Renewable Fuel Standard Program: Standards for 2019 and Biomass-Based Diesel Volume for 2020, 32024-32060 [2018-14448]

Download as PDF 32024 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 80 [EPA–HQ–OAR–2018–0167; FRL–9980–37– OAR] RIN 2060–AT93 Renewable Fuel Standard Program: Standards for 2019 and BiomassBased Diesel Volume for 2020 Environmental Protection Agency (EPA). ACTION: Proposed rule. AGENCY: 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 proposes 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 2019. Relying on statutory waiver authority that is available when the projected cellulosic biofuel production volume is less than the applicable volume specified in the SUMMARY: Category Industry Industry Industry Industry Industry Industry Industry Industry 1 North NAICS 1 codes ............................. ............................. ............................. ............................. ............................. ............................. ............................. ............................. statute, EPA is proposing volume requirements for cellulosic biofuel, advanced biofuel, and total renewable fuel that are below the statutory volume targets. We are also proposing the applicable volume of biomass-based diesel for 2020. DATES: Comments. Comments must be received on or before August 17, 2018. Public Hearing. EPA will announce the public hearing date and location for this proposal in a supplemental Federal Register document. ADDRESSES: Submit your comments, identified by Docket ID No. EPA–HQ– OAR–2018–0167, at https:// www.regulations.gov. Follow the online instructions for submitting comments. Once submitted, comments cannot be edited or removed from Regulations.gov. The EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the SIC 2 codes 324110 325193 325199 424690 424710 424720 221210 454319 2911 2869 2869 5169 5171 5172 4925 5989 official comment and should include discussion of all points you wish to make. The EPA will generally not consider comments or comment contents located outside of the primary submission (i.e., on the web, cloud, or other file sharing system). For additional submission methods, the full EPA public comment policy, information about CBI or multimedia submissions, and general guidance on making effective comments, please visit https://www.epa.gov/dockets/ commenting-epa-dockets. 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: macallister.julia@epa.gov. SUPPLEMENTARY INFORMATION: Entities potentially affected by this proposed rule are those involved with the production, distribution, and sale of transportation fuels, including gasoline and diesel fuel or renewable fuels such as ethanol, biodiesel, renewable diesel, and biogas. Potentially affected categories include: Examples of potentially affected 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). amozie on DSK3GDR082PROD with PROPOSALS2 2 Standard This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this proposed action. This table lists the types of entities that EPA is now aware could potentially be affected by this proposed action. Other types of entities not listed in the table could also be affected. To determine whether your entity would be affected by this proposed action, you should carefully examine the applicability criteria in 40 CFR part 80. If you have any questions regarding the applicability of this proposed action to a particular entity, consult the person listed in the FOR FURTHER INFORMATION CONTACT section. Outline of This Preamble I. Executive Summary A. Summary of Major Provisions in This Action VerDate Sep<11>2014 20:34 Jul 09, 2018 Jkt 244001 1. Approach to Setting Volume Requirements 2. Cellulosic Biofuel 3. Advanced Biofuel 4. Total Renewable Fuel 5. 2020 Biomass-Based Diesel 6. Annual Percentage Standards B. RIN Market Operations C. EPA Response to Court Decision in Americans for Clean Energy v. EPA 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. Carryover RIN Bank Size 2. EPA’s Proposed Decision Regarding the Treatment of Carryover RINs III. Cellulosic Biofuel Volume for 2019 A. Statutory Requirements B. Cellulosic Biofuel Industry Assessment 1. Potential Domestic Producers PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 2. Potential Foreign Sources of Cellulosic Biofuel 3. Summary of Volume Projections for Individual Companies C. Cellulosic Biofuel Volume for 2019 1. Liquid Cellulosic Biofuel 2. CNG/LNG Derived From Biogas 3. Total Cellulosic Biofuel in 2019 IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019 A. Volumetric Limitation on Use of the Cellulosic Waiver Authority B. Attainable Volumes of Advanced Biofuel 1. Imported Sugarcane Ethanol 2. Other Advanced Biofuel 3. Biodiesel and Renewable Diesel C. Proposed Volume Requirement for Advanced Biofuel D. Proposed Volume Requirement for Total Renewable Fuel V. Impacts of 2019 Volumes on Costs A. Illustrative Costs Analysis of Exercising the Cellulosic Waiver Authority E:\FR\FM\10JYP2.SGM 10JYP2 32025 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules Compared to the 2019 Statutory Volumes Baseline B. Illustrative Costs Analysis of Exercising the Cellulosic Waiver Authority Compared to the 2018 RFS Volumes Baseline VI. Biomass-Based Diesel Volume for 2020 A. Statutory Requirements B. Determination of the 2020 Applicable Volume of Biomass-Based Diesel C. Consideration of Statutory Factors Set Forth in CAA Section 211(o)(2)(B)(ii)(I)– (VI) for 2020 VII. Percentage Standards for 2019 A. Calculation of Percentage Standards B. Small Refineries and Small Refiners C. Proposed Standards VIII. Public Participation A. How do I submit comments? B. How should I submit CBI to the Agency? IX. 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 X. 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] increase[ing] the production of clean renewable fuels.’’ 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 proposing the applicable volumes for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2019, and biomass-based diesel (BBD) for 2020.3 We are also proposing the annual percentage standards (also known as ‘‘percent standards’’) for cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel that would apply to all gasoline and diesel produced or imported in 2019.4 Today, nearly all gasoline used for transportation purposes contains 10 percent ethanol (E10), and on average diesel fuel contains nearly 5 percent biodiesel and/or renewable diesel.5 However, the market has fallen well short of the statutory volumes for cellulosic biofuel, resulting in shortfalls in the advanced biofuel and total renewable fuel volumes. In this action, we are proposing a volume requirement for cellulosic biofuel at the level we project to be available for 2019, along with an associated applicable percentage standard. For advanced biofuel and total renewable fuel, we are proposing reductions under the ‘‘cellulosic waiver authority’’ that would result in advanced biofuel and total renewable fuel volume requirements that are lower than the statutory targets by the same magnitude as the reduction in the cellulosic biofuel reduction. This would effectively maintain the implied statutory volumes for non-cellulosic advanced biofuel and conventional biofuel.6 The resulting proposed volume requirements for 2019 are shown in Table I–1 below. Relative to the levels finalized for 2018, the 2019 volume requirements for advanced biofuel and total renewable fuel would be higher by 590 million gallons. Approximately 90 million gallons of this increase would be due to the increase in the projected production of cellulosic biofuel in 2019 relative to 2018. We are also proposing to establish the volume requirement for BBD for 2020 at 2.43 billion gallons. This volume is 330 million gallons higher than the volume for 2019. TABLE I–1—PROPOSED VOLUME REQUIREMENTS a 2018 b Cellulosic biofuel (million gallons) .................................................................... Biomass-based diesel (billion gallons) ............................................................ Advanced biofuel (billion gallons) .................................................................... Renewable fuel (billion gallons) ....................................................................... 2019 Statutory volumes 288 2.1 4.29 19.29 8,500 ≥1.0 13.00 28.00 2019 Proposed volumes 381 c 2.1 4.88 19.88 2020 Proposed volumes n/a 2.43 n/a n/a a All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent. 2018 volume requirements for cellulosic biofuel, advanced biofuel, and renewable fuel were established in the 2018 final rule (82 FR 58486, December 12, 2017). The 2018 BBD volume requirement was established in the 2017 final rule (81 FR 89746, December 12, 2016). c The 2019 BBD volume requirement was established in the 2018 final rule (82 FR 58486, December 12, 2017). amozie on DSK3GDR082PROD with PROPOSALS2 b The 1 75 FR 14670, March 26, 2010. Law 110–140, 121 Stat. 1492 (2007). Hereinafter, ‘‘EISA.’’ 3 The 2019 BBD volume requirement was established in the 2018 final rule. 4 For a list of the statutory provisions for the determination of applicable volumes, see the 2018 final rule (82 FR 58486; Table I.A–2). 2 Public VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 5 Average biodiesel and/or renewable diesel blend percentages based on EIA’s April 2018 Short Term Energy Outlook (STEO). 6 The statutory total renewable fuel, advanced biofuel and cellulosic biofuel requirements for 2019 are 28.0, 13.0 and 8.5 billion gallons respectively. This implies a conventional renewable fuel applicable volume (the difference between the total PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 renewable fuel and advanced biofuel volumes, which can be satisfied by with conventional (D6) RINs) of 15.0 billion gallons, and a non-cellulosic advanced biofuel applicable volume (the difference between the advanced biofuel and cellulosic biofuel volumes, which can be satisfied with advanced (D5) RINs) of 4.5 billion gallons. E:\FR\FM\10JYP2.SGM 10JYP2 32026 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules A. Summary of Major Provisions in This Action This section briefly summarizes the major provisions of this final rule. We are proposing applicable volume requirements and associated percentage standards for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2019; for BBD we are proposing the percentage standard for 2019 and the applicable volume requirement for 2020. 1. Approach to Setting Volume Requirements For advanced biofuel and total renewable fuel, we are proposing reductions based on the ‘‘cellulosic waiver authority’’ that would result in advanced biofuel and total renewable fuel volume requirements that are lower than the statutory targets by the same magnitude as the reduction in the cellulosic biofuel applicable volume. This follows the same general approach as in the 2018 final rule. The proposed volumes for cellulosic biofuel, advanced biofuel, and total renewable fuel exceed the required volumes for these fuel types in 2018. 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 2019 cellulosic biofuel volume, based on a projection of production that reflects a neutral aim at accuracy. Section IV describes our assessment of advanced biofuel and total renewable fuel. Finally, Section VI provides our proposal regarding the 2020 BBD volume requirement, reflecting a proposed analysis of a set of factors stipulated in CAA section 211(o)(2)(B)(ii). amozie on DSK3GDR082PROD with PROPOSALS2 2. Cellulosic Biofuel 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 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 this rule we are proposing a cellulosic biofuel volume requirement of 381 million ethanolequivalent gallons for 2019 based on our production projection. Our projection reflects consideration of RIN generation data for past years and 2018 to date that is available to EPA through EMTS; the VerDate Sep<11>2014 20:34 Jul 09, 2018 Jkt 244001 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 2019 we used the same basic methodology described in the 2018 final 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. EPA anticipates that our final projection of cellulosic biofuel will be based on additional data we will obtain prior to issuing the final rule, including an estimate of cellulosic biofuel production for 2019 to be provided by the Energy Information Administration (EIA). 3. Advanced Biofuel 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.’’ The conditions that caused us to reduce the 2018 volume requirement for advanced biofuel below the statutory target remain relevant in 2019. As for 2018, we investigated the projected availability of non-cellulosic advanced biofuels in 2019. 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 uses to the production of advanced biofuel used in the U.S., the fact that the biodiesel tax credit is currently not available for 2019, the tariffs on imports of biodiesel from Argentina and Indonesia, as well as the cost of advanced biofuels. Based on these considerations we are proposing to reduce the statutory volume target for advanced biofuel by the same amount as we are reducing the statutory volume target for cellulosic biofuel. This would result in an advanced biofuel volume for 2019 of 4.88 billion gallons, which would be 590 million gallons higher than the advanced biofuel volume for 2018. PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 4. Total Renewable Fuel As for advanced biofuel, we are proposing the maximum reduction permissible under the cellulosic waiver authority. We are proposing that the reduction in total renewable fuel would be the same as the reduction in advanced biofuel, such that the resulting implied volume requirement for conventional renewable fuel would be 15 billion gallons. 5. 2020 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, provided 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.7 For 2016 and 2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons respectively. Finally, for 2018 and 2019 the BBD volume requirement was set a 2.1 billion gallons. We are proposing to increase the BBD volume for 2020 to 2.43 billion gallons. 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. While EPA continues to believe it is appropriate to maintain the opportunity for other advanced biofuels to compete for market share, the vast majority of the advanced biofuel obligations in recent years have been satisfied with BBD. Thus, after a review of the implementation of the program to date and considering the statutory factors, and in light of the 500 million gallon increase we are proposing for non-cellulosic advanced biofuels, we are proposing, in coordination with USDA and DOE, an applicable volume of BBD for 2020 of 2.43 billion gallons.8 7 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. 8 The proposed 330 million gallon increase for BBD would generate approximately 500 million RINs, due to the higher equivalence value of biodiesel (1.5 RINs/gallon) and renewable diesel (generally 1.7 RINs/gallon). E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules comments, we have held additional meetings with stakeholders on these topics, through which we have continued to hear various perspectives on RIN market operations and potential changes. A number of the comments received in response to the 2018 NPRM suggested increasing the amount of data related to the RIN market that EPA makes publicly available. For example, commenters urged EPA to consider increasing the frequency at which currently available information is posted. EPA is currently exploring the possibility of posting regular updates to the number of RINs we anticipate will be required for compliance. These updates could take into account several factors, such as updated information on gasoline and diesel consumption throughout the year, the impact of small refinery exemptions, and the volume of renewable fuel exported from the United States for which RINs were generated, and would thus need to be retired. EPA is also considering publicly posting average RIN prices based on the price information submitted to EPA through EMTS. Other information that may be of interest to the public could be aggregated information related to the number of RINs held by different categories of entities, such as renewable fuel producers, obligated parties, and TABLE I.B.6–1—PROPOSED 2019 parties that neither produce renewable PERCENTAGE STANDARDS fuel nor have an RVO under the RFS program. Finally, we are considering Proposed whether there may be value in percentage increasing the frequency of the release standards of data that is already posted publicly, Cellulosic biofuel ................... 0.209 such as information related to RIN Biomass-based diesel .......... 1.72 generation by D-code and fuel type. Advanced biofuel .................. 2.67 Stakeholders have also suggested Renewable fuel ..................... 10.88 ways EPA could amend the RFS regulations to change rules related to B. RIN Market Operations who may purchase RINs, the duration for which RINs could be held, and other In the rulemaking notice proposing rules related to the buying, selling, or the 2018 RFS volume requirements, EPA noted that various stakeholders had holding of RINs. The goal of such changes would be to minimize or raised concerns regarding lack of eliminate potential manipulation in the transparency and potential market. EPA is currently considering a manipulation in the RIN market. We handful of ideas, including: Prohibiting asked for comment from the public on parties other than obligated parties from those issues, and received multiple purchasing separated RINS; requiring suggestions from stakeholders in public disclosure if a party holds a response. Commenters suggested a certain percentage of the RIN market; number of potential steps EPA could and/or requiring obligated parties to take, including increasing the public retire RINs for compliance purposes on availability of data related to the RIN a more frequent basis (e.g., requiring market; establishing new regulations relating to the purchase, ownership, and monthly compliance). EPA requests comment on the expected impact that retirement of RINs; and increasing these specific potential regulatory coordination with sister federal changes could have on the RIN market, agencies. Since receiving those positively or negatively, as well as on any other potential regulatory changes 9 The final percentage standards will be based on commenters may recommend to address the most recent gasoline and diesel projected volumes provided by EIA. perceived vulnerabilities in the RIN amozie on DSK3GDR082PROD with PROPOSALS2 6. Annual Percentage Standards The renewable fuel standards are expressed as a volume percentage and are used by each refiner 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 proposed percentage standards was based on the April 2018 version of EIA’s Short-Term Energy Outlook.9 The proposed percentage standards for 2019 are shown in Table I.B.6–1. Detailed calculations can be found in Section VII, including the projected gasoline and diesel volumes used. VerDate Sep<11>2014 20:34 Jul 09, 2018 Jkt 244001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 32027 market. Today’s action is not proposing to make any such regulatory changes. Should EPA decide to move forward on any of these ideas, we would do so through a separate proposed rulemaking. That rulemaking would be informed by comments received in response to today’s notice. Finally, we note that multiple stakeholders have encouraged cooperation and coordination between EPA and other federal agencies that may play an oversight role in the RFS or broader fuels market, including the Commodity Futures Trading Commission and the Federal Trade Commission. EPA has engaged with both agencies on an ongoing basis and will continue to do so. C. EPA Response to Court Decision in Americans for Clean Energy v. EPA In the annual rule establishing the 2014–2016 renewable fuel standards, we determined that there would be an ‘‘inadequate domestic supply’’ of renewable fuel to consumers in 2016, and so exercised the general waiver authority to reduce the applicable volume of total renewable fuel to a level we believed could be supplied.10 In response to a petition for review of the 2014–2016 rule, the United States Court of Appeals for the District of Columbia Circuit ruled that EPA improperly focused on assessing the supply of renewable fuel to consumers, and that the statute instead requires a ‘‘supplyside’’ assessment of the volumes of renewable fuel that can be supplied to refiners, importers and blenders. The court vacated EPA’s decision to reduce the total renewable fuel volume requirements for 2016 using general waiver authority, and remanded the rule to EPA for further consideration in light of the decision. Americans for Clean Energy (‘‘ACE’’) v. EPA, 864 F.3d 691 (2017). EPA is currently considering a number of issues raised by the need to respond to the court’s remand in a separate process from this annual rulemaking. EPA is not requesting comment on this rulemaking process at this time and any comments on this issue will be treated as outside of the scope of this rulemaking. EPA understands that there is a compelling need to respond to the remand and intends to expeditiously move ahead with a separate rule to resolve this matter. 10 See E:\FR\FM\10JYP2.SGM 80 FR 77420 (December 14, 2015). 10JYP2 32028 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 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. As described in the executive summary, we are proposing a single volume requirement for cellulosic biofuel at the level we project to be available for 2019, and an associated applicable percentage standard. For advanced biofuel and total renewable fuel, we are proposing volume requirements and associated applicable percent standards, based on use of the ‘‘cellulosic waiver authority’’ that would result in advanced biofuel and total renewable fuel volume requirements that are lower than the statutory targets by the same magnitude as the reduction in the cellulosic biofuel reduction. This would effectively maintain the implied statutory volumes for non-cellulosic advanced biofuel and conventional biofuel.11 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). amozie on DSK3GDR082PROD with PROPOSALS2 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, then EPA must reduce the applicable volume of cellulosic biofuel required to the projected production volume for that calendar year. In making 11 The statutory total renewable fuel, advanced biofuel and cellulosic biofuel requirements for 2019 are 28.0, 13.0, and 8.5 billion gallons, respectively. This implies a conventional renewable fuel applicable volume (the difference between the total renewable fuel and advanced biofuel volumes, which can be satisfied by with conventional (D6) RINs) and a non-cellulosic advanced biofuel applicable volume (the difference between the advanced biofuel and cellulosic biofuel volumes, which can be satisfied with advanced (D5) RINs) of 15.0 and 4.5 billion gallons, respectively. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 this projection, EPA may not ‘‘adopt a methodology in which the risk of overestimation is set deliberately to outweigh the risk of underestimation’’ but must make a projection that ‘‘takes neutral aim at accuracy.’’ API v. EPA, 706 F.3d 474, 479, 476 (D.C. Cir. 2013). Pursuant to this provision, EPA has set the cellulosic biofuel requirement lower than the statutory volume for each year since 2010. As described in Section III.D, the projected volume of cellulosic biofuel production for 2019 is less than the 8.5 billion gallon volume target in the statute. Therefore, for 2019, we are proposing to set 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 2019, we are also proposing to reduce the applicable volumes of advanced biofuel and total renewable fuel under this authority. EPA has used the cellulosic waiver authority to lower the cellulosic biofuel, advanced biofuel and total renewable fuel volumes every year since 2014. Further discussion of the cellulosic waiver authority, and EPA’s interpretation of it, can be found in the preamble to the 2017 final rule.12 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); 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 advanced biofuel volume to a level that was reasonably attainable, and then provided a comparable reduction under this authority for total renewable fuel.13 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 PO 00000 a variety of factors—including demandside constraints in the advanced biofuels market.’’ 14 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.15 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.16 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.17 In this action we are proposing to use the cellulosic waiver authority to reduce the statutory volume targets for advanced biofuels and total renewable fuel by equal amounts, consistent with our long-held interpretation of this provision and our approach in setting the 2014–2018 standards. This approach considers the Congressional objectives reflected in the volume tables in the statute, and the environmental objectives that generally favor the use of advanced biofuels over non-advanced biofuels. See 81 FR 89752–89753 (December 12, 2016). See also 78 FR 49809–49810 (August 15, 2013); 80 FR 77434 (December 14, 2015). We are proposing, as described in Section IV, that the applicable volume for advanced biofuels specified in the statute for 2019 is not attainable, and thus to exercise our cellulosic waiver authority to lower the applicable volume of advanced biofuel by the same quantity as the reduction in cellulosic biofuel, and to provide an equal reduction under the cellulosic waiver authority in the applicable volume of total renewable fuel. The 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 the implied statutory volume for 2019. 14 ACE, 15 Id. 12 See 13 See 81 FR 89752–89753 (December 12, 2016). 80 FR 77433–34 (December 14, 2015). Frm 00006 Fmt 4701 Sfmt 4702 864 F.3d at 730. at 733. 16 Id. 17 Id. E:\FR\FM\10JYP2.SGM at 734. 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 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 economy or the environment of a State, a region, or the United States; or (2) there is an inadequate domestic supply. At this time, we do not believe that the circumstances exist that would justify a waiver of volumes under the general waiver authority. As discussed further in Section IV.C below, EPA is soliciting comment on whether further reductions under the general waiver authority could be justified. amozie on DSK3GDR082PROD with PROPOSALS2 B. Treatment of Carryover RINs Consistent with our approach in the final rules establishing the RFS standards for 2013 through 2018, we have also considered the availability and role of carryover RINs in evaluating whether we should exercise our discretion to use our waiver authorities in setting the cellulosic, advanced, and total volume requirements for 2019. Neither the statute nor EPA regulations specify how or whether EPA should consider the availability of carryover RINs in exercising the cellulosic waiver authority.18 As noted in the context of the rules establishing the RFS standards for 2014 through 2018, we believe that a bank of carryover RINs is extremely important in providing obligated parties 18 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 percent 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 2019. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 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.19 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.20 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.21 EPA’s approach to the consideration of carryover RINs in exercising our cellulosic waiver authority was affirmed in Monroe Energy and ACE.22 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. Moreover, 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 19 See 80 FR 77482–87 (December 14, 2015), 81 FR 89754–55 (December 12, 2016), and 82 FR 58493–95 (December 12, 2017). 20 See 72 FR 23900 (May 1, 2007), 80 FR 77482– 87 (December 14, 2015), 81 FR 89754–55 (December 12, 2016), and 82 FR 58493–95 (December 12, 2017). 21 See 79 FR 49793–95 (August 15, 2013). 22 Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE at 713. PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 32029 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.23 1. Carryover RIN Bank Size At the time of the 2018 standards final rule, we estimated that there were approximately 2.22 billion total carryover RINs available and decided that carryover RINs should not be counted on to avoid or minimize the need to reduce the 2018 statutory volume targets.24 We also stated that we may or may not take a similar approach in future years, and that we would evaluate the issue on a case-by-case basis considering the facts in future years. Since that time, obligated parties have submitted their compliance demonstrations for the 2017 compliance year and we now estimate that there are currently approximately 3.06 billion total carryover RINs available, an increase of 840 million RINs from the previous estimate of 2.22 billion total carryover RINs in the 2018 final rule.25 This increase in the total carryover RIN bank compared to that projected in the 2018 final rule results from various factors, including market factors, regulatory and enforcement actions, and judicial proceedings. They include the approximately 1,460 million RINs that were not required to be retired by small refineries that were granted hardship exemptions for 2017 and approximately 790 million RINs that were not required to be retired by small refineries that were granted hardship exemptions for 2016, along with the RINs that Philadelphia Energy Solutions Refining and Marketing, LLC (‘‘PESRM’’) was not required to retire as part of its bankruptcy settlement agreement.26 23 Here we use the term ‘‘buffer’’ as shorthand reference to all of the benefits that are provided by a sufficient bank of carryover RINs. 24 See 82 FR 58494 (December 12, 2017). 25 The calculations performed to estimate the number of carryover RINs currently available can be found in the memorandum, ‘‘Carryover RIN Bank Calculations for 2019 NPRM,’’ available in the docket. 26 Per PESRM’s bankruptcy filings, PESRM had an RVO of 467 million RINs for 2017 (including its deficit carryforward from 2016). Pursuant to the settlement agreement, which was based on the unique facts and circumstances present in this case, including the insolvency and risk of liquidation, PESRM agreed to retire 138 million RINs to meet its 2017 RVO and the portion of its 2018 RVO during the bankruptcy proceedings (approximately 97 million RINs). See docket for PES Holdings, LLC, 1:18bk10122, ECF Document Nos. 244 (proposed settlement agreement), 347 (United States’ motion E:\FR\FM\10JYP2.SGM Continued 10JYP2 32030 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules While EPA cannot predict how obligated parties will comply in 2018 or the amount of additional small refinery hardship exemptions that may be granted in the future, the 2016 and 2017 exemptions have directly increased the number of carryover RINs that will likely be available for compliance with the 2019 standards. This total volume of carryover RINs is approximately 15 percent of the total renewable fuel volume requirement that EPA is proposing for 2019, which is less than the 20 percent maximum limit permitted by the regulations to be carried over for use in complying with the 2019 standards.27 The above discussion applies to total carryover RINs; we have also considered the available volume of advanced biofuel carryover RINs. At the time of the 2018 final rule, we estimated that there were approximately 810 million advanced carryover RINs available.28 Since that time, obligated parties have submitted their compliance demonstrations for the 2017 compliance year and we now estimate that there are currently approximately 640 million advanced carryover RINs available, a decrease of 170 million RINs from the previous estimate in the 2018 final rule.29 This volume of advanced carryover RINs is approximately 14 percent of the advanced renewable fuel volume requirement that EPA is proposing for 2019, which is less than the 20 percent maximum limit permitted by the regulations to be carried over for use in complying with the 2019 standards.30 amozie on DSK3GDR082PROD with PROPOSALS2 to approve proposed settlement agreement), and 376 (order approving proposed settlement agreement), (Bankr. D. Del.). 27 See 40 CFR 80.1427(a)(5). 28 See ‘‘Carryover RIN Bank Calculations for 2018 Final Rule,’’ Docket Item No. EPA–HQ–OAR–2017– 0091–4989. 29 The calculations performed to estimate the number of carryover RINs currently available can be found in the memorandum, ‘‘Carryover RIN Bank Calculations for 2019 NPRM,’’ available in the docket. 30 See 40 CFR 80.1427(a)(5). VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 However, there remains considerable uncertainty surrounding these estimates for a number of reasons, including the potential impact of any future action to address the remand in ACE, the possibility of additional small refinery exemptions, and the impact of 2018 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 2019. In light of these uncertainties, the net result could be a bank of total carryover RINs larger or smaller than 15 percent of the proposed 2019 total renewable fuel volume requirement, and a bank of advanced carryover RINs larger or smaller than 14 percent of the proposed 2019 advanced biofuel volume requirement. 2. EPA’s Proposed Decision Regarding the Treatment of Carryover RINs We have evaluated the volume of carryover RINs currently available and considered whether it would justify a reduced use of our cellulosic waiver authority in setting the 2019 volume requirements in order to intentionally draw down the carryover RIN bank. For the reasons described above and in Section IV, we do not believe this to be the case. The current bank of carryover RINs provides an important and necessary programmatic buffer that will both facilitate individual compliance and provide for smooth overall functioning of the program. We believe that a balanced consideration of the PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 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. Therefore, for the reasons noted above and consistent with the approach we took in the final rules establishing the RFS standards for 2014 through 2018, we are not proposing to set the 2019 volume requirements at levels that would envision an intentional drawdown in the bank of carryover RINs. III. Cellulosic Biofuel Volume for 2019 In the past several years, production of cellulosic biofuel has continued to increase. Cellulosic biofuel production reached record levels in 2017, driven largely by CNG and LNG derived from biogas. Production volumes have continued to increase in 2018.31 Production of liquid cellulosic biofuel has also increased in recent years, even as the total production of liquid cellulosic biofuels remains much smaller than the production volumes of CNG and LNG derived from biogas. 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. 31 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. E:\FR\FM\10JYP2.SGM 10JYP2 In order to project the volume of cellulosic biofuel production in 2019, we considered the accuracy of the methodologies used to project cellulosic biofuel production in previous years, 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 2019. Our projection of cellulosic biofuel in the final rule will also reflect Energy Information Administration’s (EIA) projection of cellulosic biofuel production, comments received on the 2019 NPRM, and updated data on cellulosic biofuel production in 2018 and projections for 2019. There are two main elements to the cellulosic biofuel production projection. To project the range of potential production volumes of liquid cellulosic biofuel we used the same methodology as the methodology used in the 2018 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 updated information (through the end of 2017) 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 same year-over-year growth rate methodology as in the 2018 final rule. This methodology reflects the mature status of this industry, the large VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 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 and previous years. 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.C–1 and III.C–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 methodologies used by EPA to project cellulosic biofuel production in 2019 and the resulting projection of 381 million ethanol-equivalent gallons. A. Statutory Requirements CAA section 211(o)(2)(B)(i)(III) states the statutory volume targets for cellulosic biofuel. The volume of cellulosic biofuel specified in the statute for 2019 is 8.5 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 PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 32031 projected volume available during that calendar year.32 In addition, if EPA reduces the required volume of cellulosic biofuel below the level specified in the statute, we may reduce the applicable volumes of advanced biofuels and total renewable fuel by the same or a lesser volume,33 and we are also required to make cellulosic waiver credits available.34 Our consideration of the 2019 volume requirements for advanced biofuel and total renewable fuel is presented in Section IV. B. Cellulosic Biofuel Industry Assessment In order to project liquid cellulosic biofuel production for 2019 we have tracked the progress of a number of potential cellulosic biofuel production facilities, located both in the U.S. and in foreign countries. 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 32 CAA section 211(o)(7)(D)(i). 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.’’ Id. at 480, 479. 33 CAA section 211(o)(7)(D)(i). 34 See CAA section 211(o)(7)(D)(ii); 40 CFR 80.1456. E:\FR\FM\10JYP2.SGM 10JYP2 EP10JY18.002</GPH> amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 32032 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules generate RINs for the fuel they produce and the volumes they produce will have a far greater impact on the cellulosic biofuel standard for 2019. The volume of cellulosic biofuel produced from R&D and pilot-scale facilities is 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.35 We have therefore not considered production from R&D and pilot-scale facilities in our projection of cellulosic biofuel production for 2019. From this list of commercial-scale facilities capable of producing liquid cellulosic biofuel, we used information from EMTS, the registration status of potential biofuel production facilities as cellulosic biofuel producers in the RFS program, publicly available information (including press releases and news reports), 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 2019. 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 2019. 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 accuracy of EPA’s past cellulosic biofuel projections. EPA used a consistent methodology to project cellulosic biofuel production in the final three months of 2015 and all of 2016 35 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 March 2018 has been less than 150,000 RINs. This is approximately 0.6 percent of all liquid cellulosic biofuel production through March 2018. See ‘‘D3 RIN generation by Company Through March 2018—CBI.’’ VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 and 2017.36 The record of actual production indicates that EPA’s projection was lower than the actual number of cellulosic RINs made available in 2015,37 and higher than the actual number of RINs made available in 2016 and 2017.38 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 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 order to make our projections more accurate. EPA’s projections of liquid cellulosic biofuel were higher than the actual volume of liquid cellulosic biofuel produced in 2015–2017. As a result of these over-projections, and in an effort to take into account the most recent data available and make the liquid cellulosic biofuel projections more accurate, EPA adjusted our methodology in the 2018 final rule.39 In this 2019 proposed rule we are once again using adjusted percentile values to project liquid cellulosic biofuel production based on actual liquid cellulosic biofuel production in 2016 and 2017. Use of this updated data also results in different percentile values than we used to project production of liquid cellulosic biofuel for 2018. We believe that the use of the methodology (described in Section III.C.1 below), with the adjusted 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. At this time, we do not have sufficient data to assess the accuracy of this methodology to project cellulosic biofuel production for 2018, however we anticipate that for the final rule we will assess the accuracy of this methodology in projecting liquid cellulosic biofuel in 36 This methodology is most recently described in the 2017 final rule. See 81 FR 89746, 89755 (December 12, 2016). 37 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. 38 EPA projected that 123 million, 230 million cellulosic, and 311 million RINs would be generated in 2015, 2016, and 2017 respectively. The number of available cellulosic RINs in these years (RINs generated minus RINs retired for noncompliance reasons) was 140 million, 190 million, and 250 million RINs. All numbers are derived from EMTS data. 39 82 FR 58486 (December 12, 2017). PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 2018 and will make adjustments where appropriate. We next turn to the projection of CNG/LNG derived from biogas. For 2018, EPA used for the first time 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 facilityby-facility analysis difficult and unnecessary for purposes of accuracy. As described in Section III.C.2 below, EPA is again proposing to project production of CNG/LNG derived from biogas by 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 April 2016–March 2017 to the RIN generation for these same fuels from April 2017–March 2018 (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 2017 (the most recent year for which complete data are available), to estimate the production of CNG/LNG derived from biogas in 2019. The remainder of this section describes in more detail the methodology EPA is using to project cellulosic biofuel production in 2019 (including a review of cellulosic biofuel production and the accuracy of the projection methodology in previous years). 1. Potential Domestic Producers There are several companies and facilities 40 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 at some time during 2019. The financial incentive provided by cellulosic biofuel RINs,41 combined with the fact that to date nearly all cellulosic biofuel 40 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. 41 According to data from Argus Media, the price for 2017 cellulosic biofuel RINs averaged $2.78 in 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 $0.99 in 2017 while the price for a 2017 cellulosic waiver credit is $2.00 (EPA–420–B–17–036). E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules produced in the U.S. has been used domestically 42 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 have successfully generated RINs.43 A brief description of each of the domestic companies (or group of companies for cellulosic CNG/LNG producers) that EPA believes may produce commercialscale volumes of RIN generating cellulosic biofuel by the end of 2019 can be found in a memorandum to the docket for this final rule.44 General information on each of these companies or group of companies considered in our projection of the potentially available volume of cellulosic biofuel in 2019 is summarized in Table III.B.3–1 below. 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 2019. These include facilities owned and operated by Beta Renewables, Enerkem, Ensyn, GranBio, and Raizen. All of these facilities use fuel production pathways amozie on DSK3GDR082PROD with PROPOSALS2 42 The only known exception was a small volume of fuel produced at a demonstration scale facility exported to be used for promotional purposes. 43 Most 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 and Ensyn’s PortCartier, Quebec facility. 44 ‘‘Cellulosic Biofuel Producer Company Descriptions (May 2018),’’ memorandum from Dallas Burkholder to EPA Docket EPA–HQ–OAR– 2018–0167. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 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. In addition to projecting the domestic production of cellulosic biofuel, EPA also projects the volume of cellulosic biofuel that will be imported into the U.S.45 For the purposes of this final rule we have considered all the registered foreign facilities under the RFS program to be potential sources of cellulosic biofuel in 2019. 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 2019. For purposes of our 2019 cellulosic biofuel projection we have, with one exception (described below), excluded potential volumes from foreign cellulosic biofuel production facilities that are not currently registered under the RFS program. Cellulosic biofuel produced at three foreign facilities (Ensyn’s Renfrew 45 EPA has consistently interpreted the term ‘‘projected volume of cellulosic biofuel production’’ in CAA section 211(o)(7)(D)(i) to include volumes of cellulosic biofuel likely to be made available in the U.S., 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 U.S., 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 00011 Fmt 4701 Sfmt 4702 32033 facility, GranBio’s Brazilian facility, and Raizen’s Brazilian facility) 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 2019. EPA has also included projected volume from two additional foreign facilities. One of these facilities has completed the registration process as a cellulosic biofuel producer (Enerkem’s Canadian facility). The other facility (Ensyn’s Port-Cartier, Quebec facility), while not yet registered as a cellulosic biofuel producer, is owned by a Ensyn, a company that has previously generated cellulosic biofuel RINs using the same technology at a different facility. 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. All of the facilities included in EPA’s cellulosic biofuel projection for 2019 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 2019 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 2019. 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.46 46 ‘‘Cellulosic Biofuel Producer Company Descriptions (May 2018),’’ memorandum from Dallas Burkholder to EPA Docket EPA–HQ–OAR– 2018–0167. E:\FR\FM\10JYP2.SGM 10JYP2 32034 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules TABLE III.B.3–1—PROJECTED PRODUCERS OF CELLULOSIC BIOFUEL IN 2019 Company name Location Feedstock Fuel Facility capacity (million gallons per year) 47 Construction start date First production 48 CNG/LNG Producers 49 ......... Edeniq ................................... Enerkem ................................ Ensyn ..................................... Ensyn ..................................... Envia Energy ......................... GranBio ................................. Various .................................. Various .................................. Edmonton, AL, Canada ......... Renfrew, ON, Canada ........... Port-Cartier, QC, Canada ..... Oklahoma City, OK ............... ˜ Sao Miguel dos Campos, Brazil. Emmetsburg, IA .................... Galva, IA ............................... Piracicaba City, Brazil ........... Biogas ................................... Corn Kernel Fiber .................. Separated MSW .................... Wood Waste .......................... Wood Waste .......................... Biogas ................................... Sugarcane bagasse .............. CNG/LNG ..... Ethanol ......... Ethanol ......... Heating Oil .... Heating Oil .... Diesel ............ Ethanol ......... Various ......... Various ......... 10 50 .............. 3 .................... 10.5 ............... 2 .................... 21 .................. Various ......... Various ......... 2012 .............. 2005 .............. June 2016 ..... May 2015 ...... Mid 2012 ....... August 2014. October 2016. September 2017.51 2014. January 2018. February 2017. September 2014. Corn Stover ........................... Corn Kernel Fiber .................. Sugarcane bagasse .............. Ethanol ......... Ethanol ......... Ethanol ......... 20 .................. 4 .................... 11 .................. March 2012 .. Late 2013 ..... January 2014 4Q 2015. October 2014. July 2015. Poet-DSM .............................. QCCP .................................... Raizen ................................... 1. Liquid Cellulosic Biofuel For our 2019 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 2019 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 2019 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 companies in 2019. As in 2018, we are proposing to calculate percentile values for each group of companies based on the past performance of each group relative to our projected production ranges. This methodology is briefly described here, and is described in detail in memoranda to the docket.52 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 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 (April 2017–March 2018).53 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, facility capacity, and the number of RINs the producer expects to generate in 2019.54 The projected range for the groups of companies considered in our 2019 cellulosic biofuel projection are shown in Tables III.C.1–1 and III.C.1–2 below.55 47 The Facility Capacity is generally equal to the nameplate capacity provided to EPA by company representatives or found in publicly available information. Capacities are listed in physical gallons (rather than ethanol-equivalent gallons). 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). 48 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. 49 For more information on these facilities see ‘‘May 2018 Assessment of Cellulosic Biofuel Production from Biogas (2019),’’ memorandum from Dallas Burkholder to EPA Docket EPA–HQ–OAR– 2018–0167. 50 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 (See ‘‘May 2018 Liquid Cellulosic Biofuel Projections for 2018 CBI’’). 51 This date reflects the first production of ethanol from this facility. The facility began production of methanol in 2015. 52 ‘‘May 2018 Liquid Cellulosic Biofuel Projections for 2018 CBI’’ and ‘‘Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel Production for the 2019 NPRM,’’ memorandums from Dallas Burkholder to EPA Docket EPA–HQ–OAR–2018–0167. 53 Consistent with previous years, we have considered whether there is reason to believe any of the facilities considered as potential cellulosic biofuel producers for 2019 is likely to produce a smaller volume of cellulosic biofuel in 2019 than in the previous 12 months for which data are available. At this time, EPA is not aware of any information that would indicate lower production in 2019 from any facility considered than in the previous 12 months for which data are available. 54 As in our 2015–2018 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 2019, whichever is lower. 55 More information on the data and methods EPA used to calculate each of the ranges in these tables in contained in ‘‘May 2018 Liquid Cellulosic Biofuel Projections for 2018 CBI’’ memorandum from Dallas Burkholder to EPA Docket EPA–HQ– OAR–2018–0167. 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, ‘‘May 2018 Liquid Cellulosic Biofuel Projections for 2018 CBI’’. amozie on DSK3GDR082PROD with PROPOSALS2 C. Cellulosic Biofuel Volume for 2019 VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 E:\FR\FM\10JYP2.SGM 10JYP2 32035 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules TABLE III.C.1–1—2019 PRODUCTION RANGES FOR LIQUID CELLULOSIC BIOFUEL PRODUCERS WITHOUT CONSISTENT COMMERCIAL SCALE PRODUCTION [Million ethanol-equivalent gallons] Companies included Low end of the range High end of the range a Enerkem, Ensyn (Port Cartier facility), Envia Energy ............................................................................................. 0 18 a Rounded to the nearest million gallons. TABLE III.C.1–2—2019 PRODUCTION RANGES FOR LIQUID CELLULOSIC BIOFUEL PRODUCERS WITH CONSISTENT COMMERCIAL SCALE PRODUCTION [Million ethanol-equivalent gallons] Companies included Low end of the range a High end of the range b Facilities using Edeniq’s technology (registered facilities), Ensyn (Renfrew facility), Poet-DSM, GranBio, Quad County Corn Processors, Raizen ........................................................................................................................ 15 56 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 this proposed rule we have calculated the percentile values used to project liquid cellulosic biofuel production from within the range of projected production values, using data on actual liquid cellulosic biofuel production from both 2016 and 2017. This is consistent with the approach taken in the 2018 final rule, however we now have complete data from 2017, rather than only data through September 2017. For the final rule we anticipate using available production data from 2018 to make further adjustments to the percentile values used to project liquid cellulosic biofuel production for 2019. The projected ranges for liquid cellulosic biofuel production in 2016 and 2017, along with the actual number of cellulosic RINs generated in each year that are/were 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.C.1–3 below. TABLE III.C.1–3—PROJECTED AND ACTUAL LIQUID CELLULOSIC BIOFUEL PRODUCTION IN 2016 AND 2017 [Million gallons] Low end of the range l New Facilities: 57 2016 .......................................................................................................... 2017 .......................................................................................................... Average a .................................................................................................. Consistent Producers 58 2016 .......................................................................................................... 2017 .......................................................................................................... Average a .......................................................................................................... High end of the range Actual production 56 Actual percentile 0 0 N/A 76 33 N/A 1.06 8.79 N/A 1st 27th 14th 2 3.5 N/A 5 7 N/A 3.28 3.02 N/A 43rd ¥14th 15th a We have not averaged the low and high ends of the ranges, or actual production, as we believe it is more appropriate to average the actual percentiles from 2016 and 2017 rather than calculating a percentile value for 2016 and 2017 in aggregate. This approach gives equal weight to the accuracy of our projections from 2016 and 2017, rather than allowing the average percentiles calculated to be dominated by years with greater projected volumes. amozie on DSK3GDR082PROD with PROPOSALS2 For this proposed rule EPA has projected cellulosic biofuel production from facilities that have not yet achieved consistent commercial scale 56 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. 57 Companies characterized as new producers in the 2014–2016 and 2017 final rules were as follows: Abengoa (2016), CoolPlanet (2016), DuPont (2016, 2017), Edeniq (2016, 2017), GranBio (2016, 2017), IneosBio (2016), and Poet (2016, 2017). 58 Companies characterized as consistent producers in the 2014–2016 and 2017 final rules were as follows: Ensyn (2016 and 2017) and Quad County Corn Processors (2016 and 2017). VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 production at the 14th percentile of the calculated range and projected cellulosic biofuel production from facilities that have achieved commercial scale production at the 15th percentile.59 These percentiles are 59 In the 2018 final rule EPA used the 10th and 12th percentile for new facilities and consistent producers respectively. The slightly higher percentile values used to project liquid cellulosic biofuel production in 2019 reflect additional production data from the fourth quarter of 2017 that was not available at the time the analyses were completed for the 2018 final rule. For more detail on the calculation of the percentile values used in this proposed rule see ‘‘Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 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. 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 2019 we have decided to weight the observed actual percentile values from 2016 and 2017 equally. While the Production for the 2019 NPRM,’’ available in EPA docket EPA–HQ–OAR–2018–0167. E:\FR\FM\10JYP2.SGM 10JYP2 32036 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules percentile value from 2017 represents the most recent data available, it is also dependent on the performance of a relatively small number of companies in a single year. Using data from multiple years is likely more representative of the future performance of these groups of companies than data from any single year. For the final rule we anticipate using available production data from 2018 (likely January–September), along with updated production projections for months in which data is not available (likely October–December) to make further adjustments to the percentile values used to project liquid cellulosic biofuel production for 2019. We propose using production volumes for months for which data is not available (likely October–December 2018) in a similar manner to the way we projected production volumes for months in which data were not available in the 2018 final rule (based on available historical data along with seasonal production trends; see ‘‘Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel Production for 2018, EPA–HQ–OAR–2017–0091). We request comment on this projection methodology, as well as the appropriateness of using data from 2018 to adjust the percentile values used to projection liquid cellulosic biofuel production for 2019. We believe that adjusting the percentile values used 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.’’ We request comment on the data that should be used to calculate the percentile values used to project liquid cellulosic biofuel production in 2019 (e.g. whether we should use data from 2016–2018, or just a sub-set of this data) and how to weight data from each of these years.60 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 2019. These calculations are summarized in Table III.C.1–4 below. TABLE III.C.1–4—PROJECTED VOLUME OF LIQUID CELLULOSIC BIOFUEL IN 2019 [Million ethanol-equivalent gallons] Low end of the range a High end of the range a Percentile Projected volume a Liquid Cellulosic Biofuel Producers; Producers without Consistent Commercial Scale Production ................................................................................... Liquid Cellulosic Biofuel Producers; Producers with Consistent Commercial Scale Production .......................................................................................... 0 18 14th 3 15 56 15th 21 Total .......................................................................................................... N/A N/A N/A 24 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 (such as the factors used to calculate the high or low end of the projected range for each company), but we do not believe that such changes are warranted at this time. 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 2019 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 2019 (24 million gallons). 2. CNG/LNG Derived From Biogas For 2019, EPA is using the same methodology as in the 2018 final rule, an industry wide projected based on a year-over-year growth rate, to project production of CNG/LNG derived from biogas used as transportation fuel.61 For this proposed rule, EPA has calculated the year-over-year growth rate in CNG/ LNG derived from biogas by comparing RIN generation from April 2017–March 2018 (the most recent 12 months for which data are available) to RIN generation in the 12 months that immediately precede this time period (April 2016–March 2017). These RIN generation volumes are shown in Table III.C.2–1 below. TABLE III.C.2–1—GENERATION OF CELLULOSIC BIOFUEL RINS FOR CNG/LNG DERIVED FROM BIOGAS [Million gallons] 62 RIN Generation (April 2017–March 2018) Year-Over-Year Increase 189 amozie on DSK3GDR082PROD with PROPOSALS2 RIN Generation (April 2016–March 2017) 247 30.5% 60 For example, rather than weighting the percentiles that would have resulted in the actual production volumes in 2016 and 2017 equally, EPA could first aggregate the projected ranges for companies with and without consistent commercial scale production for 2016 and 2017 (5.5 million–12 million and 0–109 million respectively) and then use the combined production volumes for 2016 and VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 2017 for each group (6.3 million and 9.8 million respectively) to calculate percentile values for each group of companies for 2019. This would result in slightly different percentile values (12th percentile for companies with consistent production and the 9th percentile for companies without consistent production). PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 61 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. E:\FR\FM\10JYP2.SGM 10JYP2 32037 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules EPA then applied this 30.5 percent year-over-year growth rate to the total number of 2018 cellulosic RINs projected to be generated for CNG/LNG in the 2018 final rule. This methodology results in a projection of 358 million gallons of CNG/LNG derived from biogas in 2019.63 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. This methodology may not be appropriate to use as the projected volume of CNG/ LNG derived from biogas approaches the total volume of CNG/LNG that is used as transportation fuel, as RINs can be generated only for CNG/LNG used as transportation fuel. We do not believe that this is yet a constraint, however, as our projection for 2019 is well below the total volume of CNG/LNG that is currently used as transportation fuel.64 We request comment on estimates of the volume of CNG/LNG likely to be used as transportation fuel in 2019, as well as the ability of the CNG/LNG market to provide the documentation necessary to verify the use of this fuel as transportation fuel. EPA has also reviewed data submitted by potential producers of CNG/LNG derived from biogas that is used as transportation fuel. The total volume of CNG/LNG derived from biogas projected to be produced in 2019 by the potential producers of these fuels exceeds the volume that EPA is projecting for 2019. Since producers of CNG/LNG derived from biogas have historically overestimated their production of these fuels, it would not be appropriate to simply adopt this projection for 2019. The fact that the industry projections exceed EPA’s projected volume, however, indicates that the volume of these fuels projected for 2019 can be satisfied by a combination of projects currently producing CNG/LNG derived from biogas for these purposes and projects expected to product biogas by the end of 2019. We believe 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 satisfies our charge to project future cellulosic biofuel production in a reasonable manner, and with neutrality, despite the fact that it does not consider all potential producers of these fuels on a facility-byfacility basis. For the final rule we anticipate using all available data from 2018 to update both the year-over-year increase as well as the projected production volume of cellulosic biofuel for 2018 to which we apply the yearover-year increase to project the production of CNG/LNG derived from biogas in 2019. 3. Total Cellulosic Biofuel in 2019 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 2019. These projections are shown in Table III.C.3–1. Using the methodologies described in this section, we project that 381 million ethanolequivalent gallons of cellulosic biofuel will be produced in 2019. We believe that projecting overall production in 2019 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 2019. TABLE III.C.3–1—PROJECTED VOLUME OF CELLULOSIC BIOFUEL IN 2019 [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 ........................................................ CNG/LNG Derived from Biogas .......................................................................................................................................................... 3 21 358 Total .............................................................................................................................................................................................. b 381 a Volumes b Total rounded to the nearest million gallons. projection of cellulosic biofuel appears less than the sum of the projected volume for each group of companies due to rounding amozie on DSK3GDR082PROD with PROPOSALS2 Further discussion of the individual companies we believe will produce cellulosic biofuel and make it commercially available in 2019 can be found in a memorandum to the docket.65 We request comment on this projection of cellulosic biofuel production for 2019, including the various aspects of the methodology used to project production of both liquid cellulosic biofuels and CNG/LNG derived from biogas. IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019 62 Further detail on the data used to calculate each of these numbers in this table, as well as the projected volume of CNG/LNG derived from biogas used as transportation fuel in 2019 can be found in ‘‘May 2018 Assessment of Cellulosic Biofuel Production from Biogas (2019)’’ memorandum from Dallas Burkholder to EPA Docket EPA–HQ–OAR– 2018–0167. 63 To calculate this value, EPA multiplied the number of 2018 RINs projected to be generated for CNG/LNG derived from biogas in the 2018 final rule (274 million), see 82 FR 58502–03, by 1.305 (representing a 30.5 percent year-over-year increase). 64 EPA projects that 580 million ethanolequivalent gallons of CNG/LNG will be used as transportation fuel in 2019 based on EIA’s March 2018 Short Term Energy Outlook (STEO). To calculate this estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom Table Builder (0.13 billion cubic feet/day in 2019). 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 946.5 BTU per cubic foot of natural gas (lower heating value, per calculations using ASTM D1945 and D3588) and 77,000 BTU of natural gas per ethanol-equivalent gallon per § 80.1415(b)(5). 65 ‘‘Cellulosic Biofuel Producer Company Descriptions (May 2018),’’ memorandum from Dallas Burkholder to EPA Docket EPA–HQ–OAR– 2018–0167. 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 20:04 Jul 09, 2018 Jkt 244001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 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). E:\FR\FM\10JYP2.SGM 10JYP2 amozie on DSK3GDR082PROD with PROPOSALS2 32038 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 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). Congressional intent is evident in the fact that the implied statutory volume for conventional renewable fuel is 15 billion gallons for all years after 2014, while the advanced volumes, driven largely by growth in cellulosic volumes, continue to grow each year through 2022 to a total of 21 billion gallons. Due to a shortfall in reasonably attainable volumes of cellulosic and advanced biofuel, and consistent with our long-held interpretation of the cellulosic waiver authority as best interpreted and applied by providing equal reductions in advanced biofuel and total renewable fuel, we are proposing a reduction from the statutory volumes for both advanced biofuel and total renewable fuel for 2019 using the full extent of the cellulosic waiver authority. In this Section we discuss our proposed use of the discretion afforded by the cellulosic waiver authority at CAA 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 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. To begin, we have evaluated the capabilities of the market and are proposing to find that the 13.0 billion gallons specified in the statute for advanced biofuel cannot be reached in 2019. 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 8.5 billion gallons in 2019. For this and other reasons described in this section we are proposing to reduce the advanced biofuel statutory target by the full amount of the shortfall in cellulosic biofuel for 2019. In previous years when we have used the cellulosic waiver authority, we have VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 determined the appropriate amount of the permissible waiver to apply to advanced biofuel by taking into account the availability of advanced biofuels, their energy security and GHG impacts, the availability of carryover RINs, 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 reduced benefits likely associated with use of advanced volumes achieved through diversion of foreign fuels or substitution of advanced feedstocks from other uses to biofuel production. Until the 2018 standards rule, the consideration of these factors led us to conclude 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.66 For the 2018 standards, we placed a greater emphasis on cost considerations in the context of balancing the various considerations, ultimately concluding that partial backfilling with non-cellulosic advanced biofuels was not warranted and the applicable volume requirement for advanced biofuel should be based on the maximum reduction permitted under the cellulosic waiver authority. Although we continue to believe that the factors earlier considered in exercising the cellulosic waiver authority are relevant and appropriate, we project that there will be insufficient reasonably attainable volumes of noncellulosic biofuels in 2019 to allow any backfilling for missing volumes of cellulosic biofuel. As a result of this projection and our proposed consideration of carryover RINs, we are proposing to reduce the statutory volume target for advanced biofuel by the same amount as the reduction in cellulosic biofuel. This would result in the non-cellulosic component of the advanced biofuel volume requirement being equal to the implied statutory volume of 4.5 billion gallons in 2019. We note that the predominant noncellulosic advanced biofuels available in the near term are advanced biodiesel and renewable diesel.67 We expect a decreasing rate of growth in the availability of feedstocks used to produce these fuel types, absent the 66 For instance, see 81 FR 89750 (December 12, 2016). 67 While sugarcane ethanol, as well as a number of other fuel types, can also contribute to the supply of advanced biofuel, in recent years supply of these other advanced biofuels has been considerably lower than supply of advanced biodiesel or renewable diesel. See Table IV.B.3–1. PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 diversion of these feedstocks from other uses. 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. Products that were formerly produced using these feedstocks are likely to be replaced by products produced using the lowest cost alternatives, likely derived from palm or petroleum sources. This in turn could increase the lifecycle GHG emissions associated with these incremental volumes of noncellulosic advanced biofuel. 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 advanced biofuel standards could also be satisfied by diversion of foreign advanced biofuel from foreign markets, and there would also likely be diminished benefits associated with such diversions. Taking these considerations into account, we believe, as discussed in more detail below, that we should exercise our discretion under the cellulosic waiver authority to set the advanced biofuel volume requirement at a level that would minimize such diversions. Furthermore, two other factors have added uncertainty regarding the volume of advanced biofuels that we project to be attainable in 2019. The first is the fact that the tax credit for biodiesel has not been renewed for 2019. The second is the final determination by the Department of Commerce that tariffs should be imposed on biodiesel imports from Argentina and Indonesia, and the potential for those tariffs to increase.68 69 Each of these factors is discussed in more detail in Section IV.B.2 below. 68 ‘‘Affirmative Final Antidumping Duty Determinations on Biodiesel From Argentina and Indonesia,’’ available in docket EPA–HQ–OAR– 2018–0167. 69 ‘‘US adds more duties on biodiesel from Argentina & Indonesia,’’ Reuters article available in docket EPA–HQ–OAR–2018–0167. E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules We believe that the factors and considerations noted above are all appropriate to consider under the broad discretion provided under the cellulosic waiver authority, and that consideration of these factors supports our proposed use of this authority. Many of the considerations discussed in this proposed 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 Department’s determination on tariffs 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). As discussed in further detail in the following sections, EPA’s preliminary projection of the available volume of advanced biofuel in 2019 suggests that while achieving the implied statutory volume for noncellulosic advanced biofuel in 2019 (4.5 billion gallons) may be attainable, doing so would likely require a higher rate of growth in the domestic advanced biofuel industry than we have seen in recent years. This is especially true if the tariffs on biodiesel imported from Argentina and Indonesia result in decreased volumes of imported advanced biofuel in 2019. While it may also be possible that a volume of noncellulosic advanced biofuel greater than 4.5 billion gallons may be attainable, this higher volume would very likely result in the diversion of advanced feedstocks from other uses or diversion of advanced biofuels from foreign sources. In that case, our preliminary assessment of other factors, such as cost and GHG impacts, indicate that it would not 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 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 2019 would be 590 million gallons more than the applicable volume used to derive the 2018 32039 percentage standard. Furthermore, after applying the same reduction to the statutory volume target for total renewable fuel, the volume requirement for total renewable fuel would also be 590 million gallons more than the applicable volume used to derive the 2018 percentage standard. 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 proposing to establish a 2019 applicable volume for cellulosic biofuel of 381 million gallons, representing a reduction of 8,119 million gallons from the statutory target of 8,500 million gallons. As a result, 8,119 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 4.88 and 19.88 billion gallons for advanced biofuel and total renewable fuel, respectively.70 TABLE IV.A–1—LOWEST PERMISSIBLE VOLUMES USING ONLY THE CELLULOSIC WAIVER AUTHORITY [Million gallons] a Advanced biofuel Statutory target ........................................................................................................................................................ Maximum reduction permitted under the cellulosic waiver authority ...................................................................... Lowest 2019 volume requirement permitted using only the cellulosic waiver authority ......................................... 13,000 8,119 4,881 Total renewable fuel 28,000 8,119 19,881 amozie on DSK3GDR082PROD with PROPOSALS2 a Calculations are typically shown in million gallons for all four standards for clarity. However, when using volumes to calculate percentage standards, 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. 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.71 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.72 Thus, EPA could potentially set the 2019 advanced biofuel standard at a level that is designed to partially backfill for the shortfall in cellulosic biofuel. However, based on our consideration of a number of relevant factors, we are proposing to use the full extent of the cellulosic waiver authority in deriving volume requirements for 2019. 70 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 with the exception of cellulosic biofuel it is volumes in billion gallons that are used to calculate the applicable percentage standards. For cellulosic biofuel, it is million gallons that are used to calculate the percentage standards. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 B. Attainable Volumes of Advanced Biofuel We have considered both reasonably attainable and attainable volumes of advanced biofuel to inform our exercise of the cellulosic waiver authority. Volumes described as ‘‘reasonably attainable’’ are those that can be reached without market disruptions and/or higher costs, such as those that could result from diverting advanced biofuels or advanced biofuel feedstocks from existing uses. We use this phrase in today’s action in the same way that we 71 CAA section 211(o)(7)(D)(i). ACE, 864 F.3d at 730–35 (citing Monroe, 750 F.3d 909, 915–16). 72 See E:\FR\FM\10JYP2.SGM 10JYP2 32040 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules used it in previous actions. Volumes described as ‘‘attainable,’’ in contrast, are those we believe can be reached, but would likely result in market disruption and/or higher costs. Neither ‘‘reasonably attainable’’ nor ‘‘attainable’’ are meant to convey the ‘‘maximum achievable’’ level, which as described in the 2017 final rule we do not consider, in our discretion, to be an appropriate target under the cellulosic waiver authority.73 As in prior rulemakings, EPA has considered what volumes of advanced biofuels are reasonably attainable. 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.74 Our proposed 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.75 We are taking a similar approach for 2019, 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 and 2018 volume requirements and, we believe, are appropriate considerations under the broad 73 81 FR 89762 (December 12, 2016). ACE, 864 F.3d at 730–35. 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. See id. at 704–13. 75 See ACE, 864 F.3d at 735–36. amozie on DSK3GDR082PROD with PROPOSALS2 74 See VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 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. We are proposing to set the advanced biofuel volume requirement at a level that would seek to minimize such feedstock/fuel diversions. Our individual assessments of reasonably attainable volumes of each type of advanced biofuel reflects 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. EPA proposes to find that 100 million gallons of advanced ethanol, 60 million gallons of other advanced biofuels, and 2.65 billion gallons of advanced biodiesel and renewable diesel are reasonably attainable. Together with our projected volume of 381 million gallons of cellulosic biofuel, the sum of these volumes falls short of 4.88 billion gallons, which is the lowest advanced biofuel requirement that EPA can determine under the cellulosic waiver authority. Therefore, we also have considered whether the market can nonetheless make available 4.88 billion gallons of advanced biofuel, notwithstanding likely feedstock/fuel diversions. In particular, we assess whether additional volumes of advanced biodiesel and renewable diesel are attainable. We conclude that 2.8 billion gallons of advanced biodiesel and renewable diesel is likely attainable notwithstanding likely feedstock/fuel diversions. This quantity of advanced biodiesel and renewable diesel, together PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 with the cellulosic biofuel, sugarcane ethanol, and other advanced biofuels described above, would enable the market to make available 4.88 billion gallons of advanced biofuels. 1. Imported Sugarcane Ethanol The predominant available source of advanced biofuel other than cellulosic biofuel and BBD is imported sugarcane ethanol. In setting the 2018 standards, we estimated that 100 million gallons of imported sugarcane ethanol would be reasonably attainable.76 This was a reduction from the 200 million gallons we had assumed for 2016 and 2017, and was based on a combination of data from 2016 and part of 2017 as well as an attempt to balance the lower-thanexpected imports from recent data with indications that higher volumes were possible based on older data. We also noted 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. During 2017 when we were developing the 2018 standards rulemaking, we used available data from a portion of 2017 to estimate that import volumes of sugarcane ethanol were likely to fall significantly below the 200 million gallons we had assumed when we set the 2017 standards. Import data for most of 2017 is now available, and indicates that imports of sugarcane ethanol reached just 77 million gallons. 76 82 E:\FR\FM\10JYP2.SGM FR 58507 (December 12, 2017). 10JYP2 While it is difficult to predict imports for 2019, we believe it would be reasonable not to increase the assumed volume above 100 million gallons for purposes of determining whether an advanced biofuel volume requirement of 4.88 billion gallons is reasonably attainable for 2019. Although imports of advanced ethanol have been below 100 million gallons for 2014–2017, our proposed advanced biofuel volume requirement for 2019 would be higher than that for 2018, creating some incentive for increases in imports. However, the E10 blendwall and the fact that imported sugarcane ethanol typically costs more than corn ethanol create disincentives for increasing imports above the levels in recent years. Taking all of these considerations into account, we propose using 100 million gallons of imported sugarcane ethanol for the purposes of projecting reasonably attainable volumes of advanced biofuel for 2019. 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 and under the influence of the higher standards in 2019. We note that the future projection of imports of sugarcane ethanol is inherently imprecise, and that actual imports in 2019 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, constraints associated with the E10 blendwall in the U.S., and the cost relative to that of corn ethanol. Also, global sugar consumption has continued to increase steadily, while global production has decreased.77 If this trend continues, Brazilian production of sugar could increase, with a concurrent reduction in Brazilian production of ethanol. 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 77 ‘‘Sugar—World Markets and Trade,’’ USDA, November 2016. Available in docket EPA–HQ– OAR–2018–0167. 78 ‘‘Commodity Markets Outlook,’’ World Bank Group, January 2017. Available in docket EPA–HQ– OAR–2018–0167. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 32041 remain unchanged.78 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 reasonably attainable for 2019. As we have done in past years, we plan to take into consideration available data on imports in 2018, as well as information provided in comments, in making a final estimate of reasonably attainable volumes of sugarcane ethanol for the final rule. 2. Other Advanced Biofuel In addition to cellulosic biofuel, imported sugarcane ethanol, and advanced biodiesel and renewable diesel, there are other D5 advanced biofuels that can be counted in the determination of reasonably attainable volumes of advanced biofuel for 2019. These other D5 advanced biofuels include non-cellulosic CNG, naphtha, heating oil, and domestically-produced advanced ethanol. However, the supply of these fuels has been relatively low in the last several years. E:\FR\FM\10JYP2.SGM 10JYP2 EP10JY18.003</GPH> amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 32042 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules TABLE IV.B.2–1—HISTORICAL SUPPLY OF OTHER ADVANCED BIOFUELS [Million ethanol-equivalent gallons] CNG/LNG 2013 2014 2015 2016 2017 ..................................................................................... ..................................................................................... ..................................................................................... ..................................................................................... ..................................................................................... Heating oil 26 20 0 0 2 Domestic ethanol Naphtha 0 0 1 2 2 3 18 24 26 32 Total a 23 26 25 27 26 52 64 50 55 62 a Excludes consideration of D5 renewable diesel, as this category of renewable fuel is considered separately as part of advanced biodiesel and renewable diesel in Section IV.B.3 below. The downward trend over time in CNG/LNG from 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).79 Total supply of these other advanced biofuels has exhibited no consistent trend during 2013–2017. Based on this historical record, we propose that 60 million gallons would be reasonably attainable in 2019. We recognize that the potential exists for additional volumes of advanced biofuel from sources such as jet fuel, liquefied petroleum gas (LPG), butanol, and liquefied natural gas (as distinct from compressed natural gas), as well as non-cellulosic CNG from biogas produced in digesters. However, since they have been produced, if at all, in only de minimis and sporadic amounts in the past, we do not have a basis for projecting substantial volumes from these sources in 2019.80 3. Biodiesel and Renewable Diesel Having projected the production volume of cellulosic biofuel, and the reasonably attainable volumes of imported sugarcane ethanol and ‘‘other’’ advanced biofuels, we next calculated the volume of advanced biodiesel and renewable diesel that would need to be supplied to meet the volume of advanced biofuel for 2019 after reducing the advanced biofuel volume by the same amount as the cellulosic biofuel volume. Based on our projections of other advanced biofuels presented in the preceding sections, the market would need to supply 2.8 billion gallons of biodiesel and renewable diesel, generating 4.34 billion RINs, to meet a total advanced biofuel volume of 4.88 billion gallons. This calculation is shown in Table IV.B.3–1 below. Calculating the volume of advanced biodiesel and renewable diesel that would be needed to meet the volume of advanced biofuel for 2019 is an important benchmark to help inform EPA’s consideration of our waiver authorities. In situations where the reasonably attainable volume of biodiesel and renewable diesel exceeds the volume of these fuels that would be needed to meet the volume of advanced biofuel after reducing the advanced biofuel volume by the same amount as the cellulosic biofuel volume, as was the case in 2017 and 2018, EPA may consider whether or not to allow additional volumes of these fuels to backfill for missing cellulosic biofuel volumes. In situations where the reasonably attainable volume of biodiesel and renewable diesel is less than the volume of these fuels that would be needed to meet the volume of advanced biofuel after reducing the advanced biofuel volume by the same amount as the cellulosic biofuel volume, EPA may consider whether or not to use additional waiver authorities, to the extent available, to make further reductions to the advanced biofuel volume. TABLE IV.B.3–1—DETERMINATION OF VOLUME OF BIODIESEL AND RENEWABLE DIESEL NEEDED IN 2019 TO ACHIEVE 4.88 BILLION GALLONS OF ADVANCED BIOFUEL [Million ethanol-equivalent gallons except as noted] amozie on DSK3GDR082PROD with PROPOSALS2 Lowest 2019 advanced biofuel volume requirement permitted using under the cellulosic waiver authority ...................................... Cellulosic biofuel .................................................................................................................................................................................. Imported sugarcane ethanol ................................................................................................................................................................ Other advanced ................................................................................................................................................................................... Calculated advanced biodiesel and renewable diesel needed (ethanol-equivalent gallons/physical gallons) 81 ............................... Having calculated the volume of advanced biodiesel and renewable diesel that would need to be supplied to meet the volume of advanced biofuel for 2019 after reducing the advanced biofuel volume by the same amount as the cellulosic biofuel volume, EPA next projected the reasonably attainable 79 79 FR 42128 (July 18, 2014). RIN-generating volumes of these other advanced biofuels were produced in 2017, and less than 1 million gallons total in prior years. 81 To calculate the volume of advanced biodiesel and renewable diesel that would generate the 4.34 billion RINs needed to meet the proposed advanced biofuel volume EPA divided the 4.34 billion RINs 80 No VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 4,881 381 100 60 4,340/2,800 volume of these fuels for 2019. With regard to advanced biodiesel and renewable diesel, there are many different factors that could potentially influence the reasonably attainable volume of these fuels used as transportation fuel or heating oil in the U.S. These factors could include the availability of qualifying biodiesel and renewable diesel feedstocks, the production capacity of biodiesel and renewable diesel facilities (both in the U.S. and internationally), and the availability of imported volumes of these fuels.82 A review of the volumes by 1.55. 1.55 is the approximate average (weighted by the volume of these fuels expected to be produced in 2019) of the equivalence values for biodiesel (generally 1.5) and renewable diesel (generally 1.7). 82 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 PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 E:\FR\FM\10JYP2.SGM 10JYP2 32043 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 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 (including the availability of advanced feedstocks, the expiration of the biodiesel tax credit, recent tariffs on biodiesel from Argentina and Indonesia, and other market-based factors) that are likely to affect the supply of advanced biodiesel and renewable diesel. In addition to a review of the volumes of advanced biodiesel and renewable diesel used in previous years, we believe the likely growth in production of feedstocks used to produce these fuels, as well as the total projected available volumes of these feedstocks, are important factors to consider. This is because while there are many factors that could potentially limit the production and availability of these fuels, the impacts of increasing production of advanced biodiesel and renewable diesel on factors such as costs, energy security, and GHG emissions are expected to vary depending on whether the feedstocks used to produce these fuels are sourced from increased production of advanced feedstocks or alternatively from diverting these feedstocks from existing uses. 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 to renewable fuel production or the diversion of advanced biodiesel and renewable diesel from foreign markets. This is especially true 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 2019.83 In this case the global supply of advanced biodiesel and renewable diesel would not increase, and the potential benefits associated with increasing the diversity of the supply of transportation fuel (energy security) and the production of additional volumes of advanced biodiesel and renewable diesel (low GHG sources of transportation fuel) would not be realized. Such feedstock switching or fuel diversion could also result in unintended negative consequences, such as market disruption in other markets where such oils are used, which could offset some or all of the anticipated GHG benefits of the production and use of advanced biofuels. Before considering the projected growth in the production of qualifying feedstocks that could be used to produce advanced biodiesel and renewable diesel, as well as the total volume of feedstocks that could be used to produce these fuels, 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 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.84 In previous years, biodiesel and renewable diesel produced in the U.S. have been almost exclusively advanced biofuel.85 Imports of advanced biodiesel have also increased in recent years, 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 many economic factors. TABLE IV.B.2–1—ADVANCED (D4 AND D5) BIODIESEL AND RENEWABLE DIESEL FROM 2011 TO 2017 [Million gallons] a 2011 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) ...... Total (Annual Change) ............. 2012 2014 b 2013 2015 b 2016 2017 967 (N/A) 1,014 (+47) 1,376 (+362) 1,303 (¥73) 1,253 (¥50) 1,633 (+380) 1,573 (¥60) 58 (N/A) 11 (¥47) 92 (+81) 155 (+63) 175 (+20) 221 (+46) 258 (+37) 44 (N/A) 40 (¥4) 156 (+116) 130 (¥26) 261 (+131) 561 (+300) 462 (¥99) 0 (N/A) 28 (+28) 145 (+117) 129 (¥16) 121 (¥8) 170 (+49) 193 (+23) 48 (N/A) 102 (+54) 125 (+23) 134 (+9) 133 (¥1) 129 (¥4) 157 (+28) 1,021 (N/A) 991 (¥30) 1,644 (+653) 1,583 (¥61) 1,677 (+94) 2,456 (+779) 2,329 (¥127) a All amozie on DSK3GDR082PROD with PROPOSALS2 data 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 volume in each year. b RFS required volumes for these years were not established until December 2015. 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). VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 83 We believe palm or petroleum derived products would likely be used replace advanced biodiesel and renewable diesel diverted to the U.S. as these products are currently the lowest cost sources. 84 From 2011 through 2017 approximately 95% of all biodiesel and renewable diesel supplied to the U.S. (including domestically-produced and imported biodiesel and renewable diesel) qualified PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 as advanced biodiesel and renewable diesel (11,701 million gallons of the 12,323 million gallons) according to EMTS data. 85 From 2011 through 2017 over 99.9% of all the domestically produced biodiesel and renewable diesel supplied to the U.S. qualified as advanced biodiesel and renewable diesel (10,089 million gallons of the 10,096 million gallons) according to EMTS data. E:\FR\FM\10JYP2.SGM 10JYP2 32044 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules TABLE IV.B.2–2—CONVENTIONAL (D6) BIODIESEL AND RENEWABLE DIESEL FROM 2011 TO 2016 [Million gallons] a 2011 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) ...... Total (Annual Change) ............. 2012 2014 b 2013 2015 b 2016 2017 0 (N/A) 0 (+0) 6 (+6) 1 (¥5) 0 (+0) 0 (+0) 0 (+0) 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 0 (N/A) 0 (+0) 31 (+31) 52 (+21) 74 (+22) 113 (+39) 0 (¥113) 0 (N/A) 0 (+0) 53 (+53) 0 (¥53) 106 (+106) 43 (¥63) 144 (+101) 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 1 (+1) 0 (¥1) 0 (N/A) 0 (+0) 90 (+90) 53 (¥37) 180 (+127) 155 (¥25) 144 (¥11) a All amozie on DSK3GDR082PROD with PROPOSALS2 data 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 volume 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 used in the U.S. have varied greatly, from a low of negative 127 million gallons from 2016 to 2017 to a high of 779 million gallons from 2015 to 2016. These changes were likely influenced by multiple 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 2018 to 2019, nor does it indicate that the low (or negative) growth rates observed in other years would recur in 2019. 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 volume of biodiesel and renewable diesel used in the U.S. in any given year. While the biodiesel blenders tax credit has applied in each year from 2010—2017, it has only been prospectively 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 VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 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), December 2015 (for 2015 and 2016), and February 2018 (for 2017). 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 volume of advanced biodiesel and renewable diesel used in the U.S. over the previous year (653 million gallons and 779 million gallons respectively). However, following these large increases in 2013 and 2016, there was little to no growth in the use of advanced biodiesel and renewable diesel in the following years, only 33 million gallons from 2013 to 2015 and negative 127 million gallons from 2016 to 2017. This decrease from 2016 to 2017 happened despite the fact that the required volume of advanced biofuel increased from 3.61 in 2016 to 4.28 billion gallons in 2017. This pattern is likely the result of both accelerated production and/or importation of biodiesel and renewable diesel in the final few months of years during which the tax credit was available to take advantage of the expiring tax credit, as well as relatively lower volumes of biodiesel and renewable diesel production and import in 2014, 2015, and 2017 than would have occurred if the tax credit had been in place.86 86 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 PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 The historical data suggests that the supply of advanced biodiesel and renewable diesel could potentially increase from 2.33 billion gallons in 2017 to 2.8 billion gallons in 2019 (the projected volume needed to meet the advanced biofuel volume for 2019 after reducing the statutory advanced biofuel volume by the same amount as the cellulosic biofuel reduction). This would represent an average annual rate of growth of approximately 235 million gallons per year, slightly higher than the average increase in the volume of advanced biodiesel and renewable diesel used in the U.S. from 2011 through 2017 (218 million gallons per year) and significantly less the highest annual increase during this time (779 million gallons from 2015 to 2016). After reviewing the historical volume of advanced biodiesel and renewable diesel used in the U.S. and considering the possible impact of the expiration of the biodiesel tax credit (discussed above), EPA next considers other factors that may impact the production, import, and use of advanced biodiesel and renewable diesel in 2019. The production capacity of registered advanced biodiesel and renewable diesel production facilities is highly unlikely to limit the production of these fuels, as the total production capacity for biodiesel and renewable diesel at registered facilities in the U.S. (4.1 billion gallons) exceeds the volume of these fuels that are projected to be of advanced biodiesel and renewable diesel supplied in these years. Further, the preliminary tariffs on biodiesel imported from Argentina and Indonesia announced in August 2017 likely had a negative impact on the volume of biodiesel supplied in 2017. E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 needed to meet the advanced biofuel volume for 2019 after exercising the cellulosic waiver authority (2.8 billion gallons).87 Significant registered production also exists internationally. Similarly, the ability for the market to distribute and use advanced biodiesel and renewable diesel appears unlikely constrain the growth of these fuels to a volume lower than 2.8 billion gallons. The investments required to distribute and use this volume of biodiesel and renewable diesel are expected to be modest, as this volume is less than 200 million gallons greater than the volume of biodiesel and renewable diesel produced, imported, and used in the U.S. in 2016. Conversely, the availability of advanced feedstocks that can be used to produce advanced biodiesel and renewable diesel and the projected availability of imported advanced biodiesel and renewable diesel may limit the volume of these fuels available to the U.S. in 2019. 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, and that volume of advanced biodiesel and renewable diesel and advanced feedstocks produced globally exceeds the volume projected to be required in 2019 (2.8 billion gallons of advanced biodiesel and renewable diesel and the corresponding volume of advanced feedstocks) by a significant margin.88 However, 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 from 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 the potential 87 The production capacity of the sub-set of biodiesel and renewable diesel producers that generated RINs in 2017 is approximately 3.1 billion gallons. See ‘‘Biodiesel and Renewable Diesel Registered Capacity (May 2018)’’ Memorandum from Dallas Burkholder to EPA Docket EPA–HQ– OAR–2018–0167. 88 The March 2018 WASDE projects production of vegetable oils in 2017/18 in the World to be 197.78 million metric tons. This quantity of vegetable oil would be sufficient to produce approximately 56.5 billion gallons of biodiesel and renewable diesel. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 adverse effect on lifecycle GHG emissions associated with feedstocks for biofuel production that would have been used for other purposes and which must then be backfilled with other feedstocks. 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 higher lifecycle GHG emissions 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 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 2019, we believe this increase is limited as most of these waste oils, fats, and greases that can be recovered economically are already being recovered and used in biodiesel and renewable diesel production or for other purposes. Most of the vegetable oil used to produce advanced biodiesel and renewable diesel that is sourced from planted crops comes from crops 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.89 This is true for soybeans and corn, which are the two largest sources of feedstock from planted crops used for biodiesel production in the U.S.90 We do not 89 For example, corn oil is a co-product of corn grown primarily for feed or ethanol production, while soy and canola are primarily grown as livestock feed. 90 According to EIA data 6,230 million pounds of soy bean oil and 1,579 million pounds of corn oil were used to produce biodiesel in the U.S. in 2017. Other significant sources of feedstock were yellow grease (1,471 million pounds), canola oil (1,452 million pounds), and white grease (591 million PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 32045 believe that the increased demand for soybean oil or corn oil caused by a higher 2019 advanced biofuel standard would result in an increase in soybean or corn prices large enough to induce significant changes in agricultural activity, at least for the changes in advanced biodiesel and renewable diesel feedstock demand that may be caused by this proposed 2019 standard. 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). At the time of our assessment for this proposed rule, the most current version of the WASDE report only projects domestic vegetable oil production through 2018. Based on domestic vegetable oil production from 2011–2017 as reported by WASDE, the average annual increase in vegetable oil production in the U.S. was 0.278 million metric tons per year.91 Assuming a similar increase in domestic vegetable oil production from 2018 to 2019, this additional quantity of vegetable oils could be used to produce approximately 80 million additional gallons of advanced biodiesel or renewable diesel in 2019 relative to 2018.92 In addition to virgin vegetable oils, we also expect increasing volumes of distillers corn oil 93 to be available for use in 2019. 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. For this proposed rule EPA is using results from the World Agricultural Economic and Environmental Services (WAEES) model to project the growth in the production of distillers corn oil.94 In pounds). Numbers from EIA’s March 2018 Monthly Biodiesel Production Report. 91 According to the March 2018 WASDE report, U.S. vegetable oil production in the 2016/2017 agricultural marketing year is estimated to be 11.43 million metric tons. According to the January 2013 WASDE report, U.S. vegetable oil production in the 2010/2011 agricultural marketing year was 9.76 million metric tons. 92 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 soybean oil (https://extension.missouri.edu/p/ G1990), which is the largest source of feedstock used to produce advanced biodiesel and renewable diesel. Conversion rates for other types of vegetable oils used to produce biodiesel and renewable diesel are similar to those for soybean oil. 93 Distillers corn oil is non-food grade corn oil produced by ethanol production facilities. 94 For the purposes of this 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 E:\FR\FM\10JYP2.SGM Continued 10JYP2 amozie on DSK3GDR082PROD with PROPOSALS2 32046 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules assessing the likely increase in the availability of distillers corn oil from 2018 to 2019, 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 167 million pounds, from 2615 million pounds in agricultural marketing year 2017/2018 to 2,782 million pounds in agricultural marketing year 2018/2019. 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 22 million additional gallons of advanced biodiesel or renewable diesel in 2019. We believe it is reasonable to use these estimates from the WAEES model for these purposes. While the vast majority of the increase in advanced biodiesel and renewable diesel feedstocks produced in the U.S. from 2018 to 2019 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 to produce biodiesel or renewable diesel, or in other markets. In fact, the WAEES model projects a decrease of 3 million gallons in the volume of biodiesel produced from feedstocks other than soybean oil, canola oil, and distillers corn oil from 2018 to 2019.95 In total, we expect that increases in feedstocks produced in the U.S. are sufficient to produce approximately 100 million more gallons of advanced biodiesel and renewable diesel in 2019 relative to 2018. In our 2018 final rule, we determined that 2.55 billion gallons of advanced biodiesel and renewable diesel were reasonably attainable in 2018,96 therefore our projection of the reasonably attainable volume of advanced biodiesel and renewable diesel in 2019 is 2.65 billion gallons. EPA’s projections of the growth of advanced feedstocks does not, however, suggest that the total supply of advanced biodiesel and renewable diesel to the U.S. in 2018 will be limited Environmental Services (WAEES), EPA–HQ–OAR– 2017–0091–3880). 95 Id. 96 82 FR 58512 (December 12, 2017). VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 to 2.65 billion gallons. Rather, this is the volume of these fuels that we project could be supplied without diverting significant quantities of advanced feedstocks or biofuels from existing uses. The March 2018 WASDE reports that production of vegetable oil in the U.S. in the 2017/2018 market year (the latest year for which projections are available) will be sufficient to produce approximately 3.3 billion gallons of biodiesel and renewable diesel (including both advanced and conventional biofuels) if the entire volume of vegetable oil was used to produce these fuels. Additional advanced biodiesel and renewable diesel could be produced from waste fats, oils, and greases. The global production of vegetable oil projected in the 2017/2018 marketing year would be sufficient to produce approximately 56.5 billion gallons of biodiesel and renewable diesel (including both advanced and conventional biofuels).97 While it would not be reasonable to assume that all, or even a significant portion, of global vegetable oil production could be available to produce biodiesel or renewable diesel supplied to the U.S. for a number of reasons,98 the large global supply of vegetable oil strongly suggests that under the right market conditions 2.8 billion gallons of advanced biodiesel and renewable diesel is attainable in 2019. Reaching these levels, however, may result in the diversion of advanced feedstocks currently used in other markets and/or the import of biodiesel and renewable diesel from these feedstocks. Further, the supply of advanced biodiesel and renewable diesel to the U.S. in 2019 could be increased by approximately 150 million gallons if all of the exported volumes of these fuels were used domestically. Diverting this fuel to markets in the U.S. may be complicated, however, as doing so would likely require higher prices for these fuels in the U.S. (to divert the fuels from foreign markets that are presumably more profitable currently). It may also be more difficult and costly 97 The March 2018 WASDE projects production of vegetable oils in 2017/18 in the U.S. and the World to be 11.64 and 197.78 million metric tons respectively. To convert projected vegetable oil production to potential biodiesel and renewable diesel production we have used a conversion of 7.7 pounds of feedstock per gallon of biodiesel. 98 These reasons include the demand for vegetable oil in the food, feed, and industrial markets both domestically and globally; constraints related to the production, import, distribution, and use of significantly higher volumes of biodiesel; and the fact that biodiesel and renewable diesel produced from much of the vegetable oil available globally would not qualify as an advanced biofuel under the RFS program. PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 to distribute this additional volume of biodiesel and renewable diesel to domestic markets than the current foreign markets. Finally, reducing advanced biodiesel and renewable diesel exports may indirectly result in the decreased availability of imported volumes of these fuels, as other countries seek to replace volumes previously imported from the U.S. EPA next considered potential changes 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. The RFS requirements and California’s LCFS are expected to continue to provide an incentive for imports of advanced biodiesel and renewable diesel in 2019. Several other factors, however, may negatively impact the volume of these fuels imported in 2019. In February 2018 the biodiesel blenders tax credit, which had expired at the end of 2016, was retroactively reinstated for biodiesel blended in 2017 but was not extended to apply to biodiesel blended in 2018 or 2019.99 Perhaps more significantly, in December 2017 the U.S. International Trade Commission adopted tariffs on biodiesel imported from Argentina and Indonesia.100 According to data from EIA,101 no biodiesel was imported from Argentina or Indonesia from September 2017—February 2018, after a preliminary decision to impose tariffs on biodiesel imported from these countries was announced in August 2017. Biodiesel imports from these countries were significant, accounting for over 550 million gallons in 2016 and approximately 290 million gallons in 2017. At this time, the ultimate impact these tariffs will have on overall imports of advanced biodiesel and renewable diesel to the U.S. remains uncertain. It is possible that imports of advanced biodiesel and renewable diesel from 99 Bipartisan Budget Act of 2018, Public Law 115– 123, 132 Stat. 64 §§ 40406, 40407, and 40415 (2018). 100 ‘‘Biodiesel from Argentina and Indonesia Injures U.S. Industry, says USITC,’’ Available online at: https://www.usitc.gov/press_room/news_ release/2017/er1205ll876.htm. 101 See ‘‘EIA Biomass-Based Diesel Import Data’’ available in docket EPA–HQ–OAR–2018–0167. E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 other countries not impacted by these tariffs will increase to make up for all, or some portion of the biodiesel imported from Argentina and Indonesia in previous years. The volume of imported biodiesel in 2017 sourced from countries not impacted by the tariffs, however, is significantly less than the volume supplied by Argentina and Indonesia.102 It is possible, therefore, that the supply of imported advanced biodiesel and renewable diesel available in the U.S. in 2019 will decrease from the relatively high levels in recent years.103 Domestic production of advanced biodiesel and renewable diesel in 2016 and 2017 was approximately 1.85 billion gallons. Of this total, approximately 150 million gallons of domestically produced biodiesel was exported in 2016 and 2017. An additional 100 to150 million gallons of these fuels were imported from countries unaffected by the recent tariffs. If, by 2019, alternative sources of imported biodiesel and renewable diesel are identified and the imported volume of advanced biodiesel and renewable diesel returns to the levels observed in 2016 and 2017 (approximately 700 million gallons per year) domestic production would need to increase by approximately 125 million gallons per year in both 2018 and 2019 to reach a total advanced biodiesel and renewable diesel supply of 2.8 billion gallons by 2019.104 These increases appear attainable, as they are lower than the average annual increase of advanced biodiesel and renewable diesel production in the U.S. between 2011 and 2017 (134 million gallons per year). 102 According to EIA data, total biodiesel imports from countries other than Argentina and Indonesia totaled 153 million gallons in 2016 and 103 million gallons in 2017. See ‘‘EIA Biomass-Based Diesel Import Data’’ available in docket EPA–HQ–OAR– 2018–0167. 103 According to data from EMTS, 954 million gallons of advanced biodiesel and renewable diesel were imported into the U.S. in 2016 and 854 million gallons of these fuels were imported in 2017. Note that imported volumes of biodiesel and renewable diesel from EMTS and EIA do not precisely match. The primary reason for this difference is that EIA data is sourced from EIA surveys, while the EMTS data is generated by the parties that produce and/or import biodiesel and renewable diesel into the U.S. For the purposes of this discussion we have cited the EIA data, as this data more easily allows us to quantify the fuel impacted by the recent tariffs (biodiesel imported from Argentina and Indonesia). 104 Note that this estimate assumes that the U.S. consumes all domestically produced biodiesel and renewable diesel, rather than exporting any of this fuel. Alternatively, if the U.S. continues to export approximately 150 million gallons of biodiesel per year in 2019 domestic production of advanced biodiesel and renewable diesel would have to increase by approximately 200 million gallons per year. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 These increases are also approximately equal to the projected increases in advanced feedstock availability in 2017 and 2018.105 We therefore project that a volume of 2.8 billion gallons of advanced biodiesel and renewable diesel is attainable in 2019 if the imported volume of these fuels does not fall significantly below the volumes imported in 2016 and 2017. We note, however, that using this volume of advanced biodiesel and renewable diesel in the U.S. would likely result in the diversion of advanced biodiesel and renewable diesel and/or feedstocks used to produce these fuels, as advanced biodiesel and renewable diesel that is currently exported would instead be used in the U.S. and alternative sources for significant volumes of these fuels would need to be found. After a careful consideration of the factors discussed above, EPA has determined that 2.8 billion gallons of advanced biodiesel and renewable diesel projected needed to satisfy the implied statutory volume for noncellulosic advanced biofuel in 2019 (4.5 billion gallons) are attainable. The total production capacity of registered biodiesel and renewable diesel producers is significantly higher than 2.8 billion gallons, even if only those facilities that generated RINs for advanced biodiesel and renewable diesel in 2017 are considered. This volume (2.8 billion gallons) is also not significantly higher than the total volume of biodiesel and renewable diesel supplied in 2016 (approximately 2.6 billion gallons), strongly suggesting that production capacity and the ability to distribute and use biodiesel and renewable diesel will not limit the supply of advanced biodiesel and renewable diesel to a volume below 2.8 billion gallons in 2018. Sufficient feedstocks are expected to be available to produce this volume of advanced biodiesel and renewable diesel in 2019, however doing so may result in some level of diversion of advanced feedstocks and/or advanced biodiesel and renewable diesel from existing uses. Achieving this level of advanced biodiesel and renewable diesel in 2019, however, will likely require finding alternative sources for biodiesel imports 105 In the 2018 final rule, EPA projected that advanced biodiesel and renewable diesel feedstocks would increase to allow production of approximately 150 million additional gallons of advanced biodiesel and renewable diesel in 2018. 82 FR 58511 (December 12, 2017). In this proposed rule we are projecting additional growth in advanced biodiesel and renewable diesel feedstocks to allow production of approximately 100 million additional gallons of advanced biodiesel and renewable diesel in 2019 (relative to the volume of advanced feedstocks projected for 2018). PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 32047 to replace the volume of biodiesel and renewable diesel that were supplied from Argentina and Indonesia in 2016 and 2017. Alternatively, obligated parties could rely on the significant volume of carryover advanced RINs projected to be available in 2019 (See Section II.B for a further discussion of carryover RINs). C. Proposed Volume Requirement for Advanced Biofuel In exercising the cellulosic waiver authority for 2017 and earlier, 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, notwithstanding the increase in costs associated with those decisions.106 For the 2018 standards, in contrast, we placed a greater emphasis on cost considerations in the context of balancing the various considerations, ultimately concluding that the applicable volume requirement should be based on the maximum reduction permitted under the cellulosic waiver authority. We are proposing to take a similar approach for 2019. That is, while it may be possible that more than 4.88 billion gallons of advanced biofuel might be attainable in 2019, requiring additional volumes would lead to higher costs, feedstock switching and/or diversion of foreign advanced biofuels. We do not believe that it would be appropriate to set the advanced biofuel volume requirement higher than 4.88 billion gallons given that it could lead to these results. Based on the information presented above, we believe that 4.88 billion gallons of advanced biofuel is attainable in 2019. After a consideration of the projected volume of cellulosic biofuel and reasonably attainable volumes of imported sugarcane ethanol and other advanced biofuels, we determined that 2.8 billion gallons of advanced biodiesel and renewable diesel would be needed to reach 4.88 billion gallons of advanced biofuel. Based on a review of the factors relevant to the supply of advanced biodiesel and renewable diesel as discussed in Section IV.B.2 above, including historic production and import data, the production capacity of registered biodiesel and renewable diesel producers, and the availability of advanced feedstocks, we have determined that 2.8 billion gallons of BBD is attainable in 2019. However, we also acknowledge that 2.8 billion gallons of BBD is 106 See, e.g., Response to Comments Document for the 2014–2016 Rule, pages 628–631, available in docket EPA–HQ–OAR–2015–0111. E:\FR\FM\10JYP2.SGM 10JYP2 amozie on DSK3GDR082PROD with PROPOSALS2 32048 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules considerably higher than the 2.33 billion gallons actually supplied in 2017 and the 2.55 billion gallons determined to be reasonably attainable in 2018. While 2.8 billion gallons would require an average growth in supply of 235 million gallons per year between 2017 and 2019, this is only slightly higher than the average annual growth rate in years 2011—2017. Nevertheless, there is some uncertainty regarding whether 2.8 billion gallons is attainable in 2019. This fact has led us to consider whether the use of carryover RINs might be appropriate. The carryover RIN bank has continued to grow over the past several years as described in Section II.B, and is currently at its largest historical level. It represents a source of RINs that could help obligated parties meet an advanced biofuel volume requirement of 4.88 billion gallons in 2019 if the market fails to supply sufficient advanced biofuels in 2019. If the market does choose to meet a volume requirement of 4.88 billion gallons in this way, it would be for the first time in the history of the RFS program. Although we did point to the carryover RIN bank in 2013, along with the potential for additional volumes of E85, as a means for meeting the statutory volume requirement of 16.55 billion gallons, in that case the concern was the portion of the standard that is not required to be advanced biofuel (e.g. conventional biofuel). Ultimately, the market supplied more advanced biofuel than it needed to meet the applicable volume requirement for advanced biofuel while falling short of the total renewable fuel volume requirement. Although we believe that the 2.8 billion gallon volume is attainable, and any shortfalls could be met through the use of carryover RINs, we also solicit comment and supporting data and rationale on whether circumstances exist that would warrant further reductions in volumes through the exercise of the general waiver authority (e.g., due to severe economic harm). We recognize that identifying severe economic harm caused by the implementation of RFS requirements is a difficult and complex issue and one of intense interest to a number of stakeholders. We discussed in past notices, and in the most recent annual rulemaking for 2018, the type of information we generally think would be relevant to identifying severe economic harm. For example, in 2008, we examined modeling showing expected levels of production and price for both corn and ethanol with and without a waiver. We also provided quantitative estimates of the impact of a VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 waiver on: Food expenditures for average and lowest quintile households; feeds costs for cattle, pigs, poultry and dairy; and gasoline prices and gasoline expenditures for average and lowest quintile households. 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 4.5 billion gallons in 2019 would be maintained. This represents an increase of 0.5 billion gallons from the 2018 volume requirements. D. Proposed Volume Requirement 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.107 For the reasons we have previously articulated, 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 volume of 15 billion gallons. Applying an equal reduction of 8.12 billion gallons to both the statutory target for advanced biofuel and the statutory target for total renewable fuel would result in a total renewable fuel volume of 19.88 billion gallons as shown in Table IV.A–1.108 A memorandum to the docket provides a description of the ways in which the market could make this volume of total renewable fuel available.109 107 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. 108 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. 109 ‘‘Market impacts of biofuels in 2019,’’ memorandum from David Korotney to docket EPA– HQ–OAR–2018–0167. In prior actions including the 2018 annual rule proposal, similar analyses indicated that the market was capable of both producing and consuming the required volume of renewable fuels, and that as a result there was no basis for finding an inadequate domestic supply of total renewable fuel. See 82 FR 34229 & n.82. Given the D.C. Circuit’s decision in ACE, however, the current assessment of demand-side constraints is no longer relevant for determining inadequate domestic supply. However, we believe consideration of the ways that the market could PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 This volume of total renewable fuel results in an implied volume of 15 billion gallons of conventional fuel, which is the same as in the 2018 final rule. V. Impacts of 2019 Volumes on Costs In this section, EPA presents its assessment of the illustrative costs of the proposed 2019 RFS rule. It is important to note that these illustrative costs do not attempt to capture the full impacts of this proposed rule. We frame the analyses we have performed for this proposed rule as ‘‘illustrative’’ so as not to give the impression of comprehensive estimates. These estimates are provided 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 illustrative cost estimates. For example, there are many 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. Illustrative cost estimates are provided below for the proposal discussed in Sections III and IV that reduces the cellulosic, advanced, and total renewable fuel volume requirements using the cellulosic waiver authority under CAA section 211(o)(7)(D)(i). For this proposal, we examine two different cases. In the first case, we provide illustrative cost estimates by comparing the proposed 2019 renewable fuel volumes to 2019 statutory volumes under CAA section 211(o)(7)(D)(i). In the second case, we examine the proposed 2019 renewable fuel volumes to the final 2018 renewable fuel volumes to estimate changes in the annual costs of the proposed 2019 RFS volumes in comparison to the 2018 volumes. A. Illustrative Costs Analysis of Exercising the Cellulosic Waiver Authority Compared to the 2019 Statutory Volumes Baseline In this section, EPA provides illustrative cost estimates that compare make this volume available may still be relevant to whether and how EPA exercises its waiver authorities, such as our consideration of whether the proposed volumes will cause severe economic harm. E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules the proposed 2019 cellulosic biofuel volume requirements to the 2019 cellulosic statutory volume that would be required absent the exercise of our cellulosic waiver authority under CAA section 211(o)(7)(D)(i). As described in Section III, we are proposing a cellulosic volume of 381 million gallons for 2019. The result is that we are using our cellulosic waiver authority to waive the statutory cellulosic volume of 8.5 billion gallons by 8.12 billion gallons. Estimating the cost savings from volumes that are not projected to be produced is inherently challenging. EPA has taken the relatively straightforward methodology of multiplying this waived volume of 8.12 billion gallons by the wholesale per-gallon costs of cellulosic biofuel production relative to the petroleum fuels they displace. While there may be growth in other cellulosic renewable fuel sources, we believe it is appropriate to use cellulosic ethanol produced from corn kernel fiber as the representative cellulosic renewable fuel. The majority of liquid cellulosic biofuel in 2019 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, we believe that production of the major alternative cellulosic biofuel—CNG/LNG derived from biogas—is limited to approximately 630 million gallons due to a limitation in the number of vehicles capable of using this form of fuel.110 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 cost 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 costs of the cellulosic ethanol to the petroleum fuels that would be replaced at the 32049 wholesale stage, since that is when the two are blended together. 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 energyequivalent basis as compared to ethanol, since more ethanol gallons must be consumed to travel the same distance as on gasoline due to the ethanol’s lower energy content. Table V.A–1 below presents the cellulosic fuel cost savings with this proposed rule that are estimated using this approach.111 The per-gallon cost difference estimates for cellulosic ethanol ranges from $0.49–$2.65 per ethanol-equivalent gallon.112 Given that cellulosic ethanol production is just starting to become commercially available, the cost estimates have a significant range. Multiplying those pergallon cost differences by the amount of cellulosic biofuel waived in this proposed rule results in approximately $4.0–$22 billion in cost savings. TABLE V.A–1—ILLUSTRATIVE COSTS OF EXERCISING THE CELLULOSIC WAIVER AUTHORITY COMPARED TO THE 2019 STATUTORY VOLUMES BASELINE Cellulosic Volume Required (Million Ethanol-Equivalent Gallons) ...................................................................................................... Change in Required Cellulosic Biofuel from 2019 Statutory Volume (Million Ethanol-Equivalent Gallons) ....................................... Cost Difference Between Cellulosic Corn Kernel Fiber Ethanol and Gasoline Per Gallon ($/Ethanol-Equivalent Gallons) 113 ........ Annual Change in Overall Costs (Million $) 114 ................................................................................................................................... B. Illustrative Costs Analysis of Exercising the Cellulosic Waiver Authority Compared to the 2018 RFS Volumes Baseline amozie on DSK3GDR082PROD with PROPOSALS2 In this section, we provide illustrative cost estimates for EPA exercising its cellulosic waiver authority to reduce statutory cellulosic volumes for 2019 (with corresponding reductions to the 110 EPA projects that 580 million ethanolequivalent gallons of CNG/LNG will be used as transportation fuel in 2019 based on EIA’s April 2018 Short Term Energy Outlook (STEO). To calculate this estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom Table Builder (0.13 billion cubic feet/day in 2019). 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 946.5 BTU per cubic foot of natural gas (lower heating value, per VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 advanced and total renewable fuel volumes) compared to the final 2018 RFS volumes. This results in an increase in cellulosic volumes for the 2019 RFS of 93 gallons (ethanol-equivalent) and an increase in the non-cellulosic advanced biofuel volumes for 2019 of 500 million gallons (ethanolequivalent). calculations using ASTM D1945 and D3588) and 77,000 BTU of natural gas per ethanol-equivalent gallon per § 80.1415(b)(5). 111 Details of the data and assumptions used can be found in a Memorandum available in the docket entitled ‘‘Cost Impacts of the Proposed 2019 Annual Renewable Fuel Standards’’, Memorandum from Michael Shelby, Dallas Burkholder, and Aaron Sobel available in docket EPA–HQ–OAR–2018– 0167. 112 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 PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 381 (8,119) $0.49–$2.65 $(4,000)– $(22,000) 1. Cellulosic Biofuel We anticipate that the increase in proposed 2019 cellulosic biofuel volumes would be composed of 10 million gallons of liquid cellulosic biofuel and 84 million gallons of CNG/ LNG derived from landfill biogas.115 Based upon the methodology outlined above in V.A, we use corn kernel fiber renewable fuel volume are relatively modest. Rather, we have simply used the wholesale price projections for gasoline and diesel as reported in EIA’s April 2018 STEO. 113 For this table and all subsequent tables in this section, approximate costs in per gallon cost difference estimates are rounded to the cents place. 114 For this table and all subsequent tables in this section, approximate resulting costs (other than in per-gallon cost difference estimates) are rounded to two significant figures. 115 These volumes do not add to 93 million gallons due to rounding. E:\FR\FM\10JYP2.SGM 10JYP2 32050 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules as the representative liquid cellulosic biofuel to develop cost estimates of cellulosic ethanol. We estimate a cost difference between cellulosic corn fiberderived ethanol and gasoline of $0.49– $2.65 on an ethanol-equivalent gallon basis. Next, the per-gallon costs of cellulosic renewable fuel are multiplied by the 10 million gallon increase between the proposed 2019 cellulosic volume and the final 2018 cellulosic RFS volume requirements to estimate the total costs from the increase in cellulosic ethanol. For CNG/LNG-derived cellulosic biogas, we provide estimates of the cost of displacing natural gas with CNG/LNG derived from landfill biogas to produce 84 million ethanol-equivalent gallons of cellulosic fuel. To estimate the cost of production of CNG/LNG derived from landfill gas (LFG), EPA uses Version 3.2 of the Landfill Gas Energy Cost Model, or LFG cost-Web. EPA ran the financial cost calculator for projects with a design flow rate of 1,000 and 10,000 cubic feet per minute with the suggested default data and a project start year of 2019. The costs estimated for this analysis exclude any pipeline costs to transport the high BTU gas, as well as any costs associated with compressing the gas to CNG/LNG. These costs are not expected to differ significantly between LFG or natural gas. In addition, the cost estimates excluded the gas collection and control system infrastructure at the landfill, as EPA expects that landfills that begin producing high BTU gas in 2019 are very likely to already have this infrastructure in place.116 To estimate the illustrative cost impacts of the change in CNG/LNG derived from LFG, we compared the cost of production of CNG/LNG derived from LFG in each case to the projected price for natural gas in 2019 in EIA’s April 2018 STEO.117 Finally, we converted these costs to an ethanolequivalent gallon basis. The resulting cost estimates are shown in Table V.B.2–1. Adding the cost of cellulosic ethanol to the costs of CNG/LNG landfill gas, the total costs of the proposed 2019 cellulosic volume compared to 2018 RFS cellulosic volume range from $2.3–$32 million. 2. Advanced Renewable Fuel EPA provides a range of illustrative cost estimates for the increases in the advanced standard of 500 million ethanol-equivalent gallons using two different advanced biofuels. In the first scenario, we assume that all the increase in advanced biofuel volumes is comprised of soybean oil BBD. In the second scenario, we assume that all the increase in the advanced volume is comprised of sugarcane ethanol from Brazil. Consistent with the analysis in previous annual RFS volume rules, a ‘‘bottom-up’’ engineering cost analysis is used that quantifies the costs of producing a gallon of soybean-based biodiesel and then compares that cost to the energy-equivalent gallon of petroleum-based diesel. We compare the cost of biodiesel and diesel fuel at the wholesale stage, since that is when the two are blended together and represents the approximate costs to society absent transfer payments and any additional infrastructure costs. On this basis, EPA estimates the costs of producing and transporting a gallon of biodiesel to the blender in the U.S. To estimate the illustrative costs of sugarcane ethanol, we compare the cost of sugarcane ethanol and gasoline at the wholesale stage, since that is when the two are blended together and represents the approximate costs to society absent transfer payments and any additional infrastructure costs (e.g., blender pumps). On this basis, EPA estimates the costs of producing and transporting a gallon of sugarcane ethanol to the blender in the U.S. More background information on the cost assessment described in 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.118 Table VI.B.2–1 below also presents estimates of per energy-equivalent gallon costs for producing: (1) Soybean biodiesel (in ethanol-equivalent gallons) and (2) Brazilian sugarcane ethanol, relative to the petroleum fuels they replace at the wholesale level. For each of the fuels, these per-gallon costs are then multiplied by the increase in the 2019 non-cellulosic advanced volume relative to the 2018 final advanced standard volume to obtain an overall cost increase of $380–$710 million. In addition, in Table V.B.2–1, we also present estimates of the total cost of this proposal relative to 2018 RFS fuel volumes. We add the increase in cost of the proposed 2019 cellulosic standard volume, $2.3–$32 million, with the additional costs of the increase in noncellulosic advanced biofuel volumes resulting from the proposed 2019 advanced standard volume, $380–$710 million. The overall total costs of this proposal range from $380–$740 million. TABLE V.B.2–1—ILLUSTRATIVE COSTS OF EXERCISING THE CELLULOSIC WAIVER AUTHORITY COMPARED TO THE 2018 RFS VOLUMES BASELINE Cellulosic Volume Corn Kernel Fiber Cellulosic Ethanol Costs: Cost Difference Between Cellulosic Corn Kernel Fiber Ethanol and Gasoline Per Gallon ($/Ethanol-Equivalent Gallons) ...... Annual Increase in Overall Costs (Million $) ................................................................................................................................ CNG/LNG Derived from Biogas Costs: Cost Difference Between CNG/LNG Derived from Landfill Biogas and Natural Gas Per Gallon (/Ethanol-Equivalent Gallons) Annual Increase in Overall Costs (Million $) ................................................................................................................................ Annual Increase in Costs with Cellulosic Volume ............................................................................................................................... (Million $) ............................................................................................................................................................................................. $0.49–$2.65 4.9–26 (0.03)–0.08 (2.6)–6.4 2.3–32 amozie on DSK3GDR082PROD with PROPOSALS2 Advanced Volume Soybean Biodiesel Scenario: Cost Difference Between Soybean Biodiesel and Petroleum Diesel Per Gallon (/Ethanol-Equivalent Gallons) ........................ Annual Increase in Overall Costs (Million $) ................................................................................................................................ Brazilian Sugarcane Ethanol Scenario: Cost Difference Between Sugarcane Ethanol and Gasoline Per Gallon (/Ethanol-Equivalent Gallons) .................................... Annual Increase in Overall Costs (Million $) ................................................................................................................................ 116 Ibid. VerDate Sep<11>2014 117 Henry Hub Spot price estimate for 2019. Energy Information Administration (EIA), Short 20:04 Jul 09, 2018 Jkt 244001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 1.04–1.43 520–710 0.76–1.22 380–610 Term Energy Outlook (STEO) available in docket EPA–HQ–OAR–2018–0167. E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 32051 TABLE V.B.2–1—ILLUSTRATIVE COSTS OF EXERCISING THE CELLULOSIC WAIVER AUTHORITY COMPARED TO THE 2018 RFS VOLUMES BASELINE—Continued Annual Increase in Overall Costs with Non-Cellulosic Advanced Volume (Million $) ........................................................................ 380–710 Cellulosic and Advanced Volumes Annual Increase in Overall Costs with Cellulosic and Advanced Volume .......................................................................................... (Million $) ............................................................................................................................................................................................. amozie on DSK3GDR082PROD with PROPOSALS2 The annual volume-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 proposed 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 may include infrastructure costs, investment, lifecycle GHG emissions and air quality impacts, and energy security benefits, which all are to some degree affected by the annual volumes. For example, we do not have a quantified estimate of the lifecycle GHG or energy security benefits for a single year (e.g., 2019). 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. While some of these impacts were analyzed in the 2010 final rulemaking that established the current RFS program,119 we have not analyzed these impacts for the 2019 volume requirements. VI. Biomass-Based Diesel Volume for 2020 In this section we discuss the proposed BBD applicable volume for 2020. We are proposing 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 proposing the BBD percentage standards that would apply to obligated parties in 2020 but intend to do so in late 2019, after receiving EIA’s estimate of gasoline and diesel consumption for 2020. Although the BBD applicable volume sets a floor for 119 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 20:04 Jul 09, 2018 Jkt 244001 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 2020 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 PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 380–740 less than the applicable volume specified in the statute for calendar year 2012, which is 1.0 billion gallons.120 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. In general, 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 2020 Applicable Volume of Biomass-Based Diesel One of the primary considerations in determining the BBD volume for 2020 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. Table VI.B.1–1 below shows, for 2011–2017, the number of BBD RINs generated, the number of RINs retired due to export, the number of RINs retired for reasons other than compliance with the annual BBD standards, the consequent number of available BBD RINs, and the BBD and 120 See E:\FR\FM\10JYP2.SGM CAA section 211(o)(2)(B)(v). 10JYP2 32052 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules advanced biofuel standards for 2011– 2019. TABLE VI.B.1–1—BIOMASS-BASED DIESEL (D4) RIN GENERATION AND ADVANCED BIOFUEL AND BIOMASS-BASED DIESEL STANDARDS IN 2011–2019 [Million RINs or gallons] 121 BBD RINs generated 2011 2012 2013 2014 2015 2016 2017 2018 2019 ............................. ............................. ............................. ............................. ............................. ............................. ............................. ............................. ............................. Exported BBD (RINs) 1,692 1,737 2,739 2,710 2,796 4,008 3,849 N/A N/A BBD RINs retired, noncompliance reasons 72 102 124 134 145 203 244 N/A N/A Available BBD RINs a 98 90 101 92 32 96 35 N/A N/A BBD standard (gallons) BBD standard (RINs) 800 1,000 1,280 1,630 1,730 1,900 2,000 2,100 2,100 1,200 1,500 1,920 b 2,490 b 2,655 2,850 3,000 3,150 3,150 1,522 1,545 2,514 2,484 2,619 3,709 3,570 N/A N/A Advanced biofuel standard (RINs) 1,350 2,000 2,750 2,670 2,880 3,610 4,280 4,290 4,880 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. While some fuels that qualify as BBD generate more than 1.5 RINs per gallon, EPA multiplies the required volume of BBD by 1.5 in calculating the percent standard per 80.1405(c). In 2014 and 2015 however, 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, rather than by multiplying the required volume of BBD by 1.5. Some of the volume used to meet the BBD standard in these years was renewable diesel, with an equivalence value higher than 1.5. amozie on DSK3GDR082PROD with PROPOSALS2 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, 2016 and 2017. 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,122 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.123 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 121 Available BBD RINs Generated, Exported BBD RINs, and BBD RINs Retired for Non-Compliance Reasons information from EMTS. 122 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. In February 2018 the biodiesel tax credit was authorized and applied retroactively for all of 2017. 123 See 80 FR 77490–92, 77495 (December 14, 2015). VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 BBD standard by 859 million RINs (30 percent). In 2017, the RFS standards were established prior to the beginning of the year, and the blenders tax credit was only applied retroactively; even without the certainty of a tax credit, the available BBD RINs exceeded the volume required by the BBD standard by 570 million RINs (19 percent). This indicates that in appropriate circumstances there is demand for BBD beyond the required volume of BBD. We also note that while EPA has consistently established the required volume in such a way as to allow nonBBD fuels to compete for market share in the advanced biofuel category, since 2016 the vast majority of non-cellulosic advanced biofuel used to satisfy the advanced biofuel obligations has been BBD. The prices paid for advanced biofuel and BBD RINs beginning in early 2013 through the March 2018 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.124 If, 124 This is because when an obligated party retires a BBD RIN (D4) to help satisfy their BBD obligation, the nested nature of the BBD standard means that PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 however, BBD RINs are being used (or are expected to be 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.125 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 March 2018, shown in Figure VI.B.2–1 below, we see that beginning in early 2013 and through March 2018 (the last month for which data are available) 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 this RIN also counts towards satisfying their advanced and total renewable fuel obligations. Advanced RINs (D5) count towards both the advanced and total renewable fuel obligations, while conventional RINs (D6) count towards only the total renewable fuel obligation. 125 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. E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 32053 proposed BBD standard in order to help satisfy the proposed advanced and total biofuel standards.128 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. 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.’’ 129 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.130 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. 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 had the potential to increase 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 126 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.) 127 See 80 FR 33100 (2014–16 standards proposed June 10, 2015); 78 FR 71732 (2014 standards proposed Nov. 29, 2013). 128 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. 129 77 FR 59458, 59462. 130 594 million advanced ethanol RINs were generated in 2012. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 E:\FR\FM\10JYP2.SGM 10JYP2 EP10JY18.004</GPH> amozie on DSK3GDR082PROD with PROPOSALS2 standard. The advanced biofuel standard has incentivized additional volumes of BBD since 2013, while the total standard had incentivized additional volumes of BBD from 2013 through 2016.126 While final standards were not in place throughout 2014 and most of 2015, EPA had issued proposed rules for both of these years.127 In each year, the market response was to supply volumes of BBD that exceeded the 32054 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 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. The RIN generation data also show that while EPA has consistently preserved the opportunity for fuels other that BBD to contribute towards satisfying the required volume of advanced biofuel, these other advanced biofuels have not been supplied in significant quantities since 2013. TABLE VI.B.1–2—OPPORTUNITY FOR AND RIN GENERATION OF ‘‘OTHER’’ ADVANCED BIOFUELS [Million RINs] Opportunity for ‘‘other’’ advanced biofuels a Available advanced (D5) RINs Available BBD (D4) RINs in excess of the BBD requirement b 150 500 829 192 162 530 969 225 597 552 143 147 97 144 322 45 594 39 24 903 570 2011 ............................................................................................................................................. 2012 ............................................................................................................................................. 2013 ............................................................................................................................................. 2014 c ........................................................................................................................................... 2015 c ........................................................................................................................................... 2016 ............................................................................................................................................. 2017 ............................................................................................................................................. amozie on DSK3GDR082PROD with PROPOSALS2 a The required volume of ‘‘other’’ advanced biofuel is calculated by subtracting the number of cellulosic biofuel and BBD RINs required each year from the number of advanced biofuel RINs required. This portion of the advanced standard can be satisfied by advanced (D5) RINs, BBD RINs in excess of those required by the BBD standard, or cellulosic RINs in excess of those required by the cellulosic standard. b The available BBD (D4) RINs in excess of the BBD requirement is calculated by subtracting the number of BBD RINs required each year from the number of BBD RINs available for compliance in that year. This number does not include carryover RINs. c The 2014 and 2015 volume requirements were established in November 2015 and were set equal to the number of RINs projected to be available for each year. In 2014 and 2015, EPA set the BBD and advanced standards at actual RIN generation, and thus the space between the advanced biofuel standard and the biodiesel standard was unlikely to provide an incentive for ‘‘other’’ advanced biofuels. EPA now has data on the amount of ‘‘other’’ advanced biofuels produced in 2016 and 2017 as shown in the table above. For 2016 and 2017, the gap between the BBD standard and the advanced biofuel provided an opportunity for ‘‘other’’ advanced biofuels to be generated to satisfy the advanced biofuel standard. While EPA allowed for up to 530 million and 969 million gallons of ‘‘other’’ advanced for 2016 and 2017 respectively, only 97 million and 144 million gallons of ‘‘other’’ advanced biofuels were generated. This is significantly less than the volumes of ‘‘other’’ advanced available in 2012–2013. Despite creating space within the advanced biofuel standard for ‘‘other’’ advanced, in recent years, that space has not been filled with significant volumes of ‘‘other’’ advanced and BBD continues to fill most of the gap between the BBD standard and the advanced standard. Thus, while the advanced biofuel standard is sufficient to drive biodiesel volume separate and apart from the BBD standard, there would not appear to be VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 a compelling reason to increase the ‘‘space’’ maintained for ‘‘other’’ advanced biofuel volumes. The overall volume of non-cellulosic advanced biofuel volume is proposed to increase by 500 million gallons for 2019. Increasing the BBD volume by the same amount would preserve the space already available for other advanced biofuels to compete. At the same time, the rationale for preserving the ‘‘space’’ for ‘‘other’’ advanced biofuels remains. 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 in 2012 and 2017 (the most recent year for which complete RIN generation by company 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.131 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 2017, the average BBD RIN generation per company had climbed to almost 33 million RINs (22 million gallons) annually, a 3-fold increase. Only 33 percent of the companies produced less than 1 million gallons of BBD in 2017.132 We are conscious of public comments claiming that BBD volume requirements that are a significant portion of the advanced volume requirements effectively disincentivize the future development of other promising advanced biofuel pathways.133 A variety of different types of advanced biofuels, rather than a single type such as BBD, would increase energy security (e.g., by increasing the diversity of feedstock sources used to make biofuels, thereby 132 Id. RIN Generation by Company 2012, 2016, and 2017 CBI,’’ available in EPA docket EPA– HQ–OAR–2017–0167. PO 00000 131 ‘‘BBD Frm 00032 Fmt 4701 Sfmt 4702 133 See, e.g. Comments from National Biodiesel Board on the 2018 Annual Standards, available in EPA docket EPA–HQ–OAR–2017–0167. E:\FR\FM\10JYP2.SGM 10JYP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 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.134 With the considerations discussed above in mind, as well as our analysis of the factors specified in the statute, we are proposing to set the applicable volume of BBD at 2.43 billion gallons for 2020. This increase, in conjunction with the statutory increase of 500 million gallons of non-cellulosic advanced biofuel in 2019, would continue to preserve a gap between the advanced biofuel volume and the sum of the cellulosic biofuel and BBD volumes. This would allow other advanced biofuels to continue to compete with excess volumes of BBD for market share under the advanced biofuel standard. We believe this volume sets the appropriate floor for BBD, and that the volume of advanced biodiesel and renewable diesel actually used in 2020 will be driven by the level of the advanced biofuel and total renewable fuel standards that the Agency will establish for 2020. It also recognizes that while maintaining an opportunity for other advanced biofuels is important, the vast majority of the advanced biofuel used to comply with the advanced biofuel standard in recent years has been BBD. Based on information now available from 2016 and 2017, despite providing a significant degree of space for ‘‘other’’ advanced biofuels, smaller volumes of ‘‘other’’ advanced have been utilized to meet the advanced standard. EPA believes that the BBD standard we are proposing to set today still provides sufficient incentive to producers of ‘‘other’’ advanced biofuels, while also acknowledging that the advanced standard has been met predominantly with biomass-based diesel. Our assessment of the required statutory factors, summarized in the next section and detailed in a memorandum to the docket (the ‘‘2020 BBD docket memorandum’’), supports our proposal.135 We request comment on the biomass-based diesel volume requirement for 2020. We believe this approach strikes the appropriate balance between providing a market environment where the development of other advanced biofuels is incentivized, while also maintaining 134 All types of advanced biofuel, including BBD, must achieve lifecycle GHG reductions of at least 50 percent. See CAA section 211(o)(1)(B)(i), (D). 135 ‘‘Memorandum to docket: Draft Statutory Factors Assessment for the 2020 Biomass-Based Diesel (BBD) Applicable Volumes.’’ See Docket EPA–HQ–OAR–2018–0167. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 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 advanced standard continues to drive the ultimate volume of BBD supplied. However, given that BBD has been the predominant source of advanced biofuel in recent years and the 500 million gallon increase in noncellulosic advanced biofuel we are proposing in this rule, we are proposing a volume of 2.43 billion gallons of BBD for 2020. Setting the BBD standard in this manner would preserve a considerable portion of the advanced biofuel volume that could 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 2020 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.136 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.137 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. EPA is proposing to increase the BBD volume for 2020 to 2.43 billion gallons from 2.1 billion gallons in 2019 based on our review of the statutory factors and the other considerations noted above and in the 2020 BBD Docket Memorandum. This increase, in conjunction with the statutory increase of 500 million gallons of non-cellulosic advanced biofuel in CAA section 211(o)(2)(B)(i)(IV), (II). excess BBD production could also displace conventional renewable fuel under the total renewable standard, as long as the BBD applicable volume is 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. We acknowledge, however, that under certain market conditions excess volumes of BBD may also be used to displace conventional biofuels. PO 00000 136 See 137 While Frm 00033 Fmt 4701 Sfmt 4702 32055 2019, would preserve a gap for ‘‘other’’ advanced biofuels, that is the difference between the advanced biofuel volume and the sum of the cellulosic biofuel and BBD volumes. This would allow other advanced biofuels to continue to compete with excess volumes of BBD for market share under the advanced biofuel standard, while also supporting further growth in the BBD industry. Consistent with our approach in setting the final BBD volume requirement for 2019, EPA’s primary assessment of the statutory factors for the 2020 BBD applicable volume is that because the BBD requirement is nested within the advanced biofuel volume requirement, we expect that the 2020 advanced volume requirement, when set next year, will determine the level of BBD production and imports that occur in 2020.138 Therefore, EPA continues to believe that approximately the same overall volume of BBD would likely be supplied in 2020 even if we were to mandate a somewhat lower or higher BBD volume for 2020 in this final rule. Thus, we do not expect our 2020 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 2.43 billion gallons in 2020. Even if BBD volumes were to be impacted by the 2020 BBD standard (which as noted above we do not currently expect), setting a requirement higher or lower than 2.43 billion gallons in 2020 would only be expected to affect BBD volumes minimally, 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(o)(2)(B)(ii), and as described in the 2020 BBD docket memorandum, our assessment does not, based on available information, lead us to conclude that a higher or lower volume requirement for BBD than 2.43 billion gallons is more appropriate for 2020. Overall and as described in the 2020 BBD docket memorandum, we have determined that both the primary assessment and the supplemental 138 Even though we are not proposing to set the 2020 advanced biofuel volume requirement as part of this rulemaking, we expect that, as in the past, the 2020 advanced volume requirement will be higher than the 2020 BBD requirement, and, therefore, that the BBD volume requirement for 2020 would not be expected to impact the volume of BBD that is actually produced and imported during the 2020-time period. E:\FR\FM\10JYP2.SGM 10JYP2 32056 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules assessment of the statutory factors specified in CAA section 211(o)(2)(B)(ii)(I)–(VI) for the year 2020 does not lead us to conclude that we should set the BBD standard at a level higher or lower than 2.43 billion gallons in 2020. VII. Percentage Standards for 2019 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. Sections II through V provide our rationale and basis for the proposed volume requirements for 2019.139 The volumes used to determine the proposed percentage standards are shown in Table VII–1. TABLE VII–1—VOLUMES FOR USE IN DETERMINING THE PROPOSED 2019 APPLICABLE PERCENTAGE STANDARDS Cellulosic biofuel ......................................................................... Biomass-based diesel ................................................................. Advanced biofuel ........................................................................ Renewable fuel ........................................................................... 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. amozie on DSK3GDR082PROD with PROPOSALS2 A. Calculation of Percentage Standards To calculate the percentage standards, we are following the same methodology for 2019 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 renewable fuel 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 139 The 2019 volume requirement for BBD was established in the 2018 final rule. 140 See 75 FR 14670 (March 26, 2010). VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 Million ethanol-equivalent gallons .............................................. Billion gallons ............................................................................. Billion ethanol-equivalent gallons .............................................. Billion ethanol-equivalent gallons .............................................. 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 under § 80.1407. As specified in the RFS2 final rule,140 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 in order to calculate a percentage standard that is on the same basis (i.e., ethanol-equivalent) as the other three standards. However, BBD often contains some renewable diesel, and a gallon of renewable diesel typically generates 1.7 RINs.141 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 volumes for purposes of deriving the applicable volume requirements and associated percentage 141 In some cases a gallon of renewable diesel generates either 1.5 or 1.6 RINs. PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 381 2.1 4.88 19.88 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 in 2019. 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 refineries142 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 disproportionate economic hardship, 142 A small refiner that meets the requirements of 40 CFR 80.1442 may also be eligible for an exemption. E:\FR\FM\10JYP2.SGM 10JYP2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules and may grant refineries exemptions upon such demonstration. EPA has granted exemptions pursuant to this process in the past. However, at this time no exemptions have been approved for 2019, and therefore we have calculated the percentage standards for 2019 without any adjustment for exempted volumes. EPA is maintaining its approach that any exemptions for 2019 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 2019. EPA is not soliciting comments on how small refinery exemptions are accounted for in the percentage standards formulas in 40 CFR 80.1405, and any such comments will be deemed beyond the scope of this rulemaking. C. Proposed Standards The formulas in 40 CFR 80.1405 for the calculation of the percentage 32057 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–1.143 TABLE VII.C–1—VALUES FOR TERMS IN CALCULATION OF THE PROPOSED 2019 STANDARDS 144 [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 .......................................................................... 0.381 2.10 4.88 19.88 143.76 56.46 14.74 2.83 0.00 0.00 0.00 0.00 0.00 0.00 Information (CBI) or information that is otherwise protected by statute, please follow the instructions in Section VIII.B below. EPA will also hold a public hearing on this proposed rule. We will announce the public hearing date and location for this proposal in a supplemental Federal Register document. We are opening a formal comment period by publishing this document. We will accept comments during the period indicated under the DATES section above. If you have an interest in the proposed standards, we encourage you to comment on any aspect of this rulemaking. We also request comment on specific topics identified throughout this proposal. Your comments will be most useful if you include appropriate and detailed supporting rationale, data, and analysis. Commenters are especially encouraged to provide specific suggestions for any changes that they believe need to be made. You should send all comments, except those containing proprietary information, to our Docket (see ADDRESSES section above) by the end of the comment period. You may submit comments electronically through the electronic public docket, www.regulations.gov, by mail to the address shown in ADDRESSES, or through hand delivery/ courier. To ensure proper receipt by EPA, identify the appropriate docket identification number in the subject line on the first page of your comment. Please ensure that your comments are submitted within the specified comment period. Comments received after the close of the comment period will be marked ‘‘late.’’ EPA is not required to consider these late comments. If you wish to submit Confidential Business 143 To determine the 49-state values for gasoline and diesel, the amount of these fuels used in Alaska is subtracted from the totals provided by EIA because petroleum based fuels used in Alaska do not incur RFS obligations. The Alaska fractions are determined from the June 30, 2017 EIA State Energy Data System (SEDS), Energy Consumption Estimates. 144 See ‘‘Calculation of proposed % standards for 2019’’ in docket EPA–HQ–OAR–2018–0167. Projectedvolumes of gasoline and diesel, and the renewable fuels contained within them, were derived from the April 2018 version of EIA’s Short-Term Energy Outlook. Using the volumes shown in Table VII.C–1, we have calculated the proposed percentage standards for 2019 as shown in Table VII.C–2. TABLE VII.C–2—PROPOSED PERCENTAGE STANDARDS FOR 2019 Cellulosic biofuel ................... Biomass-based diesel .......... Advanced biofuel .................. Renewable fuel ..................... 0.209 1.72 2.67 10.88 VIII. Public Participation We request comment on all aspects of this proposal. This section describes how you can participate in this process. A. How do I submit comments? amozie on DSK3GDR082PROD with PROPOSALS2 Value VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 B. How should I submit CBI to the agency? Do not submit information that you consider to be CBI electronically through the electronic public docket, www.regulations.gov, or by email. Send or deliver information identified as CBI only to the following address: U.S. Environmental Protection Agency, Assessment and Standards Division, 2000 Traverwood Drive, Ann Arbor, MI 48105, Attention Docket ID EPA–HQ– OAR–2018–0167. You may claim information that you submit to EPA as CBI by marking any part or all of that information as CBI (if you submit CBI on disk or CD ROM, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is E:\FR\FM\10JYP2.SGM 10JYP2 32058 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules CBI). Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. In addition to one complete version of the comments that include any information claimed as CBI, a copy of the comments that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. This non-CBI version of your comments may be submitted electronically, by mail, or through hand delivery/courier. If you submit the copy that does not contain CBI on disk or CD ROM, mark the outside of the disk or CD ROM clearly that it does not contain CBI. Information not marked as CBI will be included in the public docket without prior notice. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the FOR FURTHER INFORMATION CONTACT section. IX. 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 V of this preamble. B. Executive Order 13771: Reducing Regulations and Controlling Regulatory Costs This action is expected to be an Executive Order 13771 regulatory action. Details on the estimated costs of this proposed rule can be found in EPA’s analysis of the illustrative costs associated with this action. This analysis is presented in Section V of this preamble. amozie on DSK3GDR082PROD with PROPOSALS2 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 proposed standards will not impose new or different reporting requirements on regulated parties than already exist for the RFS program. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 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 proposed rule on small entities from two perspectives: As if the 2019 standards 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 cellulosic biofuel volume by 93 million gallons and the advanced and total renewable fuel volumes required of obligated parties by 590 million gallons between 2018 and 2019. To evaluate the impacts of the volume requirements on small entities relative to 2018, EPA has conducted a screening analysis 145 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.146 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 145 ‘‘Screening Analysis for the Proposed Renewable Fuel Standards for 2019,’’ memorandum from Dallas Burkholder, Nick Parsons, and Tia Sutton to EPA Air Docket EPA–HQ–OAR–2018– 0167. 146 For a further discussion of the ability of obligated parties to recover the cost of RINs see ‘‘Denial of Petitions for Rulemaking to Change the RFS Point of Obligation,’’ EPA–420–R–17–008, November 2017. PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 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 V of this preamble and the gasoline and diesel fuel volume projections and wholesale prices from the April 2018 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. 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 as required by 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 proposed rule would not impose any additional requirements on small entities beyond those already analyzed, since the impacts of this rule are not E:\FR\FM\10JYP2.SGM 10JYP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules 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 proposes to increase the 2019 cellulosic biofuel volume requirement by 93 million gallons and the advanced and total renewable fuel volume requirements by 590 million gallons relative to the 2018 volume requirements, but those volumes remain significantly below the statutory volume targets analyzed in the RFS2 final rule. 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 proposing to increase the volume requirement for 2020 by 330 million gallons relative to the 2019 volume requirement we finalized in the 2018 final rule. 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 proposing to set the 2020 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 proposed 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, we realize that there may be cases in which a small entity may be in a difficult financial situation VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 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.147 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 the refinery is experiencing a ‘‘disproportionate economic hardship.’’ EPA regulations provide similar relief to small refiners that are not eligible for small refinery relief (see 40 CFR 80.1442(h)). EPA has currently identified a total of 10 small refiners that own 12 refineries subject to the RFS program, all of which have been identified as being small refineries. 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 20 small refineries for the 2016 RFS standards (3 of which were owned by a small refiner) and 29 small refineries for the 2017 RFS standards (8 of which were owned by a small refiner).148 Given that this proposed 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 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. CAA section 211(o)(9)(B). is currently evaluating 4 additional 2017 petitions, bringing the total number of petitions for 2017 to 33. PO 00000 147 See 148 EPA Frm 00037 Fmt 4701 Sfmt 4702 32059 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. 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 proposed 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 proposes the required renewable fuel content of the transportation fuel supply for 2019, consistent with the CAA and waiver authorities provided therein. The RFS program and this rule are designed to E:\FR\FM\10JYP2.SGM 10JYP2 32060 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Proposed Rules achieve positive effects on the nation’s transportation fuel supply, by increasing energy independence and security and lowering lifecycle GHG emissions of transportation fuel. J. National Technology Transfer and Advancement Act (NTTAA) This rulemaking does not involve technical standards. amozie on DSK3GDR082PROD with PROPOSALS2 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 proposed 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. VerDate Sep<11>2014 20:04 Jul 09, 2018 Jkt 244001 X. 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 proposed 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: June 26, 2018. E. Scott Pruitt, Administrator. For the reasons set forth in the preamble, EPA proposes to amend 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: ■ PO 00000 Frm 00038 Fmt 4701 Sfmt 9990 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 new paragraph (a)(10) to read as follows: ■ § 80.1405 What are the Renewable Fuel Standards? (a) * * * (10) Renewable Fuel Standards for 2019. (i) The value of the cellulosic biofuel standard for 2019 shall be 0.209 percent. (ii) The value of the biomass-based diesel standard for 2019 shall be 1.72 percent. (iii) The value of the advanced biofuel standard for 2019 shall be 2.67 percent. (iv) The value of the renewable fuel standard for 2019 shall be 10.88 percent. * * * * * [FR Doc. 2018–14448 Filed 7–9–18; 8:45 am] BILLING CODE 6560–50–P E:\FR\FM\10JYP2.SGM 10JYP2

