[Federal Register Volume 71, Number 181 (Tuesday, September 19, 2006)]
[Proposed Rules]
[Pages 54771-54789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-15516]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 71, No. 181 / Tuesday, September 19, 2006 / 
Proposed Rules  

[[Page 54771]]



DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 490

RIN 1904-AB67


Alternative Fuel Transportation Program; Replacement Fuel Goal 
Modification

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy (DOE or Department).

ACTION: Notice of proposed rulemaking (NOPR) and public hearing.

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SUMMARY: DOE proposes to modify the 2010 goal of 30 percent of U.S. 
motor fuel production to be supplied by replacement fuels, established 
in section 502(b)(2) of the Energy Policy Act of 1992 (EPAct 1992), 
because it is not achievable. The Department has authority to review 
the goal and to modify it, by rule, if it is not achievable, and in 
doing so may change the percentage level for the goal and/or the 
timeframe for achievement of the goal. The Department has determined 
through its analysis that the 30 percent replacement fuel production 
goal could potentially be met, not by 2010, but at a later date. The 
Department consequently is proposing in this notice to keep the 
replacement fuel goal of 30 percent originally provided in EPAct 1992 
(section 502(b)(2)), but extend the date for achieving the goal to 
2030.

DATES: Written comments (preferably provided electronically, but if not 
possible, then eight copies) on the proposed modification must be 
received by DOE on or before November 3, 2006; electronic copies of 
comments may be submitted as described below.
    Oral views, data, and arguments may be presented at the public 
hearing, which will be held on October 3, 2006. The length of each oral 
presentation is limited to 10 minutes. The public hearing will be held 
at the U.S. Department of Energy, Room GJ-015, Forrestal Building, 1000 
Independence Avenue, SW., Washington, DC 20585-0121. Requests to speak 
at the hearing must be submitted to DOE no later than 4 p.m., September 
26, 2006.

ADDRESSES: Written comments (eight copies) and requests to speak at the 
public hearing should be addressed to: U.S. Department of Energy, 
Office of Energy Efficiency and Renewable Energy, EE-2G, RIN 1904-AB67, 
1000 Independence Avenue, SW., Washington, DC 20585-0121. E-mails may 
be sent to: [email protected]. Comments may also be 
submitted through the Federal Rulemaking Portal at http://www.regulations.gov. DOE is currently using Microsoft Word. 
Organizations are strongly encouraged to submit comments 
electronically, to facilitate timely receipt of comments and ease 
inclusion in the electronic docket.
    Copies of this notice, the transcript from the hearing, and written 
comments will be placed at the following Web site address: http://www.eere.energy.gov/vehiclesandfuels/epact/private_fleets.shtml. 
Interested parties may also access these documents using a computer in 
DOE's Freedom of Information (FOI) Reading Room, U.S. Department of 
Energy, Forrestal Building, Room 1E-190, 1000 Independence Avenue, SW., 
Washington, DC 20585-0121, (202) 586-3142, between the hours of 9 a.m. 
and 4 p.m., Monday through Friday, except Federal holidays.
    For more information concerning public participation in this 
rulemaking, see the ``Opportunity for Public Comment'' section found in 
the SUPPLEMENTARY INFORMATION section of this notice.

FOR FURTHER INFORMATION CONTACT: To request a copy of this notice or 
arrange on-site access to paper copies of other information in the 
docket, or for further information, contact Mr. Dana V. O'Hara, Office 
of Energy Efficiency and Renewable Energy (EE-2G), U.S. Department of 
Energy, 1000 Independence Avenue, SW., Washington, DC 20585-0121; (202) 
586-9171; [email protected]; or Mr. Chris Calamita, Office 
of the General Counsel, U.S. Department of Energy, 1000 Independence 
Avenue, SW., Washington, DC 20585-0121; (202) 586-9507.

SUPPLEMENTARY INFORMATION:
I. Introduction
II. Replacement Fuel Production Goal
III. Achievability of the Goal
IV. Goal Modification and Background
V. Goal Modification Analysis
VI. New Replacement Fuel Production Goal Proposal
VII. Opportunity for Public Comment
VIII. Regulatory Review
IX. Approval by the Office of the Secretary

I. Introduction

    The Energy Policy Act of 1992 (EPAct 1992), Public Law 102-486, 
established an interim goal of developing sufficient U.S. domestic 
replacement fuel production capacity to replace 10 percent of projected 
total motor fuel use by the year 2000 and a final goal of 30 percent by 
the year 2010, with at least one half of such replacement fuels being 
domestic fuels. Pursuant to EPAct 1992, DOE is required to review these 
goals periodically and publish the results and provide opportunities 
for public comments. If DOE determines that the goals are not 
achievable, EPAct 1992 section 504(b) directs DOE to modify, by rule, 
the percentage requirements and/or dates, so that the goals are 
achievable. (42 U.S.C. 13254(b)) The Department believes that in order 
for a goal to be achievable, there must be a reasonable expectation 
that the desired level of replacement fuels production capacity will 
develop within the relevant timeframe.
    The purpose of this NOPR is to review the existing 2010 replacement 
fuel production goal; determine whether the goal is achievable; and if 
the goal is not achievable, propose a new replacement fuel production 
goal. Today's NOPR also implements the March 6, 2006, order of the U.S. 
District Court for Northern District of California to prepare and 
publish a notice of proposed rulemaking to modify EPAct 1992's 
replacement fuel production goal for 2010. See Center for Biological 
Diversity v. U.S. Department of Energy et al., No. C 05-01526 WHA 
(Order on Cross-Motions for Partial Summary Judgment).

II. Replacement Fuel Production Goal

A. Statutory Requirements

    Section 502(a) of EPAct 1992 requires the Secretary of Energy 
(Secretary) to establish a program to promote the development and use 
of ``domestic replacement fuels'' and to ``promote the

[[Page 54772]]

replacement of petroleum fuels with replacement fuels to the maximum 
extent practicable'' (42 U.S.C. 13252(a)). Section 502(b) establishes 
production goals for replacement fuels (42 U.S.C. 13252(b)). The 
relevant portions of 502(b) are:

    (b) Development Plan and Production Goals--[T]he Secretary * * * 
shall review appropriate information and--
* * * * *
    (2) determine the technical and economic feasibility of 
achieving the goals of producing sufficient replacement fuels to 
replace, on an energy equivalent basis--
    (A) at least 10 percent by the year 2000; and
    (B) at least 30 percent by the year 2010, of the projected 
consumption of motor fuel in the United States for each such year, 
with at least one half of such replacement fuels being domestic 
fuels;
    42 U.S.C. 13252(b)(2) [emphasis added].

    For the purposes of this NOPR, the ``replacement fuel production 
goal'' or the ``goal'' refers to the 30 percent production goal by 2010 
(42 U.S.C. 13252(b)(2)(B)), unless otherwise noted. DOE believes the 10 
percent production goal was meant to be an ``interim'' milestone to 
help gauge the progress to the 30 percent production goal. As noted 
elsewhere in this NOPR, DOE has evaluated the status of the 2000 
interim goal and determined that it was not met. Furthermore, DOE has 
evaluated and proposes to determine that the 2010 goal is not 
achievable. Adopting a revised interim goal would not assist DOE in 
carrying out its obligation to revise the 2010 replacement fuel goal. 
Moreover, DOE notes that the Court order referenced earlier instructs 
DOE to ``publish a Notice of Proposed Rulemaking for a revised 
replacement fuel goal.'' \1\ DOE, therefore, is proposing in this 
notice to focus on the final goal in section 502(b)(2). In addition, 
the analyses presented later in this notice nevertheless project 
potential replacement fuel levels for the intervening years without 
establishing a specific interim level or target date.
---------------------------------------------------------------------------

    \1\ The order issued on March 6, 2006, by the U.S. District 
Court for Northern California instructs DOE to issue a revised 
replacement fuel goal, not goals. See Center for Biological 
Diversity v. U.S. Department of Energy et al., No. C 05-01526 WHA 
(Order Re Timing of Relief).
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    DOE will periodically evaluate the prospects for achieving the 
replacement fuel goal proposed in today's notice, including tracking 
the levels projected for intervening years, and will publish the 
results of its evaluations as necessary.
    Since 1992, DOE has taken a number of steps to implement EPAct's 
replacement fuel programs. DOE coordinates various aspects of the 
Federal fleets' efforts to comply with the vehicle acquisition 
requirements established under section 303 of EPAct 1992 (42 U.S.C. 
13212). DOE has promulgated and implemented regulations and guidance 
for alternative fuel providers and State government fleets, which are 
subject to the fleet provisions contained in sections 501 and 507(o) 
(42 U.S.C. 13251 and 13257(o), respectively). DOE has also established 
the Clean Cities Program, which supports public and private 
partnerships that deploy alternative fueled vehicles (AFVs) and build 
supporting infrastructure.
    However, EPAct 1992 does not provide DOE the authority ``to mandate 
marketing or pricing practices, policies or strategies for alternative 
fuel, or to mandate the production or delivery of such fuels.'' (42 
U.S.C. 13254(c)) Further, the Department's authority to require the use 
of alternative fuels is limited.\2\
---------------------------------------------------------------------------

    \2\ Fleets are not required to use alternative or replacement 
fuel in their AFVs (except for alternative fuel providers, which are 
required by section 501(a)(4) of EPAct to use alternative fuel in 
their AFVs.)
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B. Definitions

    The term ``replacement fuel'' is defined by EPAct 1992 to mean 
``the portion of any motor fuel that is methanol, ethanol, or other 
alcohols, natural gas, liquefied petroleum gas, hydrogen, coal derived 
liquids, fuels (other than alcohols) derived from biological materials, 
electricity (including electricity from solar energy), ethers,'' or any 
other fuel that the Secretary determines meets certain statutory 
requirements. (42 U.S.C. 13211(14) (Emphasis added)).
    The term ``alternative fuel'' is defined to include many of the 
same types of fuels (such as ethanol, natural gas, hydrogen, and 
electricity), but also includes certain ``mixtures'' of petroleum-based 
fuels and other fuels as long as the ``mixture'' is ``substantially not 
petroleum.'' (42 U.S.C. 13211(2) and 10 CFR 490.2).
    Thus, a certain mixture might constitute an ``alternative fuel,'' 
but only the portion of the fuel that falls within the definition of 
``replacement fuel'' would actually constitute a ``replacement fuel.'' 
For example, M85, a mixture of 85 percent methanol and 15 percent 
gasoline, would, in its entirety, constitute an ``alternative fuel,'' 
but only the 85 percent that was methanol would constitute 
``replacement fuel.'' Also by way of example, gasohol (a fuel blend 
typically consisting of approximately 10 percent ethanol and 90 percent 
gasoline) would not qualify as an ``alternative fuel'' because it is 
not ``substantially not petroleum,'' but the 10 percent that is ethanol 
would qualify as ``replacement fuel.''
    Section 301(12) of EPAct 1992 defines ``motor fuel'' as ``any 
substance suitable as fuel for a motor vehicle.'' The goals established 
in section 502(b)(2) require that DOE evaluate the capacity of 
producing sufficient replacement fuels to offset a certain percentage 
of U.S. ``motor fuel'' consumption. Moreover, the term motor vehicle is 
defined in EPAct 1992 section 301(13), through reference to 42 U.S.C. 
7550(2), as a self-propelled vehicle that is designed for transporting 
persons or property on a street or highway. Therefore, DOE, for the 
purposes of Title V of EPAct 1992, has interpreted the term motor fuel 
to include all fuels that are used in on-road vehicles. This includes 
fuels used in light-, medium-, and heavy-duty on-road vehicles. (See 
Private and Local Government Fleet Determination; Final Rule, 69 FR 
4219, 4226 (January 29, 2004).)

