanced biofuel in 2018 in comparison to 2017.\126\
---------------------------------------------------------------------------

    \123\ Overall fuel volumes may not match due to rounding.
    \124\ Approximate costs are rounded to the cents place.
    \125\ Approximate costs are rounded to the first decimal place.
    \126\ There is also an increase of 10 million gallons in the 
2018 applicable volume of total renewable fuel as compared to the 
2017 volume. However, in light of the nested standards, that 
increase is entirely attributable to the increase in the advanced 
volume.
---------------------------------------------------------------------------

    EPA is providing an illustrative cost analysis for the increase in 
the overall advanced biofuel volume of 10 million ethanol equivalent 
gallons (as compared to 2017 volumes) using four different scenarios, 
assuming this increase in advanced biofuel volumes is comprised of: (1) 
cellulosic biofuel from CNG/LNG, (2) cellulosic biofuel from corn 
kernel fiber, (3) soybean oil BBD, or (4) sugarcane ethanol from 
Brazil. Showing the illustrative costs of soybean oil BBD and sugarcane 
ethanol is consistent with the methodology EPA developed for previous 
rulemakings. However, this discussion should not be interpreted as 
suggesting that the various renewable fuel types discussed are 
necessarily available in the marketplace. The availability of different 
types of renewable fuel is discussed in other sections of this 
preamble; in this section we assess costs as if the different fuel 
types are available, without intending to suggest that they are.
    In previous annual RFS rules, EPA provided an illustrative cost 
estimate for the entire change in the total renewable fuel volume 
standard assuming it was satisfied with conventional (i.e., non-
advanced) corn ethanol. As there is no change in the 2018 implied 
conventional volume relative to the 2017 volume, all of the changes in 
both the advanced and total renewable fuel volumes are properly 
attributed to advanced biofuel.
    As described earlier, we are focusing on the wholesale level in our 
cost scenarios, and do not consider taxes, retail margins, additional 
infrastructure, or other costs or transfers that occur at or after the 
point of blending. More background information on this section, 
including details of the data sources used and assumptions made for 
each of the scenarios, can be found in a memorandum available in the 
docket.\127\
---------------------------------------------------------------------------

    \127\ ``Cost Impacts of the Final 2018 Annual Renewable Fuel 
Standards'', Memorandum from Michael Shelby, Dallas Burkholder, and 
Aaron Sobel to EPA Docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    Table IV.E.2-1 below presents estimates of per energy-equivalent 
gallon costs for producing soybean biodiesel, Brazilian sugarcane 
ethanol, CNG/LNG derived from landfill biogas, and cellulosic ethanol 
derived from corn fiber relative to the petroleum fuels they replace at 
the wholesale level. For each of the four scenarios, these per-gallon 
costs are then multiplied by the 10 million ethanol-equivalent gallon 
increase in the 2018 advanced standard relative to the previous 2017 
standard to obtain an overall cost estimate.

 Table IV.E.2-1--Illustrative Costs of the 10 Million Gallon Increase in
  the Advanced Biofuel Volume Requirement in 2018 Relative to the 2017
                           Volume Requirement
------------------------------------------------------------------------
                                                        Representative
                    Product class                           volumes
------------------------------------------------------------------------
                       Soybean Biodiesel Scenario
------------------------------------------------------------------------
Cost Difference Between Soybean Biodiesel and                $0.89-$1.22
 Petroleum Diesel Per Gallon ($/EGE) 128............
Annual Change in Overall Costs (Million $) 129......              $9-$12
------------------------------------------------------------------------
                  Brazilian Sugarcane Ethanol Scenario
------------------------------------------------------------------------
Cost Difference Between Sugarcane Ethanol and                $0.61-$1.56
 Gasoline Per Gallon ($/EGE)........................

[[Page 58516]]

 
Annual Change in Overall Costs (Million $)..........              $6-$16
------------------------------------------------------------------------
              CNG/LNG Derived from Landfill Biogas Scenario
------------------------------------------------------------------------
Cost Difference Between CNG/LNG Derived from Biogas        $(0.04)-$0.07
 and Natural Gas ($/EGE) 130........................
Annual Change in Overall Costs (Million $)..........         $(0.4)-$0.7
------------------------------------------------------------------------
                   Corn Fiber-Derived Ethanol Scenario
------------------------------------------------------------------------
Cost Difference Between Cellulosic Corn Fiber-               $0.79-$2.37
 Derived Ethanol and Gasoline Per Gallon ($/EGE)....
Annual Change in Overall Costs (Million $)..........              $8-$24
------------------------------------------------------------------------

    Based on this illustrative analysis of four separate hypothetical 
scenarios, EPA estimates that the costs for changes in the advanced 
fuel volumes compared to 2017 could range from $(0.4)-$24 million in 
2018. It is important to note that these illustrative costs do not take 
into consideration the benefits of the program.\131\ For the purpose of 
this annual rulemaking, we have not quantified benefits for the 2018 
standards. For example, we do not have a quantified estimate of the GHG 
or energy security benefits for a single year (e.g., 2018). Also, there 
are impacts that are difficult to quantify, such as rural economic 
development and employment changes from more diversified fuel sources, 
that are not quantified in this rulemaking.
---------------------------------------------------------------------------

    \128\ Per-gallon cost differences compare illustrative biofuels 
to their petroleum fuel counterparts on an ethanol gallon equivalent 
(EGE) basis, accounting for the differences in energy content 
between fuels, and then multiplied by the total RINs needed to meet 
the change in volume obligations.
    \129\ Overall costs may not match per-gallon costs times volumes 
due to rounding.
    \130\ CNG/LNG derived from biogas and natural gas costs are 
compared on an ethanol gallon equivalent (EGE) energy content basis.
    \131\ The small negative cost estimate is likely a result of the 
methodology undertaken for these illustrative costs.
---------------------------------------------------------------------------

V. Consideration of Additional Reductions Using Other Waiver 
Authorities

    As discussed in previous sections, we are reducing the statutory 
volume target for cellulosic biofuel to reflect the projected 
production volume of that fuel type in 2018, and we are reducing both 
advanced biofuel and total renewable fuel by the maximum permissible 
amount authorized under the cellulosic waiver authority in CAA section 
211(o)(7)(D)(i).
    We have also considered whether it would be appropriate to provide 
further reductions for these renewable fuel categories pursuant to the 
general waiver authority in CAA section 211(o)(7)(A), or for these 
renewable fuel categories and the 2018 BBD using the BBD waiver 
authority in CAA section 211(o)(7)(E). We have concluded that further 
reductions in volumes using any of these other waiver authorities are 
not warranted. We note that in the October 4 Federal Register document 
we solicited comment on possible new interpretations of the general 
waiver authority for inadequate domestic supply and severe economic 
harm and of the biomass-based diesel waiver authority.\132\ We find it 
unnecessary to resolve whether to adopt such interpretations at this 
point in time because under any approach we would find exercise of 
these waiver authorities not appropriate based on the record before us.
---------------------------------------------------------------------------

    \132\ 82 FR 46174, October 4, 2017.
---------------------------------------------------------------------------

    As a result, we are finalizing advanced biofuel and total renewable 
fuel volume requirements resulting from the exercise of the cellulosic 
biofuel waiver authority alone, and we are not modifying the 2018 BBD 
applicable volume of 2.1 billion gallons established through a prior 
rulemaking. The implied volume for conventional renewable fuel 
(calculated by subtracting the advanced volume from the total volume) 
will be 15.0 billion gallons, consistent with the statutory target 
provided in the statute for 2018.

A. Inadequate Domestic Supply

    On July 21, 2017, we proposed to reduce the 2018 statutory volume 
targets for advanced biofuel and total renewable fuel by the maximum 
permissible amount using the cellulosic waiver authority, and not to 
reduce these volumes further using other authorities. However, we 
requested comment on the possible additional use of the general waiver 
authority or other authorities to provide further reductions in the 
proposed volume requirements.\133\ To evaluate the possibility for 
using the general waiver authority on the basis of a finding of 
inadequate domestic supply, we considered the projected volumes of 
renewable fuel that can be supplied to refiners, importers, and 
blenders in 2018 from both domestic production and imports. In 
addition, consistent with the approach identified for consideration in 
the October 4 document, we considered the projected volumes of 
renewable fuel that can be supplied to refiners and blenders solely 
from domestic production. Under either approach we conclude a waiver is 
not warranted.
---------------------------------------------------------------------------

    \133\ 82 FR 34206 at 34213, October 4, 2017.
---------------------------------------------------------------------------

    In Section III we discussed our projection that 288 million gallons 
of cellulosic biofuel will be made available in 2018. In Section IV we 
described our assessment that about 4.40 billion gallons of advanced 
biofuel would be reasonably attainable in 2018 from both domestic 
production and imports but that, after considering a number of factors, 
such as the potential for feedstock/fuel diversions and cost of 
advanced biofuel, we would exercise our discretion to use the full 
cellulosic waiver authority to reduce the applicable volume to 4.29 
billion gallons.\134\ As a result, we do not anticipate an inadequate 
domestic supply of advanced biofuels to meet a volume requirement of 
4.29 billion gallons for advanced biofuel, when both domestic 
production and imports are considered.
---------------------------------------------------------------------------

    \134\ Because EPA's authority under the cellulosic waiver 
authority affords EPA more discretion to reduce volumes of advanced 
and total renewable fuel than the general waiver authority under an 
evaluation of inadequate domestic supply, EPA has evaluated the 
supply of advanced biofuel for purposes of a determination on the 
adequacy of supply without consideration of these factors.
---------------------------------------------------------------------------