Agencies

ENVIRONMENTAL PROTECTION AGENCY

[Federal Register Volume 83, Number 132 (Tuesday, July 10, 2018)]
[Proposed Rules]
[Pages 32024-32060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14448]



[[Page 32023]]

Vol. 83

Tuesday,

No. 132

July 10, 2018

Part III





 Environmental Protection Agency





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40 CFR Part 80





 Renewable Fuel Standard Program: Standards for 2019 and Biomass-Based 
Diesel Volume for 2020; Proposed Rule

Federal Register / Vol. 83 , No. 132 / Tuesday, July 10, 2018 / 
Proposed Rules

[[Page 32024]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2018-0167; FRL-9980-37-OAR]
RIN 2060-AT93


Renewable Fuel Standard Program: Standards for 2019 and Biomass-
Based Diesel Volume for 2020

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed 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 proposes 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 2019. Relying on 
statutory waiver authority that is available when the projected 
cellulosic biofuel production volume is less than the applicable volume 
specified in the statute, EPA is proposing volume requirements for 
cellulosic biofuel, advanced biofuel, and total renewable fuel that are 
below the statutory volume targets. We are also proposing the 
applicable volume of biomass-based diesel for 2020.

DATES: 
    Comments. Comments must be received on or before August 17, 2018.
    Public Hearing. EPA will announce the public hearing date and 
location for this proposal in a supplemental Federal Register document.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2018-0167, at https://www.regulations.gov. Follow the online 
instructions for submitting comments. Once submitted, comments cannot 
be edited or removed from Regulations.gov. The EPA may publish any 
comment received to its public docket. Do not submit electronically any 
information you consider to be Confidential Business Information (CBI) 
or other information whose disclosure is restricted by statute. 
Multimedia submissions (audio, video, etc.) must be accompanied by a 
written comment. The written comment is considered the official comment 
and should include discussion of all points you wish to make. The EPA 
will generally not consider comments or comment contents located 
outside of the primary submission (i.e., on the web, cloud, or other 
file sharing system). For additional submission methods, the full EPA 
public comment policy, information about CBI or multimedia submissions, 
and general guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.

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

----------------------------------------------------------------------------------------------------------------
                                           NAICS \1\                        Examples of potentially affected
               Category                      codes       SIC \2\ codes                  entities
----------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------
\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC).