C. Quantifying the Replacement Fuel Production Goals

    The replacement fuel production goals contained in EPAct 1992 would 
require significant increases in the production of replacement fuels, 
which if used, would represent a substantial reduction in petroleum 
motor fuel usage. The 2000 on-road motor fuel consumption in the U.S. 
was about 10 million barrels per day (mbpd). Thus the 2000 goal of 
producing sufficient fuel to replace 10 percent of total motor fuel 
demand would have required the supply of 1 million barrels oil 
equivalent per day of replacement fuels. The current U.S. production 
capacity for ethanol, which currently is the most prevalent replacement 
fuel, is roughly 0.16 million barrels of oil equivalent per day and 
considerably less than the level of the 2000 goal. In 2010, the U.S. is 
projected to consume over 12 mbpd of motor fuels and, therefore, the 
production of 3.7 mbpd in replacement fuels would be required to 
satisfy the goal of 30 percent replacement fuel.
    To further put these figures in perspective, it is helpful to 
consider the goals in relation to other energy sectors. For example, in 
2010, achieving the EPAct 1992 goal would require the replacement of 
over 3.7 million barrels of oil per day (7.3 quads \3\ of energy), 
equivalent to 9 percent of the total projected domestic energy 
consumption. (See the Energy Information

[[Page 54773]]

Administration's (EIA) Annual Energy Outlook (AEO) 2006,\4\ Tables A2 
and A7.)
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    \3\ One quad equals one quadrillion BTU, which is equivalent to 
172.414 million barrels of crude oil.
    \4\ The AEO is EIA's long-term forecast of energy supply, 
demand, and prices, based on upon results from EIA's National Energy 
Modeling System (NEMS). EIA is an independent statistical and 
analytical agency within DOE.
---------------------------------------------------------------------------

    Moreover, the 2010 replacement fuel goal for motor fuels set forth 
in EPAct 1992 is almost equivalent to the total energy demand for the 
entire commercial sector (service-providing facilities and equipment of 
business; Federal, State, and local governments; and other public and 
private organizations), which is projected to account for 11.5 percent 
of total energy consumption in 2010. The 30 percent goal also 
represents the equivalent of twice as much energy as is projected to be 
supplied by all renewable fuels across all sectors, and roughly the 
equivalent to the total energy currently supplied by U.S. nuclear power 
generating facilities. Achieving the existing statutory replacement 
fuel goal also becomes more difficult each year as more vehicles are 
placed in service and vehicle miles traveled increases. In this decade 
alone, motor fuel demand is expected to increase by nearly 2.5 million 
barrels per day (from 2000 to 2010).
    Seen another way, in order to meet the existing 2010 goal, the U.S. 
would need to replace, in the next three years, over 90 million of the 
130 million light-duty passenger cars on the road today with AFVs 
running 100 percent of the time on alternative fuels. Since there are 
currently about six million AFVs in the U.S., meeting this goal would 
require a 15-fold increase in AFVs within the next three years--
basically requiring nearly five years' worth of vehicle sales in only 
three years, and every vehicle sold would have to be an AFV.
    In discussing the United States' transportation energy issues, 
Brazil is often suggested as a potential model to follow for petroleum 
replacement. In 2004, Brazil was able to replace approximately 44 
percent of its gasoline consumption (on a volume basis), or 34 percent 
on an energy-adjusted basis, with ethanol. Brazil's transition to 
ethanol began in the 1970s and has experienced a significant ramp-up 
over the past 10 years. However, this level of replacement fuel does 
not account for the large amount of diesel fuel consumed in Brazil, and 
thus the total petroleum replacement provided by ethanol in Brazil is 
much less than the 34 percent level reported above.
    The fact that the U.S. already produces more ethanol than Brazil 
annually (yet replaces less than 3 percent of its motor fuels) reveals 
that this country's petroleum dependence is significantly larger than 
Brazil's. It would take a considerable amount of time for the U.S. to 
achieve similar results, on a percentage basis, given the time it would 
take to develop the production capacity of the magnitude required to 
reach the 30 percent level.

III. Achievability of the Goal

A. Statutory Requirements

    Section 504(a) of EPAct 1992 requires DOE to periodically 
``examine'' the goals established in section 502(b)(2) and determine 
whether they should be modified. (42 U.S.C. 13254(a)) The examination 
of the goals is to be made taking into account the program goals stated 
under section 502(a), namely to promote the development and use of 
``domestic replacement fuels'' and to ``promote the replacement of 
petroleum fuels with replacement fuels to the maximum extent 
practicable.''
    As an initial matter, DOE notes that it is unaware of any analysis 
or technical data that was used by Congress in 1992 as a basis for 
setting the 10 percent and 30 percent replacement fuel goals set forth 
in EPAct 1992. Thus, DOE is aware of no affirmative determination by 
Congress or by any agency that, at the time they were set, the 
statutory goals were reasonably achievable. Regardless, and as 
described and discussed below, the Department periodically has 
evaluated the feasibility of the goals.

B. Previous Analyses of the Existing Goals

1. Technical Report 14
    Several previous efforts were made by the Department to analyze the 
replacement fuel goal. The first effort was in 1996, as part of the 
Assessment of Costs and Benefits of Flexible and Alternative Fuel Use 
in the U.S. Transportation Sector, Technical Report Fourteen: Market 
Potential and Impacts of Alternative Fuel Use in Light-Duty Vehicles: A 
2000/2010 Analysis (U.S. Department of Energy, Office of Policy and 
Office of Energy Efficiency and Renewable Energy, January 1996, report 
number DOE/PO-0042), to be referred to as Technical Report 14. To 
analyze the potential for replacement fuels, Technical Report 14 relied 
upon the Alternative Fuels Trade Model (AFTM), a long-run static 
equilibrium model that estimates prices and quantities that balance the 
interrelated world oil and gas markets, given assumptions about supply, 
demand, and costs. This model allows for comparisons between a baseline 
or benchmark case against a modified case (the unconstrained case), or 
even a series of modified cases.
    Technical Report 14 estimated that overall replacement fuel use in 
light-duty vehicles in 2010 would range from 12.4 percent to 45.8 
percent assuming various policies measures are adopted and mature 
alternative fuel industries are permitted to develop. Out of all of the 
cases run (30 in total), two-thirds (20) resulted in replacement fuel 
use of 30 percent or more of light-duty fuel use. (Technical Report 14 
pp. 6-8 and 14-15). The higher penetration levels presented typically 
occur when utilizing the EIA AEO 1994 reference case oil prices 
(compared to Technical Report 14's other major cases which were run 
under only low oil prices). The report projects most alternative fuels 
and replacement fuels as being competitive with petroleum motor fuels 
when the reference fuel prices are used. When low oil prices are used, 
alternative fuel and replacement fuel use declines. The most 
significant replacement fuel levels projected occur when greenhouse gas 
(GHG) emissions are constrained. The scenarios constraining GHG 
emissions result in higher levels of alternative fuels used because 
typically most alternative fuels are less carbon-intensive than 
petroleum fuels.
    The benchmark cases evaluated project much lower levels of 
replacement fuel use (less than 13 percent) and do not assume new 
policies or mandates to facilitate replacement fuel use. The benchmark 
cases also assume the existence of transitional barriers, which are not 
present for the most part in the other scenarios evaluated. In the case 
without transitional barriers or the ``unconstrained case,'' 
alternative fuel vehicles and alternative fuel infrastructure is 
assumed to exist in sufficient numbers to allow significantly increased 
levels of replacement fuel use, assuming they are otherwise cost-
competitive.
    Overall, Technical Report 14 concluded that at least in 1996, 
displacing 30 percent of light-duty motor fuel use appeared 
theoretically feasible by 2010, assuming certain policies and market 
conditions materialize. However, Technical Report 14 only considered 
replacement fuels in the context of motor fuel demand by on-road light 
duty vehicles. Light-duty fuel use in the U.S. is typically 75-80 
percent of all motor fuel use, so achieving 30 percent replacement of 
light-duty fuel use equates to replacing approximately 22-24 percent of 
all motor fuel use.

[[Page 54774]]

2. EPAct 1992 Section 506 Report
    The second major attempt by the Department to evaluate the 
replacement fuel picture was made at the end of the last decade, in the 
report Replacement Fuel and Alternative Fuel Vehicle Analysis Technical 
and Policy Analysis, Pursuant to Section 506 of the Energy Policy Act 
of 1992 (U.S. Department of Energy, Energy Efficiency and Renewable 
Energy, Office of Transportation Technologies, December 1999 with 
amendments September 2000), hereinafter section 506 report. The report 
is available at http://www.eere.energy.gov/vehiclesandfuels/epact/pdfs/plf_docket/section506.pdf.
    The report concluded that it was unlikely that the 10 percent and 
30 percent goals contained in EPAct 1992 would be achieved given the 
limited statutory authorities provided to DOE and the relatively low 
price of petroleum motor fuels that had occurred in the time since 
EPAct 1992's passage. An addendum issued in 2000 indicated that 
significantly higher oil prices (in the $30 per barrel range) might 
lead to additional replacement fuel use, but would not alter the 
original conclusion that achievement of the goals was unlikely.
    Despite the conclusion concerning achievability, the report did not 
take the additional step of making a determination under EPAct 1992 
section 504(b) that the goals were not achievable; nor did the report 
seek to revise the statutory replacement fuel goals. The report did 
indicate DOE's continued support for alternative fuel and replacement 
fuel programs, and concluded that alternative fuels could provide 
significant benefits in terms of greenhouse gas emission reductions and 
oil savings. Like Technical Report 14, the section 506 report indicated 
that the 30 percent goal is achievable eventually if certain obstacles 
are overcome, mainly that alternative and replacement fuels become more 
price competitive with petroleum motor fuels. However, the report 
highlights the significant lead-times necessary to get sufficient 
vehicles on the road and the steep ramp-up that must occur to increase 
the use of replacement fuels.
3. Transitional Alternative Fuels and Vehicles (TAFV) Model Report
    The next report to consider the achievability of the replacement 
fuel goals was the TAFV Model Report. See The Alternative Fuel 
Transition: Results from the TAFV Model of Alternative Fuel Use in 
Light-Duty Vehicles 1996-2000 (ORNL.TM2000/168) (September 17, 2000). 
This report was completed shortly after the section 506 report. It 
examined multiple pathways toward increased replacement and alternative 
fuel use. The major difference between the TAFV report and earlier 
reports is that it used a dynamic transitional model to analyze 
potential replacement fuel pathways. Many of the earlier studies and 
analyses used single-period equilibrium models and also assumed no 
transitional barriers to increased alternative fuel and replacement 
fuel use. The TAFV report includes a number of scenarios that assume no 
transitional barriers but it also includes multiple pathways that do 
include analysis of transitional barriers.
    The TAFV report is instructive in that it highlights just how 
difficult it will be to achieve the 30 percent replacement fuel 
production goal. Of the policy options considered, only one achieves 
the 30 percent goal in the 2010 timeframe and that case relies on a 
retail sales mandate for alternative fuels (an option that is not 
authorized by statute.) Of the cases reviewed both with and without 
transitional barriers, replacement fuel levels achieved were less than 
20 percent. Several other policy options led to increased use of 
replacement fuel use but all of them required authority beyond that 
currently afforded DOE. For example, these scenarios relied on a low-
GHG fuel subsidy or increased Corporate Average Fuel Economy (CAFE) 
standards to lead to larger levels of replacement fuel use; however, 
even in the high oil price case, the GHG fuel subsidy resulted in only 
about 22 percent replacement fuel use by that year. Most of the other 
policy options considered led to no more than 10 percent replacement 
fuel use by 2010. The TAFV report also concluded that it was unlikely 
the 2010 replacement fuel goal would be achieved without significant 
policy changes, including incentives for the ``expansion of vehicle 
production and fuel availability.''
    Another important factor to consider is that the replacement fuel 
levels projected in the TAFV report only considered light-duty fuel and 
thus overstated the actual potential replacement fuel levels by about 
25 percent. The report is available for review at: http://www.eere.energy.gov/vehiclesandfuels/epact/pdfs/plf_docket/tafv99report31a_ornltm.pdf.
    In summary, the section 506 report and TAFV 2000 Report both 
concluded that it would be difficult and unlikely, but not impossible, 
to achieve the 2010 replacement goal in EPAct 1992. In neither of these 
reports issued in mid/late 2000 did DOE make a determination under 
EPAct 1992 section 504(b) that the statutory replacement fuel goals 
were not achievable--i.e., the determination that would have triggered 
a statutory obligation to set a new, achievable, replacement fuel goal. 
The Department chose to take a ``wait and see'' approach regarding the 
need to revise the 2010 goal.