    Having determined that there will not be an inadequate domestic 
supply of advanced biofuel, we further considered whether there may be 
an inadequate domestic supply to satisfy the portion of the total 
renewable fuel volume requirement that can be satisfied with non-
advanced (conventional) renewable fuel. After application of the full 
cellulosic waiver authority to the advanced biofuel and total renewable

[[Page 58517]]

fuel statutory volume targets, the implied statutory volume for 
conventional renewable fuel is 15.0 billion gallons. The total domestic 
production capacity of corn ethanol in the U.S. is about 16 billion 
gallons, and total production of denatured and undenatured ethanol from 
these facilities in 2016 exceeded 15 billion gallons.\135\ As a result, 
there does not appear to be an inadequate domestic supply of renewable 
fuel to satisfy the implied 15 billion gallon conventional renewable 
fuel volume that results from full application of the cellulosic waiver 
authority to reduce statutory volume targets for advanced biofuel and 
total renewable fuel. We note that this assessment does not include 
imported volumes of fuel, such as conventional biodiesel, which could 
also be used to satisfy the volume requirements. In light of this 
finding, we conclude that there is not an inadequate domestic supply of 
volumes than can be used to meet the 15 billion gallon implied volume 
for conventional renewable fuel, and thus that further reductions of 
the 19.29 billion gallon total renewable fuel volume requirement 
derived through use of the cellulosic waiver authority would not 
appropriate when taking into account both domestic production and 
imports.
---------------------------------------------------------------------------

    \135\ ``2017 Ethanol Industry Outlook'' by the Renewable Fuels 
Association indicates that 2017 nationwide production capacity is 
16.0 bill gal and actual production in 2016 was 15.25 bill gal. ``US 
Fuel Ethanol Plant Production Capacity from EIA,'' estimates 2017 
nameplate production capacity at 15.51 bill gal. In ``Ethanol 
Production in 2016 from EIA,'' EIA indicates that 2016 actual 
production was 15.45 bill gal. All documents are available in docket 
EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    In the October 4 document, we discussed comments on the proposal 
suggesting that EPA should interpret the undefined term ``domestic'' in 
the phrase ``inadequate domestic supply'' to account for only volumes 
of renewable fuel that are produced domestically. If EPA were to adopt 
this interpretation, we could exclude potential imports of renewable 
fuel in our assessment of domestic supply but, even if we found 
domestic supply to be inadequate, could take factors such as potential 
imports and the availability of carryover RINs into account in 
determining the extent to which we should exercise our discretion to 
grant a waiver on the basis of inadequate domestic supply.\136\ As 
described in more detail in the RTC document, stakeholders who 
addressed this issue provided varying perspectives on the extent to 
which such an interpretation would have a relevant impact on renewable 
fuel supply.
---------------------------------------------------------------------------

    \136\ EPA's current regulations provide that qualifying imported 
biofuel may be used for compliance with the RFS standards; EPA's 
response to comments on this approach to imported biofuels is 
provided in the RTC document.
---------------------------------------------------------------------------

    In light of the fact that the domestic production capacity of 
conventional biofuel volumes is in excess of 15 billion gallons, 
whether we were to exclude imported biofuels from our consideration of 
domestic supply would primarily impact our assessment of the supply of 
cellulosic biofuel and advanced biofuel volumes, not conventional 
renewable fuel. With respect to cellulosic biofuel, we note that the 
vast majority of the supply in 2018 is expected to come from domestic 
sources. In fact, if EPA excluded consideration of projected cellulosic 
biofuel imports, our projection of the available volume of cellulosic 
biofuel in 2018 would be reduced by only 2 million gallons or less than 
1 percent of our projection that 288 million cellulosic biofuel gallons 
will be made available in 2018. Given the importance that Congress 
placed on the growth of cellulosic biofuel volumes, our projection that 
compliance with a 288 million gallon requirement is feasible using RINs 
generated in 2018, and the availability of carryover cellulosic biofuel 
RINs and cellulosic waiver credits for additional compliance 
flexibility, EPA would not exercise its discretion to lower the 288 
million gallon projected cellulosic biofuel volume by 2 million gallons 
even if EPA were to interpret the term ``domestic supply'' to exclude 
imported volumes.
    With respect to the available supply of advanced biofuel in 2018 in 
the context of an interpretation of inadequate domestic supply that 
excludes imports, several commenters noted the data provided by EPA in 
the October 4 document indicating that a significant portion of the 
advanced biofuel available in previous years has been from imported 
biofuels, particularly imported biodiesel and renewable diesel. Some 
commenters pointed to total domestic production capacity and feedstock 
availability to argue that domestic producers are capable of 
compensating for volumes that would not be provided through imports, so 
that even under an interpretation of ``domestic supply'' that excluded 
imports, EPA would not be justified in reducing volumes on the basis of 
inadequate domestic supply to a level below what was proposed. Others 
suggested that, without imported volumes, the domestic industry could 
not ramp up production quickly enough to compensate for the exclusion 
of imports from our analysis and provide a ``domestic supply'' equal to 
the proposed 2018 volume requirements.\137\ We believe, based on the 
record before us, that there is uncertainty regarding the capability of 
the domestic advanced biofuel industry to compensate in 2018 for 
volumes that would not be provided through imports. Taking this 
uncertainty into account (including the distinct possibility that the 
domestic industry could compensate for exclusion of imports), as well 
as the availability of imported volumes and carryover RINs, EPA would 
not choose to exercise its authority to grant a waiver on the basis of 
inadequate domestic supply for 2018 even if it interpreted the term 
``domestic supply'' to exclude imports. In light of this determination, 
we need not resolve at this time the interpretive issue regarding 
whether the term ``domestic supply'' should include consideration of 
imports.
---------------------------------------------------------------------------

    \137\ The ``domestic supply'' of BBD for 2018 would likely be 
adequate to meet the 2018 standard of 2.1 billion gallons. Domestic 
production of BBD would need to increase by approximately 300 
million gallons as compared to the 2016 production. As discussed 
above, EPA believes this increase is possible and received comments 
suggesting this volume increase could be met by domestic production. 
Additionally, carryover RINs and imported volumes could still be 
used to meet the standard. Therefore, EPA would not chose to 
exercise its authority to grant a waiver on the basis of inadequate 
domestic supply for BBD for 2018 even if it interpreted the term 
``domestic supply'' to exclude imports.
---------------------------------------------------------------------------

B. Severe Economic Harm

    The proposal and October 4 document requested comment on the 
possibility of further reductions in the proposed volume requirements, 
including on the basis of a severe economic harm. We received comments 
from stakeholders both in support of, and opposed to, further 
reductions in the advanced biofuel and/or total renewable fuel volume 
requirements based on a finding of severe economic harm. For instance, 
several obligated parties stated that the purchase of RINs to comply 
with the applicable standards represents a significant economic burden 
to their companies. Some also indicated that they are considering 
filing for bankruptcy. However, these commenters did not provide 
sufficient evidence that the purchase of RINs, as opposed to other 
market factors, is responsible for the company's difficult economic 
circumstances, or why they cannot recoup the cost of RINs through 
higher prices of their products, or the arguments presented were 
unconvincing.\138\ None of the

[[Page 58518]]

commenters provided compelling evidence that the proposed RFS volume 
requirements for 2018 would be likely to cause severe economic harm to 
a region, State, or the U.S.\139\ Further discussion of these comments 
can be found in the RTC document.
---------------------------------------------------------------------------

    \138\ We further note that before exercising the general waiver 
authority on the basis of severe economic harm to a State, a Region 
or the U.S., EPA would need to consider whether a waiver that would 
affect the standards applicable to all obligated parties, and would 
take into account any negative economic impacts to farmers and 
biofuel producers from a waiver, would be of significant benefit to 
individual obligated parties facing financial difficulties.
    \139\ In the October 4 document, we solicited comment on EPA's 
prior interpretation of the term ``severe economic harm.'' As 
discussed in the RTC document accompanying this action, we believe 
that the evidence in the record would be insufficient to support a 
finding of severe economic harm under any reasonable interpretation 
of the phrase advanced by commenters, so do not find it necessary to 
assess changes to our interpretation of the phrase at this time.
---------------------------------------------------------------------------

    In addition to reviewing comments on the proposed rule and the 
October 4 document, EPA also reviewed market data from 2017 and 
previous years to see if there was evidence that the RFS standards are 
currently causing severe economic harm, or would be likely to cause 
severe economic harm in 2018. Given that the 2018 volumes generated 
through the maximum reduction permitted under the cellulosic waiver 
authority are nearly the same as the volume requirements for 2017, we 
considered:
    1. Whether severe economic harm has occurred to date or is likely 
to occur in 2017, and
    2. whether the economic conditions in 2018 might be expected to be 
substantially different than those in 2017.
    To determine whether severe economic harm has occurred to date or 
is likely to occur in in 2017, we investigated several possible 
indicators. These included RIN generation for 2017 relative to 2016, 
refinery closures, retail fuel prices, and corn and soybean prices. 
Based on our investigation, we do not believe that severe economic harm 
has occurred thus far in 2017 to any State, region, or the U.S. as a 
result of the 2017 standards, or is likely occur by the end of 2017. 
Details of this investigation can be found in a memorandum to the 
docket.\140\
---------------------------------------------------------------------------

    \140\ ``Assessment of waivers for severe economic harm or BBD 
prices for 2018,'' memorandum from David Korotney to docket EPA-HQ-
OAR-2017-0091.
---------------------------------------------------------------------------

    To determine whether the economic conditions in 2018 might be 
expected to be substantially different than those in 2017 in ways that 
could affect the economic impact of compliance with the RFS program, we 
investigated projections of two primary drivers of the cost of 
compliance: Crop-based feedstock futures prices, and projected gasoline 
demand. We also investigated the potential market impacts of the final 
2018 standards, most specifically in terms of ethanol and biodiesel 
consumption.\141\
---------------------------------------------------------------------------

    \141\ ``Market impacts of biofuels,'' memorandum from David 
Korotney to docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    Based on the record before us, we do not believe that there is 
sufficient evidence to conclude that severe economic harm is occurring 
currently in 2017 in any State, region, or the United States, and we do 
not believe that market conditions in 2018 are likely to cause 
compliance with the applicable standards to be more economically 
challenging than it is in 2017. Given that the 2018 standards are very 
similar to the 2017 standards, then, we do not believe that further 
reductions in the 2018 volume requirements on the basis of severe 
economic harm are warranted.