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

Outline of This Preamble

I. Executive Summary
    A. Summary of Major Provisions in This Action
    1. Approach to Setting Volume Requirements
    2. Cellulosic Biofuel
    3. Advanced Biofuel
    4. Total Renewable Fuel
    5. 2020 Biomass-Based Diesel
    6. Annual Percentage Standards
    B. RIN Market Operations
    C. EPA Response to Court Decision in Americans for Clean Energy 
v. EPA
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. Carryover RIN Bank Size
    2. EPA's Proposed Decision Regarding the Treatment of Carryover 
RINs
III. Cellulosic Biofuel Volume for 2019
    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. Cellulosic Biofuel Volume for 2019
    1. Liquid Cellulosic Biofuel
    2. CNG/LNG Derived From Biogas
    3. Total Cellulosic Biofuel in 2019
IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019
    A. Volumetric Limitation on Use of the Cellulosic Waiver 
Authority
    B. Attainable Volumes of Advanced Biofuel
    1. Imported Sugarcane Ethanol
    2. Other Advanced Biofuel
    3. Biodiesel and Renewable Diesel
    C. Proposed Volume Requirement for Advanced Biofuel
    D. Proposed Volume Requirement for Total Renewable Fuel
V. Impacts of 2019 Volumes on Costs
    A. Illustrative Costs Analysis of Exercising the Cellulosic 
Waiver Authority

[[Page 32025]]

Compared to the 2019 Statutory Volumes Baseline
    B. Illustrative Costs Analysis of Exercising the Cellulosic 
Waiver Authority Compared to the 2018 RFS Volumes Baseline
VI. Biomass-Based Diesel Volume for 2020
    A. Statutory Requirements
    B. Determination of the 2020 Applicable Volume of Biomass-Based 
Diesel
    C. Consideration of Statutory Factors Set Forth in CAA Section 
211(o)(2)(B)(ii)(I)-(VI) for 2020
VII. Percentage Standards for 2019
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Proposed Standards
VIII. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the Agency?
IX. 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
X. 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] increase[ing] 
the production of clean renewable fuels.'' \2\
---------------------------------------------------------------------------

    \1\ 75 FR 14670, March 26, 2010.
    \2\ Public Law 110-140, 121 Stat. 1492 (2007). Hereinafter, 
``EISA.''
---------------------------------------------------------------------------

    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 proposing the applicable volumes for 
cellulosic biofuel, advanced biofuel, and total renewable fuel for 
2019, and biomass-based diesel (BBD) for 2020.\3\ We are also proposing 
the annual percentage standards (also known as ``percent standards'') 
for cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel 
that would apply to all gasoline and diesel produced or imported in 
2019.\4\
---------------------------------------------------------------------------

    \3\ The 2019 BBD volume requirement was established in the 2018 
final rule.
    \4\ For a list of the statutory provisions for the determination 
of applicable volumes, see the 2018 final rule (82 FR 58486; Table 
I.A-2).
---------------------------------------------------------------------------

    Today, nearly all gasoline used for transportation purposes 
contains 10 percent ethanol (E10), and on average diesel fuel contains 
nearly 5 percent biodiesel and/or renewable diesel.\5\ However, the 
market has fallen well short of the statutory volumes for cellulosic 
biofuel, resulting in shortfalls in the advanced biofuel and total 
renewable fuel volumes. In this action, we are proposing a volume 
requirement for cellulosic biofuel at the level we project to be 
available for 2019, along with an associated applicable percentage 
standard. For advanced biofuel and total renewable fuel, we are 
proposing reductions under the ``cellulosic waiver authority'' that 
would result in advanced biofuel and total renewable fuel volume 
requirements that are lower than the statutory targets by the same 
magnitude as the reduction in the cellulosic biofuel reduction. This 
would effectively maintain the implied statutory volumes for non-
cellulosic advanced biofuel and conventional biofuel.\6\
---------------------------------------------------------------------------

    \5\ Average biodiesel and/or renewable diesel blend percentages 
based on EIA's April 2018 Short Term Energy Outlook (STEO).
    \6\ The statutory total renewable fuel, advanced biofuel and 
cellulosic biofuel requirements for 2019 are 28.0, 13.0 and 8.5 
billion gallons respectively. This implies a conventional renewable 
fuel applicable volume (the difference between the total renewable 
fuel and advanced biofuel volumes, which can be satisfied by with 
conventional (D6) RINs) of 15.0 billion gallons, and a non-
cellulosic advanced biofuel applicable volume (the difference 
between the advanced biofuel and cellulosic biofuel volumes, which 
can be satisfied with advanced (D5) RINs) of 4.5 billion gallons.
---------------------------------------------------------------------------

    The resulting proposed volume requirements for 2019 are shown in 
Table I-1 below. Relative to the levels finalized for 2018, the 2019 
volume requirements for advanced biofuel and total renewable fuel would 
be higher by 590 million gallons. Approximately 90 million gallons of 
this increase would be due to the increase in the projected production 
of cellulosic biofuel in 2019 relative to 2018. We are also proposing 
to establish the volume requirement for BBD for 2020 at 2.43 billion 
gallons. This volume is 330 million gallons higher than the volume for 
2019.

                                   Table I-1--Proposed Volume Requirements \a\
----------------------------------------------------------------------------------------------------------------
                                                                       2019
                                                     2018 \b\        Statutory    2019  Proposed  2020  Proposed
                                                                      volumes         volumes         volumes
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel (million gallons)............             288           8,500             381             n/a
Biomass-based diesel (billion gallons)..........             2.1           >=1.0         \c\ 2.1            2.43
Advanced biofuel (billion gallons)..............            4.29           13.00            4.88             n/a
Renewable fuel (billion gallons)................           19.29           28.00           19.88             n/a
----------------------------------------------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.
\b\ The 2018 volume requirements for cellulosic biofuel, advanced biofuel, and renewable fuel were established
  in the 2018 final rule (82 FR 58486, December 12, 2017). The 2018 BBD volume requirement was established in
  the 2017 final rule (81 FR 89746, December 12, 2016).
\c\ The 2019 BBD volume requirement was established in the 2018 final rule (82 FR 58486, December 12, 2017).


[[Page 32026]]

A. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this final 
rule. We are proposing applicable volume requirements and associated 
percentage standards for cellulosic biofuel, advanced biofuel, and 
total renewable fuel for 2019; for BBD we are proposing the percentage 
standard for 2019 and the applicable volume requirement for 2020.
1. Approach to Setting Volume Requirements
    For advanced biofuel and total renewable fuel, we are proposing 
reductions based on the ``cellulosic waiver authority'' that would 
result in advanced biofuel and total renewable fuel volume requirements 
that are lower than the statutory targets by the same magnitude as the 
reduction in the cellulosic biofuel applicable volume. This follows the 
same general approach as in the 2018 final rule. The proposed volumes 
for cellulosic biofuel, advanced biofuel, and total renewable fuel 
exceed the required volumes for these fuel types in 2018.
    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 2019 cellulosic biofuel 
volume, based on a projection of production that reflects a neutral aim 
at accuracy. Section IV describes our assessment of advanced biofuel 
and total renewable fuel. Finally, Section VI provides our proposal 
regarding the 2020 BBD volume requirement, reflecting a proposed 
analysis of a set of factors stipulated in CAA section 
211(o)(2)(B)(ii).
2. Cellulosic Biofuel
    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 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 this rule we 
are proposing a cellulosic biofuel volume requirement of 381 million 
ethanol-equivalent gallons for 2019 based on our production projection. 
Our projection reflects consideration of RIN generation data for past 
years and 2018 to date that is available to EPA through EMTS; 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 2019 we used the same basic 
methodology described in the 2018 final 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. EPA anticipates that our 
final projection of cellulosic biofuel will be based on additional data 
we will obtain prior to issuing the final rule, including an estimate 
of cellulosic biofuel production for 2019 to be provided by the Energy 
Information Administration (EIA).
3. Advanced Biofuel
    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.'' The conditions that caused us 
to reduce the 2018 volume requirement for advanced biofuel below the 
statutory target remain relevant in 2019. As for 2018, we investigated 
the projected availability of non-cellulosic advanced biofuels in 2019. 
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 uses to the production of advanced biofuel used 
in the U.S., the fact that the biodiesel tax credit is currently not 
available for 2019, the tariffs on imports of biodiesel from Argentina 
and Indonesia, as well as the cost of advanced biofuels. Based on these 
considerations we are proposing to reduce the statutory volume target 
for advanced biofuel by the same amount as we are reducing the 
statutory volume target for cellulosic biofuel. This would result in an 
advanced biofuel volume for 2019 of 4.88 billion gallons, which would 
be 590 million gallons higher than the advanced biofuel volume for 
2018.
4. Total Renewable Fuel
    As for advanced biofuel, we are proposing the maximum reduction 
permissible under the cellulosic waiver authority. We are proposing 
that the reduction in total renewable fuel would be the same as the 
reduction in advanced biofuel, such that the resulting implied volume 
requirement for conventional renewable fuel would be 15 billion 
gallons.
5. 2020 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, provided 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.\7\ For 2016 and 
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons 
respectively. Finally, for 2018 and 2019 the BBD volume requirement was 
set a 2.1 billion gallons. We are proposing to increase the BBD volume 
for 2020 to 2.43 billion gallons.
---------------------------------------------------------------------------

    \7\ 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. While EPA 
continues to believe it is appropriate to maintain the opportunity for 
other advanced biofuels to compete for market share, the vast majority 
of the advanced biofuel obligations in recent years have been satisfied 
with BBD. Thus, after a review of the implementation of the program to 
date and considering the statutory factors, and in light of the 500 
million gallon increase we are proposing for non-cellulosic advanced 
biofuels, we are proposing, in coordination with USDA and DOE, an 
applicable volume of BBD for 2020 of 2.43 billion gallons.\8\
---------------------------------------------------------------------------

    \8\ The proposed 330 million gallon increase for BBD would 
generate approximately 500 million RINs, due to the higher 
equivalence value of biodiesel (1.5 RINs/gallon) and renewable 
diesel (generally 1.7 RINs/gallon).

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

[[Page 32027]]

6. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage 
and are used by each refiner 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 proposed percentage standards 
was based on the April 2018 version of EIA's Short-Term Energy 
Outlook.\9\ The proposed percentage standards for 2019 are shown in 
Table I.B.6-1. Detailed calculations can be found in Section VII, 
including the projected gasoline and diesel volumes used.
---------------------------------------------------------------------------

    \9\ The final percentage standards will be based on the most 
recent gasoline and diesel projected volumes provided by EIA.

            Table I.B.6-1--Proposed 2019 Percentage Standards
------------------------------------------------------------------------
                                                             Proposed
                                                            percentage
                                                             standards
------------------------------------------------------------------------
Cellulosic biofuel......................................           0.209
Biomass-based diesel....................................            1.72
Advanced biofuel........................................            2.67
Renewable fuel..........................................           10.88
------------------------------------------------------------------------

B. RIN Market Operations

    In the rulemaking notice proposing the 2018 RFS volume 
requirements, EPA noted that various stakeholders had raised concerns 
regarding lack of transparency and potential manipulation in the RIN 
market. We asked for comment from the public on those issues, and 
received multiple suggestions from stakeholders in response. Commenters 
suggested a number of potential steps EPA could take, including 
increasing the public availability of data related to the RIN market; 
establishing new regulations relating to the purchase, ownership, and 
retirement of RINs; and increasing coordination with sister federal 
agencies. Since receiving those comments, we have held additional 
meetings with stakeholders on these topics, through which we have 
continued to hear various perspectives on RIN market operations and 
potential changes.
    A number of the comments received in response to the 2018 NPRM 
suggested increasing the amount of data related to the RIN market that 
EPA makes publicly available. For example, commenters urged EPA to 
consider increasing the frequency at which currently available 
information is posted. EPA is currently exploring the possibility of 
posting regular updates to the number of RINs we anticipate will be 
required for compliance. These updates could take into account several 
factors, such as updated information on gasoline and diesel consumption 
throughout the year, the impact of small refinery exemptions, and the 
volume of renewable fuel exported from the United States for which RINs 
were generated, and would thus need to be retired. EPA is also 
considering publicly posting average RIN prices based on the price 
information submitted to EPA through EMTS. Other information that may 
be of interest to the public could be aggregated information related to 
the number of RINs held by different categories of entities, such as 
renewable fuel producers, obligated parties, and parties that neither 
produce renewable fuel nor have an RVO under the RFS program. Finally, 
we are considering whether there may be value in increasing the 
frequency of the release of data that is already posted publicly, such 
as information related to RIN generation by D-code and fuel type.
    Stakeholders have also suggested ways EPA could amend the RFS 
regulations to change rules related to who may purchase RINs, the 
duration for which RINs could be held, and other rules related to the 
buying, selling, or holding of RINs. The goal of such changes would be 
to minimize or eliminate potential manipulation in the market. EPA is 
currently considering a handful of ideas, including: Prohibiting 
parties other than obligated parties from purchasing separated RINS; 
requiring public disclosure if a party holds a certain percentage of 
the RIN market; and/or requiring obligated parties to retire RINs for 
compliance purposes on a more frequent basis (e.g., requiring monthly 
compliance). EPA requests comment on the expected impact that these 
specific potential regulatory changes could have on the RIN market, 
positively or negatively, as well as on any other potential regulatory 
changes commenters may recommend to address perceived vulnerabilities 
in the RIN market. Today's action is not proposing to make any such 
regulatory changes. Should EPA decide to move forward on any of these 
ideas, we would do so through a separate proposed rulemaking. That 
rulemaking would be informed by comments received in response to 
today's notice.
    Finally, we note that multiple stakeholders have encouraged 
cooperation and coordination between EPA and other federal agencies 
that may play an oversight role in the RFS or broader fuels market, 
including the Commodity Futures Trading Commission and the Federal 
Trade Commission. EPA has engaged with both agencies on an ongoing 
basis and will continue to do so.

C. EPA Response to Court Decision in Americans for Clean Energy v. EPA

    In the annual rule establishing the 2014-2016 renewable fuel 
standards, we determined that there would be an ``inadequate domestic 
supply'' of renewable fuel to consumers in 2016, and so exercised the 
general waiver authority to reduce the applicable volume of total 
renewable fuel to a level we believed could be supplied.\10\ In 
response to a petition for review of the 2014-2016 rule, the United 
States Court of Appeals for the District of Columbia Circuit ruled that 
EPA improperly focused on assessing the supply of renewable fuel to 
consumers, and that the statute instead requires a ``supply-side'' 
assessment of the volumes of renewable fuel that can be supplied to 
refiners, importers and blenders. The court vacated EPA's decision to 
reduce the total renewable fuel volume requirements for 2016 using 
general waiver authority, and remanded the rule to EPA for further 
consideration in light of the decision. Americans for Clean Energy 
(``ACE'') v. EPA, 864 F.3d 691 (2017).
---------------------------------------------------------------------------

    \10\ See 80 FR 77420 (December 14, 2015).
---------------------------------------------------------------------------

    EPA is currently considering a number of issues raised by the need 
to respond to the court's remand in a separate process from this annual 
rulemaking. EPA is not requesting comment on this rulemaking process at 
this time and any comments on this issue will be treated as outside of 
the scope of this rulemaking. EPA understands that there is a 
compelling need to respond to the remand and intends to expeditiously 
move ahead with a separate rule to resolve this matter.

[[Page 32028]]

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. As described in the executive summary, we are proposing a 
single volume requirement for cellulosic biofuel at the level we 
project to be available for 2019, and an associated applicable 
percentage standard. For advanced biofuel and total renewable fuel, we 
are proposing volume requirements and associated applicable percent 
standards, based on use of the ``cellulosic waiver authority'' that 
would result in advanced biofuel and total renewable fuel volume 
requirements that are lower than the statutory targets by the same 
magnitude as the reduction in the cellulosic biofuel reduction. This 
would effectively maintain the implied statutory volumes for non-
cellulosic advanced biofuel and conventional biofuel.\11\
---------------------------------------------------------------------------

    \11\ The statutory total renewable fuel, advanced biofuel and 
cellulosic biofuel requirements for 2019 are 28.0, 13.0, and 8.5 
billion gallons, respectively. This implies a conventional renewable 
fuel applicable volume (the difference between the total renewable 
fuel and advanced biofuel volumes, which can be satisfied by with 
conventional (D6) RINs) and a non-cellulosic advanced biofuel 
applicable volume (the difference between the advanced biofuel and 
cellulosic biofuel volumes, which can be satisfied with advanced 
(D5) RINs) of 15.0 and 4.5 billion gallons, respectively.
---------------------------------------------------------------------------

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, then 
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'' but must make a projection that ``takes neutral aim 
at accuracy.'' API v. EPA, 706 F.3d 474, 479, 476 (D.C. Cir. 2013). 
Pursuant to this provision, EPA has set the cellulosic biofuel 
requirement lower than the statutory volume for each year since 2010. 
As described in Section III.D, the projected volume of cellulosic 
biofuel production for 2019 is less than the 8.5 billion gallon volume 
target in the statute. Therefore, for 2019, we are proposing to set 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 2019, we are also proposing 
to reduce the applicable volumes of advanced biofuel and total 
renewable fuel under this authority.
    EPA has used the cellulosic waiver authority to lower the 
cellulosic biofuel, advanced biofuel and total renewable fuel volumes 
every year since 2014. Further discussion of the cellulosic waiver 
authority, and EPA's interpretation of it, can be found in the preamble 
to the 2017 final rule.\12\ 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); Americans for Clean Energy v. EPA (``ACE''), 864 F.3d 
691 (D.C. Cir. 2017) (discussed below).
---------------------------------------------------------------------------

    \12\ 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 advanced 
biofuel volume to a level that was reasonably attainable, and then 
provided a comparable reduction under this authority for total 
renewable fuel.\13\ 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.'' \14\ 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.\15\ 
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.\16\ 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.\17\
---------------------------------------------------------------------------

    \13\ See 80 FR 77433-34 (December 14, 2015).
    \14\ ACE, 864 F.3d at 730.
    \15\ Id. at 733.
    \16\ Id.
    \17\ Id. at 734.
---------------------------------------------------------------------------

    In this action we are proposing to use the cellulosic waiver 
authority to reduce the statutory volume targets for advanced biofuels 
and total renewable fuel by equal amounts, consistent with our long-
held interpretation of this provision and our approach in setting the 
2014-2018 standards. This approach considers the Congressional 
objectives reflected in the volume tables in the statute, and the 
environmental objectives that generally favor the use of advanced 
biofuels over non-advanced biofuels. See 81 FR 89752-89753 (December 
12, 2016). See also 78 FR 49809-49810 (August 15, 2013); 80 FR 77434 
(December 14, 2015). We are proposing, as described in Section IV, that 
the applicable volume for advanced biofuels specified in the statute 
for 2019 is not attainable, and thus to exercise our cellulosic waiver 
authority to lower the applicable volume of advanced biofuel by the 
same quantity as the reduction in cellulosic biofuel, and to provide an 
equal reduction under the cellulosic waiver authority in the applicable 
volume of total renewable fuel. The 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 the implied statutory 
volume for 2019.

[[Page 32029]]

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 economy or 
the environment of a State, a region, or the United States; or (2) 
there is an inadequate domestic supply. At this time, we do not believe 
that the circumstances exist that would justify a waiver of volumes 
under the general waiver authority.
    As discussed further in Section IV.C below, EPA is soliciting 
comment on whether further reductions under the general waiver 
authority could be justified.

B. Treatment of Carryover RINs

    Consistent with our approach in the final rules establishing the 
RFS standards for 2013 through 2018, we have also considered the 
availability and role of carryover RINs in evaluating whether we should 
exercise our discretion to use our waiver authorities in setting the 
cellulosic, advanced, and total volume requirements for 2019. Neither 
the statute nor EPA regulations specify how or whether EPA should 
consider the availability of carryover RINs in exercising the 
cellulosic waiver authority.\18\ As noted in the context of the rules 
establishing the RFS standards for 2014 through 2018, 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.\19\ 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.\20\ 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.\21\ EPA's approach to the consideration of carryover RINs in 
exercising our cellulosic waiver authority was affirmed in Monroe 
Energy and ACE.\22\
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    \18\ 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 percent 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 2019.
    \19\ See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55 
(December 12, 2016), and 82 FR 58493-95 (December 12, 2017).
    \20\ See 72 FR 23900 (May 1, 2007), 80 FR 77482-87 (December 14, 
2015), 81 FR 89754-55 (December 12, 2016), and 82 FR 58493-95 
(December 12, 2017).
    \21\ See 79 FR 49793-95 (August 15, 2013).
    \22\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE at 
713.
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    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. Moreover, 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.\23\
---------------------------------------------------------------------------

    \23\ Here we use the term ``buffer'' as shorthand reference to 
all of the benefits that are provided by a sufficient bank of 
carryover RINs.
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1. Carryover RIN Bank Size
    At the time of the 2018 standards final rule, we estimated that 
there were approximately 2.22 billion total carryover RINs available 
and decided that carryover RINs should not be counted on to avoid or 
minimize the need to reduce the 2018 statutory volume targets.\24\ We 
also stated that we may or may not take a similar approach in future 
years, and that we would evaluate the issue on a case-by-case basis 
considering the facts in future years. Since that time, obligated 
parties have submitted their compliance demonstrations for the 2017 
compliance year and we now estimate that there are currently 
approximately 3.06 billion total carryover RINs available, an increase 
of 840 million RINs from the previous estimate of 2.22 billion total 
carryover RINs in the 2018 final rule.\25\ This increase in the total 
carryover RIN bank compared to that projected in the 2018 final rule 
results from various factors, including market factors, regulatory and 
enforcement actions, and judicial proceedings. They include the 
approximately 1,460 million RINs that were not required to be retired 
by small refineries that were granted hardship exemptions for 2017 and 
approximately 790 million RINs that were not required to be retired by 
small refineries that were granted hardship exemptions for 2016, along 
with the RINs that Philadelphia Energy Solutions Refining and 
Marketing, LLC (``PESRM'') was not required to retire as part of its 
bankruptcy settlement agreement.\26\

[[Page 32030]]

While EPA cannot predict how obligated parties will comply in 2018 or 
the amount of additional small refinery hardship exemptions that may be 
granted in the future, the 2016 and 2017 exemptions have directly 
increased the number of carryover RINs that will likely be available 
for compliance with the 2019 standards. This total volume of carryover 
RINs is approximately 15 percent of the total renewable fuel volume 
requirement that EPA is proposing for 2019, which is less than the 20 
percent maximum limit permitted by the regulations to be carried over 
for use in complying with the 2019 standards.\27\
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    \24\ See 82 FR 58494 (December 12, 2017).
    \25\ The calculations performed to estimate the number of 
carryover RINs currently available can be found in the memorandum, 
``Carryover RIN Bank Calculations for 2019 NPRM,'' available in the 
docket.
    \26\ Per PESRM's bankruptcy filings, PESRM had an RVO of 467 
million RINs for 2017 (including its deficit carryforward from 
2016). Pursuant to the settlement agreement, which was based on the 
unique facts and circumstances present in this case, including the 
insolvency and risk of liquidation, PESRM agreed to retire 138 
million RINs to meet its 2017 RVO and the portion of its 2018 RVO 
during the bankruptcy proceedings (approximately 97 million RINs). 
See docket for PES Holdings, LLC, 1:18bk10122, ECF Document Nos. 244 
(proposed settlement agreement), 347 (United States' motion to 
approve proposed settlement agreement), and 376 (order approving 
proposed settlement agreement), (Bankr. D. Del.).
    \27\ See 40 CFR 80.1427(a)(5).
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    The above discussion applies to total carryover RINs; we have also 
considered the available volume of advanced biofuel carryover RINs. At 
the time of the 2018 final rule, we estimated that there were 
approximately 810 million advanced carryover RINs available.\28\ Since 
that time, obligated parties have submitted their compliance 
demonstrations for the 2017 compliance year and we now estimate that 
there are currently approximately 640 million advanced carryover RINs 
available, a decrease of 170 million RINs from the previous estimate in 
the 2018 final rule.\29\ This volume of advanced carryover RINs is 
approximately 14 percent of the advanced renewable fuel volume 
requirement that EPA is proposing for 2019, which is less than the 20 
percent maximum limit permitted by the regulations to be carried over 
for use in complying with the 2019 standards.\30\
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    \28\ See ``Carryover RIN Bank Calculations for 2018 Final 
Rule,'' Docket Item No. EPA-HQ-OAR-2017-0091-4989.
    \29\ The calculations performed to estimate the number of 
carryover RINs currently available can be found in the memorandum, 
``Carryover RIN Bank Calculations for 2019 NPRM,'' available in the 
docket.
    \30\ See 40 CFR 80.1427(a)(5).
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    However, there remains considerable uncertainty surrounding these 
estimates for a number of reasons, including the potential impact of 
any future action to address the remand in ACE, the possibility of 
additional small refinery exemptions, and the impact of 2018 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 2019. In 
light of these uncertainties, the net result could be a bank of total 
carryover RINs larger or smaller than 15 percent of the proposed 2019 
total renewable fuel volume requirement, and a bank of advanced 
carryover RINs larger or smaller than 14 percent of the proposed 2019 
advanced biofuel volume requirement.
2. EPA's Proposed Decision Regarding the Treatment of Carryover RINs
    We have evaluated the volume of carryover RINs currently available 
and considered whether it would justify a reduced use of our cellulosic 
waiver authority in setting the 2019 volume requirements in order to 
intentionally draw down the carryover RIN bank. For the reasons 
described above and in Section IV, we do not believe this to be the 
case. The current bank of carryover RINs provides an important and 
necessary programmatic buffer that will both facilitate individual 
compliance and provide for smooth overall functioning of the program. 
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. Therefore, for the reasons noted above and 
consistent with the approach we took in the final rules establishing 
the RFS standards for 2014 through 2018, we are not proposing to set 
the 2019 volume requirements at levels that would envision an 
intentional drawdown in the bank of carryover RINs.

III. Cellulosic Biofuel Volume for 2019

    In the past several years, production of cellulosic biofuel has 
continued to increase. Cellulosic biofuel production reached record 
levels in 2017, driven largely by CNG and LNG derived from biogas. 
Production volumes have continued to increase in 2018.\31\ Production 
of liquid cellulosic biofuel has also increased in recent years, even 
as the total production of liquid cellulosic biofuels remains much 
smaller than the production volumes of CNG and LNG derived from biogas. 
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.
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    \31\ 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.

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[[Page 32031]]

[GRAPHIC] [TIFF OMITTED] TP10JY18.002

    In order to project the volume of cellulosic biofuel production in 
2019, we considered the accuracy of the methodologies used to project 
cellulosic biofuel production in previous years, 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 2019. Our 
projection of cellulosic biofuel in the final rule will also reflect 
Energy Information Administration's (EIA) projection of cellulosic 
biofuel production, comments received on the 2019 NPRM, and updated 
data on cellulosic biofuel production in 2018 and projections for 2019.
    There are two main elements to the cellulosic biofuel production 
projection. To project the range of potential production volumes of 
liquid cellulosic biofuel we used the same methodology as the 
methodology used in the 2018 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 updated 
information (through the end of 2017) 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 same 
year-over-year growth rate methodology as in the 2018 final rule. 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 and previous years. 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.C-1 and III.C-
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 methodologies used by EPA 
to project cellulosic biofuel production in 2019 and the resulting 
projection of 381 million ethanol-equivalent gallons.

A. Statutory Requirements

    CAA section 211(o)(2)(B)(i)(III) states the statutory volume 
targets for cellulosic biofuel. The volume of cellulosic biofuel 
specified in the statute for 2019 is 8.5 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.\32\
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    \32\ CAA section 211(o)(7)(D)(i). 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.'' Id. at 480, 
479.
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    In addition, if EPA reduces the required volume of cellulosic 
biofuel below the level specified in the statute, we may reduce the 
applicable volumes of advanced biofuels and total renewable fuel by the 
same or a lesser volume,\33\ and we are also required to make 
cellulosic waiver credits available.\34\ Our consideration of the 2019 
volume requirements for advanced biofuel and total renewable fuel is 
presented in Section IV.
---------------------------------------------------------------------------

    \33\ CAA section 211(o)(7)(D)(i).
    \34\ See CAA section 211(o)(7)(D)(ii); 40 CFR 80.1456.
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B. Cellulosic Biofuel Industry Assessment

    In order to project liquid cellulosic biofuel production for 2019 
we have tracked the progress of a number of potential cellulosic 
biofuel production facilities, located both in the U.S. and in foreign 
countries. 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

[[Page 32032]]

generate RINs for the fuel they produce and the volumes they produce 
will have a far greater impact on the cellulosic biofuel standard for 
2019. The volume of cellulosic biofuel produced from R&D and pilot-
scale facilities is 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.\35\ 
We have therefore not considered production from R&D and pilot-scale 
facilities in our projection of cellulosic biofuel production for 2019.
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    \35\ 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 March 2018 has been less than 
150,000 RINs. This is approximately 0.6 percent of all liquid 
cellulosic biofuel production through March 2018. See ``D3 RIN 
generation by Company Through March 2018--CBI.''
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    From this list of commercial-scale facilities capable of producing 
liquid cellulosic biofuel, we used information from EMTS, the 
registration status of potential biofuel production facilities as 
cellulosic biofuel producers in the RFS program, publicly available 
information (including press releases and news reports), 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 2019. 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 2019. 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 accuracy of EPA's 
past cellulosic biofuel projections. EPA used a consistent methodology 
to project cellulosic biofuel production in the final three months of 
2015 and all of 2016 and 2017.\36\ The record of actual production 
indicates that EPA's projection was lower than the actual number of 
cellulosic RINs made available in 2015,\37\ and higher than the actual 
number of RINs made available in 2016 and 2017.\38\ 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 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 order to make our projections more accurate.
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    \36\ This methodology is most recently described in the 2017 
final rule. See 81 FR 89746, 89755 (December 12, 2016).
    \37\ 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.
    \38\ EPA projected that 123 million, 230 million cellulosic, and 
311 million RINs would be generated in 2015, 2016, and 2017 
respectively. The number of available cellulosic RINs in these years 
(RINs generated minus RINs retired for non-compliance reasons) was 
140 million, 190 million, and 250 million RINs. All numbers are 
derived from EMTS data.
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    EPA's projections of liquid cellulosic biofuel were higher than the 
actual volume of liquid cellulosic biofuel produced in 2015-2017. As a 
result of these over-projections, and in an effort to take into account 
the most recent data available and make the liquid cellulosic biofuel 
projections more accurate, EPA adjusted our methodology in the 2018 
final rule.\39\ In this 2019 proposed rule we are once again using 
adjusted percentile values to project liquid cellulosic biofuel 
production based on actual liquid cellulosic biofuel production in 2016 
and 2017. Use of this updated data also results in different percentile 
values than we used to project production of liquid cellulosic biofuel 
for 2018. We believe that the use of the methodology (described in 
Section III.C.1 below), with the adjusted 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. At this time, we do not have sufficient 
data to assess the accuracy of this methodology to project cellulosic 
biofuel production for 2018, however we anticipate that for the final 
rule we will assess the accuracy of this methodology in projecting 
liquid cellulosic biofuel in 2018 and will make adjustments where 
appropriate.
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    \39\ 82 FR 58486 (December 12, 2017).
---------------------------------------------------------------------------

    We next turn to the projection of CNG/LNG derived from biogas. For 
2018, EPA used for the first time 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. As described in Section 
III.C.2 below, EPA is again proposing to project production of CNG/LNG 
derived from biogas by 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 April 2016-March 2017 to the RIN generation 
for these same fuels from April 2017-March 2018 (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 2017 (the most recent year for which complete data are 
available), to estimate the production of CNG/LNG derived from biogas 
in 2019.
    The remainder of this section describes in more detail the 
methodology EPA is using to project cellulosic biofuel production in 
2019 (including a review of cellulosic biofuel production and the 
accuracy of the projection methodology in previous years).
1. Potential Domestic Producers
    There are several companies and facilities \40\ 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 at some time during 2019. 
The financial incentive provided by cellulosic biofuel RINs,\41\ 
combined with the fact that to date nearly all cellulosic biofuel

[[Page 32033]]

produced in the U.S. has been used domestically \42\ 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 have successfully generated 
RINs.\43\ 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 2019 can be found in a memorandum to the docket 
for this final rule.\44\ General information on each of these companies 
or group of companies considered in our projection of the potentially 
available volume of cellulosic biofuel in 2019 is summarized in Table 
III.B.3-1 below.
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    \40\ 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.
    \41\ According to data from Argus Media, the price for 2017 
cellulosic biofuel RINs averaged $2.78 in 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 $0.99 in 2017 while the price for a 2017 cellulosic 
waiver credit is $2.00 (EPA-420-B-17-036).
    \42\ The only known exception was a small volume of fuel 
produced at a demonstration scale facility exported to be used for 
promotional purposes.
    \43\ Most 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 and 
Ensyn's Port-Cartier, Quebec facility.
    \44\ ``Cellulosic Biofuel Producer Company Descriptions (May 
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167.
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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 2019. 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.
    In addition to projecting the domestic production of cellulosic 
biofuel, EPA also projects the volume of cellulosic biofuel that will 
be imported into the U.S.\45\ For the purposes of this final rule we 
have considered all the registered foreign facilities under the RFS 
program to be potential sources of cellulosic biofuel in 2019. 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 2019. For purposes of our 2019 cellulosic biofuel 
projection we have, with one exception (described below), excluded 
potential volumes from foreign cellulosic biofuel production facilities 
that are not currently registered under the RFS program.
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    \45\ EPA has consistently interpreted the term ``projected 
volume of cellulosic biofuel production'' in CAA section 
211(o)(7)(D)(i) to include volumes of cellulosic biofuel likely to 
be made available in the U.S., 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 U.S., 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.
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    Cellulosic biofuel produced at three foreign facilities (Ensyn's 
Renfrew facility, GranBio's Brazilian facility, and Raizen's Brazilian 
facility) 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 2019. EPA has also 
included projected volume from two additional foreign facilities. One 
of these facilities has completed the registration process as a 
cellulosic biofuel producer (Enerkem's Canadian facility). The other 
facility (Ensyn's Port-Cartier, Quebec facility), while not yet 
registered as a cellulosic biofuel producer, is owned by a Ensyn, a 
company that has previously generated cellulosic biofuel RINs using the 
same technology at a different facility. 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. All of the facilities included in EPA's cellulosic 
biofuel projection for 2019 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 2019 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 2019. 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.\46\
---------------------------------------------------------------------------

    \46\ ``Cellulosic Biofuel Producer Company Descriptions (May 
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167.