C. Current Review and Analysis of the Goal

    In the development of this proposed rule, DOE evaluated the 
prospects for achieving the replacement fuel goals set out in the 
Energy Policy Act of 1992, which call for developing the capacity to 
produce enough replacement fuels to offset 10 and 30 percent of the on-
highway motor fuels projected consumption for 2000 and 2010, 
respectively. Based on actual data reported for 2000, the 10 percent 
replacement fuel goal was not achieved. Replacement fuel use in that 
year totaled about 4.7 billion gallons, or only about 2.9 percent of 
the 162 billion gallons of on-highway motor fuel consumed. Of this 
amount, oxygenates in the form of ethanol and Methyl Tertiary Butyl 
Ether (MTBE) supplied about 92 percent of the replacement fuel 
production. (See Transportation Energy Data Book--26th Edit., Table 2.3 
(2006) (replacement fuel use) and FHWA Motor Fuel Use Report, Table MF-
21; http://199.79.179.101/ohim/hs00/mf.htm.)
    Based on EIA's latest forecast (AEO 2006), replacement fuels 
currently supply approximately 2.5 percent of the total motor fuel used 
in on-road motor vehicles. The amount of replacement fuel used, as a 
percent of total motor fuel consumed, has essentially been flat for the 
past decade despite an increase in use of alternative and replacement 
motor fuels. This is because the growth in replacement fuels has been 
matched by the growth in petroleum motor fuels.
    Additionally, the recently accelerated phase-out of MTBE as an 
additive in gasoline has limited the total amount of replacement fuels 
consumed since MTBE previously accounted for a significant portion of 
these fuels. Because a gallon of MTBE contains more energy than a 
gallon of ethanol, replacing MTBE with ethanol may result in more 
gallons of ethanol used, but not in a higher replacement fuel level, 
since the level of replacement (percentage) is calculated on an energy 
content basis. This replacement of MTBE with ethanol partly explains 
why replacement fuels have not garnered a larger share of the on-road 
fuels market on an energy basis, even as ethanol use has increased 
quite

[[Page 54775]]

significantly in the past several years, increasing from a level of 
slightly more than 1 billion gallons in 2002 to 4 billion gallons in 
2005.
    The EIA AEO 2006 reference case projects that replacement fuels in 
2010 will account for approximately 2.94 percent of total on-road motor 
fuels, or approximately 5.7 billion gallons of gasoline equivalent 
replacement fuel. As noted above, ethanol production is increasing 
significantly but some of this increase is offset by the near complete 
phase-out of MTBE expected by 2010. Given the short-term nature of the 
2010 goal, it appears that ethanol would be the primary replacement 
fuel option to consider. Some production capacity for ethanol now 
exists, with increases in capacity projected over the next few years, 
partly in response to the Renewable Fuel Standard established by the 
Energy Policy Act of 2005. Ethanol can be used in low-level blends with 
gasoline in conventional vehicles already on U.S. roads, and methods to 
distribute ethanol already exist. The changes in distribution and 
infrastructure needed for other fuels (e.g., gaseous fuels or 
electricity) to make major contributions would be much longer term in 
nature, and thus largely impractical for serious consideration before 
2010. Therefore, ethanol in blends is expected to account for about 80 
percent of the replacement fuels produced in 2010, with the remaining 
balance made up of mostly natural gas and propane. Even in the AEO 2006 
high price forecast, replacement fuels only account for slightly more 
than 3 percent of total on-road motor fuel in 2010.
    For replacement fuels to replace 30 percent of the motor fuel 
produced in 2010, replacement fuel production would have to increase 
more than 10-fold, to nearly 60 billion gallons. Even if extraordinary 
measures were undertaken, replacement fuel production could not be 
ramped up enough to meet the level required to achieve the 30 percent 
replacement fuel goal in three years. By way of illustration, if all 
the corn currently produced in the U.S. were used to produce ethanol, 
the amount of ethanol produced would only be about 18 billion gallons 
of gasoline equivalent, which constitutes only 9 percent of U.S. motor 
fuels.
    DOE therefore proposes to determine that the existing EPAct 1992 
replacement fuel goal of 10 percent for 2000 was not met and that the 
goal of 30 percent for 2010 is not achievable, considering all 
information available and the economic and technical feasibility of 
achieving the 2010 goal.

IV. Goal Modification and Background

A. Statutory Requirements

    Section 504(b) requires ``[i]f, after analysis of information 
obtained in connection with carrying out subsection [504](a) [which 
requires periodic review of the replacement fuel goals] or section 502, 
or other information, and taking into account the determination of 
technical and economic feasibility made under section 502(b)(2), the 
Secretary determines that goals described in section 502(b)(2), 
including the percentage requirements or dates are not achievable, the 
Secretary, in consultation with appropriate Federal agencies, shall, by 
rule, establish goals that are achievable, for the purposes of this 
title'' (42 U.S.C. 13254(b)). In modifying the goal, DOE may promulgate 
an achievable goal by adjusting the level of the goal and/or adjusting 
the timeframe of the goal.
    The Department has proposed to determine that the EPAct 1992 
replacement fuel goal of 30 percent by 2010 is not achievable. That 
determination, if finalized, would require the Department to establish 
a new goal, by rule which is achievable. Section 504 makes clear that 
achievability of the goal is key, both for analysis of the goal as well 
as modifying the goal. EPAct 1992, however, does not define 
``achievable'' for the purpose of modifying the goal. Section 502(b)(2) 
directs DOE to consider the technological and economic feasibility of 
the statutory goal in determining the goal's achievability under the 
initial review. The Department interprets the term to mean that in 
order for a goal to be achievable, there must be a reasonable 
expectation, based on technological and economic feasibility, that the 
desired level of production capacity will be created within the 
relevant timeframe.

B. Previous Rulemaking

    Section 507(c) directed the Department to issue an Advanced Notice 
of Proposed Rulemaking (ANOPR) that, in part, would evaluate the 
progress toward achieving the replacement goal and assess the adequacy 
and practicability of the goal. (42 U.S.C. 13257(c)) In response to 
that directive, DOE issued an ANOPR on April 17, 1998 (63 FR 19372). 
DOE conducted three public hearings (Minneapolis, Minnesota; Los 
Angeles, California; and Washington, DC) and solicited written comments 
from the public on the ANOPR. More than 110 interested parties 
responded by providing written and oral comments. Comments were 
received through July 16, 1998. DOE has reviewed all of these comments 
and, in the following paragraphs, provides a summary of and DOE's 
response to those comments relevant to the replacement fuel goal.
    In the ANOPR, DOE requested comments on 23 specific questions 
covering three broad areas: Replacement fuels, fleet requirements, and 
urban transit buses. Only the first set of questions is relevant to 
today's rulemaking. A detailed discussion of these comments was 
previously provided in the notice of proposed rulemaking for the 
Private and Local Government Fleet Determination, 68 FR 10320, 10326-
10328 (March 3, 2003).
    The questions raised in the 1998 ANOPR addressed whether the 
existing replacement fuel goal for 2010 was achievable, and if not, 
what goal would be achievable; how DOE should determine achievability; 
what should be done to maximize use of replacement fuels (such as 
mandates and incentives); and how DOE should determine the impact of 
replacement fuels.
    Comments about the goal were received from more than 40 individuals 
or entities, and primarily addressed whether the goal of replacing 30 
percent of the U.S. motor fuel by 2010 was considered achievable. While 
generally lacking specific goal levels and dates to inform today's 
action, the comments did identify likely problems in achieving the 
existing goal. Almost half of the comments received that explicitly 
addressed this question regarded the goal as unachievable. By an even 
wider margin, those submitting comments considered the goal 
unachievable under present economic conditions, and many offered 
suggestions as to what changes would be required to make the goal 
feasible. Only one comment was received which suggested a specific 
revised goal, while several others suggested that modifying the goal 
would be as arbitrary as the original goal.
    Comments received were in general agreement that the lack of 
alternative fuel infrastructure, low petroleum fuel prices, and various 
limitations on alternative fuel vehicle availability were key barriers 
to achievement of EPAct 1992's 30 percent replacement fuel production 
goal. Numerous comments were received suggesting a variety of 
incentives (such as tax credits) to spur greater production and use of 
replacement fuels. Virtually no comments were received suggesting 
additional data relevant to the decision at hand, nor concerning how to 
determine the impact of efforts to increase replacement fuel use.

[[Page 54776]]

C. Final Private and Local Determination/Court Decision

    DOE previously addressed the issue of whether to revise the 
replacement fuel production goal for 2010 contained in EPAct 1992 in 
the context of its determination that an AFV acquisition mandate for 
private and local government fleets was not necessary. (See 69 FR 4219; 
January 29, 2004.) Section 507(e) directs the Department to consider 
whether a fleet requirement program is ``necessary'' for the 
achievement of the replacement fuel goals. (42 U.S.C. 13257(e)) As part 
of the Department's decision under that directive, DOE stated in its 
notice of final rulemaking that a private and local government fleet 
rule would ``not appreciably increase the percentage of alternative 
fuel and replacement fuel used by motor vehicles'' (69 FR 4220). DOE 
further concluded that ``adoption of a revised goal would not impact 
its determination that a private and local government rule * * * would 
not provide any appreciable increase in replacement fuel use'' (69 FR 
4221). DOE, therefore, did not revise the replacement fuel goal at the 
time but indicated that it would continue to evaluate the need to 
revise the statutory goal in the future.
    Subsequent to the publication of the January 29, 2004, final rule, 
DOE was sued in Federal court by the Center for Biological Diversity 
and Friends of the Earth for failing to impose a private and local 
government fleet acquisition mandate and for not revising the 
replacement fuel production goal for 2010 as part of its determination. 
On March 6, 2006, the U.S. District Court for the Northern District of 
California invalidated DOE's final determination regarding the private 
and local government fleet mandate and ordered DOE to revise the 
replacement fuel production goal for 2010. (See Center for Biological 
Diversity v. U.S. Department of Energy et al., No. C 05-01526 WHA 
(Order on Cross-Motions for Partial Summary Judgment).) In its order, 
the Court directed DOE to prepare notices of proposed rulemaking and 
final rules on both the replacement fuel goal for 2010 and the private 
and local government fleets determination. Today's notice fulfills the 
Court's requirement that DOE ``shall publish a Notice of Proposed 
Rulemaking for a revised replacement fuel goal by no later than 
September 6, 2006.'' (See the Court's timeline order at p. 2 of the 
order.) This is the initial step to a later rulemaking that DOE will 
conduct to decide whether a private and local government fleet mandate 
is necessary.