C. Severe Environmental Harm

    EPA received comments in response to the proposal asserting that 
there are negative environmental impacts that may be associated with 
the RFS program. A significant portion of these concerns center on 
feedstock production. Although we are authorized to reduce the 
statutory volume targets on the basis of a finding that the 
requirements would ``severely harm the . . . environment of a State, 
region, or the United States,'' commenters have not presented evidence 
sufficient to support a determination to make a reduction on this basis 
for 2018. EPA is not making reductions on this basis for 2018. EPA's 
response to comments related to perceived environmental harms of the 
RFS program is set forth in the RTC document accompanying this rule.

D. Biomass-Based Diesel Waiver Authority

    The BBD waiver authority in CAA section 211(o)(7)(E)(ii) provides 
that if EPA determines that there is a significant renewable feedstock 
disruption or other market circumstance that would make the price of 
BBD increase significantly, then EPA shall, in consultation with the 
Secretary of Energy and the Secretary of Agriculture, issue an order to 
reduce, for up to a 60-day period, the annual volume requirement for 
BBD by an appropriate quantity that does not exceed 15 percent. If EPA 
reduces the annual volume requirement for BBD using this waiver 
authority, we may also reduce the applicable volume of advanced biofuel 
and total renewable fuel by an equal or lesser volume than the 
reduction in BBD. In the October 4 document we requested comment on the 
expected impact on the price of BBD of the expiration of the biodiesel 
blenders tax credit, proposed import duties on biodiesel from Argentina 
and Indonesia, or any other factors. We further requested comment on 
whether any expected impacts should be considered significant for the 
purposes of the BBD waiver authority.
    To investigate whether a reduction in the 2018 BBD volume 
requirement would be warranted under CAA section 211(o)(7)(E)(ii), we 
considered current and historical prices of unblended biodiesel (B100), 
the price of blended biodiesel (in particular, B20), and BBD (D4) RIN 
prices. The results of this investigation are described in a memorandum 
to the docket.\142\ EPA discussed in the October 4 document the fact 
that the Department of Commerce had imposed preliminary tariffs on 
biodiesel imported from Argentina and Indonesia, and that such tariffs 
could impact the price of BBD. However, these tariffs have not yet been 
finalized, nor has EPA observed any significant impact of the 
announcement of the preliminary tariffs on the price of biomass-based 
diesel.\143\
---------------------------------------------------------------------------

    \142\ ``Assessment of waivers for severe economic harm or BBD 
prices for 2018,'' memorandum from David Korotney to docket EPA-HQ-
OAR-2017-0091.
    \143\ ``Assessment of waivers for severe economic harm or BBD 
prices for 2018,'' memorandum from David Korotney to docket EPA-HQ-
OAR-2017-0091.
---------------------------------------------------------------------------

    Based on the information before us, including the results of our 
investigation and information and comments submitted in response to the 
October 4 document, we have concluded that there is not sufficient 
evidence of a significant increase to the price of BBD due to feedstock 
disruption or other relevant market circumstances to justify reductions 
to the 2018 BBD volume requirement using the biomass-based diesel 
waiver authority.

VI. Final Biomass-Based Diesel Volume for 2019

    In this section we discuss the BBD applicable volume for 2019. We 
are establishing this volume in advance of those for other renewable 
fuel categories in light of the statutory requirement in CAA section 
211(o)(2)(B)(ii) to establish the applicable volume of BBD for years 
after 2012 no later than 14 months before the applicable volume will 
apply. We are not at this time establishing the BBD percentage 
standards that would apply to obligated parties in 2019 but

[[Page 58519]]

intend to do so in late 2018, after receiving EIA's estimate of 
gasoline and diesel consumption for 2019. Although the BBD applicable 
volume sets a floor for required BBD use, because the BBD volume 
requirement is nested within both the advanced biofuel and the total 
renewable fuel volume requirements, any BBD produced beyond the 
mandated 2019 BBD volume can be used to satisfy both of these other 
applicable volume requirements.

A. Statutory Requirements

    The statute establishes applicable volume targets for years through 
2022 for cellulosic biofuel, advanced biofuel, and total renewable 
fuel. For BBD, applicable volume targets are specified in the statute 
only through 2012. For years after those for which volumes are 
specified in the statute, EPA is required under CAA section 
211(o)(2)(B)(ii) to determine the applicable volume of BBD, in 
coordination with the Secretary of Energy and the Secretary of 
Agriculture, based on a review of the implementation of the program 
during calendar years for which the statute specifies the volumes and 
an analysis of the following factors:
    1. The impact of the production and use of renewable fuels on the 
environment, including on air quality, climate change, conversion of 
wetlands, ecosystems, wildlife habitat, water quality, and water 
supply;
    2. The impact of renewable fuels on the energy security of the 
United States;
    3. The expected annual rate of future commercial production of 
renewable fuels, including advanced biofuels in each category 
(cellulosic biofuel and BBD);
    4. The impact of renewable fuels on the infrastructure of the 
United States, including deliverability of materials, goods, and 
products other than renewable fuel, and the sufficiency of 
infrastructure to deliver and use renewable fuel;
    5. The impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
    6. The impact of the use of renewable fuels on other factors, 
including job creation, the price and supply of agricultural 
commodities, rural economic development, and food prices.
    The statute also specifies that the volume requirement for BBD 
cannot be less than the applicable volume specified in the statute for 
calendar year 2012, which is 1.0 billion gallons. The statute does not, 
however, establish any other numeric criteria, or provide any guidance 
on how the EPA should weigh the importance of the often competing 
factors, and the overarching goals of the statute when the EPA sets the 
applicable volumes of BBD in years after those for which the statute 
specifies such volumes. In the period 2013-2022, the statute specifies 
increasing applicable volumes of cellulosic biofuel, advanced biofuel, 
and total renewable fuel, but provides no guidance, beyond the 1.0 
billion gallon minimum, on the level at which BBD volumes should be 
set.
    In establishing the BBD and cellulosic standards as nested within 
the advanced biofuel standard, Congress clearly intended to support 
development of BBD and especially cellulosic biofuels, while also 
providing an incentive for the growth of other non-specified types of 
advanced biofuels. That is, the advanced biofuel standard provides an 
opportunity for other advanced biofuels (advanced biofuels that do not 
qualify as cellulosic biofuel or BBD) to compete with cellulosic 
biofuel and BBD to satisfy the advanced biofuel standard after the 
cellulosic biofuel and BBD standards have been met.

B. Determination of the 2019 Applicable Volume of Biomass-Based Diesel

    One of the primary considerations in determining the BBD volume for 
2019 is a review of the implementation of the program to date, as it 
affects BBD. This review is required by the CAA, and also provides 
insight into the capabilities of the industry to produce, import, 
export, and distribute BBD. It also helps us to understand what 
factors, beyond the BBD standard, may incentivize the production and 
import of BBD. The number of BBD RINs generated, along with the number 
of RINs retired due to export or for reasons other than compliance with 
the annual BBD standards from 2011-2018 are shown in Table VI.B.1-1 
below.
---------------------------------------------------------------------------

    \144\ Available BBD RINs Generated, Exported BBD RINs, and BBD 
RINs Retired for Non-Compliance Reasons information from EMTS.

                                      Table VI.B.1-1--Biomass-Based (D4) RIN Generation and Standards in 2011-2018
                                                             [million RINs or gallons] \144\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             BBD RINs
                                                             BBD RINs      Exported BBD    retired, non-   Available BBD   BBD standard    BBD standard
                                                             generated        (RINs)        compliance       RINs \a\        (gallons)        (RINs)
                                                                                              reasons
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................................           1,692              72              98           1,522             800           1,200
2012....................................................           1,737             102              90           1,545           1,000           1,500
2013....................................................           2,739             124             101           2,514           1,280           1,920
2014....................................................           2,710             134              92           2,484           1,630       \b\ 2,490
2015....................................................           2,796             145              32           2,619           1,730       \b\ 2,655
2016....................................................           4,008             203              96           3,709           1,900           2,850
2017....................................................             N/A             N/A             N/A             N/A           2,000           3,000
2018....................................................             N/A             N/A             N/A             N/A           2,100           3,150
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Available BBD RINs may not be exactly equal to BBD RINs Generated minus Exported RINs and BBD RINs Retired, Non-Compliance Reasons, due to rounding.
\b\ Each gallon of biodiesel qualifies for 1.5 RINs due to its higher energy content per gallon than ethanol. Renewable diesel qualifies for between 1.5
  and 1.7 RINs per gallon, but generally has an equivalence value of 1.7. In 2014 and 2015 the number of RINs in the BBD Standard column is not exactly
  equal to 1.5 times the BBD volume standard as these standards were established based on actual RIN generation data for 2014 and a combination of
  actual data and a projection of RIN generation for the last three months of the year for 2015. Some of the volume used to meet the BBD standard was
  renewable diesel.