[[Page 32034]]



                                           Table III.B.3-1--Projected Producers of Cellulosic Biofuel in 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Facility
                                                                                            capacity (million     Construction
          Company name                Location            Feedstock             Fuel           gallons  per        start date      First production \48\
                                                                                                year) \47\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \49\.........  Various...........  Biogas............  CNG/LNG..........  Various..........  Various..........  August 2014.
Edeniq.........................  Various...........  Corn Kernel Fiber.  Ethanol..........  Various..........  Various..........  October 2016.
Enerkem........................  Edmonton, AL,       Separated MSW.....  Ethanol..........  10 \50\..........  2012.............  September 2017.\51\
                                  Canada.
Ensyn..........................  Renfrew, ON,        Wood Waste........  Heating Oil......  3................  2005.............  2014.
                                  Canada.
Ensyn..........................  Port-Cartier, QC,   Wood Waste........  Heating Oil......  10.5.............  June 2016........  January 2018.
                                  Canada.
Envia Energy...................  Oklahoma City, OK.  Biogas............  Diesel...........  2................  May 2015.........  February 2017.
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.
Raizen.........................  Piracicaba City,    Sugarcane bagasse.  Ethanol..........  11...............  January 2014.....  July 2015.
                                  Brazil.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Cellulosic Biofuel Volume for 2019
---------------------------------------------------------------------------

    \47\ The Facility Capacity is generally equal to the nameplate 
capacity provided to EPA by company representatives or found in 
publicly available information. Capacities are listed in physical 
gallons (rather than ethanol-equivalent gallons). 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).
    \48\ 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.
    \49\ For more information on these facilities see ``May 2018 
Assessment of Cellulosic Biofuel Production from Biogas (2019),'' 
memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-
0167.
    \50\ 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 (See ``May 2018 Liquid Cellulosic Biofuel Projections for 
2018 CBI'').
    \51\ This date reflects the first production of ethanol from 
this facility. The facility began production of methanol in 2015.
---------------------------------------------------------------------------

1. Liquid Cellulosic Biofuel
    For our 2019 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 2019 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 2019 
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 companies in 2019. As in 2018, we are proposing to 
calculate percentile values for each group of companies based on the 
past performance of each group relative to our projected production 
ranges. This methodology is briefly described here, and is described in 
detail in memoranda to the docket.\52\
---------------------------------------------------------------------------

    \52\ ``May 2018 Liquid Cellulosic Biofuel Projections for 2018 
CBI'' and ``Calculating the Percentile Values Used to Project Liquid 
Cellulosic Biofuel Production for the 2019 NPRM,'' memorandums from 
Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------

    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 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 (April 2017-March 2018).\53\ 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, facility capacity, and the number of 
RINs the producer expects to generate in 2019.\54\ The projected range 
for the groups of companies considered in our 2019 cellulosic biofuel 
projection are shown in Tables III.C.1-1 and III.C.1-2 below.\55\
---------------------------------------------------------------------------

    \53\ Consistent with previous years, we have considered whether 
there is reason to believe any of the facilities considered as 
potential cellulosic biofuel producers for 2019 is likely to produce 
a smaller volume of cellulosic biofuel in 2019 than in the previous 
12 months for which data are available. At this time, EPA is not 
aware of any information that would indicate lower production in 
2019 from any facility considered than in the previous 12 months for 
which data are available.
    \54\ As in our 2015-2018 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 2019, 
whichever is lower.
    \55\ More information on the data and methods EPA used to 
calculate each of the ranges in these tables in contained in ``May 
2018 Liquid Cellulosic Biofuel Projections for 2018 CBI'' memorandum 
from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. 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, ``May 2018 
Liquid Cellulosic Biofuel Projections for 2018 CBI''.

[[Page 32035]]



  Table III.C.1-1--2019 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
                                         Low end of the  High end of the
          Companies included                 range          range \a\
------------------------------------------------------------------------
Enerkem, Ensyn (Port Cartier                         0               18
 facility), Envia Energy..............
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.


  Table III.C.1-2--2019 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
                                         Low end of the  High end of the
          Companies included               range \a\        range \b\
------------------------------------------------------------------------
Facilities using Edeniq's technology                15               56
 (registered facilities), Ensyn
 (Renfrew facility), Poet-DSM,
 GranBio, Quad County Corn Processors,
 Raizen...............................
------------------------------------------------------------------------
\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 this proposed rule we 
have calculated the percentile values used to project liquid cellulosic 
biofuel production from within the range of projected production 
values, using data on actual liquid cellulosic biofuel production from 
both 2016 and 2017. This is consistent with the approach taken in the 
2018 final rule, however we now have complete data from 2017, rather 
than only data through September 2017. For the final rule we anticipate 
using available production data from 2018 to make further adjustments 
to the percentile values used to project liquid cellulosic biofuel 
production for 2019.
    The projected ranges for liquid cellulosic biofuel production in 
2016 and 2017, along with the actual number of cellulosic RINs 
generated in each year that are/were 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.C.1-3 below.

           Table III.C.1-3--Projected and Actual Liquid Cellulosic Biofuel Production in 2016 and 2017
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                      Actual
                        _                         Low end of the    High end of     production        Actual
                                                       range         the range         \56\         percentile
----------------------------------------------------------------------------------------------------------------
New Facilities: \57\
    2016........................................               0              76            1.06             1st
    2017........................................               0              33            8.79            27th
    Average \a\.................................             N/A             N/A             N/A            14th
Consistent Producers \58\
    2016........................................               2               5            3.28            43rd
    2017........................................             3.5               7            3.02           -14th
Average \a\.....................................             N/A             N/A             N/A            15th
----------------------------------------------------------------------------------------------------------------
\a\ We have not averaged the low and high ends of the ranges, or actual production, as we believe it is more
  appropriate to average the actual percentiles from 2016 and 2017 rather than calculating a percentile value
  for 2016 and 2017 in aggregate. This approach gives equal weight to the accuracy of our projections from 2016
  and 2017, rather than allowing the average percentiles calculated to be dominated by years with greater
  projected volumes.

    For this proposed rule EPA has projected cellulosic biofuel 
production from facilities that have not yet achieved consistent 
commercial scale production at the 14th percentile of the calculated 
range and projected cellulosic biofuel production from facilities that 
have achieved commercial scale production at the 15th percentile.\59\ 
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. 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 2019 we have 
decided to weight the observed actual percentile values from 2016 and 
2017 equally. While the

[[Page 32036]]

percentile value from 2017 represents the most recent data available, 
it is also dependent on the performance of a relatively small number of 
companies in a single year. Using data from multiple years is likely 
more representative of the future performance of these groups of 
companies than data from any single year. For the final rule we 
anticipate using available production data from 2018 (likely January-
September), along with updated production projections for months in 
which data is not available (likely October-December) to make further 
adjustments to the percentile values used to project liquid cellulosic 
biofuel production for 2019. We propose using production volumes for 
months for which data is not available (likely October-December 2018) 
in a similar manner to the way we projected production volumes for 
months in which data were not available in the 2018 final rule (based 
on available historical data along with seasonal production trends; see 
``Calculating the Percentile Values Used to Project Liquid Cellulosic 
Biofuel Production for 2018, EPA-HQ-OAR-2017-0091). We request comment 
on this projection methodology, as well as the appropriateness of using 
data from 2018 to adjust the percentile values used to projection 
liquid cellulosic biofuel production for 2019. We believe that 
adjusting the percentile values used 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.'' We 
request comment on the data that should be used to calculate the 
percentile values used to project liquid cellulosic biofuel production 
in 2019 (e.g. whether we should use data from 2016-2018, or just a sub-
set of this data) and how to weight data from each of these years.\60\
---------------------------------------------------------------------------

    \56\ 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.
    \57\ Companies characterized as new producers in the 2014-2016 
and 2017 final rules were as follows: Abengoa (2016), CoolPlanet 
(2016), DuPont (2016, 2017), Edeniq (2016, 2017), GranBio (2016, 
2017), IneosBio (2016), and Poet (2016, 2017).
    \58\ Companies characterized as consistent producers in the 
2014-2016 and 2017 final rules were as follows: Ensyn (2016 and 
2017) and Quad County Corn Processors (2016 and 2017).
    \59\ In the 2018 final rule EPA used the 10th and 12th 
percentile for new facilities and consistent producers respectively. 
The slightly higher percentile values used to project liquid 
cellulosic biofuel production in 2019 reflect additional production 
data from the fourth quarter of 2017 that was not available at the 
time the analyses were completed for the 2018 final rule. For more 
detail on the calculation of the percentile values used in this 
proposed rule see ``Calculating the Percentile Values Used to 
Project Liquid Cellulosic Biofuel Production for the 2019 NPRM,'' 
available in EPA docket EPA-HQ-OAR-2018-0167.
    \60\ For example, rather than weighting the percentiles that 
would have resulted in the actual production volumes in 2016 and 
2017 equally, EPA could first aggregate the projected ranges for 
companies with and without consistent commercial scale production 
for 2016 and 2017 (5.5 million-12 million and 0-109 million 
respectively) and then use the combined production volumes for 2016 
and 2017 for each group (6.3 million and 9.8 million respectively) 
to calculate percentile values for each group of companies for 2019. 
This would result in slightly different percentile values (12th 
percentile for companies with consistent production and the 9th 
percentile for companies without consistent production).
---------------------------------------------------------------------------

    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 2019. These calculations are 
summarized in Table III.C.1-4 below.

                     Table III.C.1-4--Projected Volume of Liquid Cellulosic Biofuel in 2019
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                     range \a\     the range \a\    Percentile      volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers                 0              18            14th               3
 without Consistent Commercial Scale Production.
Liquid Cellulosic Biofuel Producers; Producers                15              56            15th              21
 with Consistent Commercial Scale Production....
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A              24
----------------------------------------------------------------------------------------------------------------
\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 (such as the factors used to calculate the high or 
low end of the projected range for each company), but we do not believe 
that such changes are warranted at this time. 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 2019 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 2019 (24 
million gallons).
2. CNG/LNG Derived From Biogas
    For 2019, EPA is using the same methodology as in the 2018 final 
rule, an industry wide projected based on a year-over-year growth rate, 
to project production of CNG/LNG derived from biogas used as 
transportation fuel.\61\ For this proposed rule, EPA has calculated the 
year-over-year growth rate in CNG/LNG derived from biogas by comparing 
RIN generation from April 2017-March 2018 (the most recent 12 months 
for which data are available) to RIN generation in the 12 months that 
immediately precede this time period (April 2016-March 2017). These RIN 
generation volumes are shown in Table III.C.2-1 below.
---------------------------------------------------------------------------

    \61\ 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.

             Table III.C.2-1--Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas
                                             [Million gallons] \62\
----------------------------------------------------------------------------------------------------------------
  RIN Generation (April 2016-March      RIN Generation (April 2017-March
                2017)                                 2018)                        Year-Over-Year Increase
----------------------------------------------------------------------------------------------------------------
                          189                                   247                                 30.5%
----------------------------------------------------------------------------------------------------------------


[[Page 32037]]

    EPA then applied this 30.5 percent year-over-year growth rate to 
the total number of 2018 cellulosic RINs projected to be generated for 
CNG/LNG in the 2018 final rule. This methodology results in a 
projection of 358 million gallons of CNG/LNG derived from biogas in 
2019.\63\ 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. This methodology may not be appropriate to use as the 
projected volume of CNG/LNG derived from biogas approaches the total 
volume of CNG/LNG that is used as transportation fuel, as RINs can be 
generated only for CNG/LNG used as transportation fuel. We do not 
believe that this is yet a constraint, however, as our projection for 
2019 is well below the total volume of CNG/LNG that is currently used 
as transportation fuel.\64\ We request comment on estimates of the 
volume of CNG/LNG likely to be used as transportation fuel in 2019, as 
well as the ability of the CNG/LNG market to provide the documentation 
necessary to verify the use of this fuel as transportation fuel.
---------------------------------------------------------------------------

    \62\ Further detail on the data used to calculate each of these 
numbers in this table, as well as the projected volume of CNG/LNG 
derived from biogas used as transportation fuel in 2019 can be found 
in ``May 2018 Assessment of Cellulosic Biofuel Production from 
Biogas (2019)'' memorandum from Dallas Burkholder to EPA Docket EPA-
HQ-OAR-2018-0167.
    \63\ To calculate this value, EPA multiplied the number of 2018 
RINs projected to be generated for CNG/LNG derived from biogas in 
the 2018 final rule (274 million), see 82 FR 58502-03, by 1.305 
(representing a 30.5 percent year-over-year increase).
    \64\ EPA projects that 580 million ethanol-equivalent gallons of 
CNG/LNG will be used as transportation fuel in 2019 based on EIA's 
March 2018 Short Term Energy Outlook (STEO). To calculate this 
estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom 
Table Builder (0.13 billion cubic feet/day in 2019). 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 946.5 BTU per cubic foot of natural gas (lower heating 
value, per calculations using ASTM D1945 and D3588) and 77,000 BTU 
of natural gas per ethanol-equivalent gallon per Sec.  
80.1415(b)(5).
---------------------------------------------------------------------------

    EPA has also reviewed data submitted by potential producers of CNG/
LNG derived from biogas that is used as transportation fuel. The total 
volume of CNG/LNG derived from biogas projected to be produced in 2019 
by the potential producers of these fuels exceeds the volume that EPA 
is projecting for 2019. Since producers of CNG/LNG derived from biogas 
have historically over-estimated their production of these fuels, it 
would not be appropriate to simply adopt this projection for 2019. The 
fact that the industry projections exceed EPA's projected volume, 
however, indicates that the volume of these fuels projected for 2019 
can be satisfied by a combination of projects currently producing CNG/
LNG derived from biogas for these purposes and projects expected to 
product biogas by the end of 2019.
    We believe 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 satisfies our charge to project future cellulosic biofuel 
production in a reasonable manner, and with neutrality, despite the 
fact that it does not consider all potential producers of these fuels 
on a facility-by-facility basis. For the final rule we anticipate using 
all available data from 2018 to update both the year-over-year increase 
as well as the projected production volume of cellulosic biofuel for 
2018 to which we apply the year-over-year increase to project the 
production of CNG/LNG derived from biogas in 2019.
3. Total Cellulosic Biofuel in 2019
    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 2019. These projections are shown in 
Table III.C.3-1. Using the methodologies described in this section, we 
project that 381 million ethanol-equivalent gallons of cellulosic 
biofuel will be produced in 2019. We believe that projecting overall 
production in 2019 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 2019.

     Table III.C.3-1--Projected Volume of Cellulosic Biofuel in 2019
                            [Million gallons]
------------------------------------------------------------------------
                                                             Projected
                                                            volume \a\
------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers without                 3
 Consistent Commercial Scale Production.................
Liquid Cellulosic Biofuel Producers; Producers with                   21
 Consistent Commercial Scale Production.................
CNG/LNG Derived from Biogas.............................             358
                                                         ---------------
    Total...............................................         \b\ 381
------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.
\b\ Total projection of cellulosic biofuel appears less than the sum of
  the projected volume for each group of companies due to rounding

    Further discussion of the individual companies we believe will 
produce cellulosic biofuel and make it commercially available in 2019 
can be found in a memorandum to the docket.\65\ We request comment on 
this projection of cellulosic biofuel production for 2019, including 
the various aspects of the methodology used to project production of 
both liquid cellulosic biofuels and CNG/LNG derived from biogas.
---------------------------------------------------------------------------

    \65\ ``Cellulosic Biofuel Producer Company Descriptions (May 
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167. 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 2019

    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).

[[Page 32038]]

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). Congressional intent is 
evident in the fact that the implied statutory volume for conventional 
renewable fuel is 15 billion gallons for all years after 2014, while 
the advanced volumes, driven largely by growth in cellulosic volumes, 
continue to grow each year through 2022 to a total of 21 billion 
gallons.
    Due to a shortfall in reasonably attainable volumes of cellulosic 
and advanced biofuel, and consistent with our long-held interpretation 
of the cellulosic waiver authority as best interpreted and applied by 
providing equal reductions in advanced biofuel and total renewable 
fuel, we are proposing a reduction from the statutory volumes for both 
advanced biofuel and total renewable fuel for 2019 using the full 
extent of the cellulosic waiver authority.
    In this Section we discuss our proposed use of the discretion 
afforded by the cellulosic waiver authority at CAA 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 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.
    To begin, we have evaluated the capabilities of the market and are 
proposing to find that the 13.0 billion gallons specified in the 
statute for advanced biofuel cannot be reached in 2019. 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 8.5 billion gallons in 2019. For this and other reasons 
described in this section we are proposing to reduce the advanced 
biofuel statutory target by the full amount of the shortfall in 
cellulosic biofuel for 2019.
    In previous years when we have used the cellulosic waiver 
authority, we have determined the appropriate amount of the permissible 
waiver to apply to advanced biofuel by taking into account the 
availability of advanced biofuels, their energy security and GHG 
impacts, the availability of carryover RINs, 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 reduced benefits likely associated with use of advanced volumes 
achieved through diversion of foreign fuels or substitution of advanced 
feedstocks from other uses to biofuel production. Until the 2018 
standards rule, the consideration of these factors led us to conclude 
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.\66\ For the 2018 
standards, we placed a greater emphasis on cost considerations in the 
context of balancing the various considerations, ultimately concluding 
that partial backfilling with non-cellulosic advanced biofuels was not 
warranted and the applicable volume requirement for advanced biofuel 
should be based on the maximum reduction permitted under the cellulosic 
waiver authority.
---------------------------------------------------------------------------

    \66\ For instance, see 81 FR 89750 (December 12, 2016).
---------------------------------------------------------------------------

    Although we continue to believe that the factors earlier considered 
in exercising the cellulosic waiver authority are relevant and 
appropriate, we project that there will be insufficient reasonably 
attainable volumes of non-cellulosic biofuels in 2019 to allow any 
backfilling for missing volumes of cellulosic biofuel. As a result of 
this projection and our proposed consideration of carryover RINs, we 
are proposing to reduce the statutory volume target for advanced 
biofuel by the same amount as the reduction in cellulosic biofuel. This 
would result in the non-cellulosic component of the advanced biofuel 
volume requirement being equal to the implied statutory volume of 4.5 
billion gallons in 2019.
    We note that the predominant non-cellulosic advanced biofuels 
available in the near term are advanced biodiesel and renewable 
diesel.\67\ We expect a decreasing rate of growth in the availability 
of feedstocks used to produce these fuel types, absent the diversion of 
these feedstocks from other uses. 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. Products that were 
formerly produced using these feedstocks are likely to be replaced by 
products produced using the lowest cost alternatives, likely derived 
from palm or petroleum sources. This in turn could increase the 
lifecycle GHG emissions associated with these incremental volumes of 
non-cellulosic advanced biofuel. 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 advanced 
biofuel standards could also be satisfied by diversion of foreign 
advanced biofuel from foreign markets, and there would also likely be 
diminished benefits associated with such diversions. Taking these 
considerations into account, we believe, as discussed in more detail 
below, that we should exercise our discretion under the cellulosic 
waiver authority to set the advanced biofuel volume requirement at a 
level that would minimize such diversions.
---------------------------------------------------------------------------

    \67\ While sugarcane ethanol, as well as a number of other fuel 
types, can also contribute to the supply of advanced biofuel, in 
recent years supply of these other advanced biofuels has been 
considerably lower than supply of advanced biodiesel or renewable 
diesel. See Table IV.B.3-1.
---------------------------------------------------------------------------

    Furthermore, two other factors have added uncertainty regarding the 
volume of advanced biofuels that we project to be attainable in 2019. 
The first is the fact that the tax credit for biodiesel has not been 
renewed for 2019. The second is the final determination by the 
Department of Commerce that tariffs should be imposed on biodiesel 
imports from Argentina and Indonesia, and the potential for those 
tariffs to increase.^{68 69} Each of these factors is discussed 
in more detail in Section IV.B.2 below.
---------------------------------------------------------------------------

    \68\ ``Affirmative Final Antidumping Duty Determinations on 
Biodiesel From Argentina and Indonesia,'' available in docket EPA-
HQ-OAR-2018-0167.
    \69\ ``US adds more duties on biodiesel from Argentina & 
Indonesia,'' Reuters article available in docket EPA-HQ-OAR-2018-
0167.

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

[[Page 32039]]

    We believe that the factors and considerations noted above are all 
appropriate to consider under the broad discretion provided under the 
cellulosic waiver authority, and that consideration of these factors 
supports our proposed use of this authority. Many of the considerations 
discussed in this proposed 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 Department's determination on 
tariffs 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). As discussed in further detail in the following 
sections, EPA's preliminary projection of the available volume of 
advanced biofuel in 2019 suggests that while achieving the implied 
statutory volume for non-cellulosic advanced biofuel in 2019 (4.5 
billion gallons) may be attainable, doing so would likely require a 
higher rate of growth in the domestic advanced biofuel industry than we 
have seen in recent years. This is especially true if the tariffs on 
biodiesel imported from Argentina and Indonesia result in decreased 
volumes of imported advanced biofuel in 2019. While it may also be 
possible that a volume of non-cellulosic advanced biofuel greater than 
4.5 billion gallons may be attainable, this higher volume would very 
likely result in the diversion of advanced feedstocks from other uses 
or diversion of advanced biofuels from foreign sources. In that case, 
our preliminary assessment of other factors, such as cost and GHG 
impacts, indicate that it would not 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 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 2019 would be 590 million gallons 
more than the applicable volume used to derive the 2018 percentage 
standard. Furthermore, after applying the same reduction to the 
statutory volume target for total renewable fuel, the volume 
requirement for total renewable fuel would also be 590 million gallons 
more than the applicable volume used to derive the 2018 percentage 
standard.

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 proposing to 
establish a 2019 applicable volume for cellulosic biofuel of 381 
million gallons, representing a reduction of 8,119 million gallons from 
the statutory target of 8,500 million gallons. As a result, 8,119 
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 4.88 and 19.88 billion 
gallons for advanced biofuel and total renewable fuel, 
respectively.\70\
---------------------------------------------------------------------------

    \70\ 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 with the exception of cellulosic biofuel it 
is volumes in billion gallons that are used to calculate the 
applicable percentage standards. For cellulosic biofuel, it is 
million gallons that are used to calculate the percentage standards.

   Table IV.A-1--Lowest Permissible Volumes Using Only the Cellulosic
                            Waiver Authority
                          [Million gallons] \a\
------------------------------------------------------------------------
                                             Advanced          Total
                                              biofuel     renewable fuel
------------------------------------------------------------------------
Statutory target........................          13,000          28,000
Maximum reduction permitted under the              8,119           8,119
 cellulosic waiver authority............
Lowest 2019 volume requirement permitted           4,881          19,881
 using only the cellulosic waiver
 authority..............................
------------------------------------------------------------------------
\a\ Calculations are typically shown in million gallons for all four
  standards for clarity. However, when using volumes to calculate
  percentage standards, 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.

    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.\71\ 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.\72\ Thus, EPA could potentially set the 2019 advanced biofuel 
standard at a level that is designed to partially backfill for the 
shortfall in cellulosic biofuel. However, based on our consideration of 
a number of relevant factors, we are proposing to use the full extent 
of the cellulosic waiver authority in deriving volume requirements for 
2019.
---------------------------------------------------------------------------

    \71\ CAA section 211(o)(7)(D)(i).
    \72\ See ACE, 864 F.3d at 730-35 (citing Monroe, 750 F.3d 909, 
915-16).
---------------------------------------------------------------------------

B. Attainable Volumes of Advanced Biofuel

    We have considered both reasonably attainable and attainable 
volumes of advanced biofuel to inform our exercise of the cellulosic 
waiver authority. Volumes described as ``reasonably attainable'' are 
those that can be reached without market disruptions and/or higher 
costs, such as those that could result from diverting advanced biofuels 
or advanced biofuel feedstocks from existing uses. We use this phrase 
in today's action in the same way that we

[[Page 32040]]

used it in previous actions. Volumes described as ``attainable,'' in 
contrast, are those we believe can be reached, but would likely result 
in market disruption and/or higher costs. Neither ``reasonably 
attainable'' nor ``attainable'' are meant to convey the ``maximum 
achievable'' level, which as described in the 2017 final rule we do not 
consider, in our discretion, to be an appropriate target under the 
cellulosic waiver authority.\73\
---------------------------------------------------------------------------

    \73\ 81 FR 89762 (December 12, 2016).
---------------------------------------------------------------------------

    As in prior rulemakings, EPA has considered what volumes of 
advanced biofuels are reasonably attainable. 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.\74\ Our proposed 
assessment of reasonably attainable volumes of advanced biofuel is 
described below.
---------------------------------------------------------------------------

    \74\ See ACE, 864 F.3d at 730-35. 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. See id. at 704-13.
---------------------------------------------------------------------------

    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.\75\ We are taking a 
similar approach for 2019, 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 and 2018 
volume requirements and, we believe, are appropriate considerations 
under the broad discretion provided by the cellulosic waiver authority.
---------------------------------------------------------------------------

    \75\ See ACE, 864 F.3d 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. We are 
proposing to set the advanced biofuel volume requirement at a level 
that would seek to minimize such feedstock/fuel diversions. Our 
individual assessments of reasonably attainable volumes of each type of 
advanced biofuel reflects 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.
    EPA proposes to find that 100 million gallons of advanced ethanol, 
60 million gallons of other advanced biofuels, and 2.65 billion gallons 
of advanced biodiesel and renewable diesel are reasonably attainable. 
Together with our projected volume of 381 million gallons of cellulosic 
biofuel, the sum of these volumes falls short of 4.88 billion gallons, 
which is the lowest advanced biofuel requirement that EPA can determine 
under the cellulosic waiver authority.
    Therefore, we also have considered whether the market can 
nonetheless make available 4.88 billion gallons of advanced biofuel, 
notwithstanding likely feedstock/fuel diversions. In particular, we 
assess whether additional volumes of advanced biodiesel and renewable 
diesel are attainable. We conclude that 2.8 billion gallons of advanced 
biodiesel and renewable diesel is likely attainable notwithstanding 
likely feedstock/fuel diversions. This quantity of advanced biodiesel 
and renewable diesel, together with the cellulosic biofuel, sugarcane 
ethanol, and other advanced biofuels described above, would enable the 
market to make available 4.88 billion gallons of advanced biofuels.
1. Imported Sugarcane Ethanol
    The predominant available source of advanced biofuel other than 
cellulosic biofuel and BBD is imported sugarcane ethanol. In setting 
the 2018 standards, we estimated that 100 million gallons of imported 
sugarcane ethanol would be reasonably attainable.\76\ This was a 
reduction from the 200 million gallons we had assumed for 2016 and 
2017, and was based on a combination of data from 2016 and part of 2017 
as well as an attempt to balance the lower-than-expected imports from 
recent data with indications that higher volumes were possible based on 
older data. We also noted 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.
---------------------------------------------------------------------------

    \76\ 82 FR 58507 (December 12, 2017).
---------------------------------------------------------------------------

    During 2017 when we were developing the 2018 standards rulemaking, 
we used available data from a portion of 2017 to estimate that import 
volumes of sugarcane ethanol were likely to fall significantly below 
the 200 million gallons we had assumed when we set the 2017 standards. 
Import data for most of 2017 is now available, and indicates that 
imports of sugarcane ethanol reached just 77 million gallons.

[[Page 32041]]

[GRAPHIC] [TIFF OMITTED] TP10JY18.003

    While it is difficult to predict imports for 2019, we believe it 
would be reasonable not to increase the assumed volume above 100 
million gallons for purposes of determining whether an advanced biofuel 
volume requirement of 4.88 billion gallons is reasonably attainable for 
2019. Although imports of advanced ethanol have been below 100 million 
gallons for 2014-2017, our proposed advanced biofuel volume requirement 
for 2019 would be higher than that for 2018, creating some incentive 
for increases in imports. However, the E10 blendwall and the fact that 
imported sugarcane ethanol typically costs more than corn ethanol 
create disincentives for increasing imports above the levels in recent 
years. Taking all of these considerations into account, we propose 
using 100 million gallons of imported sugarcane ethanol for the 
purposes of projecting reasonably attainable volumes of advanced 
biofuel for 2019. 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 and under the influence of the higher standards in 
2019.
    We note that the future projection of imports of sugarcane ethanol 
is inherently imprecise, and that actual imports in 2019 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, constraints associated with 
the E10 blendwall in the U.S., and the cost relative to that of corn 
ethanol. Also, global sugar consumption has continued to increase 
steadily, while global production has decreased.\77\ If this trend 
continues, Brazilian production of sugar could increase, with a 
concurrent reduction in Brazilian production of ethanol. 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.\78\ 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 reasonably 
attainable for 2019. As we have done in past years, we plan to take 
into consideration available data on imports in 2018, as well as 
information provided in comments, in making a final estimate of 
reasonably attainable volumes of sugarcane ethanol for the final rule.
---------------------------------------------------------------------------

    \77\ ``Sugar--World Markets and Trade,'' USDA, November 2016. 
Available in docket EPA-HQ-OAR-2018-0167.
    \78\ ``Commodity Markets Outlook,'' World Bank Group, January 
2017. Available in docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------

2. Other Advanced Biofuel
    In addition to cellulosic biofuel, imported sugarcane ethanol, and 
advanced biodiesel and renewable diesel, there are other D5 advanced 
biofuels that can be counted in the determination of reasonably 
attainable volumes of advanced biofuel for 2019. These other D5 
advanced biofuels include non-cellulosic CNG, naphtha, heating oil, and 
domestically-produced advanced ethanol. However, the supply of these 
fuels has been relatively low in the last several years.

[[Page 32042]]



                          Table IV.B.2-1--Historical Supply of Other Advanced Biofuels
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                     Domestic
                                      CNG/LNG       Heating oil       Naphtha         ethanol        Total \a\
----------------------------------------------------------------------------------------------------------------
2013............................              26               0               3              23              52
2014............................              20               0              18              26              64
2015............................               0               1              24              25              50
2016............................               0               2              26              27              55
2017............................               2               2              32              26              62
----------------------------------------------------------------------------------------------------------------
\a\ Excludes consideration of D5 renewable diesel, as this category of renewable fuel is considered separately
  as part of advanced biodiesel and renewable diesel in Section IV.B.3 below.

    The downward trend over time in CNG/LNG from 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).\79\ 
Total supply of these other advanced biofuels has exhibited no 
consistent trend during 2013-2017. Based on this historical record, we 
propose that 60 million gallons would be reasonably attainable in 2019.
---------------------------------------------------------------------------

    \79\ 79 FR 42128 (July 18, 2014).
---------------------------------------------------------------------------

    We recognize that the potential exists for additional volumes of 
advanced biofuel from sources such as jet fuel, liquefied petroleum gas 
(LPG), butanol, and liquefied natural gas (as distinct from compressed 
natural gas), as well as non-cellulosic CNG from biogas produced in 
digesters. However, since they have been produced, if at all, in only 
de minimis and sporadic amounts in the past, we do not have a basis for 
projecting substantial volumes from these sources in 2019.\80\
---------------------------------------------------------------------------

    \80\ No RIN-generating volumes of these other advanced biofuels 
were produced in 2017, and less than 1 million gallons total in 
prior years.
---------------------------------------------------------------------------

3. Biodiesel and Renewable Diesel
    Having projected the production volume of cellulosic biofuel, and 
the reasonably attainable volumes of imported sugarcane ethanol and 
``other'' advanced biofuels, we next calculated the volume of advanced 
biodiesel and renewable diesel that would need to be supplied to meet 
the volume of advanced biofuel for 2019 after reducing the advanced 
biofuel volume by the same amount as the cellulosic biofuel volume. 
Based on our projections of other advanced biofuels presented in the 
preceding sections, the market would need to supply 2.8 billion gallons 
of biodiesel and renewable diesel, generating 4.34 billion RINs, to 
meet a total advanced biofuel volume of 4.88 billion gallons. This 
calculation is shown in Table IV.B.3-1 below.
    Calculating the volume of advanced biodiesel and renewable diesel 
that would be needed to meet the volume of advanced biofuel for 2019 is 
an important benchmark to help inform EPA's consideration of our waiver 
authorities. In situations where the reasonably attainable volume of 
biodiesel and renewable diesel exceeds the volume of these fuels that 
would be needed to meet the volume of advanced biofuel after reducing 
the advanced biofuel volume by the same amount as the cellulosic 
biofuel volume, as was the case in 2017 and 2018, EPA may consider 
whether or not to allow additional volumes of these fuels to backfill 
for missing cellulosic biofuel volumes. In situations where the 
reasonably attainable volume of biodiesel and renewable diesel is less 
than the volume of these fuels that would be needed to meet the volume 
of advanced biofuel after reducing the advanced biofuel volume by the 
same amount as the cellulosic biofuel volume, EPA may consider whether 
or not to use additional waiver authorities, to the extent available, 
to make further reductions to the advanced biofuel volume.
---------------------------------------------------------------------------

    \81\ To calculate the volume of advanced biodiesel and renewable 
diesel that would generate the 4.34 billion RINs needed to meet the 
proposed advanced biofuel volume EPA divided the 4.34 billion RINs 
by 1.55. 1.55 is the approximate average (weighted by the volume of 
these fuels expected to be produced in 2019) of the equivalence 
values for biodiesel (generally 1.5) and renewable diesel (generally 
1.7).