D. Advanced Energy Initiative

    The President's Advanced Energy Initiative sets out an aggressive 
course for reducing the Nation's dependence on foreign petroleum. This 
initiative, announced in the President's State of the Union address in 
January 2006, sets a national goal of replacing more than 75 percent of 
the U.S. imports from foreign sources by 2025. The Advanced Energy 
Initiative emphasizes technology developments as the key to reducing 
energy dependence, including several in the area of replacement fuels. 
These appear under the portion of the Initiative focused on ``Changing 
the way we fuel our vehicles'', which indicates:

    We can improve our energy security through greater use of 
technologies that reduce oil use by improving efficiency, expansion 
of alternative fuels from homegrown biomass, and development of fuel 
cells that use hydrogen from domestic feedstocks.

    The Advanced Energy Initiative is available on the White House Web 
site at the following location: http://www.whitehouse.gov/stateoftheunion/2006/energy/.

V. Goal Modification Analysis

    Given the timeframe set by the Court, in this NOPR, the Department 
has had to rely on the best information and data currently available. 
The Department searched and reviewed relevant internal and external 
reports, studies, and analyses on alternative and replacement fuel use 
and projected production. The pertinent information was compiled to 
assist in the development of an ``achievable goal.''

A. Approach

    The Department has several options, in accordance with the 
authority provided in section 504 of EPAct 1992. First, DOE could 
modify the goal level to what it believed was achievable in the 2010 
timeframe, probably around the 3 percent projected in the AEO 2006. DOE 
estimates that given technical and other constraints in this short 
timeframe, expanding production of replacement fuels much beyond 3 
percent by 2010 is unlikely as previously discussed.
    The other primary option would be to move the goal out in time, 
since the potential contributions from replacement fuels increase over 
time. A third option would be to combine the two primary options and 
modify both the replacement fuel level and date. In analyzing the data, 
DOE looked at all of these options. The Department evaluated credible 
data, projections, and other information covering approximately the 
next 25 years, to see what could be achievable. The Department's 
evaluation and analysis went out to 2030, since that is the last date 
for which credible input existed, particularly in the form of the AEO 
2006.
    In general, the analytical framework included only existing 
statutory authorities and incentives in the development of the 
technologies. The only exception was in DOE's Hydrogen, Fuel Cells and 
Infrastructure Technologies Program (Hydrogen Program) which did 
consider additional incentives and/or mandates in the future as is 
discussed later in this section. Therefore, the primary variables in 
the Department's analysis were projected technological and economical 
improvements.

B. Building Blocks

    The replacement fuel production goal proposed in this NOPR was 
developed after careful consideration of existing market factors, 
energy forecasts, and programs directed by the Department and its 
national laboratories. Three combined building blocks were considered: 
(1) The reference case projected by EIA in the AEO 2006; (2) the high 
price case presented in the AEO 2006; and (3) projections from the DOE 
programs conducting research and development (R&D) on replacement fuel 
and vehicle technologies. The outcome of this effort is several 
different cases under which varying levels of replacement fuel are 
potentially achieved.
    Each of these three combined building blocks includes a number of 
smaller building blocks which were assembled to form the combined 
building blocks. These building blocks include replacement fuel and 
vehicle technologies, with projected contributions based on either the 
high or reference prices from the AEO, or the DOE program development 
projections. Some of the building blocks are relevant to all of the 
scenarios, while others appear in a limited number of scenarios. As 
indicated above, the Department evaluated data out through 2030, at 
periodical intervals. In all cases, the highest levels of replacement 
fuels appear in 2030. Below is a description of the building blocks and 
``cases'' which were used to develop the four scenarios, described in 
the subsequent section.
1. AEO 2006 Reference Case Description
    The AEO 2006 reference case is the base case assembled by EIA. It 
takes into account developments that are likely to occur as a result of 
technologies and

[[Page 54777]]

policies that exist today. It does not account for potentially new 
policies, or legislation. The reference case also includes a number of 
other critical assumptions including economic growth rates and oil 
prices. The AEO 2006 reference case assumes a U.S. economic growth rate 
of 3 percent per year. Oil prices in this case are projected to 
fluctuate from the high $40 range to mid $50 range and peak at $57 in 
2030. The AEO indicates that the oil price projection in the reference 
case represents EIA's ``current judgment regarding the expected 
behavior of the Organization of Petroleum Exporting Countries (OPEC) 
producers in the long term, adjusting production to keep world oil 
prices in a range of $40 to $50 per barrel'' (AEO 2006, p. 206).
    According to the reference case, potential replacement fuel levels 
will grow from the 2005 level of 2.63 percent of total motor fuel use 
to 8.65 percent in 2030. To arrive at a potential replacement figure, 
DOE used the figures provided in the AEO 2006 but made the additional 
assumption that all of the coal-to-liquid (CTL) fuels in the AEO 2006 
figures are used in the transportation sector and count as replacement 
fuels for purposes of section 502 of EPAct 1992. A significant portion 
of CTL is expected to be used as jet fuel, so a somewhat smaller 
portion than assumed here would probably be used for on road motor 
vehicle transportation. In the reference case, the CTL fuels account 
for slightly more than half of the total replacement fuels in 2030 or 
about 4 percent. Realistically, DOE expects a portion of CTL fuels may 
be used for non-transportation purposes (such as industrial.) However, 
it is anticipated that the transportation sector is likely to represent 
the highest-value use of these fuels. While it is unclear at this time 
to what extent they will be supplied to non-transportation sectors, the 
projected high-value of motor vehicle fuels would likely result in the 
majority of CTL production being used as motor fuels the transportation 
sector. Therefore, the figure used with the AEO 2006 reference case 
description represents an upper bound for CTL fuel produced for the 
transportation sector. (See below for additional discussion on CTL 
fuels.) The other replacement fuels included in the reference case for 
2030 are ethanol at slightly over 3 percent, biodiesel at less than a 
quarter of a percent, and ``other alternative fuels'' at less than 1 
percent. The ``other alternative fuels'' are discussed below. Hydrogen 
use occurs in the AEO reference case but is minimal.
2. AEO 2006 High Price Case Description
    The high price case makes ``more pessimistic assumptions for 
worldwide crude oil and natural gas resources than in the reference 
case'' (AEO 2006, p. 204). In particular, OPEC resources and production 
capacity are projected to be lower in this case. As a result, oil 
prices rise to nearly $90/barrel by 2030. Even in the high price case, 
however, some of the projected prices are considerably lower than 
today's levels and only rise to $70/barrel in 2013 and $80/barrel in 
2018. The high oil price forecast for the next several years ranges 
from $50 to $60. In this case, transportation energy demand also is 
reduced because of high petroleum prices, which tend to encourage fuel 
efficiency. At the same time, higher oil prices in general also 
encourage more replacement fuel use. The result is that the replacement 
fuel potential of the high price case is more than double the reference 
case, rising to a level of almost 18 percent in 2030.
    As in the reference case, CTL fuels account for a large share of 
the total replacement fuels. Of the nearly 18 percent replacement fuel 
level, CTL accounts for more than 11 percent with a total production 
capacity of 1.69 million barrels per day. Thus, the CTL level more than 
doubles from the reference case projection. As noted above, DOE assumes 
that all of the CTL produced is used for transportation purposes and 
therefore counts toward the replacement fuel goal provisions in section 
502 of EPAct 1992. This represents an upper bound of the potential for 
CTL since it is likely that not all the CTL produced will be used as a 
transportation motor fuel. Ethanol production and the other alternative 
fuels largely are unchanged from the reference case. However, gas-to-
liquid (GTL) fuels for the first time show up as a potential 
replacement fuel, accounting for approximately 1.31 percent petroleum 
replacement and providing about 0.19 million barrels of oil equivalent 
production per day. GTL fuels are discussed in the Program Development 
Case section below because DOE has an active program underway to 
increase their potential.
3. DOE Program Development Case Description
    The DOE program development case represents the potential 
replacement fuel levels achieved if DOE is successful in accelerating 
the introduction of technologies and new fuels through its R&D 
programs. These levels are predicated on the respective programs 
continuing existing R&D activities and the achievement of technology 
goals/milestones that have been set. They also depend on economic 
targets being achieved and market acceptance of the technologies and 
fuels reviewed; however, for the most part, they do not rely upon new 
policy or regulatory initiatives. Information to support these cases 
came primarily from the relevant Energy Efficiency and Renewable Energy 
and Fossil Energy programs, and included Government Performance and 
Results Act (Pub. L. 103-62; August 3, 1993; GPRA) analyses and 
recently released technical reports identifying potential contributions 
of various fuel and vehicle technologies. (For more information 
concerning GPRA analyses, see http://www1.eere.doe.gov/ba/pba/gpra_estimates/fy_07.html.)
    The GPRA analysis specifically was relied on for the figures used 
for the Hydrogen Program and the fuel-efficiency savings rates 
projected for the EERE's FreedomCAR and Vehicles Technologies Program 
(FCVT). It should be noted that the GPRA figures are based on the AEO 
2005 forecast and not AEO 2006 because it was not available when the 
most recent GPRA analysis was conducted. In the case of hydrogen, 
therefore, this means that the analysis presented here is based on last 
year's AEO and thus probably understates the contribution of hydrogen 
because oil prices (a major factor in determining alternative fuel use 
levels) were much lower in AEO 2005. In the case of FCVT's fuel 
efficiency savings, DOE calculated a savings rates based on last year's 
GPRA report and applied this figure to AEO 2006's projection of on-road 
motor fuel use.
    The discussion below includes the programs and fuels that 
contribute to the replacement fuel goal, including fuel efficiency 
measures, ethanol, biodiesel, coal-to-liquid fuels, gas-to-liquid 
fuels, hydrogen, other alternative fuels, and plug-in hybrid-electric 
vehicles (PHEVs). In particular, the technologies and fuels for which 
information was received from DOE program offices include fuel 
efficiency measures, ethanol, gas-to-liquid fuels, hydrogen, and 
electricity in PHEVs.
    Section 504(b) of EPAct 1992 requires that the goal, as modified, 
be achievable. (42 U.S.C. 13254(b)) As part of our determination as to 
whether a goal would be achievable, the Department considered 
technologies that are technically and economically feasible today. The 
Department also considered technologies that currently may not be 
technologically or economically feasible, but that we reasonably expect 
to be technologically and economically feasible given the achievement 
of