[[Page 58520]]

    In reviewing historical BBD RIN generation and use, we see that the 
number of RINs available for compliance purposes exceeded the volume 
required to meet the BBD standard in 2011, 2012, 2013, and 2016. 
Additional production and use of biodiesel was likely driven by a 
number of factors, including demand to satisfy the advanced biofuel and 
total renewable fuels standards, the biodiesel tax credit,\145\ and 
favorable blending economics. The number of RINs available in 2014 and 
2015 was approximately equal to the number required for compliance in 
those years, as the standards for these years were finalized at the end 
of November 2015 and EPA's intent at that time was to set the standards 
for 2014 and 2015 to reflect actual BBD use. In 2016, with RFS 
standards established prior to the beginning of the year and the 
blenders tax credit in place, available BBD RINs exceeded the volume 
required by the BBD standard by 859 million RINs (30 percent). This 
indicates that in appropriate circumstances there is demand for BBD 
beyond the required volume of BBD.
---------------------------------------------------------------------------

    \145\ The biodiesel tax credit was reauthorized in January 2013. 
It applied retroactively for 2012 and for the remainder of 2013. It 
was once again extended in December 2014 and applied retroactively 
to all of 2014 as well as to the remaining weeks of 2014. In 
December 2015 the biodiesel tax credit was authorized and applied 
retroactively for all of 2015 as well as through the end of 2016.
    \146\ This is because when an obligated party retires a BBD RIN 
to help satisfy their BBD obligation, the nested nature of the BBD 
standard means that this RIN also counts towards satisfying their 
advanced and total renewable fuel obligations. Advanced RINs count 
towards both the advanced and total renewable fuel obligations, 
while conventional RINs (D6) count towards only the total renewable 
fuel obligation.
---------------------------------------------------------------------------

    The prices paid for advanced biofuel and BBD RINs beginning in 
early 2013 through the end of 2016 also support the conclusion that 
advanced biofuel and/or total renewable fuel standards provide a 
sufficient incentive for additional biodiesel volume beyond what is 
required by the BBD standard. Because the BBD standard is nested within 
the advanced biofuel and total renewable fuel standards, and therefore 
can help to satisfy three RVOs, we would expect the price of BBD RINs 
to exceed that of advanced and conventional renewable RINs.\146\ If, 
however, BBD RINs are being used by obligated parties to satisfy their 
advanced biofuel obligations, above and beyond the BBD standard, we 
would expect the prices of advanced biofuel and BBD RINs to 
converge.\147\ Further, if BBD RINs are being used (or are expected to 
be used) to satisfy obligated parties' total renewable fuel obligation, 
above and beyond their BBD and advanced biofuel requirements we would 
expect the price for all three RIN types to converge.
---------------------------------------------------------------------------

    \147\ We would still expect D4 RINs to be valued at a slight 
premium to D5 and D6 RINs in this case (and D5 RINs at a slight 
premium to D6 RINs) to reflect the greater flexibility of the D4 
RINs to be used towards the BBD, advanced biofuel, and total 
renewable fuel standard. This pricing has been observed over the 
past several years.
---------------------------------------------------------------------------

    When examining RIN price data from 2012 through September 2017, 
shown in Figure VI.B.2-1 below, we see that beginning in early 2013 and 
through September 2017 the advanced RIN price and BBD RIN prices were 
approximately equal. Similarly, from early 2013 through late 2016 the 
conventional renewable fuel and BBD RIN prices were approximately 
equal. This suggests that the advanced biofuel standard and/or total 
renewable fuel standard are capable of incentivizing increased BBD 
volumes beyond the BBD standard, and operated in this manner starting 
in 2013.\148\ While final standards were not in place throughout 2014 
and most of 2015, EPA had issued proposed rules for both of these 
years. In each year, the market response was to supply volumes of BBD 
that exceeded the proposed BBD standard in order to help satisfy the 
proposed advanced and total biofuel standards.\149\ Additionally, the 
RIN prices in these years strongly suggests that obligated parties and 
other market participants anticipated the need for BBD RINs to meet 
their advanced and total biofuel obligations, and responded by 
purchasing advanced biofuel and BBD RINs at approximately equal prices. 
We do note, however, that in 2012 the BBD RIN price was significantly 
higher than both the advanced biofuel and conventional renewable fuel 
RIN prices. In 2012 the E10 blendwall had not yet been reached, and it 
was likely more cost effective for most obligated parties to satisfy 
the portion of the advanced biofuel requirement that exceeded the BBD 
and cellulosic biofuel requirements with advanced ethanol.
---------------------------------------------------------------------------

    \148\ Although we did not issue a rule establishing the final 
2013 standards until August of 2013, we believe that the market 
anticipated the final standards, based on EPA's July 2011 proposal 
and the volume targets for advanced and total renewable fuel 
established in the statute. (76 FR 38844, 38843, July 1, 2011).
    \149\ EPA proposed a BBD standard of 1.28 billion gallons (1.92 
billion RINs) for 2014 in our November 2013 proposed rule. The 
number of BBD RINs available in 2014 was 2.67 billion. EPA proposed 
a BBD standard of 1.70 billion gallons (2.55 billion RINs) for 2015 
in our June 2015 proposed rule. The number of BBD RINs available in 
2015 was 2.92 billion.

---------------------------------------------------------------------------

[[Page 58521]]

[GRAPHIC] [TIFF OMITTED] TR12DE17.002

    In raising the 2013 BBD volume above the 1 billion gallon minimum 
mandated by Congress, the EPA sought to ``create greater certainty for 
both producers of BBD and obligated parties'' while also acknowledging 
that, ``the potential for somewhat increased costs is appropriate in 
light of the additional certainty of GHG reductions and enhanced energy 
security provided by the advanced biofuel volume requirement of 2.75 
billion gallons.'' \150\ Unknown at that time was the degree to which 
the required volumes of advanced biofuel and total renewable fuel could 
incentivize volumes of BBD that exceeded the BBD standard. In 2012 the 
available supply of BBD RINs exceeded the required volume of BBD by a 
very small margin (1,545 million BBD RINs were made available for 
compliance towards meeting the BBD requirement of 1,500 million BBD 
RINs). The remainder of the 2.0 billion-gallon advanced biofuel 
requirement was satisfied with advanced ethanol, which was largely 
imported from Brazil.\151\ From 2012 to 2013 the statutory advanced 
biofuel requirement increased by 750 million gallons. If EPA had not 
increased the required volume of BBD for 2013, and the advanced biofuel 
standard had proved insufficient to increase the supply of BBD beyond 
the statutory minimum of 1.0 billion gallons, an additional 750 million 
gallons of non-BBD advanced biofuels beyond the BBD standard would have 
been needed to meet the advanced biofuel volume requirement.
---------------------------------------------------------------------------

    \150\ 77 FR 59458, 59462 (September 27, 2012).
    \151\ 594 million advanced ethanol RINs were generated in in 
2012.
---------------------------------------------------------------------------

    The only advanced biofuel other than BBD available in appreciable 
quantities in 2012 and 2013 was advanced ethanol, the vast majority of 
which was imported sugarcane ethanol. EPA had significant concerns as 
to whether or not the supply of advanced ethanol could increase this 
significantly (750 million gallons) in a single year. These concerns 
were heightened by the approaching E10 blendwall, which increased the 
challenges associated with supplying increasing volumes of ethanol to 
the U.S. If neither BBD volumes nor advanced ethanol volumes increased 
sufficiently, EPA was concerned that some obligated parties might be 
unable to acquire the advanced biofuel RINs necessary to demonstrate 
compliance with their RVOs in 2013. Therefore, as discussed above, EPA 
increased the volume requirement for BBD in 2013 to help create greater 
certainty for BBD producers (by ensuring demand for their product above 
the 1.0 billion gallon statutory minimum) and obligated parties (by 
ensuring that sufficient RINs would be available to satisfy their 
advanced biofuel RVOs). Since 2013, however, EPA has gained significant 
experience implementing the RFS program. As discussed above, RIN 
generation data has consistently demonstrated that the advanced biofuel 
volume requirement, and to a lesser degree the total renewable fuel 
volume requirement, are capable of incentivizing the supply of BBD 
above and beyond the BBD volume requirement.
    Finally, we note that the BBD industry in the U.S and abroad has 
matured since EPA first increased the required volume of BBD beyond the 
statutory minimum in 2013. To assess the maturity of the biodiesel 
industry, EPA compared information on BBD RIN generation by company 
from 2012 and 2016 (the most recent year for which complete RIN 
generation is available). In 2012, the annual average RIN generation 
per company producing BBD was about 11 million RINs (about 7.3 million 
gallons) with approximately 50 percent of companies producing less the 
1 million gallons of BBD a year. The agency heard from multiple 
commenters during the 2012 and 2013 rulemakings that higher volume 
requirements for BBD would provide greater certainty for the emerging 
BBD industry and encourage further investment. Since that time, the BBD 
industry has matured in a number of critical areas, including growth in 
the size of companies, the consolidation of the industry, and more 
stable funding and access to capital. In 2012, the BBD industry was 
characterized by smaller companies with dispersed market share. By 
2016, the average BBD RIN generation per company had climbed to almost 
33 million RINs (22 million gallons) annually, a 3-fold increase. Only 
27 percent of the companies produced less than 1 million gallons of 
BBD.
    We are conscious of public comments claiming that BBD volume 
requirements that are a significant portion of the