   Table IV.B.3-1--Determination of Volume of Biodiesel and Renewable
    Diesel Needed in 2019 To Achieve 4.88 Billion Gallons of Advanced
                                 Biofuel
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Lowest 2019 advanced biofuel volume requirement                    4,881
 permitted using under the cellulosic waiver authority..
Cellulosic biofuel......................................             381
Imported sugarcane ethanol..............................             100
Other advanced..........................................              60
Calculated advanced biodiesel and renewable diesel           4,340/2,800
 needed (ethanol-equivalent gallons/physical gallons)
 \81\...................................................
------------------------------------------------------------------------

    Having calculated the volume of advanced biodiesel and renewable 
diesel that would need to be supplied to meet the volume of advanced 
biofuel for 2019 after reducing the advanced biofuel volume by the same 
amount as the cellulosic biofuel volume, EPA next projected the 
reasonably attainable volume of these fuels for 2019. With regard to 
advanced biodiesel and renewable diesel, there are many different 
factors that could potentially influence the reasonably attainable 
volume of these fuels used as transportation fuel or heating oil in the 
U.S. These factors could include the availability of qualifying 
biodiesel and renewable diesel feedstocks, the production capacity of 
biodiesel and renewable diesel facilities (both in the U.S. and 
internationally), and the availability of imported volumes of these 
fuels.\82\ A review of the volumes

[[Page 32043]]

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 (including the 
availability of advanced feedstocks, the expiration of the biodiesel 
tax credit, recent tariffs on biodiesel from Argentina and Indonesia, 
and other market-based factors) that are likely to affect the supply of 
advanced biodiesel and renewable diesel.
---------------------------------------------------------------------------

    \82\ 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).
---------------------------------------------------------------------------

    In addition to a review of the volumes of advanced biodiesel and 
renewable diesel used in previous years, we believe the likely growth 
in production of feedstocks used to produce these fuels, as well as the 
total projected available volumes of these feedstocks, are important 
factors to consider. This is because while there are many factors that 
could potentially limit the production and availability of these fuels, 
the impacts of increasing production of advanced biodiesel and 
renewable diesel on factors such as costs, energy security, and GHG 
emissions are expected to vary depending on whether the feedstocks used 
to produce these fuels are sourced from increased production of 
advanced feedstocks or alternatively from diverting these feedstocks 
from existing uses. 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 to renewable fuel production or the diversion of 
advanced biodiesel and renewable diesel from foreign markets. This is 
especially true 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 
2019.\83\ In this case the global supply of advanced biodiesel and 
renewable diesel would not increase, and the potential benefits 
associated with increasing the diversity of the supply of 
transportation fuel (energy security) and the production of additional 
volumes of advanced biodiesel and renewable diesel (low GHG sources of 
transportation fuel) would not be realized. Such feedstock switching or 
fuel diversion could also result in unintended negative consequences, 
such as market disruption in other markets where such oils are used, 
which could offset some or all of the anticipated GHG benefits of the 
production and use of advanced biofuels.
---------------------------------------------------------------------------

    \83\ We believe palm or petroleum derived products would likely 
be used replace advanced biodiesel and renewable diesel diverted to 
the U.S. as these products are currently the lowest cost sources.
---------------------------------------------------------------------------

    Before considering the projected growth in the production of 
qualifying feedstocks that could be used to produce advanced biodiesel 
and renewable diesel, as well as the total volume of feedstocks that 
could be used to produce these fuels, 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 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.\84\ In previous years, biodiesel and renewable 
diesel produced in the U.S. have been almost exclusively advanced 
biofuel.\85\ Imports of advanced biodiesel have also increased in 
recent years, 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 many economic factors.
---------------------------------------------------------------------------

    \84\ From 2011 through 2017 approximately 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 (11,701 million gallons of 
the 12,323 million gallons) according to EMTS data.
    \85\ From 2011 through 2017 over 99.9% of all the domestically 
produced biodiesel and renewable diesel supplied to the U.S. 
qualified as advanced biodiesel and renewable diesel (10,089 million 
gallons of the 10,096 million gallons) according to EMTS data.

                                  Table IV.B.2-1--Advanced (D4 and D5) Biodiesel and Renewable Diesel From 2011 to 2017
                                                                  [Million gallons] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               2011            2012            2013          2014 \b\        2015 \b\          2016            2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)......       967 (N/A)     1,014 (+47)    1,376 (+362)     1,303 (-73)     1,253 (-50)    1,633 (+380)     1,573 (-60)
Domestic Renewable Diesel (Annual               58 (N/A)        11 (-47)        92 (+81)       155 (+63)       175 (+20)       221 (+46)       258 (+37)
 Change)................................
Imported Biodiesel (Annual Change)......        44 (N/A)         40 (-4)      156 (+116)       130 (-26)      261 (+131)      561 (+300)       462 (-99)
Imported Renewable Diesel (Annual                0 (N/A)        28 (+28)      145 (+117)       129 (-16)        121 (-8)       170 (+49)       193 (+23)
 Change)................................
Exported Biodiesel and Renewable Diesel         48 (N/A)       102 (+54)       125 (+23)        134 (+9)        133 (-1)        129 (-4)       157 (+28)
 (Annual Change)........................
    Total (Annual Change)...............     1,021 (N/A)       991 (-30)    1,644 (+653)     1,583 (-61)     1,677 (+94)    2,456 (+779)    2,329 (-127)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data 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 volume in each year.
\b\ RFS required volumes for these years were not established until December 2015.


[[Page 32044]]


                                   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            2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)......         0 (N/A)          0 (+0)          6 (+6)          1 (-5)          0 (+0)          0 (+0)          0 (+0)
Domestic Renewable Diesel (Annual                0 (N/A)          0 (+0)          0 (+0)          0 (+0)          0 (+0)          0 (+0)          0 (+0)
 Change)................................
Imported Biodiesel (Annual Change)......         0 (N/A)          0 (+0)        31 (+31)        52 (+21)        74 (+22)       113 (+39)        0 (-113)
Imported Renewable Diesel (Annual                0 (N/A)          0 (+0)        53 (+53)         0 (-53)      106 (+106)        43 (-63)      144 (+101)
 Change)................................
Exported Biodiesel and Renewable Diesel          0 (N/A)          0 (+0)          0 (+0)          0 (+0)          0 (+0)          1 (+1)          0 (-1)
 (Annual Change)........................
    Total (Annual Change)...............         0 (N/A)          0 (+0)        90 (+90)        53 (-37)      180 (+127)       155 (-25)       144 (-11)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data 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 volume 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 used in the U.S. have varied greatly, 
from a low of negative 127 million gallons from 2016 to 2017 to a high 
of 779 million gallons from 2015 to 2016. These changes were likely 
influenced by multiple 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 2018 to 2019, nor does it indicate that the 
low (or negative) growth rates observed in other years would recur in 
2019. 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 volume of biodiesel and 
renewable diesel used in the U.S. in any given year. While the 
biodiesel blenders tax credit has applied in each year from 2010--2017, 
it has only been prospectively 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), December 
2015 (for 2015 and 2016), and February 2018 (for 2017). 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 volume of advanced biodiesel and renewable diesel used in the U.S. 
over the previous year (653 million gallons and 779 million gallons 
respectively). However, following these large increases in 2013 and 
2016, there was little to no growth in the use of advanced biodiesel 
and renewable diesel in the following years, only 33 million gallons 
from 2013 to 2015 and negative 127 million gallons from 2016 to 2017. 
This decrease from 2016 to 2017 happened despite the fact that the 
required volume of advanced biofuel increased from 3.61 in 2016 to 4.28 
billion gallons in 2017. This pattern is likely the result of both 
accelerated production and/or importation of biodiesel and renewable 
diesel in the final few months of years during which the tax credit was 
available to take advantage of the expiring tax credit, as well as 
relatively lower volumes of biodiesel and renewable diesel production 
and import in 2014, 2015, and 2017 than would have occurred if the tax 
credit had been in place.\86\
---------------------------------------------------------------------------

    \86\ 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. 
Further, the preliminary tariffs on biodiesel imported from 
Argentina and Indonesia announced in August 2017 likely had a 
negative impact on the volume of biodiesel supplied in 2017.
---------------------------------------------------------------------------

    The historical data suggests that the supply of advanced biodiesel 
and renewable diesel could potentially increase from 2.33 billion 
gallons in 2017 to 2.8 billion gallons in 2019 (the projected volume 
needed to meet the advanced biofuel volume for 2019 after reducing the 
statutory advanced biofuel volume by the same amount as the cellulosic 
biofuel reduction). This would represent an average annual rate of 
growth of approximately 235 million gallons per year, slightly higher 
than the average increase in the volume of advanced biodiesel and 
renewable diesel used in the U.S. from 2011 through 2017 (218 million 
gallons per year) and significantly less the highest annual increase 
during this time (779 million gallons from 2015 to 2016).
    After reviewing the historical volume of advanced biodiesel and 
renewable diesel used in the U.S. and considering the possible impact 
of the expiration of the biodiesel tax credit (discussed above), EPA 
next considers other factors that may impact the production, import, 
and use of advanced biodiesel and renewable diesel in 2019. The 
production capacity of registered advanced biodiesel and renewable 
diesel production facilities is highly unlikely to limit the production 
of these fuels, as the total production capacity for biodiesel and 
renewable diesel at registered facilities in the U.S. (4.1 billion 
gallons) exceeds the volume of these fuels that are projected to be

[[Page 32045]]

needed to meet the advanced biofuel volume for 2019 after exercising 
the cellulosic waiver authority (2.8 billion gallons).\87\ Significant 
registered production also exists internationally. Similarly, the 
ability for the market to distribute and use advanced biodiesel and 
renewable diesel appears unlikely constrain the growth of these fuels 
to a volume lower than 2.8 billion gallons. The investments required to 
distribute and use this volume of biodiesel and renewable diesel are 
expected to be modest, as this volume is less than 200 million gallons 
greater than the volume of biodiesel and renewable diesel produced, 
imported, and used in the U.S. in 2016.
---------------------------------------------------------------------------

    \87\ The production capacity of the sub-set of biodiesel and 
renewable diesel producers that generated RINs in 2017 is 
approximately 3.1 billion gallons. See ``Biodiesel and Renewable 
Diesel Registered Capacity (May 2018)'' Memorandum from Dallas 
Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------

    Conversely, the availability of advanced feedstocks that can be 
used to produce advanced biodiesel and renewable diesel and the 
projected availability of imported advanced biodiesel and renewable 
diesel may limit the volume of these fuels available to the U.S. in 
2019. 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, and that volume of advanced biodiesel and renewable diesel 
and advanced feedstocks produced globally exceeds the volume projected 
to be required in 2019 (2.8 billion gallons of advanced biodiesel and 
renewable diesel and the corresponding volume of advanced feedstocks) 
by a significant margin.\88\ However, 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 
from 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.
---------------------------------------------------------------------------

    \88\ The March 2018 WASDE projects production of vegetable oils 
in 2017/18 in the World to be 197.78 million metric tons. This 
quantity of vegetable oil would be sufficient to produce 
approximately 56.5 billion gallons of biodiesel and renewable 
diesel.
---------------------------------------------------------------------------

    This is both because of the potential disruption and associated 
cost impacts to other industries resulting from feedstock switching, 
and the potential adverse effect on lifecycle GHG emissions associated 
with feedstocks for biofuel production that would have been used for 
other purposes and which must then be backfilled with other feedstocks. 
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 higher lifecycle GHG emissions 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 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 2019, we believe this increase is limited as most of 
these waste oils, fats, and greases that can be recovered economically 
are already being recovered and used in biodiesel and renewable diesel 
production or for other purposes. Most of the vegetable oil used to 
produce advanced biodiesel and renewable diesel that is sourced from 
planted crops comes from crops 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.\89\ This is true for 
soybeans and corn, which are the two largest sources of feedstock from 
planted crops used for biodiesel production in the U.S.\90\ We do not 
believe that the increased demand for soybean oil or corn oil caused by 
a higher 2019 advanced biofuel standard would result in an increase in 
soybean or corn prices large enough to induce significant changes in 
agricultural activity, at least for the changes in advanced biodiesel 
and renewable diesel feedstock demand that may be caused by this 
proposed 2019 standard.
---------------------------------------------------------------------------

    \89\ For example, corn oil is a co-product of corn grown 
primarily for feed or ethanol production, while soy and canola are 
primarily grown as livestock feed.
    \90\ According to EIA data 6,230 million pounds of soy bean oil 
and 1,579 million pounds of corn oil were used to produce biodiesel 
in the U.S. in 2017. Other significant sources of feedstock were 
yellow grease (1,471 million pounds), canola oil (1,452 million 
pounds), and white grease (591 million pounds). Numbers from EIA's 
March 2018 Monthly Biodiesel Production Report.
---------------------------------------------------------------------------

    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). At the time of our assessment for 
this proposed rule, the most current version of the WASDE report only 
projects domestic vegetable oil production through 2018. Based on 
domestic vegetable oil production from 2011-2017 as reported by WASDE, 
the average annual increase in vegetable oil production in the U.S. was 
0.278 million metric tons per year.\91\ Assuming a similar increase in 
domestic vegetable oil production from 2018 to 2019, this additional 
quantity of vegetable oils could be used to produce approximately 80 
million additional gallons of advanced biodiesel or renewable diesel in 
2019 relative to 2018.\92\
---------------------------------------------------------------------------

    \91\ According to the March 2018 WASDE report, U.S. vegetable 
oil production in the 2016/2017 agricultural marketing year is 
estimated to be 11.43 million metric tons. According to the January 
2013 WASDE report, U.S. vegetable oil production in the 2010/2011 
agricultural marketing year was 9.76 million metric tons.
    \92\ 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 soybean oil (https://extension.missouri.edu/p/G1990), which is the largest source of feedstock used to produce 
advanced biodiesel and renewable diesel. Conversion rates for other 
types of vegetable oils used to produce biodiesel and renewable 
diesel are similar to those for soybean oil.
---------------------------------------------------------------------------

    In addition to virgin vegetable oils, we also expect increasing 
volumes of distillers corn oil \93\ to be available for use in 2019. 
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. For this proposed rule EPA is using 
results from the World Agricultural Economic and Environmental Services 
(WAEES) model to project the growth in the production of distillers 
corn oil.\94\ In

[[Page 32046]]

assessing the likely increase in the availability of distillers corn 
oil from 2018 to 2019, 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 167 million pounds, from 2615 million 
pounds in agricultural marketing year 2017/2018 to 2,782 million pounds 
in agricultural marketing year 2018/2019. 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 22 million additional gallons of advanced biodiesel or 
renewable diesel in 2019. We believe it is reasonable to use these 
estimates from the WAEES model for these purposes.
---------------------------------------------------------------------------

    \93\ Distillers corn oil is non-food grade corn oil produced by 
ethanol production facilities.
    \94\ For the purposes of this 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).
---------------------------------------------------------------------------

    While the vast majority of the increase in advanced biodiesel and 
renewable diesel feedstocks produced in the U.S. from 2018 to 2019 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 to produce biodiesel or renewable diesel, or in 
other markets. In fact, the WAEES model projects a decrease of 3 
million gallons in the volume of biodiesel produced from feedstocks 
other than soybean oil, canola oil, and distillers corn oil from 2018 
to 2019.\95\ In total, we expect that increases in feedstocks produced 
in the U.S. are sufficient to produce approximately 100 million more 
gallons of advanced biodiesel and renewable diesel in 2019 relative to 
2018. In our 2018 final rule, we determined that 2.55 billion gallons 
of advanced biodiesel and renewable diesel were reasonably attainable 
in 2018,\96\ therefore our projection of the reasonably attainable 
volume of advanced biodiesel and renewable diesel in 2019 is 2.65 
billion gallons.
---------------------------------------------------------------------------

    \95\ Id.
    \96\ 82 FR 58512 (December 12, 2017).
---------------------------------------------------------------------------

    EPA's projections of the growth of advanced feedstocks does not, 
however, suggest that the total supply of advanced biodiesel and 
renewable diesel to the U.S. in 2018 will be limited to 2.65 billion 
gallons. Rather, this is the volume of these fuels that we project 
could be supplied without diverting significant quantities of advanced 
feedstocks or biofuels from existing uses. The March 2018 WASDE reports 
that production of vegetable oil in the U.S. in the 2017/2018 market 
year (the latest year for which projections are available) will be 
sufficient to produce approximately 3.3 billion gallons of biodiesel 
and renewable diesel (including both advanced and conventional 
biofuels) if the entire volume of vegetable oil was used to produce 
these fuels. Additional advanced biodiesel and renewable diesel could 
be produced from waste fats, oils, and greases. The global production 
of vegetable oil projected in the 2017/2018 marketing year would be 
sufficient to produce approximately 56.5 billion gallons of biodiesel 
and renewable diesel (including both advanced and conventional 
biofuels).\97\ While it would not be reasonable to assume that all, or 
even a significant portion, of global vegetable oil production could be 
available to produce biodiesel or renewable diesel supplied to the U.S. 
for a number of reasons,\98\ the large global supply of vegetable oil 
strongly suggests that under the right market conditions 2.8 billion 
gallons of advanced biodiesel and renewable diesel is attainable in 
2019. Reaching these levels, however, may result in the diversion of 
advanced feedstocks currently used in other markets and/or the import 
of biodiesel and renewable diesel from these feedstocks.
---------------------------------------------------------------------------

    \97\ The March 2018 WASDE projects production of vegetable oils 
in 2017/18 in the U.S. and the World to be 11.64 and 197.78 million 
metric tons respectively. To convert projected vegetable oil 
production to potential biodiesel and renewable diesel production we 
have used a conversion of 7.7 pounds of feedstock per gallon of 
biodiesel.
    \98\ These reasons include the demand for vegetable oil in the 
food, feed, and industrial markets both domestically and globally; 
constraints related to the production, import, distribution, and use 
of significantly higher volumes of biodiesel; and the fact that 
biodiesel and renewable diesel produced from much of the vegetable 
oil available globally would not qualify as an advanced biofuel 
under the RFS program.
---------------------------------------------------------------------------

    Further, the supply of advanced biodiesel and renewable diesel to 
the U.S. in 2019 could be increased by approximately 150 million 
gallons if all of the exported volumes of these fuels were used 
domestically. Diverting this fuel to markets in the U.S. may be 
complicated, however, as doing so would likely require higher prices 
for these fuels in the U.S. (to divert the fuels from foreign markets 
that are presumably more profitable currently). It may also be more 
difficult and costly to distribute this additional volume of biodiesel 
and renewable diesel to domestic markets than the current foreign 
markets. Finally, reducing advanced biodiesel and renewable diesel 
exports may indirectly result in the decreased availability of imported 
volumes of these fuels, as other countries seek to replace volumes 
previously imported from the U.S.
    EPA next considered potential changes 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.
    The RFS requirements and California's LCFS are expected to continue 
to provide an incentive for imports of advanced biodiesel and renewable 
diesel in 2019. Several other factors, however, may negatively impact 
the volume of these fuels imported in 2019. In February 2018 the 
biodiesel blenders tax credit, which had expired at the end of 2016, 
was retroactively reinstated for biodiesel blended in 2017 but was not 
extended to apply to biodiesel blended in 2018 or 2019.\99\ Perhaps 
more significantly, in December 2017 the U.S. International Trade 
Commission adopted tariffs on biodiesel imported from Argentina and 
Indonesia.\100\ According to data from EIA,\101\ no biodiesel was 
imported from Argentina or Indonesia from September 2017--February 
2018, after a preliminary decision to impose tariffs on biodiesel 
imported from these countries was announced in August 2017. Biodiesel 
imports from these countries were significant, accounting for over 550 
million gallons in 2016 and approximately 290 million gallons in 2017. 
At this time, the ultimate impact these tariffs will have on overall 
imports of advanced biodiesel and renewable diesel to the U.S. remains 
uncertain. It is possible that imports of advanced biodiesel and 
renewable diesel from

[[Page 32047]]

other countries not impacted by these tariffs will increase to make up 
for all, or some portion of the biodiesel imported from Argentina and 
Indonesia in previous years. The volume of imported biodiesel in 2017 
sourced from countries not impacted by the tariffs, however, is 
significantly less than the volume supplied by Argentina and 
Indonesia.\102\ It is possible, therefore, that the supply of imported 
advanced biodiesel and renewable diesel available in the U.S. in 2019 
will decrease from the relatively high levels in recent years.\103\
---------------------------------------------------------------------------

    \99\ Bipartisan Budget Act of 2018, Public Law 115-123, 132 
Stat. 64 Sec. Sec.  40406, 40407, and 40415 (2018).
    \100\ ``Biodiesel from Argentina and Indonesia Injures U.S. 
Industry, says USITC,'' Available online at: https://www.usitc.gov/press_room/news_release/2017/er1205ll876.htm.
    \101\ See ``EIA Biomass-Based Diesel Import Data'' available in 
docket EPA-HQ-OAR-2018-0167.
    \102\ According to EIA data, total biodiesel imports from 
countries other than Argentina and Indonesia totaled 153 million 
gallons in 2016 and 103 million gallons in 2017. See ``EIA Biomass-
Based Diesel Import Data'' available in docket EPA-HQ-OAR-2018-0167.
    \103\ According to data from EMTS, 954 million gallons of 
advanced biodiesel and renewable diesel were imported into the U.S. 
in 2016 and 854 million gallons of these fuels were imported in 
2017. Note that imported volumes of biodiesel and renewable diesel 
from EMTS and EIA do not precisely match. The primary reason for 
this difference is that EIA data is sourced from EIA surveys, while 
the EMTS data is generated by the parties that produce and/or import 
biodiesel and renewable diesel into the U.S. For the purposes of 
this discussion we have cited the EIA data, as this data more easily 
allows us to quantify the fuel impacted by the recent tariffs 
(biodiesel imported from Argentina and Indonesia).
---------------------------------------------------------------------------

    Domestic production of advanced biodiesel and renewable diesel in 
2016 and 2017 was approximately 1.85 billion gallons. Of this total, 
approximately 150 million gallons of domestically produced biodiesel 
was exported in 2016 and 2017. An additional 100 to150 million gallons 
of these fuels were imported from countries unaffected by the recent 
tariffs. If, by 2019, alternative sources of imported biodiesel and 
renewable diesel are identified and the imported volume of advanced 
biodiesel and renewable diesel returns to the levels observed in 2016 
and 2017 (approximately 700 million gallons per year) domestic 
production would need to increase by approximately 125 million gallons 
per year in both 2018 and 2019 to reach a total advanced biodiesel and 
renewable diesel supply of 2.8 billion gallons by 2019.\104\ These 
increases appear attainable, as they are lower than the average annual 
increase of advanced biodiesel and renewable diesel production in the 
U.S. between 2011 and 2017 (134 million gallons per year). These 
increases are also approximately equal to the projected increases in 
advanced feedstock availability in 2017 and 2018.\105\ We therefore 
project that a volume of 2.8 billion gallons of advanced biodiesel and 
renewable diesel is attainable in 2019 if the imported volume of these 
fuels does not fall significantly below the volumes imported in 2016 
and 2017. We note, however, that using this volume of advanced 
biodiesel and renewable diesel in the U.S. would likely result in the 
diversion of advanced biodiesel and renewable diesel and/or feedstocks 
used to produce these fuels, as advanced biodiesel and renewable diesel 
that is currently exported would instead be used in the U.S. and 
alternative sources for significant volumes of these fuels would need 
to be found.
---------------------------------------------------------------------------

    \104\ Note that this estimate assumes that the U.S. consumes all 
domestically produced biodiesel and renewable diesel, rather than 
exporting any of this fuel. Alternatively, if the U.S. continues to 
export approximately 150 million gallons of biodiesel per year in 
2019 domestic production of advanced biodiesel and renewable diesel 
would have to increase by approximately 200 million gallons per 
year.
    \105\ In the 2018 final rule, EPA projected that advanced 
biodiesel and renewable diesel feedstocks would increase to allow 
production of approximately 150 million additional gallons of 
advanced biodiesel and renewable diesel in 2018. 82 FR 58511 
(December 12, 2017). In this proposed rule we are projecting 
additional growth in advanced biodiesel and renewable diesel 
feedstocks to allow production of approximately 100 million 
additional gallons of advanced biodiesel and renewable diesel in 
2019 (relative to the volume of advanced feedstocks projected for 
2018).
---------------------------------------------------------------------------

    After a careful consideration of the factors discussed above, EPA 
has determined that 2.8 billion gallons of advanced biodiesel and 
renewable diesel projected needed to satisfy the implied statutory 
volume for non-cellulosic advanced biofuel in 2019 (4.5 billion 
gallons) are attainable. The total production capacity of registered 
biodiesel and renewable diesel producers is significantly higher than 
2.8 billion gallons, even if only those facilities that generated RINs 
for advanced biodiesel and renewable diesel in 2017 are considered. 
This volume (2.8 billion gallons) is also not significantly higher than 
the total volume of biodiesel and renewable diesel supplied in 2016 
(approximately 2.6 billion gallons), strongly suggesting that 
production capacity and the ability to distribute and use biodiesel and 
renewable diesel will not limit the supply of advanced biodiesel and 
renewable diesel to a volume below 2.8 billion gallons in 2018. 
Sufficient feedstocks are expected to be available to produce this 
volume of advanced biodiesel and renewable diesel in 2019, however 
doing so may result in some level of diversion of advanced feedstocks 
and/or advanced biodiesel and renewable diesel from existing uses. 
Achieving this level of advanced biodiesel and renewable diesel in 
2019, however, will likely require finding alternative sources for 
biodiesel imports to replace the volume of biodiesel and renewable 
diesel that were supplied from Argentina and Indonesia in 2016 and 
2017. Alternatively, obligated parties could rely on the significant 
volume of carryover advanced RINs projected to be available in 2019 
(See Section II.B for a further discussion of carryover RINs).

C. Proposed Volume Requirement for Advanced Biofuel

    In exercising the cellulosic waiver authority for 2017 and earlier, 
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, notwithstanding the 
increase in costs associated with those decisions.\106\ For the 2018 
standards, in contrast, we placed a greater emphasis on cost 
considerations in the context of balancing the various considerations, 
ultimately concluding that the applicable volume requirement should be 
based on the maximum reduction permitted under the cellulosic waiver 
authority. We are proposing to take a similar approach for 2019. That 
is, while it may be possible that more than 4.88 billion gallons of 
advanced biofuel might be attainable in 2019, requiring additional 
volumes would lead to higher costs, feedstock switching and/or 
diversion of foreign advanced biofuels. We do not believe that it would 
be appropriate to set the advanced biofuel volume requirement higher 
than 4.88 billion gallons given that it could lead to these results.
---------------------------------------------------------------------------

    \106\ See, e.g., Response to Comments Document for the 2014-2016 
Rule, pages 628-631, available in docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Based on the information presented above, we believe that 4.88 
billion gallons of advanced biofuel is attainable in 2019. After a 
consideration of the projected volume of cellulosic biofuel and 
reasonably attainable volumes of imported sugarcane ethanol and other 
advanced biofuels, we determined that 2.8 billion gallons of advanced 
biodiesel and renewable diesel would be needed to reach 4.88 billion 
gallons of advanced biofuel. Based on a review of the factors relevant 
to the supply of advanced biodiesel and renewable diesel as discussed 
in Section IV.B.2 above, including historic production and import data, 
the production capacity of registered biodiesel and renewable diesel 
producers, and the availability of advanced feedstocks, we have 
determined that 2.8 billion gallons of BBD is attainable in 2019.
    However, we also acknowledge that 2.8 billion gallons of BBD is

[[Page 32048]]

considerably higher than the 2.33 billion gallons actually supplied in 
2017 and the 2.55 billion gallons determined to be reasonably 
attainable in 2018. While 2.8 billion gallons would require an average 
growth in supply of 235 million gallons per year between 2017 and 2019, 
this is only slightly higher than the average annual growth rate in 
years 2011--2017. Nevertheless, there is some uncertainty regarding 
whether 2.8 billion gallons is attainable in 2019. This fact has led us 
to consider whether the use of carryover RINs might be appropriate.
    The carryover RIN bank has continued to grow over the past several 
years as described in Section II.B, and is currently at its largest 
historical level. It represents a source of RINs that could help 
obligated parties meet an advanced biofuel volume requirement of 4.88 
billion gallons in 2019 if the market fails to supply sufficient 
advanced biofuels in 2019. If the market does choose to meet a volume 
requirement of 4.88 billion gallons in this way, it would be for the 
first time in the history of the RFS program. Although we did point to 
the carryover RIN bank in 2013, along with the potential for additional 
volumes of E85, as a means for meeting the statutory volume requirement 
of 16.55 billion gallons, in that case the concern was the portion of 
the standard that is not required to be advanced biofuel (e.g. 
conventional biofuel). Ultimately, the market supplied more advanced 
biofuel than it needed to meet the applicable volume requirement for 
advanced biofuel while falling short of the total renewable fuel volume 
requirement.
    Although we believe that the 2.8 billion gallon volume is 
attainable, and any shortfalls could be met through the use of 
carryover RINs, we also solicit comment and supporting data and 
rationale on whether circumstances exist that would warrant further 
reductions in volumes through the exercise of the general waiver 
authority (e.g., due to severe economic harm). We recognize that 
identifying severe economic harm caused by the implementation of RFS 
requirements is a difficult and complex issue and one of intense 
interest to a number of stakeholders. We discussed in past notices, and 
in the most recent annual rulemaking for 2018, the type of information 
we generally think would be relevant to identifying severe economic 
harm. For example, in 2008, we examined modeling showing expected 
levels of production and price for both corn and ethanol with and 
without a waiver. We also provided quantitative estimates of the impact 
of a waiver on: Food expenditures for average and lowest quintile 
households; feeds costs for cattle, pigs, poultry and dairy; and 
gasoline prices and gasoline expenditures for average and lowest 
quintile households.
    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 4.5 billion gallons in 2019 would be 
maintained. This represents an increase of 0.5 billion gallons from the 
2018 volume requirements.

D. Proposed Volume Requirement 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.\107\ For the reasons we have 
previously articulated, 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 volume of 15 billion gallons. Applying an equal 
reduction of 8.12 billion gallons to both the statutory target for 
advanced biofuel and the statutory target for total renewable fuel 
would result in a total renewable fuel volume of 19.88 billion gallons 
as shown in Table IV.A-1.\108\ A memorandum to the docket provides a 
description of the ways in which the market could make this volume of 
total renewable fuel available.\109\
---------------------------------------------------------------------------

    \107\ 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.
    \108\ 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.
    \109\ ``Market impacts of biofuels in 2019,'' memorandum from 
David Korotney to docket EPA-HQ-OAR-2018-0167. In prior actions 
including the 2018 annual rule proposal, similar analyses indicated 
that the market was capable of both producing and consuming the 
required volume of renewable fuels, and that as a result there was 
no basis for finding an inadequate domestic supply of total 
renewable fuel. See 82 FR 34229 & n.82. Given the D.C. Circuit's 
decision in ACE, however, the current assessment of demand-side 
constraints is no longer relevant for determining inadequate 
domestic supply. However, we believe consideration of the ways that 
the market could make this volume available may still be relevant to 
whether and how EPA exercises its waiver authorities, such as our 
consideration of whether the proposed volumes will cause severe 
economic harm.
---------------------------------------------------------------------------

    This volume of total renewable fuel results in an implied volume of 
15 billion gallons of conventional fuel, which is the same as in the 
2018 final rule.

V. Impacts of 2019 Volumes on Costs

    In this section, EPA presents its assessment of the illustrative 
costs of the proposed 2019 RFS rule. It is important to note that these 
illustrative costs do not attempt to capture the full impacts of this 
proposed rule. We frame the analyses we have performed for this 
proposed rule as ``illustrative'' so as not to give the impression of 
comprehensive estimates. These estimates are provided 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 illustrative cost estimates. For example, there are many 
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.
    Illustrative cost estimates are provided below for the proposal 
discussed in Sections III and IV that reduces the cellulosic, advanced, 
and total renewable fuel volume requirements using the cellulosic 
waiver authority under CAA section 211(o)(7)(D)(i). For this proposal, 
we examine two different cases. In the first case, we provide 
illustrative cost estimates by comparing the proposed 2019 renewable 
fuel volumes to 2019 statutory volumes under CAA section 
211(o)(7)(D)(i). In the second case, we examine the proposed 2019 
renewable fuel volumes to the final 2018 renewable fuel volumes to 
estimate changes in the annual costs of the proposed 2019 RFS volumes 
in comparison to the 2018 volumes.

A. Illustrative Costs Analysis of Exercising the Cellulosic Waiver 
Authority Compared to the 2019 Statutory Volumes Baseline

    In this section, EPA provides illustrative cost estimates that 
compare

[[Page 32049]]

the proposed 2019 cellulosic biofuel volume requirements to the 2019 
cellulosic statutory volume that would be required absent the exercise 
of our cellulosic waiver authority under CAA section 211(o)(7)(D)(i). 
As described in Section III, we are proposing a cellulosic volume of 
381 million gallons for 2019. The result is that we are using our 
cellulosic waiver authority to waive the statutory cellulosic volume of 
8.5 billion gallons by 8.12 billion gallons. Estimating the cost 
savings from volumes that are not projected to be produced is 
inherently challenging. EPA has taken the relatively straightforward 
methodology of multiplying this waived volume of 8.12 billion gallons 
by the wholesale per-gallon costs of cellulosic biofuel production 
relative to the petroleum fuels they displace.
    While there may be growth in other cellulosic renewable fuel 
sources, we believe it is appropriate to use cellulosic ethanol 
produced from corn kernel fiber as the representative cellulosic 
renewable fuel. The majority of liquid cellulosic biofuel in 2019 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, we believe that production of the major alternative cellulosic 
biofuel--CNG/LNG derived from biogas--is limited to approximately 630 
million gallons due to a limitation in the number of vehicles capable 
of using this form of fuel.\110\
---------------------------------------------------------------------------

    \110\ EPA projects that 580 million ethanol-equivalent gallons 
of CNG/LNG will be used as transportation fuel in 2019 based on 
EIA's April 2018 Short Term Energy Outlook (STEO). To calculate this 
estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom 
Table Builder (0.13 billion cubic feet/day in 2019). 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 946.5 BTU per cubic foot of natural gas (lower heating 
value, per calculations using ASTM D1945 and D3588) and 77,000 BTU 
of natural gas per ethanol-equivalent gallon per Sec.  
80.1415(b)(5).
---------------------------------------------------------------------------

    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 cost 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 costs of the 
cellulosic ethanol to the petroleum fuels that would be replaced at the 
wholesale stage, since that is when the two are blended together.
    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 travel the same distance as on gasoline due 
to the ethanol's lower energy content.
    Table V.A-1 below presents the cellulosic fuel cost savings with 
this proposed rule that are estimated using this approach.\111\ The 
per-gallon cost difference estimates for cellulosic ethanol ranges from 
$0.49-$2.65 per ethanol-equivalent gallon.\112\ 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 proposed rule results in approximately $4.0-$22 billion in cost 
savings.
---------------------------------------------------------------------------

    \111\ Details of the data and assumptions used can be found in a 
Memorandum available in the docket entitled ``Cost Impacts of the 
Proposed 2019 Annual Renewable Fuel Standards'', Memorandum from 
Michael Shelby, Dallas Burkholder, and Aaron Sobel available in 
docket EPA-HQ-OAR-2018-0167.
    \112\ 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 April 2018 STEO.