[[Page 54778]]

certain conditions in the timeframes necessary to contribute to the 
goal. Thus, for any technology included in the analysis that is not now 
considered technically and economically feasible, the discussion below 
includes information on the conditions the Department considers 
necessary for such technologies to be technologically and economically 
feasible.
a. Energy Efficiency for Light-Duty, Medium-Duty, and Heavy-Duty 
Vehicles
    The EPAct 1992 replacement fuel goal does not directly take into 
account improvements in fuel efficiency because the goal is measured in 
terms of the percentage of motor fuels provided by replacement fuels. 
Fuel efficiency improvements to motor vehicles, however, indirectly 
contribute to the achievement of the replacement fuel goal contained in 
EPAct 1992 by lowering total fuel consumption, resulting in a larger 
percentage of petroleum replacement provided by a given amount of 
replacement fuel. Moreover, fuel efficiency is an important objective 
because it helps conserve all fuels whether they are petroleum or 
replacement fuels and greater fuel efficiency can lower the cost to 
consumers of operating motor vehicles. DOE, therefore, has an 
aggressive R&D program that focuses on accelerating the development of 
technologies that will greatly improve the fuel efficiency of on-road 
vehicles including light-duty vehicles, commercial light trucks, and 
heavy trucks and buses.
    EERE's FCVT R&D program is leading to a comprehensive suite of new 
technologies, including hybrid vehicle components, such as electric 
motors; energy storage units, such as advanced batteries; and power 
electronics. It also is working on advanced combustion systems, 
advanced fuels, lightweight materials, and many other systems to 
improve the fuel efficiency of today's conventionally-fueled vehicles 
and pave the way for the advanced technology vehicles of tomorrow, 
including fuel cell vehicles.
    Through its efforts, FCVT expects to dramatically reduce oil 
consumption by improving the fuel efficiency of personal vehicles, such 
as passenger cars and light-duty trucks, and doubling the fuel 
efficiency of commercial vehicles, while also developing the core 
technologies needed for tomorrow's fuel cell hybrid vehicles. The fuel 
savings provided by these efforts are expected to be significant. (As 
discussed below in section VI, changes in the motor vehicle fleet take 
many years to achieve because of the long replacement rates for motor 
vehicles. These technology improvements and breakthroughs take a long 
time to have an impact on petroleum consumption.)
    Based on the GPRA analysis conducted by FCVT, DOE projects that 
fuel efficiency improvements could offset as much as 3.04 million 
barrels per day of petroleum by 2030. This figure was derived by 
looking at the GPRA fiscal year 2007 savings rates and comparing them 
to forecasted on-road petroleum consumption levels in the AEO 2006. A 
major reason for the reduction in petroleum is the increased fuel 
efficiency due to increased numbers of diesel-fueled and hybrid-
electric vehicles. The FCVT goals analysis indicates much higher levels 
of these vehicles than forecasted by EIA, which typically relies upon 
more modest improvements in technologies based upon historical 
patterns. According to the GPRA analysis, by 2030 conventional gasoline 
vehicles will only account for 37 percent of new vehicles sales while 
they account for 80 percent in the AEO reference forecast. The reason 
for the difference is the much higher level of market penetration 
projected for new hybrid and diesel-fueled vehicles in the GPRA 
analysis.
    While there is a great deal of promise demonstrated by these 
technologies, the Department recognizes that their achievement of the 
levels proposed is not assured. The fuel savings described in this 
document are specifically contingent on meeting every goal currently 
set in the FCVT program. If milestones set by the programs are not met, 
or if oil price levels turn out to be lower than those currently 
incorporated into programmatic forecasts, there may be some reduction 
in the penetration of these new technologies and the resulting fuel 
savings. Further, we note that that the projected fuel savings 
resulting from the FCVT program were not arrived at through the same 
type of analysis used to establish fuel economy standards under the 
National Highway Traffic Safety Administration (NHTSA's) fuel economy 
rulemaking process. As such, the levels relied upon in this current 
analysis should not be interpreted as levels that could be set as 
standards under NHTSA's fuel economy program. Fuel economy standards 
are set by NHTSA after analyzing vehicle manufacturers' specific 
product plans and technology data. The level at which the fuel economy 
standards are set must reflect a balancing of four statutory criteria: 
technological feasibility, economic practicability, the need of the 
nation to conserve energy, and the effects of other federal motor 
vehicle standards on fuel economy. Thus, NHTSA must adhere to a 
significantly different process when establishing standards, in 
contrast to DOE's effort here to modify the replacement fuel goal. 
Nevertheless, the Department believes that it has taken a reasonable 
approach in relying upon technological improvement projections for the 
purpose of today's rule.
    As noted above, this level of petroleum reduction cannot be 
directly reflected in the replacement fuel production goal proposed 
because it offsets petroleum use but does not result in more 
replacement fuel use. However, because it lowers the total amount of 
petroleum used, it nevertheless permits replacement fuel production to 
account for a higher percentage of motor vehicle fuel production than 
would otherwise be achievable without the petroleum savings. Another 
indirect benefit of the FCVT programs is the greater market penetration 
of diesel-fueled vehicles. These vehicles will be increasingly 
necessary if and when larger amounts of synthetic distillate fuels such 
as CTL and GTL are to be used in the transportation sector.
b. Ethanol
    Ethanol is a two-carbon straight-chain alcohol that is used as both 
a near-neat fuel (i.e., as E85) and in low-level blends with gasoline 
(at up to 10 percent ethanol by volume). Ethanol can be produced from a 
variety of feedstocks, including ethylene, corn, sorghum, and biomass, 
and using a variety of processing methods. By far, the most common 
feedstock in the U.S. is corn; in other countries, such as Brazil, 
sugarcane is the primary feedstock. In the corn process, the starch is 
extracted from the feedstock and then hydrolyzed to sugar where 
microorganisms (e.g., yeast) ferment it into ethanol. Ethanol is 
produced from corn through the wet or dry mill process. The primary 
production method in the U.S. is dry milling. About 75 percent of 
ethanol is produced using dry milling (Renewable Fuels Association 
2005). The ethanol from corn (and sorghum) process is fully 
commercialized. At the end of 2005, the U.S. fuel ethanol capacity was 
over 4 billion gallons from approximately 100 plants located primarily 
in the Midwest. Most of the plants process corn or sorghum, but there 
are several small facilities that process wastes, such as beer and 
cheese whey.
    Several organizations (including DOE) are working at developing 
ethanol from biomass such as energy crops (e.g., switchgrass), 
agricultural residues (e.g., corn stover) and forestry wastes. There 
are no commercial biomass-to-ethanol (cellulosic) facilities currently 
in

[[Page 54779]]

operation in the United States. However, DOE has a significant research 
and development effort in the production of ethanol from biomass. The 
U.S. Department of Agriculture (USDA) and DOE are also jointly working 
on developing the technologies for energy crop development.
    The DOE program has outlined a detailed plan for developing a cost-
effective technology by 2012, based on achieving an ethanol selling 
price of $1.07/gallon from feedstocks costing $35/dry ton. The plan 
does not analyze whether the target price of $1.07/gallon is 
economically feasible, but instead identifies the technological 
advancements and economic conditions necessary to yield the target 
price at which ethanol is cost-competitive. In addition, the program is 
evaluating or developing integrated bio-refineries that would produce 
ethanol both biologically and thermochemically through gasification. 
Finally, DOE and USDA are jointly working on technologies to drive down 
the cost of biomass from roughly $50/dry ton today to $30-$35/dry ton 
in 2012.
    Significant amounts of ethanol use are projected in both the EIA 
and the DOE Program Development Cases. In the reference case of the 
2006 AEO, it is estimated that almost 7 billion gallons of ethanol are 
produced in 2010 with just over 16 billion gallons being produced in 
2030. The Program Development Case has much higher projections, with 
10.7 billion gallons in 2010 and over 60 billion gallons in 2030.
c. Biodiesel
    Biodiesel (methyl esters) is produced from biomass oils and fats 
such as soybean oil, waste grease and palm oil. The oils or fats are 
reacted with an alcohol, usually methanol, in the presence of a 
catalyst. Both acidic and basic-catalysts are used, but most processes 
use base catalysis by NaOH. Conversions of over 97 percent are common. 
In addition to biodiesel, this process produces glycerin, a mix of 
glycerol (1,2,3-propanetriol), water, and salts. The production of 
biodiesel is a fully commercialized process, however, there is 
considerable ongoing industrial development directed at improving the 
efficiency of the process technology. The primary ongoing government 
research efforts in this area are in the areas of air emissions, 
compatibility with advanced engines, and development of additional 
products from glycerin, as well as USDA's continued efforts to increase 
corn yields.
    Biodiesel use in the transportation sector was 75 million gallons 
in 2005, a tripling of the 2004 levels. This growth is expected to 
continue. Projections of the maximum biodiesel production were made for 
the near-, mid- (2015) and longer-term (2030), in a 2004 report 
published by the National Renewable Energy Laboratory (Biomass Oil 
Analysis: Research Needs and Recommendations, National Renewable Energy 
Laboratory, document NREL/TP-510-34796, June 2004). In the near-term, 
if all biomass oils currently exported were converted to biodiesel, 
over 1.6 billion gallons of biodiesel would be available. In 2015, it 
is estimated that 3.5 billion gallons of biodiesel could be produced by 
improving oil seed yields and using Conservation Reserve Program (CRP) 
lands. In addition, 133 million gallons of biodiesel could be produced 
from waste fats and oils, bringing the total to 3.6 billion gallons of 
biodiesel. In the longer-term (i.e., 2030), the projected maximum 
potential biodiesel almost triples over 2015 levels to 10 billion 
gallons. According to the report, production of 10 billion gallons of 
biodiesel could be produced by 2030, assuming:
     A 25 percent improvement in oil crop yield (4 billion 
gallons);
     All wheat exports were displaced, freeing up 30 million 
acres (3.1 billion gallons) for production of canola or other high oil 
yield crops; and
     Convert some fraction of soybean production to canola 
production (3.1 billion gallons).
    The AEO 2006 provides much lower estimates for biodiesel. In the 
reference case, 190 million gallons of biodiesel are used in 2010, 
rising to 340 million gallons in 2030.
d. Coal-to-Liquid (CTL) Fuels
    Coal is the most abundant fossil fuel resource in the U.S. with 
recoverable reserves estimated in 2005 at 267 billion tons. The 
recoverable resource base provides approximately 250-year supply at 
today's usage rates. The technology to produce CTL synthetic fuels has 
been available for years, and the industry continues to make 
incremental technological advances. Although the cost of production of 
CTL is less than today's oil prices, there are other major barriers to 
the use of coal to produce liquid fuels: Uncertainty of world oil 
prices; high cost of production coupled with high initial capital cost, 
and the long decision-to-production lead times. The threshold (or 
hurdle) price of crude oil that is required to trigger large capital 
investments is higher than what would otherwise be the case without 
these market risks and barriers to entry and therefore could be higher 
than the current cost of production. Depending on the processes used, 
production facilities can produce synthetic gasoline or diesel fuels. 
CTL plants commonly employ the Fischer-Tropsch process.\5\ CTL fuels 
are clean, refined products requiring little if any additional refinery 
processing, are fungible with petroleum products and, therefore, can 
use the existing fuels distribution and end-use infrastructure, an 
attribute that is not present in the case of most other replacement or 
alternative fuels. (See testimony of Lowell Miller of DOE Fossil Energy 
before the Senate Energy and Natural Resources Committee on April 24, 
2006, http://fossil.energy.gov/news/testimony/2006/060424-C._Lowell_Miller_Testimony.html and ``Development of Coal-to-Liquid Fuels'' DOE 
report to Congress, June 2006.)
---------------------------------------------------------------------------

    \5\ The Fischer-tropsch was invented by F. Fishcer and H. 
Tropsch in Germany in 1923 for ``* * * coal liquefaction, based on 
the catalytic conversion of synthesis gas (i.e., a mixture of 
hydrogen and carbon monoxide) into a mainly liquid and some gaseous 
hydrocarbones.l The hydrocarbons make from the synthesis gas are 
mainly paraffins and olefins and are more easily refined into 
gasoline and diesel fuel. In addition to hydrocarbons, some 
oxygenated compounds, such as methanol, and produced from the 
synthesis gas.'' Energy Deskbook, U.S. Department of Energy, 
Document No. DOE/IR/05114-1, June 1982.
---------------------------------------------------------------------------