[[Page 58522]]

advanced volume requirements effectively dis-incentivize the future 
development of other promising advanced biofuel pathways. A variety of 
different types of advanced biofuels, rather than a single type such as 
BBD, would positively impact energy security (e.g., by increasing the 
diversity of feedstock sources used to make biofuels, thereby reducing 
the impacts associated with a shortfall in a particular type of 
feedstock) and increase the likelihood of the development of lower cost 
advanced biofuels that meet the same GHG reduction threshold as 
BBD.\152\
---------------------------------------------------------------------------

    \152\ All types of advanced biofuel, including BBD, must achieve 
lifecycle GHG reductions of at least 50 percent.
---------------------------------------------------------------------------

    With the considerations discussed above and in Section IV.B.2 in 
mind, as well as our analysis of the factors specified in the statute, 
we are setting the applicable volume of BBD at 2.1 billion gallons for 
2019. We believe this volume sets the appropriate floor for BBD, and 
that the volume of advanced biodiesel and renewable diesel actually 
used in 2019 will be driven by the level of the advanced biofuel and 
total renewable fuel standards that the Agency will establish for 2019. 
We have considered the required statutory factors in reaching our 
decision, as summarized in Section C, below, and in a memorandum to the 
docket (the ``2019 BBD docket memorandum'').\153\
---------------------------------------------------------------------------

    \153\ ``Memorandum to docket: Draft Statutory Factors Assessment 
for the 2019 Biomass-Based Diesel (BBD) Applicable Volumes.'' See 
Docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    We believe our final 2019 BBD volume requirement strikes the 
appropriate balance between providing a market environment where the 
development of other advanced biofuels is incentivized, while also 
maintaining support for the BBD industry. Based on our review of the 
data, and the nested nature of the BBD standard within the advanced 
standard, we conclude that the advance standard continues to drive the 
ultimate volume of BBD supplied. Given the success of the industry in 
the past few years, as well as the substantial increases in the BBD 
volume being driven by the advanced standard, we have determined that a 
volume requirement greater than 2.1 billion gallons for BBD in 2019 is 
not necessary to provide support for the BBD industry. Setting the BBD 
standard in this manner continues to allow a considerable portion of 
the advanced biofuel volume to be satisfied by either additional 
gallons of BBD or by other unspecified and potentially less costly 
types of qualifying advanced biofuels.

C. Consideration of Statutory Factors Set Forth in CAA Section 
211(o)(2)(B)(ii)(I)-(VI) for 2019

    As noted earlier in Section IV.B., the BBD volume requirement is 
nested within the advanced biofuel requirement and the advanced biofuel 
requirement is, in turn, nested within the total renewable fuel volume 
requirement. This means that any BBD produced beyond the mandated BBD 
volume can be used to satisfy both these other applicable volume 
requirements. The result is that in considering the statutory factors 
we must consider the potential impacts of increasing or decreasing BBD 
in comparison to other advanced biofuels.\154\ For a given advanced 
biofuel standard, greater or lesser BBD volume requirements do not 
change the amount of advanced biofuel used to displace petroleum fuels; 
rather, increasing the BBD requirement may result in the displacement 
of other types of advanced biofuels that could have been used to meet 
the advanced biofuels volume requirement. While in recent years EPA has 
annually increased the BBD volume requirement, EPA is, as we proposed, 
maintaining the 2.1 billion gallon standard for 2019 based on our 
review of the statutory factors and the considerations noted above and 
in the 2018 BBD Docket Memorandum. In particular, as EPA noted above in 
section VI.B., the BBD industry is more mature, and we have increased 
BBD volumes significantly in recent years so that the BBD standard is 
now over twice the minimum statutory volume required in CAA section 
211(o)(2)(B)(i). In these circumstances we do not believe that an 
additional increase in the required BBD required volume is necessary to 
support the industry in 2019.
---------------------------------------------------------------------------

    \154\ While excess BBD production could also displace 
conventional renewable fuel under the total renewable standard, as 
long as the BBD applicable volume is significantly lower than the 
advanced biofuel applicable volume our action in setting the BBD 
applicable volume is not expected to displace conventional renewable 
fuel under the total renewable standard, but rather other advanced 
biofuels.
---------------------------------------------------------------------------

    Consistent with our approach in setting the final BBD volume 
requirement for 2018, EPA's primary assessment of the statutory factors 
for the 2019 BBD applicable volume is that because the BBD requirement 
is nested within the advanced biofuel volume requirement, we expect 
that the 2019 advanced volume requirement, when set next year, will 
determine the level of BBD production and imports that occur in 
2019.\155\ Therefore, EPA continues to believe that the same overall 
volume of BBD would likely be supplied in 2019 even if we were to 
mandate a somewhat lower or higher BBD volume for 2019 in this final 
rule. Thus, we do not expect our 2019 BBD volume requirement to result 
in a difference in the factors we consider pursuant to CAA section 
211(o)(2)(B)(ii)(I)-(VI).
---------------------------------------------------------------------------

    \155\ Even though we are not setting the 2019 advanced biofuel 
volume requirement as part of this rulemaking, we expect that the 
2019 advanced volume requirement will be considerably higher than 
the 2019 BBD requirement, consistent with past practice and, 
therefore, that the BBD volume requirement for 2019 would not be 
expected to impact the volume of BBD that is actually produced and 
imported during the 2019-time period.
---------------------------------------------------------------------------

    As an additional supplementary assessment, we have considered the 
potential impacts of selecting an applicable volume of BBD other than 
2.1 billion gallons in 2019. Setting a requirement higher or lower than 
2.1 billion gallons in 2019 would only be expected to impact BBD 
volumes on the margin, protecting to a greater or lesser degree BBD 
from competition with other potential advanced biofuels. In this 
supplementary assessment we have considered all of the statutory 
factors found in CAA section 211(2)(B)(ii), and as described in the 
2019 BBD docket memorandum, our assessment does not appear, based on 
available information, to provide a reasonable basis for setting a 
higher or lower volume requirement for BBD than 2.1 billion gallons for 
2019.
    Overall and as described in the 2019 BBD docket memorandum, we have 
determined that both the primary assessment and the supplemental 
assessment of the statutory factors specified in CAA section 
211(o)(2)(B)(ii)(I)-(VI) for the year 2019 does not provide significant 
support for setting the BBD standard at a level higher or lower than 
2.1 billion gallons in 2019.

VII. Percentage Standards for 2018

    The renewable fuel standards are expressed as volume percentages 
and are used by each obligated party to determine their Renewable 
Volume Obligations (RVOs). Since there are four separate standards 
under the RFS program, there are likewise four separate RVOs applicable 
to each obligated party. Each standard applies to the sum of all non-
renewable gasoline and diesel produced or imported. The percentage 
standards are set so that if every obligated party meets the 
percentages by acquiring and retiring an appropriate number of RINs, 
then the amount of renewable fuel, cellulosic biofuel, BBD, and 
advanced biofuel used will meet the applicable volume requirements on a 
nationwide basis.

[[Page 58523]]

    Sections III through V provide our rationale and basis for the 
volume requirements for 2018.\156\ The volumes used to determine the 
percentage standards are shown in Table VII-1.
---------------------------------------------------------------------------

    \156\ The 2018 volume requirement for BBD was established in the 
2017 final rule.

 Table VII-1--Volumes for Use in Setting the 2018 Applicable Percentage
                                Standards
                            [Billion gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................           0.288
Biomass-based diesel \a\................................            2.10
Advanced biofuel........................................            4.29
Renewable fuel..........................................           19.29
------------------------------------------------------------------------
\a\ Represents physical volume.

    For the purposes of converting these volumes into percentage 
standards, we generally use two decimal places to be consistent with 
the volume targets as given in the statute, and similarly two decimal 
places in the percentage standards. However, for cellulosic biofuel we 
use three decimal places in both the volume requirement and percentage 
standards to more precisely capture the smaller volume projections and 
the unique methodology that in some cases results in estimates of only 
a few million gallons for a single producer.