   Table V.A-1--Illustrative Costs of Exercising the Cellulosic Waiver
        Authority Compared to the 2019 Statutory Volumes Baseline
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic Volume Required (Million Ethanol-Equivalent               381
 Gallons)...............................................
Change in Required Cellulosic Biofuel from 2019                  (8,119)
 Statutory Volume (Million Ethanol-Equivalent Gallons)..
Cost Difference Between Cellulosic Corn Kernel Fiber         $0.49-$2.65
 Ethanol and Gasoline Per Gallon ($/Ethanol-Equivalent
 Gallons) \113\.........................................
Annual Change in Overall Costs (Million $) \114\........  $(4,000)-$(22,
                                                                    000)
------------------------------------------------------------------------

B. Illustrative Costs Analysis of Exercising the Cellulosic Waiver 
Authority Compared to the 2018 RFS Volumes Baseline

    In this section, we provide illustrative cost estimates for EPA 
exercising its cellulosic waiver authority to reduce statutory 
cellulosic volumes for 2019 (with corresponding reductions to the 
advanced and total renewable fuel volumes) compared to the final 2018 
RFS volumes. This results in an increase in cellulosic volumes for the 
2019 RFS of 93 gallons (ethanol-equivalent) and an increase in the non-
cellulosic advanced biofuel volumes for 2019 of 500 million gallons 
(ethanol-equivalent).
---------------------------------------------------------------------------

    \113\ For this table and all subsequent tables in this section, 
approximate costs in per gallon cost difference estimates are 
rounded to the cents place.
    \114\ For this table and all subsequent tables in this section, 
approximate resulting costs (other than in per-gallon cost 
difference estimates) are rounded to two significant figures.
---------------------------------------------------------------------------

1. Cellulosic Biofuel
    We anticipate that the increase in proposed 2019 cellulosic biofuel 
volumes would be composed of 10 million gallons of liquid cellulosic 
biofuel and 84 million gallons of CNG/LNG derived from landfill 
biogas.\115\ Based upon the methodology outlined above in V.A, we use 
corn kernel fiber

[[Page 32050]]

as the representative liquid cellulosic biofuel to develop cost 
estimates of cellulosic ethanol. We estimate a cost difference between 
cellulosic corn fiber-derived ethanol and gasoline of $0.49-$2.65 on an 
ethanol-equivalent gallon basis. Next, the per-gallon costs of 
cellulosic renewable fuel are multiplied by the 10 million gallon 
increase between the proposed 2019 cellulosic volume and the final 2018 
cellulosic RFS volume requirements to estimate the total costs from the 
increase in cellulosic ethanol.
---------------------------------------------------------------------------

    \115\ These volumes do not add to 93 million gallons due to 
rounding.
---------------------------------------------------------------------------

    For CNG/LNG-derived cellulosic biogas, we provide estimates of the 
cost of displacing natural gas with CNG/LNG derived from landfill 
biogas to produce 84 million ethanol-equivalent gallons of cellulosic 
fuel. To estimate the cost of production of CNG/LNG derived from 
landfill gas (LFG), EPA uses Version 3.2 of the Landfill Gas Energy 
Cost Model, or LFG cost-Web. EPA ran the financial cost calculator for 
projects with a design flow rate of 1,000 and 10,000 cubic feet per 
minute with the suggested default data and a project start year of 
2019. The costs estimated for this analysis exclude any pipeline costs 
to transport the high BTU gas, as well as any costs associated with 
compressing the gas to CNG/LNG. These costs are not expected to differ 
significantly between LFG or natural gas. In addition, the cost 
estimates excluded the gas collection and control system infrastructure 
at the landfill, as EPA expects that landfills that begin producing 
high BTU gas in 2019 are very likely to already have this 
infrastructure in place.\116\
---------------------------------------------------------------------------

    \116\ Ibid.
---------------------------------------------------------------------------

    To estimate the illustrative cost impacts of the change in CNG/LNG 
derived from LFG, we compared the cost of production of CNG/LNG derived 
from LFG in each case to the projected price for natural gas in 2019 in 
EIA's April 2018 STEO.\117\ Finally, we converted these costs to an 
ethanol-equivalent gallon basis. The resulting cost estimates are shown 
in Table V.B.2-1. Adding the cost of cellulosic ethanol to the costs of 
CNG/LNG landfill gas, the total costs of the proposed 2019 cellulosic 
volume compared to 2018 RFS cellulosic volume range from $2.3-$32 
million.
---------------------------------------------------------------------------

    \117\ Henry Hub Spot price estimate for 2019. Energy Information 
Administration (EIA), Short Term Energy Outlook (STEO) available in 
docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------

2. Advanced Renewable Fuel
    EPA provides a range of illustrative cost estimates for the 
increases in the advanced standard of 500 million ethanol-equivalent 
gallons using two different advanced biofuels. In the first scenario, 
we assume that all the increase in advanced biofuel volumes is 
comprised of soybean oil BBD. In the second scenario, we assume that 
all the increase in the advanced volume is comprised of sugarcane 
ethanol from Brazil.
    Consistent with the analysis in previous annual RFS volume rules, a 
``bottom-up'' engineering cost analysis is used that quantifies the 
costs of producing a gallon of soybean-based biodiesel and then 
compares that cost to the energy-equivalent gallon of petroleum-based 
diesel. We compare the cost of biodiesel and diesel fuel at the 
wholesale stage, since that is when the two are blended together and 
represents the approximate costs to society absent transfer payments 
and any additional infrastructure costs. On this basis, EPA estimates 
the costs of producing and transporting a gallon of biodiesel to the 
blender in the U.S.
    To estimate the illustrative costs of sugarcane ethanol, we compare 
the cost of sugarcane ethanol and gasoline at the wholesale stage, 
since that is when the two are blended together and represents the 
approximate costs to society absent transfer payments and any 
additional infrastructure costs (e.g., blender pumps). On this basis, 
EPA estimates the costs of producing and transporting a gallon of 
sugarcane ethanol to the blender in the U.S. More background 
information on the cost assessment described in 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.\118\
    Table VI.B.2-1 below also presents estimates of per energy-
equivalent gallon costs for producing: (1) Soybean biodiesel (in 
ethanol-equivalent gallons) and (2) Brazilian sugarcane ethanol, 
relative to the petroleum fuels they replace at the wholesale level. 
For each of the fuels, these per-gallon costs are then multiplied by 
the increase in the 2019 non-cellulosic advanced volume relative to the 
2018 final advanced standard volume to obtain an overall cost increase 
of $380-$710 million. In addition, in Table V.B.2-1, we also present 
estimates of the total cost of this proposal relative to 2018 RFS fuel 
volumes. We add the increase in cost of the proposed 2019 cellulosic 
standard volume, $2.3-$32 million, with the additional costs of the 
increase in non-cellulosic advanced biofuel volumes resulting from the 
proposed 2019 advanced standard volume, $380-$710 million. The overall 
total costs of this proposal range from $380-$740 million.

  Table V.B.2-1--Illustrative Costs of Exercising the Cellulosic Waiver
           Authority Compared to the 2018 RFS Volumes Baseline
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                            Cellulosic Volume
------------------------------------------------------------------------
Corn Kernel Fiber Cellulosic Ethanol Costs:
    Cost Difference Between Cellulosic Corn Kernel Fiber     $0.49-$2.65
     Ethanol and Gasoline Per Gallon ($/Ethanol-
     Equivalent Gallons)................................
    Annual Increase in Overall Costs (Million $)........          4.9-26
CNG/LNG Derived from Biogas Costs:
    Cost Difference Between CNG/LNG Derived from             (0.03)-0.08
     Landfill Biogas and Natural Gas Per Gallon (/
     Ethanol-Equivalent Gallons)........................
    Annual Increase in Overall Costs (Million $)........       (2.6)-6.4
Annual Increase in Costs with Cellulosic Volume.........          2.3-32
(Million $).............................................
------------------------------------------------------------------------
                             Advanced Volume
------------------------------------------------------------------------
Soybean Biodiesel Scenario:
    Cost Difference Between Soybean Biodiesel and              1.04-1.43
     Petroleum Diesel Per Gallon (/Ethanol-Equivalent
     Gallons)...........................................
    Annual Increase in Overall Costs (Million $)........         520-710
Brazilian Sugarcane Ethanol Scenario:
    Cost Difference Between Sugarcane Ethanol and              0.76-1.22
     Gasoline Per Gallon (/Ethanol-Equivalent Gallons)..
    Annual Increase in Overall Costs (Million $)........         380-610

[[Page 32051]]

 
Annual Increase in Overall Costs with Non-Cellulosic             380-710
 Advanced Volume (Million $)............................
------------------------------------------------------------------------
                     Cellulosic and Advanced Volumes
------------------------------------------------------------------------
Annual Increase in Overall Costs with Cellulosic and             380-740
 Advanced Volume........................................
(Million $).............................................
------------------------------------------------------------------------

    The annual volume-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 proposed 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 may include infrastructure 
costs, investment, lifecycle GHG emissions and air quality impacts, and 
energy security benefits, which all are to some degree affected by the 
annual volumes. For example, we do not have a quantified estimate of 
the lifecycle GHG or energy security benefits for a single year (e.g., 
2019). 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. While some of 
these impacts were analyzed in the 2010 final rulemaking that 
established the current RFS program,\119\ we have not analyzed these 
impacts for the 2019 volume requirements.
---------------------------------------------------------------------------

    \119\ 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.
---------------------------------------------------------------------------

VI. Biomass-Based Diesel Volume for 2020

    In this section we discuss the proposed BBD applicable volume for 
2020. We are proposing 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 proposing the BBD percentage 
standards that would apply to obligated parties in 2020 but intend to 
do so in late 2019, after receiving EIA's estimate of gasoline and 
diesel consumption for 2020. 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 2020 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.\120\ 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.
---------------------------------------------------------------------------

    \120\ See CAA section 211(o)(2)(B)(v).
---------------------------------------------------------------------------

    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. In general, 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 2020 Applicable Volume of Biomass-Based Diesel

    One of the primary considerations in determining the BBD volume for 
2020 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. Table VI.B.1-1 below shows, for 2011-2017, the number of 
BBD RINs generated, the number of RINs retired due to export, the 
number of RINs retired for reasons other than compliance with the 
annual BBD standards, the consequent number of available BBD RINs, and 
the BBD and

[[Page 32052]]

advanced biofuel standards for 2011-2019.

                                    Table VI.B.1-1--Biomass-Based Diesel (D4) RIN Generation and Advanced Biofuel and
                                                       Biomass-Based Diesel Standards in 2011-2019
                                                             [Million RINs or gallons] \121\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             BBD RINs                                                        Advanced
                                             BBD RINs      Exported BBD    retired, non-   Available BBD   BBD standard    BBD standard       biofuel
                                             generated        (RINs)        compliance       RINs \a\        (gallons)        (RINs)         standard
                                                                              reasons                                                         (RINs)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................           1,692              72              98           1,522             800           1,200           1,350
2012....................................           1,737             102              90           1,545           1,000           1,500           2,000
2013....................................           2,739             124             101           2,514           1,280           1,920           2,750
2014....................................           2,710             134              92           2,484           1,630       \b\ 2,490           2,670
2015....................................           2,796             145              32           2,619           1,730       \b\ 2,655           2,880
2016....................................           4,008             203              96           3,709           1,900           2,850           3,610
2017....................................           3,849             244              35           3,570           2,000           3,000           4,280
2018....................................             N/A             N/A             N/A             N/A           2,100           3,150           4,290
2019....................................             N/A             N/A             N/A             N/A           2,100           3,150           4,880
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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. While some fuels that qualify as BBD generate more than 1.5 RINs per gallon,
  EPA multiplies the required volume of BBD by 1.5 in calculating the percent standard per 80.1405(c). In 2014 and 2015 however, 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, rather than by
  multiplying the required volume of BBD by 1.5. Some of the volume used to meet the BBD standard in these years was renewable diesel, with an
  equivalence value higher than 1.5.

    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, 2016 and 2017. 
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,\122\ 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.\123\ 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). In 2017, 
the RFS standards were established prior to the beginning of the year, 
and the blenders tax credit was only applied retroactively; even 
without the certainty of a tax credit, the available BBD RINs exceeded 
the volume required by the BBD standard by 570 million RINs (19 
percent). This indicates that in appropriate circumstances there is 
demand for BBD beyond the required volume of BBD. We also note that 
while EPA has consistently established the required volume in such a 
way as to allow non-BBD fuels to compete for market share in the 
advanced biofuel category, since 2016 the vast majority of non-
cellulosic advanced biofuel used to satisfy the advanced biofuel 
obligations has been BBD.
---------------------------------------------------------------------------

    \121\ Available BBD RINs Generated, Exported BBD RINs, and BBD 
RINs Retired for Non-Compliance Reasons information from EMTS.
    \122\ 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. In 
February 2018 the biodiesel tax credit was authorized and applied 
retroactively for all of 2017.
    \123\ See 80 FR 77490-92, 77495 (December 14, 2015).
---------------------------------------------------------------------------

    The prices paid for advanced biofuel and BBD RINs beginning in 
early 2013 through the March 2018 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.\124\ If, 
however, BBD RINs are being used (or are expected to be 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.\125\ 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.
---------------------------------------------------------------------------

    \124\ This is because when an obligated party retires a BBD RIN 
(D4) 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 
(D5) count towards both the advanced and total renewable fuel 
obligations, while conventional RINs (D6) count towards only the 
total renewable fuel obligation.
    \125\ 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 March 2018, shown 
in Figure VI.B.2-1 below, we see that beginning in early 2013 and 
through March 2018 (the last month for which data are available) 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

[[Page 32053]]

standard. The advanced biofuel standard has incentivized additional 
volumes of BBD since 2013, while the total standard had incentivized 
additional volumes of BBD from 2013 through 2016.\126\ While final 
standards were not in place throughout 2014 and most of 2015, EPA had 
issued proposed rules for both of these years.\127\ 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.\128\ 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.
---------------------------------------------------------------------------

    \126\ 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.)
    \127\ See 80 FR 33100 (2014-16 standards proposed June 10, 
2015); 78 FR 71732 (2014 standards proposed Nov. 29, 2013).
    \128\ 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.
[GRAPHIC] [TIFF OMITTED] TP10JY18.004

    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.'' \129\ 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.\130\ 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.
---------------------------------------------------------------------------

    \129\ 77 FR 59458, 59462.
    \130\ 594 million advanced ethanol RINs were generated 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 had the 
potential to increase 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

[[Page 32054]]

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. The RIN 
generation data also show that while EPA has consistently preserved the 
opportunity for fuels other that BBD to contribute towards satisfying 
the required volume of advanced biofuel, these other advanced biofuels 
have not been supplied in significant quantities since 2013.

                Table VI.B.1-2--Opportunity for and RIN Generation of ``Other'' Advanced Biofuels
                                                 [Million RINs]
----------------------------------------------------------------------------------------------------------------
                                                                                                   Available BBD
                                                                    Opportunity                    (D4) RINs in
                                                                   for ``other''     Available     excess of the
                                                                     advanced      advanced (D5)        BBD
                                                                    biofuels a         RINs        requirement b
 
----------------------------------------------------------------------------------------------------------------
2011............................................................             150             225             322
2012............................................................             500             597              45
2013............................................................             829             552             594
2014 c..........................................................             192             143              39
2015 c..........................................................             162             147              24
2016............................................................             530              97             903
2017............................................................             969             144             570
----------------------------------------------------------------------------------------------------------------
a The required volume of ``other'' advanced biofuel is calculated by subtracting the number of cellulosic
  biofuel and BBD RINs required each year from the number of advanced biofuel RINs required. This portion of the
  advanced standard can be satisfied by advanced (D5) RINs, BBD RINs in excess of those required by the BBD
  standard, or cellulosic RINs in excess of those required by the cellulosic standard.
b The available BBD (D4) RINs in excess of the BBD requirement is calculated by subtracting the number of BBD
  RINs required each year from the number of BBD RINs available for compliance in that year. This number does
  not include carryover RINs.
c The 2014 and 2015 volume requirements were established in November 2015 and were set equal to the number of
  RINs projected to be available for each year.

    In 2014 and 2015, EPA set the BBD and advanced standards at actual 
RIN generation, and thus the space between the advanced biofuel 
standard and the biodiesel standard was unlikely to provide an 
incentive for ``other'' advanced biofuels. EPA now has data on the 
amount of ``other'' advanced biofuels produced in 2016 and 2017 as 
shown in the table above. For 2016 and 2017, the gap between the BBD 
standard and the advanced biofuel provided an opportunity for ``other'' 
advanced biofuels to be generated to satisfy the advanced biofuel 
standard. While EPA allowed for up to 530 million and 969 million 
gallons of ``other'' advanced for 2016 and 2017 respectively, only 97 
million and 144 million gallons of ``other'' advanced biofuels were 
generated. This is significantly less than the volumes of ``other'' 
advanced available in 2012-2013. Despite creating space within the 
advanced biofuel standard for ``other'' advanced, in recent years, that 
space has not been filled with significant volumes of ``other'' 
advanced and BBD continues to fill most of the gap between the BBD 
standard and the advanced standard.
    Thus, while the advanced biofuel standard is sufficient to drive 
biodiesel volume separate and apart from the BBD standard, there would 
not appear to be a compelling reason to increase the ``space'' 
maintained for ``other'' advanced biofuel volumes. The overall volume 
of non-cellulosic advanced biofuel volume is proposed to increase by 
500 million gallons for 2019. Increasing the BBD volume by the same 
amount would preserve the space already available for other advanced 
biofuels to compete.
    At the same time, the rationale for preserving the ``space'' for 
``other'' advanced biofuels remains. 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 in 2012 and 2017 (the most recent year for which 
complete RIN generation by company 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.\131\ 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 2017, the average BBD RIN 
generation per company had climbed to almost 33 million RINs (22 
million gallons) annually, a 3-fold increase. Only 33 percent of the 
companies produced less than 1 million gallons of BBD in 2017.\132\
---------------------------------------------------------------------------

    \131\ ``BBD RIN Generation by Company 2012, 2016, and 2017 
CBI,'' available in EPA docket EPA-HQ-OAR-2017-0167.
    \132\ Id.
---------------------------------------------------------------------------

    We are conscious of public comments claiming that BBD volume 
requirements that are a significant portion of the advanced volume 
requirements effectively disincentivize the future development of other 
promising advanced biofuel pathways.\133\ A variety of different types 
of advanced biofuels, rather than a single type such as BBD, would 
increase energy security (e.g., by increasing the diversity of 
feedstock sources used to make biofuels, thereby

[[Page 32055]]

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.\134\
---------------------------------------------------------------------------

    \133\ See, e.g. Comments from National Biodiesel Board on the 
2018 Annual Standards, available in EPA docket EPA-HQ-OAR-2017-0167.
    \134\ All types of advanced biofuel, including BBD, must achieve 
lifecycle GHG reductions of at least 50 percent. See CAA section 
211(o)(1)(B)(i), (D).
---------------------------------------------------------------------------

    With the considerations discussed above in mind, as well as our 
analysis of the factors specified in the statute, we are proposing to 
set the applicable volume of BBD at 2.43 billion gallons for 2020. This 
increase, in conjunction with the statutory increase of 500 million 
gallons of non-cellulosic advanced biofuel in 2019, would continue to 
preserve a gap between the advanced biofuel volume and the sum of the 
cellulosic biofuel and BBD volumes. This would allow other advanced 
biofuels to continue to compete with excess volumes of BBD for market 
share under the advanced biofuel standard. We believe this volume sets 
the appropriate floor for BBD, and that the volume of advanced 
biodiesel and renewable diesel actually used in 2020 will be driven by 
the level of the advanced biofuel and total renewable fuel standards 
that the Agency will establish for 2020. It also recognizes that while 
maintaining an opportunity for other advanced biofuels is important, 
the vast majority of the advanced biofuel used to comply with the 
advanced biofuel standard in recent years has been BBD. Based on 
information now available from 2016 and 2017, despite providing a 
significant degree of space for ``other'' advanced biofuels, smaller 
volumes of ``other'' advanced have been utilized to meet the advanced 
standard. EPA believes that the BBD standard we are proposing to set 
today still provides sufficient incentive to producers of ``other'' 
advanced biofuels, while also acknowledging that the advanced standard 
has been met predominantly with biomass-based diesel. Our assessment of 
the required statutory factors, summarized in the next section and 
detailed in a memorandum to the docket (the ``2020 BBD docket 
memorandum''), supports our proposal.\135\ We request comment on the 
biomass-based diesel volume requirement for 2020.
---------------------------------------------------------------------------

    \135\ ``Memorandum to docket: Draft Statutory Factors Assessment 
for the 2020 Biomass-Based Diesel (BBD) Applicable Volumes.'' See 
Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------

    We believe this approach 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 
advanced standard continues to drive the ultimate volume of BBD 
supplied. However, given that BBD has been the predominant source of 
advanced biofuel in recent years and the 500 million gallon increase in 
non-cellulosic advanced biofuel we are proposing in this rule, we are 
proposing a volume of 2.43 billion gallons of BBD for 2020. Setting the 
BBD standard in this manner would preserve a considerable portion of 
the advanced biofuel volume that could 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 2020

    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.\136\ 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.\137\ 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. EPA is proposing to increase the BBD 
volume for 2020 to 2.43 billion gallons from 2.1 billion gallons in 
2019 based on our review of the statutory factors and the other 
considerations noted above and in the 2020 BBD Docket Memorandum. This 
increase, in conjunction with the statutory increase of 500 million 
gallons of non-cellulosic advanced biofuel in 2019, would preserve a 
gap for ``other'' advanced biofuels, that is the difference between the 
advanced biofuel volume and the sum of the cellulosic biofuel and BBD 
volumes. This would allow other advanced biofuels to continue to 
compete with excess volumes of BBD for market share under the advanced 
biofuel standard, while also supporting further growth in the BBD 
industry.
---------------------------------------------------------------------------

    \136\ See CAA section 211(o)(2)(B)(i)(IV), (II).
    \137\ While excess BBD production could also displace 
conventional renewable fuel under the total renewable standard, as 
long as the BBD applicable volume is 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. We 
acknowledge, however, that under certain market conditions excess 
volumes of BBD may also be used to displace conventional biofuels.
---------------------------------------------------------------------------

    Consistent with our approach in setting the final BBD volume 
requirement for 2019, EPA's primary assessment of the statutory factors 
for the 2020 BBD applicable volume is that because the BBD requirement 
is nested within the advanced biofuel volume requirement, we expect 
that the 2020 advanced volume requirement, when set next year, will 
determine the level of BBD production and imports that occur in 
2020.\138\ Therefore, EPA continues to believe that approximately the 
same overall volume of BBD would likely be supplied in 2020 even if we 
were to mandate a somewhat lower or higher BBD volume for 2020 in this 
final rule. Thus, we do not expect our 2020 BBD volume requirement to 
result in a difference in the factors we consider pursuant to CAA 
section 211(o)(2)(B)(ii)(I)-(VI).
---------------------------------------------------------------------------

    \138\ Even though we are not proposing to set the 2020 advanced 
biofuel volume requirement as part of this rulemaking, we expect 
that, as in the past, the 2020 advanced volume requirement will be 
higher than the 2020 BBD requirement, and, therefore, that the BBD 
volume requirement for 2020 would not be expected to impact the 
volume of BBD that is actually produced and imported during the 
2020-time period.
---------------------------------------------------------------------------

    As an additional supplementary assessment, we have considered the 
potential impacts of selecting an applicable volume of BBD other than 
2.43 billion gallons in 2020. Even if BBD volumes were to be impacted 
by the 2020 BBD standard (which as noted above we do not currently 
expect), setting a requirement higher or lower than 2.43 billion 
gallons in 2020 would only be expected to affect BBD volumes minimally, 
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(o)(2)(B)(ii), and as described in the 2020 BBD docket memorandum, 
our assessment does not, based on available information, lead us to 
conclude that a higher or lower volume requirement for BBD than 2.43 
billion gallons is more appropriate for 2020.
    Overall and as described in the 2020 BBD docket memorandum, we have 
determined that both the primary assessment and the supplemental

[[Page 32056]]

assessment of the statutory factors specified in CAA section 
211(o)(2)(B)(ii)(I)-(VI) for the year 2020 does not lead us to conclude 
that we should set the BBD standard at a level higher or lower than 
2.43 billion gallons in 2020.

VII. Percentage Standards for 2019

    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.
    Sections II through V provide our rationale and basis for the 
proposed volume requirements for 2019.\139\ The volumes used to 
determine the proposed percentage standards are shown in Table VII-1.
---------------------------------------------------------------------------

    \139\ The 2019 volume requirement for BBD was established in the 
2018 final rule.

Table VII-1--Volumes for Use in Determining the Proposed 2019 Applicable
                          Percentage Standards
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel.............  Million ethanol-                    381
                                  equivalent gallons.
Biomass-based diesel...........  Billion gallons........             2.1
Advanced biofuel...............  Billion ethanol-                   4.88
                                  equivalent gallons.
Renewable fuel.................  Billion ethanol-                  19.88
                                  equivalent gallons.
------------------------------------------------------------------------

    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 2019 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 renewable fuel 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 
under Sec.  80.1407.
    As specified in the RFS2 final rule,\140\ 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 in order to calculate a percentage 
standard that is on the same basis (i.e., ethanol-equivalent) as the 
other three standards. However, BBD often contains some renewable 
diesel, and a gallon of renewable diesel typically generates 1.7 
RINs.\141\ 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 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 in 2019. 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.
---------------------------------------------------------------------------

    \140\ See 75 FR 14670 (March 26, 2010).
    \141\ 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\142\ 
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 disproportionate 
economic hardship,

[[Page 32057]]

and may grant refineries exemptions upon such demonstration.
---------------------------------------------------------------------------

    \142\ 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 2019, and 
therefore we have calculated the percentage standards for 2019 without 
any adjustment for exempted volumes. EPA is maintaining its approach 
that any exemptions for 2019 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 2019. EPA is not 
soliciting comments on how small refinery exemptions are accounted for 
in the percentage standards formulas in 40 CFR 80.1405, and any such 
comments will be deemed beyond the scope of this rulemaking.

C. Proposed 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.\143\
---------------------------------------------------------------------------

    \143\ To determine the 49-state values for gasoline and diesel, 
the amount of these fuels used in Alaska is subtracted from the 
totals provided by EIA because petroleum based fuels used in Alaska 
do not incur RFS obligations. The Alaska fractions are determined 
from the June 30, 2017 EIA State Energy Data System (SEDS), Energy 
Consumption Estimates.

   Table VII.C-1--Values for Terms in Calculation of the Proposed 2019
                              Standards 144
                            [Billion gallons]
------------------------------------------------------------------------
              Term                     Description             Value
------------------------------------------------------------------------
RFVCB..........................  Required volume of                0.381
                                  cellulosic biofuel.
RFVBBD.........................  Required volume of                 2.10
                                  biomass-based diesel.
RFVAB..........................  Required volume of                 4.88
                                  advanced biofuel.
RFVRF..........................  Required volume of                19.88
                                  renewable fuel.
G..............................  Projected volume of              143.76
                                  gasoline.
D..............................  Projected volume of               56.46
                                  diesel.
RG.............................  Projected volume of               14.74
                                  renewables in gasoline.
RD.............................  Projected volume of                2.83
                                  renewables in diesel.
GS.............................  Projected volume of                0.00
                                  gasoline for opt-in
                                  areas.
RGS............................  Projected volume of                0.00
                                  renewables in gasoline
                                  for opt-in areas.
DS.............................  Projected volume of                0.00
                                  diesel for opt-in
                                  areas.
RDS............................  Projected volume of                0.00
                                  renewables in diesel
                                  for opt-in areas.
GE.............................  Projected volume of                0.00
                                  gasoline for exempt
                                  small refineries.
DE.............................  Projected volume of                0.00
                                  diesel for exempt
                                  small refineries.
------------------------------------------------------------------------

    Projected volumes of gasoline and diesel, and the renewable fuels 
contained within them, were derived from the April 2018 version of 
EIA's Short-Term Energy Outlook.
---------------------------------------------------------------------------

    \144\ See ``Calculation of proposed % standards for 2019'' in 
docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------

    Using the volumes shown in Table VII.C-1, we have calculated the 
proposed percentage standards for 2019 as shown in Table VII.C-2.

          Table VII.C-2--Proposed Percentage Standards for 2019
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................           0.209
Biomass-based diesel....................................            1.72
Advanced biofuel........................................            2.67
Renewable fuel..........................................           10.88
------------------------------------------------------------------------

VIII. Public Participation

    We request comment on all aspects of this proposal. This section 
describes how you can participate in this process.

A. How do I submit comments?

    We are opening a formal comment period by publishing this document. 
We will accept comments during the period indicated under the DATES 
section above. If you have an interest in the proposed standards, we 
encourage you to comment on any aspect of this rulemaking. We also 
request comment on specific topics identified throughout this proposal.
    Your comments will be most useful if you include appropriate and 
detailed supporting rationale, data, and analysis. Commenters are 
especially encouraged to provide specific suggestions for any changes 
that they believe need to be made. You should send all comments, except 
those containing proprietary information, to our Docket (see ADDRESSES 
section above) by the end of the comment period.
    You may submit comments electronically through the electronic 
public docket, www.regulations.gov, by mail to the address shown in 
ADDRESSES, or through hand delivery/courier. To ensure proper receipt 
by EPA, identify the appropriate docket identification number in the 
subject line on the first page of your comment. Please ensure that your 
comments are submitted within the specified comment period. Comments 
received after the close of the comment period will be marked ``late.'' 
EPA is not required to consider these late comments. If you wish to 
submit Confidential Business Information (CBI) or information that is 
otherwise protected by statute, please follow the instructions in 
Section VIII.B below.
    EPA will also hold a public hearing on this proposed rule. We will 
announce the public hearing date and location for this proposal in a 
supplemental Federal Register document.

B. How should I submit CBI to the agency?

    Do not submit information that you consider to be CBI 
electronically through the electronic public docket, 
www.regulations.gov, or by email. Send or deliver information 
identified as CBI only to the following address: U.S. Environmental 
Protection Agency, Assessment and Standards Division, 2000 Traverwood 
Drive, Ann Arbor, MI 48105, Attention Docket ID EPA-HQ-OAR-2018-0167. 
You may claim information that you submit to EPA as CBI by marking any 
part or all of that information as CBI (if you submit CBI on disk or CD 
ROM, mark the outside of the disk or CD ROM as CBI and then identify 
electronically within the disk or CD ROM the specific information that 
is

[[Page 32058]]

CBI). Information so marked will not be disclosed except in accordance 
with procedures set forth in 40 CFR part 2.
    In addition to one complete version of the comments that include 
any information claimed as CBI, a copy of the comments that does not 
contain the information claimed as CBI must be submitted for inclusion 
in the public docket. This non-CBI version of your comments may be 
submitted electronically, by mail, or through hand delivery/courier. If 
you submit the copy that does not contain CBI on disk or CD ROM, mark 
the outside of the disk or CD ROM clearly that it does not contain CBI. 
Information not marked as CBI will be included in the public docket 
without prior notice. If you have any questions about CBI or the 
procedures for claiming CBI, please consult the person identified in 
the FOR FURTHER INFORMATION CONTACT section.

IX. 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 V of this preamble.

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

    This action is expected to be an Executive Order 13771 regulatory 
action. Details on the estimated costs of this proposed rule can be 
found in EPA's analysis of the illustrative costs associated with this 
action. This analysis is presented in Section V 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 proposed 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 proposed rule on small entities from two perspectives: 
As if the 2019 standards 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 
cellulosic biofuel volume by 93 million gallons and the advanced and 
total renewable fuel volumes required of obligated parties by 590 
million gallons between 2018 and 2019. To evaluate the impacts of the 
volume requirements on small entities relative to 2018, EPA has 
conducted a screening analysis \145\ 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.\146\ 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 V of this preamble and 
the gasoline and diesel fuel volume projections and wholesale prices 
from the April 2018 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.
---------------------------------------------------------------------------

    \145\ ``Screening Analysis for the Proposed Renewable Fuel 
Standards for 2019,'' memorandum from Dallas Burkholder, Nick 
Parsons, and Tia Sutton to EPA Air Docket EPA-HQ-OAR-2018-0167.
    \146\ For a further discussion of the ability of obligated 
parties to recover the cost of RINs see ``Denial of Petitions for 
Rulemaking to Change the RFS Point of Obligation,'' EPA-420-R-17-
008, November 2017.
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    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 as required by 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 proposed rule would not impose any 
additional requirements on small entities beyond those already 
analyzed, since the impacts of this rule are not

[[Page 32059]]

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 proposes to increase the 2019 cellulosic biofuel 
volume requirement by 93 million gallons and the advanced and total 
renewable fuel volume requirements by 590 million gallons relative to 
the 2018 volume requirements, but those volumes remain significantly 
below the statutory volume targets analyzed in the RFS2 final rule. 
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 proposing to increase the volume requirement for 2020 
by 330 million gallons relative to the 2019 volume requirement we 
finalized in the 2018 final rule. 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 proposing to set the 2020 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 proposed 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, 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.\147\ 
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 the refinery is experiencing a 
``disproportionate economic hardship.'' EPA regulations provide similar 
relief to small refiners that are not eligible for small refinery 
relief (see 40 CFR 80.1442(h)). EPA has currently identified a total of 
10 small refiners that own 12 refineries subject to the RFS program, 
all of which have been identified as being small refineries.
---------------------------------------------------------------------------

    \147\ See CAA section 211(o)(9)(B).
---------------------------------------------------------------------------

    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 20 small refineries for the 2016 RFS standards (3 of 
which were owned by a small refiner) and 29 small refineries for the 
2017 RFS standards (8 of which were owned by a small refiner).\148\
---------------------------------------------------------------------------

    \148\ EPA is currently evaluating 4 additional 2017 petitions, 
bringing the total number of petitions for 2017 to 33.
---------------------------------------------------------------------------

    Given that this proposed 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 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.

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 proposed 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 proposes the required 
renewable fuel content of the transportation fuel supply for 2019, 
consistent with the CAA and waiver authorities provided therein. The 
RFS program and this rule are designed to

[[Page 32060]]

achieve positive effects on the nation's transportation fuel supply, by 
increasing energy independence and security 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 proposed 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.

X. 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 proposed 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: June 26, 2018.
E. Scott Pruitt,
Administrator.

    For the reasons set forth in the preamble, EPA proposes to amend 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 new paragraph (a)(10) to read 
as follows:


Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) * * *
    (10) Renewable Fuel Standards for 2019.
    (i) The value of the cellulosic biofuel standard for 2019 shall be 
0.209 percent.
    (ii) The value of the biomass-based diesel standard for 2019 shall 
be 1.72 percent.
    (iii) The value of the advanced biofuel standard for 2019 shall be 
2.67 percent.
    (iv) The value of the renewable fuel standard for 2019 shall be 
10.88 percent.
* * * * *
[FR Doc. 2018-14448 Filed 7-9-18; 8:45 am]
 BILLING CODE 6560-50-P

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