    DOE's current research priorities do not include funding for 
improving the processes used to make CTL fuels because the technology 
is mature with evolutionary advances and incremental improvements and 
therefore, Federal sponsorship of CTL technologies is not consistent 
with the Research and Development Investment Criteria. According to the 
AEO 2006, ``CTL is economically competitive at an oil price in the low 
to mid-$40 per barrel range and a coal cost in the range of $1 to $2 
per million BTU, depending on coal quantity and location.'' The AEO 
2006 projects significant amounts of CTL fuels will be produced in the 
next several decades, with the first production plants coming online as 
early as 2011. A significant amount of the petroleum replacement 
provided in each of the scenarios reviewed results from the 
contribution by CTL.
    In the AEO 2006 Reference Case, CTL replaces 0.76 million barrels 
of oil per day in 2030. In the AEO 2006 High Price Case, CTL replaces 
1.69 million barrels of oil per day in 2030. Thus, CTL fuels have the 
potential to replace between 4-11 percent of total motor fuel, although 
a significant portion might ultimately be used as jet fuel. It is 
anticipated that some portion of the fuel produced from CTL processes 
will be used outside the

[[Page 54780]]

transportation sector, although it is currently unclear how much. 
Therefore, the analysis supporting the replacement fuel goal set in 
today's notice and the figures presented here currently assume 100 
percent contribution in the motor fuels market. (This issue was 
specifically taken into account when adjusting total replacement fuel 
levels in setting the proposed goal in section VI, below.) As better 
production data is developed on stream of such plants, DOE may review 
the goal accordingly. However, most if not all of the production stream 
from such plants is expected to replace petroleum even if it is not 
directly used in on-road applications and, therefore, CTL will have a 
positive contribution to reducing oil use. In EIA's forecast, CTL 
surpasses all other alternative transportation fuels in terms of 
potential use.
e. Gas-to-Liquid (GTL) Fuels
    Like CTL, GTL fuels are expected to contribute to transportation 
motor fuel supply in the future. GTL fuels are produced by converting 
natural gas reserves into synthetic petroleum fuels also using the 
Fischer-Tropsch process. The primary product of this process, 
accounting for 40-70 percent of the total yield, is a synthetic 
distillate or diesel fuel that has zero sulfur, and is fully fungible 
and compatible with existing liquid fuels and can be introduced into 
the current petroleum infrastructure and supply system. The production 
of GTL fuels currently is not economic in the U.S. due to high natural 
gas prices, and its use is only expected to be cost-effective using 
stranded natural gas as a feedstock. Stranded natural gas reserves are 
those that would otherwise be abandoned because they cannot be 
transported economically. Because of these factors, GTL provides far 
less petroleum replacement potential than CTL and only becomes a factor 
in the AEO forecast if oil reaches the levels forecast in the high 
price case.
    AEO 2006 states that GTL fuels are profitable when oil prices 
exceed $25 a barrel and natural gas prices are $0.50-$1.00 per million 
BTU. The AEO 2006 reference forecast projects domestic natural gas 
prices to range from about $5 to $6 per million cubic feet range (a 
thousand cubic feet is roughly equivalent to a million BTU) over the 
next 25 years. Given this price range, the only viable natural gas that 
can be used to produce GTL fuel is stranded natural gas. According to 
the AEO, all of the GTL forecasted to be used is produced using 
stranded natural gas reserves located in Alaska. Once converted to GTL, 
the stranded Alaskan reserves could then be shipped via the Trans 
Alaskan Pipeline System for incorporation into more conventional fuel 
transportation and distribution methods. The AEO 2006 reference case 
indicates that GTL has the potential to replace 0.19 million barrels of 
oil per day in the high oil case. DOE's Fossil Energy input includes 
similar levels of petroleum replacement for GTL, but also includes GTL 
as viable in the reference case if certain technology goals are 
realized.
    DOE has conducted R&D to improve and refine the processes used to 
produce GTL fuels, but no longer conducts this R&D because GTL is a 
mature technology with incremental progress driven by market forces. 
Current promising private sector efforts involve novel technology 
approaches that have the potential to reduce the capital cost to 
produce synthesis gas by over 25 percent, and also reduce the size of 
production facilities so that modest-sized natural gas fields can be 
exploited. Thus, DOE projects a slightly higher replacement level from 
GTL fuels than provided in EIA's forecast. Fossil Energy's program 
projects that GTL could replace 0.20 million barrels per day by 2030, 
slightly more than the AEO 2006 high oil price case. Moreover, the 
Fossil program projects that GTL is viable in the reference case and 
that GTL could replace up to 0.15 million barrels per day by 2030 even 
with lower oil prices.
    Another important factor to consider is the potential for importing 
GTL from foreign sources. EIA currently projects that in 2030 worldwide 
GTL production will exceed 1.1 million barrels per day in its reference 
case and 2.6 million barrels per day in the high oil price case. Some 
of this production could be imported to the U.S. to offset petroleum 
demand. However, the replacement fuel goal proposed in this notice does 
not take into account these potential imports, and therefore likely 
understates the total potential for GTL fuels to offset petroleum 
demand.
f. Hydrogen
    Hydrogen is the third most abundant element on the earth's surface, 
found primarily in water and organic compounds, but requires very 
energy intensive processes to isolate the Hydrogen in a form that can 
be used for fuel. It can be produced from sources such as natural gas, 
coal, gasoline, methanol, or biomass through the application of heat; 
from bacteria or algae; through photosynthesis; or by using electricity 
or sunlight to split water into hydrogen and oxygen. Because it is 
abundant, can be produced from a variety of sources, and burns cleanly 
or can be converted to electricity with little or no emissions, it has 
been looked to as a potential replacement for petroleum.
    DOE has an extensive R&D program focused on commercializing 
hydrogen as a motor fuel for transportation. To realize the vision of 
the President's Hydrogen Fuel Initiative, DOE's Hydrogen Program 
supports R&D of transportation, stationary and portable hydrogen fuel 
cell technologies in parallel with technologies for hydrogen production 
and delivery infrastructure. The program is partnering with automotive 
and energy companies to make the technology ready by 2015, thereby 
enabling the availability of safe, affordable, and viable hydrogen fuel 
cell vehicles and hydrogen fuel infrastructure to consumers by 2020. 
The current focus is on addressing key technical challenges (for fuel 
cells and hydrogen production, delivery, and storage) and institutional 
barriers (such as hydrogen codes and standards to maximize safety, and 
training and public awareness). Once technical and cost targets are 
close to being met and the business case is established, policies and 
programs with incentives may be warranted to facilitate the transition.
    The Hydrogen Program is currently conducting basic and applied 
research, technology development and learning demonstrations, 
underlying safety research, systems analysis, and public outreach and 
education activities. These activities include cost-shared, public-
private partnerships to address the high-risk, critical technology 
barriers preventing widespread use of hydrogen as an energy carrier. 
Public and private partners include automotive and power equipment 
manufacturers, energy and chemical companies, electric and natural gas 
utilities, building designers, standards development organizations, 
other Federal agencies, State government agencies, universities, 
national laboratories and other national and international stakeholder 
organizations. The Hydrogen Program encourages the formation of 
collaborative partnerships to conduct R&D and other activities that 
support program goals.
    DOE is funding R&D efforts that will provide the basis for the 
near-, mid-, and long-term production, delivery, storage, and use of 
hydrogen derived from diverse energy sources, including fossil fuel, 
nuclear energy, and renewable sources. Distributed reforming of natural 
gas, coal-derived liquids, and renewable liquid fuels (e.g., ethanol 
and methanol) is likely to be the most efficient and economical way to 
produce hydrogen in the transition to

[[Page 54781]]

large scale introduction of hydrogen fuel, but costs are still too 
high.
    The replacement fuel levels projected for hydrogen in this notice 
are based on the GPRA analysis conducted for the Hydrogen Program for 
fiscal year 2007. According to the GPRA analysis, the Hydrogen Program 
assumes that all of the hydrogen produced in 2025 comes from natural 
gas reforming with coal conversion to hydrogen not taking place until 
2030. See GPRA (Mid-Term Benefits Analysis of EERE's Programs) p. 2-8. 
The AEO 2006 reference case indicates that hydrogen could replace 
several thousand barrels per day by 2030. The program development case 
established by the Hydrogen Program indicates a much more aggressive 
level of petroleum replacement at nearly a half a million barrels per 
day by 2030. DOE acknowledges that reaching this higher level may 
require the adoption of additional policy initiatives or incentives to 
ease the transition to hydrogen fueled fuel cell vehicles.
g. Other Alternative Fuels
    In the reference case, the ``other alternative fuels'' consist of 
natural gas, liquefied petroleum gas, electricity, and methanol. 
Currently, natural gas and liquefied propane are the two most common 
alternative transportation fuels used (whereas ethanol is used 
primarily as an oxygenate and in low level blends such as gasohol.) 
They are primarily used in fleets because they require special vehicles 
and infrastructure. Currently, these fuels account for only one-fifth 
of the replacement fuels used in the U.S. and less than half a percent 
of petroleum motor fuel use. These fuels (with the exception of 
electricity derived from plug-in electric vehicles) are not treated 
separately in the program development cases discussed elsewhere in this 
notice because their use is not projected to increase significantly 
during the period reviewed, and DOE does not have any active R&D 
initiatives underway to significantly increase the use of these fuels 
in the future.
    DOE, however, has some regulatory requirements and demonstration 
programs that include the use of these fuels, but DOE believes the 
contributions resulting from these programs are largely represented in 
the AEO reference case. Although small, the contribution from these 
fuels is expected to double in the reference case, and their 
contribution is reflected in the replacement fuel level proposed in 
section VI. These other alternative fuels replace 0.12 million barrels 
of oil per day in the reference case and 0.11 million barrels per day 
in the high price case. Their percentage of use is reduced in the high 
price case because higher energy prices lead to additional fuel 
efficiency and less overall fuel consumption.
h. Technologies and Programs Not Considered in This Analysis
Electricity in Plug-in Hybrid-Electric Vehicles (PHEV)
    A relatively new but promising technology, PHEVs are attracting 
significant interest within the government and private industry. The 
Administration's Advanced Energy Initiative identifies PHEVs as one of 
the critical new technologies needed to offset petroleum fuel use. Like 
currently-available hybrid electric vehicles (HEVs), plug-in hybrids 
are very fuel efficient and can refuel using conventional fuels but 
have the added advantage of being able to plug-in to the electric grid. 
PHEVs which are currently being considered would have a driving range 
in electric-only mode of 20-40 miles. This capability gives the 
necessary driving range to satisfy most commuter trips and therefore 
could offset a significant amount of petroleum motor fuel if utilized 
by a large segment of the consumer market.
    To bring this technology to market, the Advanced Energy Initiative 
includes new research to develop advanced battery technologies such as 
lithium-ion batteries, and advanced electric drive technologies. These 
steps are necessary to provide the range and utility that consumers 
demand. Simply adding more of the batteries used in currently-available 
hybrid vehicles is not practical because of the cost and weight of 
current batteries. DOE already has had much success in the area of 
battery development, having developed the nickel metal hydride 
batteries currently used by all commercially-available HEVs. Another 
advantage of PHEV is that they represent a practical step toward 
hydrogen fuel cell vehicles, because they will use some of the same 
electric drive and power-management systems that PHEVs will use.
    The savings from operating vehicles on electricity could be 
significant. The Electric Power Research Institute (EPRI) believes the 
fuel efficiency of plug-in hybrids could exceed 80 or more miles per 
gallon, particularly in urban driving conditions. Because vehicles are 
driven mostly during the day for commuter trips, plug-in hybrids can be 
recharged at night using off-peak electric generation capacity. This 
means that a significant number of plug-in hybrids could be phased-in 
without requiring any new power plants. And because very little 
generation is supplied by petroleum, almost all the electricity 
supplied to these vehicles would offset petroleum use. EPRI estimates 
that the national average price of operating a PHEV on electricity is 
the equivalent of 75 cents per gallon. EPRI also estimates that because 
half the cars on U.S. roads are driven less than 24 miles per day, that 
PHEVs could reduce petroleum motor fuel consumption by 60 percent. As 
new, more fuel-efficient power plants are developed, PHEVs would be 
expected to become more energy efficient. However, the Department can 
not at this time verify EPRI's projections.
    At this time, the specific technology baseline/configuration 
projected for PHEVs is still being developed. When combined with the 
relatively recent development of this technology concept, this means 
that there are no comprehensive estimates for potential replacement 
fuel contributions from this technology. DOE currently is partnering 
with industry to develop several initial configurations for evaluation 
and analysis, but concludes it is premature to include any specific 
contributions from PHEVs in the replacement fuel goal.
Other Federal Programs
    In addition to the programs discussed above, there are numerous 
other Federal programs encouraging replacement fuel production; e.g., 
the direct loan, loan guarantee, and grant programs for the purchase of 
renewable energy systems and energy efficiency improvements 
administered by the USDA under sec. 9006 of the Farm Security and Rural 
Investment Act of 2002 (Pub. L. 107-171). Such programs combine public 
and private contributions aimed at conserving and diversifying the 
Nation's energy supply, including motor vehicle fuels. The Department 
has not been able to quantify the impacts of such programs, but fully 
anticipates that the programs will have a positive impact on increasing 
the production capacity of replacement fuels in the timeframe of the 
proposed goal. The Department requests comment on the possible 
contributions from other Federal programs, other government activities 
and private sector initiatives in achieving the proposed goal.