A. Calculation of Percentage Standards

    To calculate the percentage standards, we are following the same 
methodology for 2018 as we have in all prior years. The formulas used 
to calculate the percentage standards applicable to producers and 
importers of gasoline and diesel are provided in 40 CFR 80.1405. The 
formulas rely on estimates of the volumes of gasoline and diesel fuel, 
for both highway and nonroad uses, which are projected to be used in 
the year in which the standards will apply. The projected gasoline and 
diesel volumes are provided by EIA, and include projections of ethanol 
and biodiesel used in transportation fuel. Since the percentage 
standards apply only to the non-renewable gasoline and diesel produced 
or imported, the volumes of ethanol and biodiesel are subtracted out of 
the EIA projections of gasoline and diesel.
    Transportation fuels other than gasoline or diesel, such as natural 
gas, propane, and electricity from fossil fuels, are not currently 
subject to the standards, and volumes of such fuels are not used in 
calculating the annual percentage standards. Since under the 
regulations the standards apply only to producers and importers of 
gasoline and diesel, these are the transportation fuels used to set the 
percentage standards, as well as to determine the annual volume 
obligations of an individual gasoline or diesel producer or importer.
    As specified in the RFS2 final rule,\157\ the percentage standards 
are based on energy-equivalent gallons of renewable fuel, with the 
cellulosic biofuel, advanced biofuel, and total renewable fuel 
standards based on ethanol equivalence and the BBD standard based on 
biodiesel equivalence. However, all RIN generation is based on ethanol-
equivalence. For example, the RFS regulations provide that production 
or import of a gallon of qualifying biodiesel will lead to the 
generation of 1.5 RINs. The formula specified in the regulations for 
calculation of the BBD percentage standard is based on biodiesel-
equivalence, and thus assumes that all BBD used to satisfy the BBD 
standard is biodiesel and requires that the applicable volume 
requirement be multiplied by 1.5. However, BBD often contains some 
renewable diesel, and a gallon of renewable diesel typically generates 
1.7 RINs.\158\ In addition, there is often some renewable diesel in the 
conventional renewable fuel pool. As a result, the actual number of 
RINs generated by biodiesel and renewable diesel is used in the context 
of our assessing reasonably attainable volumes for purposes of deriving 
the applicable volume requirements and associated percentage standards 
for advanced biofuel and total renewable fuel, and likewise in 
obligated parties' determination of compliance with any of the 
applicable standards. While there is a difference in the treatment of 
biodiesel and renewable diesel in the context of determining the 
percentage standard for BBD versus determining the percentage standard 
for advanced biofuel and total renewable fuel, it is not a significant 
one given our approach to determining the BBD volume requirement. Our 
intent in setting the BBD applicable volume is to provide a level of 
guaranteed volume for BBD, but as described in Section VI.B, we do not 
expect the BBD standard to be binding. That is, we expect that actual 
supply of BBD, as well as supply of conventional biodiesel and 
renewable diesel, will be driven by the advanced biofuel and total 
renewable fuel standards.
---------------------------------------------------------------------------

    \157\ See 75 FR 14670 (March 26, 2010).
    \158\ Although in some cases a gallon of renewable diesel 
generates either 1.5 or 1.6 RINs.
---------------------------------------------------------------------------

B. Small Refineries and Small Refiners

    In CAA section 211(o)(9), enacted as part of the Energy Policy Act 
of 2005, and amended by the Energy Independence and Security Act of 
2007, Congress provided a temporary exemption to small refineries \159\ 
through December 31, 2010. Congress provided that small refineries 
could receive a temporary extension of the exemption beyond 2010 based 
either on the results of a required DOE study, or based on an EPA 
determination of ``disproportionate economic hardship'' on a case-by-
case basis in response to small refinery petitions. In reviewing 
petitions, EPA, in consultation with the Department of Energy, 
evaluates whether the small refinery has demonstrated either 
disproportionate impacts or viability impairment, and may grant 
refineries exemptions upon demonstration of either criterion.
---------------------------------------------------------------------------

    \159\ A small refiner that meets the requirements of 40 CFR 
80.1442 may also be eligible for an exemption.
---------------------------------------------------------------------------

    EPA has granted exemptions pursuant to this process in the past. 
However, at this time no exemptions have been approved for 2018, and 
therefore we have calculated the percentage standards for 2018 without 
any adjustment for exempted volumes. EPA is maintaining its approach 
that any exemptions for 2018 that are granted after the final rule is 
released will not be reflected in the percentage standards that apply 
to all gasoline and diesel produced or imported in 2018.\160\
---------------------------------------------------------------------------

    \160\ Further discussion of this issue can be found in the 
Response to Comments document in the docket for this action.
---------------------------------------------------------------------------

C. Final Standards

    The formulas in 40 CFR 80.1405 for the calculation of the 
percentage standards require the specification of a total of 14 
variables covering factors such as the renewable fuel volume 
requirements, projected gasoline and diesel demand for all states and 
territories where the RFS program applies, renewable fuels projected by 
EIA to be included in the gasoline and diesel demand, and exemptions 
for small refineries. The values of all the variables used for this 
final rule are shown in Table VII.C-1.\161\
---------------------------------------------------------------------------

    \161\ To determine the 49-state values for gasoline and diesel, 
the amounts of these fuels used in Alaska is subtracted from the 
totals provided by DOE because petroleum based fuels used in Alaska 
do not incur RFS obligations. The Alaska fractions are determined 
from the June 29, 2016 EIA State Energy Data System (SEDS), Energy 
Consumption Estimates.

[[Page 58524]]



  Table VII.C-1--Values for Terms in Calculation of the 2018 Standards
                                  \162\
                            [Billion gallons]
------------------------------------------------------------------------
            Term                     Description               Value
------------------------------------------------------------------------
RFVCB......................  Required volume of                    0.288
                              cellulosic biofuel.
RFVBBD.....................  Required volume of biomass-            2.10
                              based diesel.
RFVAB......................  Required volume of advanced            4.29
                              biofuel.
RFVRF......................  Required volume of                    19.29
                              renewable fuel.
G..........................  Projected volume of                  143.22
                              gasoline.
D..........................  Projected volume of diesel.           54.76
RG.........................  Projected volume of                   14.71
                              renewables in gasoline.
RD.........................  Projected volume of                    2.53
                              renewables in diesel.
GS.........................  Projected volume of                       0
                              gasoline for opt-in areas.
RGS........................  Projected volume of                       0
                              renewables in gasoline for
                              opt-in areas.
DS.........................  Projected volume of diesel                0
                              for opt-in areas.
RDS........................  Projected volume of                       0
                              renewables in diesel for
                              opt-in areas.
GE.........................  Projected volume of                    0.00
                              gasoline for exempt small
                              refineries.
DE.........................  Projected volume of diesel             0.00
                              for exempt small
                              refineries.
------------------------------------------------------------------------

    Projected volumes of gasoline and diesel, and the renewable fuels 
contained within them, were provided by EIA on October 11, 2017, as 
required in the statute at CAA section 211(o)(3)(A).
---------------------------------------------------------------------------

    \162\ See ``Calculation of final % standards for 2018'' in 
docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    Using the volumes shown in Table VII.C-1, we have calculated the 
percentage standards for 2018 as shown in Table VII.C-2.

           Table VII.C-2--Final Percentage Standards for 2018
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................           0.159
Biomass-based diesel....................................            1.74
Advanced biofuel........................................            2.37
Renewable fuel..........................................           10.67
------------------------------------------------------------------------

VIII. Administrative Actions

A. Assessment of the Domestic Aggregate Compliance Approach

    The RFS regulations specify an ``aggregate compliance'' approach 
for demonstrating that planted crops and crop residue from the U.S. 
complies with the ``renewable biomass'' requirements that address lands 
from which qualifying feedstocks may be harvested.\163\ In the 2010 
RFS2 rulemaking, EPA established a baseline number of acres for U.S. 
agricultural land in 2007 (the year of EISA enactment) and determined 
that as long as this baseline number of acres was not exceeded, it was 
unlikely that new land outside of the 2007 baseline would be devoted to 
crop production based on historical trends and economic considerations. 
The regulations specify, therefore, that renewable fuel producers using 
planted crops or crop residue from the U.S. as feedstock in renewable 
fuel production need not undertake individual recordkeeping and 
reporting related to documenting that their feedstocks come from 
qualifying lands, unless EPA determines through one of its annual 
evaluations that the 2007 baseline acreage of 402 million acres 
agricultural land has been exceeded.
---------------------------------------------------------------------------

    \163\ 40 CFR 80.1454(g).
---------------------------------------------------------------------------

    In the 2010 RFS2 rulemaking, EPA committed to make an annual 
finding concerning whether the 2007 baseline amount of U.S. 
agricultural land has been exceeded in a given year. If the baseline is 
found to have been exceeded, then producers using U.S. planted crops 
and crop residue as feedstocks for renewable fuel production would be 
required to comply with individual recordkeeping and reporting 
requirements to verify that their feedstocks are renewable biomass.
    The Aggregate Compliance methodology provided for the exclusion of 
acreage enrolled in the Grassland Reserve Program (GRP) and the 
Wetlands Reserve Program (WRP) from the estimated total U.S. 
agricultural land. However, the 2014 Farm Bill terminated the GRP and 
WRP as of 2013 and USDA established the Agriculture Conservation 
Easement Program (ACEP) with wetlands and land easement components. The 
ACEP is a voluntary program that provides financial and technical 
assistance to help conserve agricultural lands and wetlands and their 
related benefits. Under the Agricultural Land Easements (ACEP-ALE) 
component, USDA helps Indian tribes, state and local governments, and 
non-governmental organizations protect working agricultural lands and 
limit non-agricultural uses of the land. Under the Wetlands Reserve 
Easements (ACEP-WRE) component, USDA helps to restore, protect and 
enhance enrolled wetlands. The WRP was a voluntary program that offered 
landowners the opportunity to protect, restore, and enhance wetlands on 
their property. The GRP was a voluntary conservation program that 
emphasized support for working grazing operations, enhancement of plant 
and animal biodiversity, and protection of grassland under threat of 
conversion to other uses.
    USDA and EPA concur that the ACEP-WRE and ACEP-ALE represent a 
continuation in basic objectives and goals of the original WRP and GRP. 
Therefore, in preparing this year's assessment of the total U.S. acres 
of agricultural land, the acreage enrolled in the ACEP-WRE and ACEP-ALE 
was excluded.
    Based on data provided by the USDA Farm Service Agency (FSA) and 
Natural Resources Conservation Service (NRCS), we have estimated that 
U.S. agricultural land reached approximately 376 million acres in 2017, 
and thus did not exceed the 2007 baseline acreage. This acreage 
estimate is based on the same methodology used to set the 2007 baseline 
acreage for U.S. agricultural land in the RFS2 final rulemaking, with 
the GRP and WRP substitution as noted above. Specifically, we started 
with FSA crop history data for 2017, from which we derived a total 
estimated acreage of 379,220,752 acres. We then subtracted the ACEP-ALE 
and ACEP-WRE enrolled areas by the end of Fiscal Year 2017, 2,777,887 
acres, to yield an estimate of 376,442,865 acres or approximately 376 
million acres of U.S. agricultural land in 2017. The USDA data used to 
make this derivation can be found in the docket to this rule.\164\
---------------------------------------------------------------------------