C. Replacement Fuel Scenarios

    The previous section discussed the building blocks reviewed by the 
Department. This section combines the various building blocks into 
separate and distinct scenarios. Four scenarios were considered: (1) 
The reference case projected by EIA in AEO 2006; (2) the high price 
scenario presented in AEO

[[Page 54782]]

2006; (3) a combination of the AEO 2006 reference case with achievement 
of program goals (designated as Program Developments); and (4) a 
combination of the AEO 2006 high price case with Program Developments. 
The different scenarios represent the potential bounds for proposing a 
revised replacement fuel production goal under sections 502 and 504 of 
EPAct 1992. The analysis performed looked at values for replacement 
fuel penetrations in the 2020, 2025, and 2030 timeframes.
1. Reference Case
    As discussed earlier, the reference case represents the base case, 
or the most conservative approach to projecting potential replacement 
fuel production. The total projected replacement fuel production level 
by the year 2030 is approximately 8.65 percent in this scenario. This 
level of petroleum replacement further assumes that all CTL fuel is 
used for transportation purposes. Aside from this assumption, the most 
noticeable difference between this scenario and the ones that include 
the program development case is the relatively low amount of biofuels 
that is projected to be used. (This is due to assumptions made about 
technological progress of ethanol production technologies in the 
program development case.) Results for this scenario are provided in 
Figure 1.

        Figure 1.--Summary of Results for Reference Case Scenario
             [Note: Results in mbpd unless otherwise noted]
------------------------------------------------------------------------
                  Reference                      2020     2025     2030
------------------------------------------------------------------------
On-Road Fuel Use \6\.........................    14.42    15.36    16.46
Additional Fuel Efficiency Savings (FCVT)....     0.00     0.00     0.00
On-Road Fuel Use w/Additional Fuel Efficiency    14.42    15.36    16.46
 Savings.....................................
Ethanol......................................    0.490    0.510    0.514
Biodiesel....................................     0.02     0.02     0.02
Hydrogen/FCVs................................    0.001    0.001    0.002
Coal to Liquids..............................     0.23     0.58     0.76
Gas to Liquids...............................     0.00     0.00     0.00
Other Alternative Fuels......................     0.10     0.11     0.12
Petroleum Use................................    13.58    14.14    15.03
Total Replacement Fuel.......................     0.84     1.22     1.42
Portion Replacement Fuel.....................    5.83%    7.95%    8.65%
------------------------------------------------------------------------

2. High Price Case
    The high price case, which predicts higher oil prices throughout 
the forecast, indicates a potential for replacement fuel production 
level that is double that in the reference case. By 2030, replacement 
fuel production potentially accounts for 2.65 million petroleum 
equivalent barrels per day, providing a replacement fuel production 
level of 17.84 percent. The most notable changes in this forecast are 
the reduction in total on-road fuel consumption, dropping from 16.46 to 
14.86 million barrels a day as a result of reduced demand, and the 
significant increase in potential CTL production, which increases from 
a level of 0.76 million barrels a day in the reference case to 1.69 
million barrels a day in the high price case. Results for this scenario 
are provided in Figure 2.
---------------------------------------------------------------------------

    \6\ On all summary results tables, the AEO 2006 cases have some 
fuel efficiency savings built into the forecasts, as a result of 
gradual improvements in vehicle technologies. The fuel efficency 
savings reflected in the line below in each table represnt those 
additional savings due to FCVT program developments.

       Figure 2.--Summary of Results for High Price Case Scenario
             [Note: Results in mbpd unless otherwise noted]
------------------------------------------------------------------------
            High price                 2020         2025         2030
------------------------------------------------------------------------
On-Road Fuel Use.................      13.20        13.97        14.86
Additional Fuel Efficiency              0.00         0.00         0.00
 Savings (FCVT)..................
On-Road Fuel Use w/Additional          13.20        13.97        14.86
 Fuel Efficiency Savings.........
Ethanol..........................       0.537        0.600        0.622
Biodiesel........................       0.0280       0.03         0.03
Hydrogen/FCVs....................       0.001        0.001        0.002
Coal to Liquids..................       0.29         0.81         1.69
Gas to Liquids...................       0.04         0.19         0.19
Other Alternative Fuels..........       0.088        0.10         0.11
Petroleum Use....................      12.21        12.24        12.21
Total Replacement Fuel...........       0.99         1.73         2.65
Portion Replacement Fuel.........       7.49%       12.37%       17.84%
------------------------------------------------------------------------

3. Reference Case With Program Developments
    This scenario combined the reference case assumptions regarding 
transportation energy demand with projections for successful DOE R&D 
programs. As in the reference case discussed above, this case assumes 
that all the CTL production capacity forecasted in the reference case 
is used for transportation purposes. The reference case with program 
developments further assumes additional fuel efficiency savings over

[[Page 54783]]

and above those included in the reference case based on the fuel 
efficiency improvements and change in vehicle penetration rates 
attributed to the R&D initiatives underway within FCVT. Each of the 
other program initiatives discussed in this notice are factored into 
this scenario so that estimates for replacement fuel production 
potential of GTL, ethanol, biodiesel, and hydrogen are included. The 
potential impact of combining these forecasts with the individual 
program goals results in a replacement fuel production level potential 
of 35.25 percent in 2030. The most significant differences from the two 
previous forecasts (reference and high price stand-alone) are the 
incorporation of additional fuel economy improvements and that biofuels 
(ethanol and biodiesel) provide very large potential petroleum 
replacement, accounting for roughly two-thirds of the total replacement 
fuel in this scenario. The additional fuel efficiency improvements 
represent over 3 mbpd savings by 2030. The two biofuels also combine to 
replace more than 3.0 mbpd equivalent in this scenario. Results for 
this scenario are provided in Figure 3.

      Figure 3.--Summary of Results for Reference Case With Program
                          Development Scenario
             [Note: Results in mbpd unless otherwise noted]
------------------------------------------------------------------------
     Reference/program goals           2020         2025         2030
------------------------------------------------------------------------
On-Road Fuel Use.................      14.42        15.36        16.46
Additional Fuel Efficiency              0.55         1.11         3.04
 Savings (FCVT)..................
On-Road Fuel Use w/Additional          13.88        14.25        13.42
 Fuel Efficiency Savings.........
Ethanol..........................       1.326        1.953        2.581
Biodiesel........................       0.366        0.51         0.65
Hydrogen/FCVs....................       0.001        0.16         0.47
Coal to Liquids..................       0.23         0.58         0.76
Gas to Liquids...................       0.05         0.15         0.15
Other Alternative Fuels..........       0.10         0.11         0.12
Petroleum Use....................      11.81        10.79         8.64
Total Replacement Fuel...........       2.07         3.46         4.73
Portion Replacement Fuel.........      14.94%       24.27%       35.25%
------------------------------------------------------------------------

4. High Price Case With Program Developments
    This scenario looked at the impact of the high price case 
assumptions regarding transportation energy demand combined with the 
Program Developments. It includes the same assumptions regarding CTL 
use as discussed above. The program goal assumptions regarding 
potential replacement fuels or petroleum reductions are the same as 
used in the previous scenario. The major difference in this scenario is 
that CTL production more than doubles due to higher oil prices. Ethanol 
and biodiesel again demonstrate the potential to replace a significant 
amount of petroleum. The higher oil prices, however, have the effect of 
reducing overall on-road fuel use, which magnifies the potential 
replacement fuel levels. The result in this scenario is a maximum 
potential replacement fuel level of 47.06 percent. Results for this 
scenario are provided in Figure 4.

     Figure 4.--Summary of Results for High Price Case With Program
                          Development Scenario
             [Note: Results in mbpd unless otherwise noted]
------------------------------------------------------------------------
     High price/program goals          2020         2025         2030
------------------------------------------------------------------------
On-Road Fuel Use.................      13.20        13.97        14.86
Additional Fuel Efficiency              0.50         1.01         2.74
 Savings (FCVT)..................
On-Road Fuel Use w/Additional          12.70        12.96        12.12
 Fuel Efficiency Savings.........
Ethanol..........................       1.326        1.953        2.58
Biodiesel........................       0.37         0.506        0.645
Hydrogen/FCVs....................       0.001        0.16         0.47
Coal to Liquids..................       0.29         0.81         1.69
Gas to Liquids...................       0.05         0.15         0.20
Other Alternative Fuels..........       0.088        0.10         0.11
Petroleum Use....................      10.58         9.28         6.41
Total Replacement Fuel...........       2.12         3.68         5.70
Portion Replacement Fuel.........      16.71%       28.40%       47.06%
------------------------------------------------------------------------

D. DOE's VISION Model Analysis

    To validate the results of its analysis, DOE used the VISION model 
to look at the replacement fuel production levels suggested by the 
different scenarios considered. The Replacement Fuel Goal is a 
production capability goal. The purpose of the VISION Modeling exercise 
was to verify the replacement fuel production levels were reasonable 
given various potential vehicle mixes and fuel availability.
    The VISION model, developed by DOE and Argonne National Laboratory, 
is used regularly by the Department to support programmatic decision-
making in the area of transportation technologies. VISION has been used 
for such activities as responding to Congressional inquiries, 
projecting the oil reduction potential of advanced vehicle 
technologies, estimating fuel efficiency improvements required to save 
specific amounts of petroleum, and other similar tasks. VISION has a 
number of capabilities including the ability to project light- and 
heavy-vehicle stock, vehicle miles traveled (VMT), and energy 
consumption by technology and fuel types. It can also