    \164\ As in 2016, USDA again provided EPA with 2017 data from 
the discontinued GRP and WRP programs. Given this data, EPA 
estimated the total U.S. agricultural land both including and 
omitting the GRP and WRP acreage. In 2017, combined land under GRP 
and WRP totaled 349,146 acres. Subtracting the GRP, WRP, ACEP-WRE, 
and ACEP-ALE acreage yields an estimate of 376,093,719 acres or 
approximately 376 million total acres of U.S. agricultural land in 
2017. Omitting the GRP and WRP data yields approximately the same 
376 million acres of U.S. agricultural land in 2017.

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[[Page 58525]]

B. Assessment of the Canadian Aggregate Compliance Approach

    The RFS regulations specify a petition process through which EPA 
may approve the use of an aggregate compliance approach for planted 
crops and crop residue from foreign countries.\165\ On September 29, 
2011, EPA approved such a petition from the Government of Canada.
---------------------------------------------------------------------------

    \165\ 40 CFR 80.1457.
---------------------------------------------------------------------------

    The total agricultural land in Canada in 2017 is estimated at 117.8 
million acres. This total agricultural land area includes 95.5 million 
acres of cropland and summer fallow, 12.5 million acres of pastureland 
and 9.8 million acres of agricultural land under conservation 
practices. This acreage estimate is based on the same methodology used 
to set the 2007 baseline acreage for Canadian agricultural land in 
EPA's response to Canada's petition. The data used to make this 
calculation can be found in the docket to this rule.

C. RIN Market Operation

    Some stakeholders have expressed concerns that the current 
regulatory provisions related to RIN trading render the RFS program 
vulnerable to market manipulation. The EPA takes such issues seriously. 
The RIN system was originally designed with an open trading market in 
order to maximize its liquidity and ensure a robust marketplace for 
RINs. However, the EPA is interested in assessing whether and how the 
current trading structure provides an opportunity for market 
manipulation. To that effect, the EPA sought comment and input on this 
issue, including on potential changes to the RIN trading system that 
might help address these concerns. We received comments from 
stakeholders suggesting a number changes to the RIN trading system. 
While EPA received many comments that are helpful to highlight 
opportunities for improvement to the RIN system, we are not in a 
position to make significant changes to the RIN system at this time. 
However, we intend to explore these suggested changes and are open to 
suggestions for making changes in the future that are within our 
authority and would help to improve the function and liquidity of the 
RIN system.
    Separate from evaluating the RIN trading options in the RFS 
program, the EPA is working with appropriate market regulators to 
analyze targeted concerns of some stakeholders. Although the EPA has 
not seen evidence of manipulation in the RIN market, the EPA is not a 
commodity market regulatory agency, and thus we do not have expertise 
in this field. Claims of market manipulation prompted the EPA to 
execute a memorandum of understanding (MOU) with the U.S. Commodity 
Futures Trading Commission (CFTC), which has the authority and 
expertise to investigate such claims.
    In the meantime, the EPA has continued to explore additional ways 
to increase program transparency in order to support the program and 
share data with all stakeholders. The EPA already publishes RFS program 
data on our Web site, including data related to RIN generation, sales 
and holdings, and annual compliance.\166\ We are interested in 
providing more information, to the extent consistent with our 
obligations to protect confidential business information (CBI). The EPA 
sought comment on specific data elements and posting frequency that 
stakeholders believe would be useful to help with market transparency 
and liquidity. We received comments from stakeholders suggesting a 
number of different types of data that commenters suggested would be 
useful to the industry and public. The EPA will need to further 
evaluate each of these suggestions to determine which information we 
can be post and, if so, whether we can post it at the frequency that 
was suggested by the commenters. Our decisions with respect to these 
suggestions must necessarily strike a balance between achieving the 
greatest transparency possible, while working within the limitations of 
our authority and resources (including technology systems), and 
protecting information that is claimed as CBI.
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    \166\ For public data on the RFS and other EPA fuel programs, 
refer to: https://www.epa.gov/fuels-registration-reporting-and-compliance-help/public-data-and-registration-lists-fuel-programs.
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IX. Public Participation

    Many interested parties participated in the rulemaking process that 
culminates with this final rule. This process provided opportunity for 
submitting written public comments following the proposal that we 
published on July 21, 2017 (82 FR 34206), and we also held a public 
hearing on August 1, 2017, at which many parties provided both verbal 
and written testimony. All comments received, both verbal and written, 
are available in Docket ID No. EPA-HQ-OAR-2017-0091 and we considered 
these comments in developing the final rule. Public comments and EPA 
responses are discussed throughout this preamble and in the 
accompanying Response to Comment document, which is available in the 
docket for this action.

X. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is an economically significant regulatory action that 
was submitted to the Office of Management and Budget (OMB) for review. 
Any changes made in response to OMB recommendations have been 
documented in the docket. The EPA prepared an analysis of illustrative 
costs associated with this action. This analysis is presented in 
Section IV.E of this preamble.

B. Executive Order 13771: Reducing Regulations and Controlling 
Regulatory Costs

    This action is considered an Executive Order 13771 regulatory 
action. Details on the estimated costs of this final rule can be found 
in EPA's analysis of the illustrative costs associated with this 
action. This analysis is presented in Section IV.E of this preamble.

C. Paperwork Reduction Act (PRA)

    This action does not impose any new information collection burden 
under the PRA. OMB has previously approved the information collection 
activities contained in the existing regulations and has assigned OMB 
control numbers 2060-0637 and 2060-0640. The final standards will not 
impose new or different reporting requirements on regulated parties 
than already exist for the RFS program.

D. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. In 
making this determination, the impact of concern is any significant 
adverse economic impact on small entities. An agency may certify that a 
rule will not have a significant economic impact on a substantial 
number of small entities if the rule relieves regulatory burden, has no 
net burden, or otherwise has a positive economic effect on the small 
entities subject to the rule.
    The small entities directly regulated by the RFS program are small 
refiners, which are defined at 13 CFR 121.201. We have evaluated the 
impacts of this final rule on small entities from two perspectives: As 
if the 2018 standards

[[Page 58526]]

were a standalone action or if they are a part of the overall impacts 
of the RFS program as a whole.
    When evaluating the standards as if they were a standalone action 
separate and apart from the original rulemaking which established the 
RFS2 program, then the standards could be viewed as increasing the 
advanced and total renewable fuel volumes required of obligated parties 
by 10 million gallons between 2017 and 2018. To evaluate the impacts of 
the volume requirements on small entities relative to 2017, EPA has 
conducted a screening analysis \167\ to assess whether it should make a 
finding that this action would not have a significant economic impact 
on a substantial number of small entities. Currently available 
information shows that the impact on small entities from implementation 
of this rule would not be significant. EPA has reviewed and assessed 
the available information, which shows that obligated parties, 
including small entities, are generally able to recover the cost of 
acquiring the RINs necessary for compliance with the RFS standards 
through higher sales prices of the petroleum products they sell than 
would be expected in the absence of the RFS program.168 169 
This is true whether they acquire RINs by purchasing renewable fuels 
with attached RINs or purchase separated RINs. The costs of the RFS 
program are thus generally being passed on to consumers in the highly 
competitive marketplace. Even if we were to assume that the cost of 
acquiring RINs were not recovered by obligated parties, and we used the 
maximum values of the illustrative costs discussed in Section IV.E of 
this preamble and the gasoline and diesel fuel volume projections and 
wholesale prices from the October 2017 version of EIA's Short-Term 
Energy Outlook, and current wholesale fuel prices, a cost-to-sales 
ratio test shows that the costs to small entities of the RFS standards 
are far less than 1 percent of the value of their sales.
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    \167\ ``Screening Analysis for the Final Renewable Fuel Standard 
Program Renewable Volume Obligations for 2018,'' memorandum from 
Dallas Burkholder, Nick Parsons, and Tia Sutton to EPA Air Docket 
EPA-HQ-OAR-2017-0091.
    \168\ For a further discussion of the ability of obligated 
parties to recover the cost of RINs see ``A Preliminary Assessment 
of RIN Market Dynamics, RIN Prices, and Their Effects,'' Dallas 
Burkholder, Office of Transportation and Air Quality, US EPA. May 
14, 2015, EPA Air Docket EPA-HQ-OAR-2015-0111.
    \169\ Knittel, Christopher R., Ben S. Meiselman, and James H. 
Stock. ``The Pass-Through of RIN Prices to Wholesale and Retail 
Fuels under the Renewable Fuel Standard.'' Working Paper 21343. NBER 
Working Paper Series. Available online at http://www.nber.org/papers/w21343.pdf.
---------------------------------------------------------------------------

    While the screening analysis described above supports a 
certification that this rule would not have a significant economic 
impact on small refiners, we continue to believe that it is more 
appropriate to consider the standards as a part of ongoing 
implementation of the overall RFS program. When considered this way, 
the impacts of the RFS program as a whole on small entities were 
addressed in the RFS2 final rule (75 FR 14670, March 26, 2010), which 
was the rule that implemented the entire program required by the Energy 
Independence and Security Act of 2007 (EISA 2007). As such, the Small 
Business Regulatory Enforcement Fairness Act (SBREFA) panel process 
that took place prior to the 2010 rule was also for the entire RFS 
program and looked at impacts on small refiners through 2022.
    For the SBREFA process for the RFS2 final rule, EPA conducted 
outreach, fact-finding, and analysis of the potential impacts of the 
program on small refiners, which are all described in the Final 
Regulatory Flexibility Analysis, located in the rulemaking docket (EPA-
HQ-OAR-2005-0161). This analysis looked at impacts to all refiners, 
including small refiners, through the year 2022 and found that the 
program would not have a significant economic impact on a substantial 
number of small entities, and that this impact was expected to decrease 
over time, even as the standards increased. For gasoline and/or diesel 
small refiners subject to the standards, the analysis included a cost-
to-sales ratio test, a ratio of the estimated annualized compliance 
costs to the value of sales per company. From this test, it was 
estimated that all directly regulated small entities would have 
compliance costs that are less than one percent of their sales over the 
life of the program (75 FR 14862, March 26, 2010).
    We have determined that this final rule will not impose any 
additional requirements on small entities beyond those already 
analyzed, since the impacts of this rule are not greater or 
fundamentally different than those already considered in the analysis 
for the RFS2 final rule assuming full implementation of the RFS 
program. This rule establishes the 2018 advanced and total renewable 
fuel volume requirements at levels 10 million gallons higher than the 
2017 volume requirements, and significantly below the statutory volume 
targets. This exercise of EPA's waiver authority reduces burdens on 
small entities, as compared to the burdens that would be imposed under 
the volumes specified in the Clean Air Act in the absence of waivers--
which are the volumes that we assessed in the screening analysis that 
we prepared for implementation of the full program. Regarding the BBD 
standard, we are maintaining the volume requirement for 2019 at the 
same level as 2018. While this volume is an increase over the statutory 
minimum value of 1 billion gallons, the BBD standard is a nested 
standard within the advanced biofuel category, which we are 
significantly reducing from the statutory volume targets. As discussed 
in Section VI, we are setting the 2019 BBD volume requirement at a 
level below what is anticipated will be produced and used to satisfy 
the reduced advanced biofuel requirement. The net result of the 
standards being established in this action is a reduction in burden as 
compared to implementation of the statutory volume targets, as was 
assumed in the RFS2 final rule analysis.
    While the rule will not have a significant economic impact on a 
substantial number of small entities, there are compliance 
flexibilities in the program that can help to reduce impacts on small 
entities. These flexibilities include being able to comply through RIN 
trading rather than renewable fuel blending, 20 percent RIN rollover 
allowance (up to 20 percent of an obligated party's RVO can be met 
using previous-year RINs), and deficit carry-forward (the ability to 
carry over a deficit from a given year into the following year, 
providing that the deficit is satisfied together with the next year's 
RVO). In the RFS2 final rule, we discussed other potential small entity 
flexibilities that had been suggested by the SBREFA panel or through 
comments, but we did not adopt them, in part because we had serious 
concerns regarding our authority to do so.
    Additionally, as we realize that there may be cases in which a 
small entity may be in a difficult financial situation and the level of 
assistance afforded by the program flexibilities is insufficient. For 
such circumstances, the program provides hardship relief provisions for 
small entities (small refiners), as well as for small refineries.\170\ 
As required by the statute, the RFS regulations include a hardship 
relief provision (at 40 CFR 80.1441(e)(2)) that allows for a small 
refinery to petition for an extension of its small refinery exemption 
at any time based on a showing that compliance with the requirements of 
the RFS program would result in the refinery experiencing a 
``disproportionate economic hardship.'' EPA regulations

[[Page 58527]]

provide similar relief to small refiners that are not eligible for 
small refinery relief (see 40 CFR 80.1442(h)). EPA evaluates these 
petitions on a case-by-case basis and may approve such petitions if it 
finds that a disproportionate economic hardship exists. In evaluating 
such petitions, EPA consults with the U.S. Department of Energy, and 
takes the findings of DOE's 2011 Small Refinery Study and other 
economic factors into consideration. EPA successfully implemented these 
provisions by evaluating petitions for exemption from 14 small 
refineries for the 2016 RFS standards.\171\
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    \170\ See CAA section 211(o)(9)(B).
    \171\ EPA is currently evaluating 2 additional 2016 petitions, 
bringing the total number of petitions for 2016 to 16.
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    Given that this final rule would not impose additional requirements 
on small entities, would decrease burden via a reduction in required 
volumes as compared to statutory volume targets, would not change the 
compliance flexibilities currently offered to small entities under the 
RFS program (including the small refinery hardship provisions we 
continue to successfully implement), and available information shows 
that the impact on small entities from implementation of this rule 
would not be significant viewed either from the perspective of it being 
a standalone action or a part of the overall RFS program, we have 
therefore concluded that this action would have no net regulatory 
burden for directly regulated small entities.

E. Unfunded Mandates Reform Act (UMRA)

    This action does not contain an unfunded mandate of $100 million or 
more as described in UMRA, 2 U.S.C. 1531-1538, and does not 
significantly or uniquely affect small governments. This action 
implements mandates specifically and explicitly set forth in CAA 
section 211(o) and we believe that this action represents the least 
costly, most cost-effective approach to achieve the statutory 
requirements of the rule.

F. Executive Order 13132: Federalism

    This action does not have federalism implications. It will not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government.

G. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This action does not have tribal implications as specified in 
Executive Order 13175. This final rule will be implemented at the 
Federal level and affects transportation fuel refiners, blenders, 
marketers, distributors, importers, exporters, and renewable fuel 
producers and importers. Tribal governments would be affected only to 
the extent they produce, purchase, and use regulated fuels. Thus, 
Executive Order 13175 does not apply to this action.

H. Executive Order 13045: Protection of Children From Environmental 
Health Risks and Safety Risks

    The EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that concern environmental health or safety risks 
that the EPA has reason to believe may disproportionately affect 
children, per the definition of ``covered regulatory action'' in 
section 2-202 of the Executive Order. This action is not subject to 
Executive Order 13045 because it implements specific standards 
established by Congress in statutes (CAA section 211(o)) and does not 
concern an environmental health risk or safety risk.

I. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This action is not a ``significant energy action'' because it is 
not likely to have a significant adverse effect on the supply, 
distribution, or use of energy. This action establishes the required 
renewable fuel content of the transportation fuel supply for 2018, 
consistent with the CAA and waiver authorities provided therein. The 
RFS program and this rule are designed to achieve positive effects on 
the nation's transportation fuel supply, by increasing energy 
independence and lowering lifecycle GHG emissions of transportation 
fuel.

J. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

K. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    The EPA believes that this action does not have disproportionately 
high and adverse human health or environmental effects on minority 
populations, low-income populations, and/or indigenous peoples, as 
specified in Executive Order 12898 (59 FR 7629, February 16, 1994). 
This final rule does not affect the level of protection provided to 
human health or the environment by applicable air quality standards. 
This action does not relax the control measures on sources regulated by 
the RFS regulations and therefore will not cause emissions increases 
from these sources.

L. Congressional Review Act (CRA)

    This action is subject to the CRA, and the EPA will submit a rule 
report to each House of the Congress and to the Comptroller General of 
the United States. This action is a ``major rule'' as defined by 5 
U.S.C. 804(2).

XI. Statutory Authority

    Statutory authority for this action comes from section 211 of the 
Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural 
and compliance related aspects of this final rule comes from sections 
114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 
7601(a).

List of Subjects in 40 CFR Part 80

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Diesel fuel, Fuel additives, Gasoline, Imports, 
Oil imports, Petroleum, Renewable fuel.

    Dated: November 30, 2017.
E. Scott Pruitt,
Administrator.
    For the reasons set forth in the preamble, EPA amends 40 CFR part 
80 as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

0
1. The authority citation for part 80 continues to read as follows:

    Authority: 42 U.S.C. 7414, 7521, 7542, 7545, and 7601(a).

Subpart M--Renewable Fuel Standard

0
2. Section 80.1405 is amended by adding paragraph (a)(9) to read as 
follows:


Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) * * *
    (9) Renewable Fuel Standards for 2018.
    (i) The value of the cellulosic biofuel standard for 2018 shall be 
0.159 percent.
    (ii) The value of the biomass-based diesel standard for 2018 shall 
be 1.74 percent.
    (iii) The value of the advanced biofuel standard for 2018 shall be 
2.37 percent.
    (iv) The value of the renewable fuel standard for 2018 shall be 
10.67 percent.
* * * * *
[FR Doc. 2017-26426 Filed 12-11-17; 8:45 am]
BILLING CODE 6560-50-P