[[Page 54784]]

assess market penetration rates necessary to achieve certain 
objectives, such as carbon reductions or petroleum reductions. In 
addition, as with the AEO, VISION specifically addresses any 
``rebound'' effects within transportation, such as where increased VMT 
may result from lower operating costs due to efficiency improvements. 
(For more information on VISION, see http://www.transportation.anl.gov/software/VISION/index.html).
    The VISION model was used in this case to review the inputs assumed 
in the different scenarios and verify the petroleum reduction savings, 
as well as the vehicle mix necessary to use some of the fuels. In 
particular, DOE was interested in whether sufficient light- and heavy-
duty vehicles, in particular flexible fueled and diesel-powered 
vehicles would be available to use the mix of replacement fuels 
evaluated. The VISION run provided information on the market 
penetration of flexible fueled and diesel-powered vehicles that would 
be needed to use the quantities of ethanol, biodiesel, and synthetic 
diesel fuels (i.e., CTL fuels). Overall, the VISION Reference Case 
scenario shows slightly higher numbers for diesel and hybrid electric 
vehicles than the EIA baseline. Under the VISION runs, there are 
significant differences between the Reference Case scenario and the 
Reference Case with Program Developments scenario concerning projected 
penetrations of FFVs, diesel vehicles, hybrid electric vehicles, and 
fuel cell vehicles. This is as would be expected due to the number of 
FFVs required to use the amount of ethanol projected by the Biomass 
Program to be available in 2030, the number of diesels and HEVs to 
demonstrate the petroleum savings due to fuel efficiency as projected 
by FCVT, the number of diesels needed to use the levels projected of 
diesel replacement fuels (biodiesel, GTL, CTL), and the number of FCVs 
required to use the hydrogen projected by HFCIT. Overall, advanced 
technology vehicles overall levels projected by VISION may require 
additional mechanisms to be achieved. See below Figure 5 showing the 
projections for new sales for all highway vehicles in 2030.

                          Figure 5.--VISION Model Comparison of 2030 Vehicle Sales Mix
----------------------------------------------------------------------------------------------------------------
                                                                                                   VISION model,
                                                                                   VISION model,  reference case
                       New LDV sales 2030                          EIA reference  reference case   with program
                                                                     (percent)       (percent)     developments
                                                                                                     (percent)
----------------------------------------------------------------------------------------------------------------
Conventional Fueled.............................................            80.0           74.74            0.06
FFVs............................................................             6.3            6.16           23.83
Diesel..........................................................             6.3            9.24           22.43
CNG, EV et al...................................................             1.2            1.26            1.26
HEVs............................................................             6.1            8.59           37.43
FCVs............................................................             0.0            0.04           15.00
----------------------------------------------------------------------------------------------------------------

    In particular, the VISION model was used to evaluate the 
replacement fuel levels projected by DOE in the different scenarios. 
The results matched very closely with those found by DOE and in most 
cases VISION suggested slightly higher replacement fuel levels. Some 
small differences occurred due to differences in assumptions about 
overall petroleum consumption, efficiency gains, and heating values for 
fuels. Figure 6 shows the comparison of results for the two of the 
scenarios under the 2030 analysis, the reference case and the reference 
case with program development scenarios.

                          Figure 6.--Comparison of Analysis and VISION Results for 2030
----------------------------------------------------------------------------------------------------------------
                                                                                  Reference case
                                                  Reference case                   with program   Reference case
                                                     scenario     Reference case    development    with program
                 Fuel/technology                     analysis        scenario        scenario       development
                                                      (mmbd)       VISION (mmbd)     analysis        scenario
                                                                                      (mmbd)       VISION (mmbd)
----------------------------------------------------------------------------------------------------------------
Ethanol.........................................           0.514            0.53            2.58            2.65
Biodiesel.......................................            0.02            0.02            0.65            0.60
Hydrogen........................................           0.002               0            0.47            0.37
Coal-to-Liquids.................................            0.76            0.76            0.76            0.76
Gas-to-Liquids..................................               0               0            0.15            0.20
Other Alternative Fuels.........................            0.12            0.16            0.12            0.16
Plug-in Hybrid Electric Vehicles................               0               0               0               0
                                                 ---------------------------------------------------------------
    Total Replacement Fuel Contribution.........            1.42            1.48            4.73            4.75
----------------------------------------------------------------------------------------------------------------

F. Other Issues

1. Domestic Content
    Section 502(b)(2) of EPAct 1992 directs that of the replacement 
fuels counted in the goal, at least half must be domestic replacement 
fuels (42 U.S.C. 13252(b)(2)). This is not an issue for today's action 
because nearly all of the replacement fuels analyzed are domestic in 
nature. The only replacement fuels analyzed that showed potential for 
being imported are gas-to-liquids, which represent a relatively small 
contribution to the overall goals. In addition, the small amount of GTL 
fuels included in the analysis was assumed to be based solely upon 
domestic resources. Ethanol imports are also assumed to be small; none 
is anticipated to be imported once cellulosic ethanol enters the 
market. All biodiesel, coal-to-liquid fuels, and hydrogen are assumed 
to be domestic. A

[[Page 54785]]

few of the other alternative fuels may be imported, but again, they 
represent a very small portion of the overall replacement fuel 
contributions. Thus, the overwhelming majority of the replacement fuels 
included in the analyses are domestic in nature.
2. Greenhouse Gases
    As part of its analysis of the replacement fuel levels considered 
in this notice, DOE evaluated the overall greenhouse gas implications 
of the various scenarios. This analysis was included for several 
reasons. First, the Department felt such an analysis was needed to do a 
complete job of addressing the major issues surrounding the goal. 
Virtually all discussions of energy in contexts similar to this action 
have addressed greenhouse gas implications, including those within 
Congress. Second, section 502(a) specifically identifies ``reducing 
greenhouse gas emissions'' as one of the overall goals of the 
replacement fuel program (42 U.S.C. 13252(a)).
    All scenarios show reduced carbon emissions over the reference 
case. Carbon emissions are reduced because more fuel efficient vehicles 
are used in these scenarios and the replacement fuels in general are 
less carbon intensive than petroleum motor fuels. The exception is the 
greenhouse gas emissions associated with CTL fuels if sequestration is 
not used to capture the carbon during fuel production. EIA indicates 
that there are currently no plans to sequester the carbon associated 
with CTL production absent new policies or requirements. Therefore, the 
Department has not assumed that such emissions will be sequestered. 
Even with the increased emissions of GHG from CTL, the net effect of 
the replacement fuel production goal proposed in today's notice is a 
substantial reduction in greenhouse gas emissions.
    The VISION model was used to project the life cycle greenhouse gas 
emissions of the scenarios analyzed in this rulemaking. Since the 
greenhouse gas emissions are dependent upon the mix of replacement 
fuels produced (including the specific feedstocks used) and used and 
this actual mix cannot be completely determined at this time, the 
estimated greenhouse gas emissions are based on the projected fuel 
composition for 2030. On a life-cycle basis, the goal will achieve a 
reduction in greenhouse gas emissions of over 40 percent compared to 
the reference case. The annual emissions will decrease from 846.5 
million metric tons of carbon equivalent (MMTCe) from fuel mix 
represented by the AEO 2006 reference case scenario, to just under 500 
MMTCe from the fuel mix represented by the fuel mix that most closely 
represents the AEO 2006 reference case with program development 
scenario. This reduction is primarily due to the high utilization of 
biofuels, which have significantly lower carbon emissions than 
petroleum-based fuels, especially when derived from biomass. As noted 
earlier, the exact carbon emissions cannot be pinpointed as the mix of 
fuels may ultimately be different than that projected; however, it is 
clear that significant reductions should be expected to occur.

VI. New Replacement Fuel Production Goal Proposal

A. Discussion of Proposed Goal of 30 Percent by 2030

    In summarizing the analyses provided above, it appears that a new 
replacement fuel goal in the range of just under 9 percent up to over 
47 percent may be achievable in the 2030 timeframe. This wide range of 
potential replacement fuel production capacity percentages required the 
Department to carefully revisit the scenario assumptions to determine 
if a more specific goal level could be proposed.
    The first scenario (Reference Case) results in less than 9 percent 
replacement fuel. For purposes of this rulemaking, the Department 
believes it is conservative because it assumes relatively low oil 
prices and no additional replacement fuel resulting from Program 
Developments. Therefore the Department proposes to reject this scenario 
for further consideration because it reflects what the Department 
believes is an unlikely combination of events. The second scenario 
(High Price Case) results in about 18 percent replacement fuel. The 
Department believes this result, though still conservative because it 
too assumes no Program Development contributions, is more likely than 
the first scenario. Even if its higher oil prices do not materialize, 
it is likely that at least some Program Development will make up the 
difference.
    The remaining other two scenarios (Reference Case with Program 
Developments and High Price Case with Program Developments), range in 
contribution from over 35 to about 47 percent. The Departments believes 
the fourth scenario, High Price Case with Program Developments, may be 
overly optimistic because it assumes an unlikely combination of events 
(i.e., high oil prices and that all programs will meet their expected 
goals). Therefore, the Department believes it cannot reasonably 
conclude, at the present time, that the higher percentage level is 
``achievable'' in 2030 within the current statutory requirements. In 
addition, there was a specific assumption for CTL (namely that all CTL 
fuels would be supplied to the transportation sector) which also 
cautions for discounting the results to more reasonably achievable 
levels.
    The third scenario, which also incorporates the Program 
Developments but assumes Reference Case oil prices, would result in 
just over 35 percent replacement. Though more optimistic than the 
second scenario in terms of the Program Development contribution, it is 
less optimistic than fourth scenario in terms of oil prices.
    The range in between the second and third scenarios is 
approximately 18 to 35 percent. Based on the discussion above, the 
Department believes at this time that this represents a reasonable 
range for the modified replacement fuel goal. The Department strongly 
believes that many of the programs will achieve their individual 
technical goals. Therefore the Department selected a proposed goal a 
few points above the mid-point of this range, 30 percent. The 
Department proposes to determine that a goal of 30 percent replacement 
fuel by 2030 is ``achievable'' within the meaning of EPAct 1992 section 
504.
    The Department believes this goal is ``achievable'' for the 
following reasons. First, the proposed goal incorporates a portfolio of 
different technologies. Some of these would be expected to ultimately 
provide greater contributions, while others might provide lesser 
contributions. On average, however, these variations would be expected 
to balance each other out, leaving a goal still in this range. Also, 
the Department is relying on the most recent fuel price projections 
from EIA, which it considers to be the most reliable long-range 
projections. However, it is possible that events that cannot be 
predicted may have short-term and long-term impacts that could increase 
fuel prices above the projections. This has been illustrated with 
recent increases in fuel prices due to natural disasters and other 
global events. Thus, it is entirely possible that contributions from 
some of the replacement fuels could turn out to be higher than have 
been included here, if petroleum prices end up significantly higher as 
currently being experienced.
    Furthermore, much of the replacement fuel contribution is 
anticipated to come from fuels capable of being blended in with 
conventional petroleum fuels (e.g. biofuels) or which are fungible with 
conventional fuels (CTL, GTL). Thus, infrastructure obstacles to much 
of the projected

[[Page 54786]]

replacement are expected to be minimized. Finally, this analysis has 
primarily focused on domestic replacement fuels, thus excluding 
imports. The requirement in section 502(b)(2) was that at least half of 
the replacement needed to be by domestic motor fuels (42 U.S.C. 
13252(b)(2)); however, the Department has shown scenarios where imports 
of replacement fuels would probably not be required in order to achieve 
the desired levels.
    Electricity for plug-in hybrid-electric vehicles has not been 
included in the estimates, due to the early development stage of the 
technology, and the absence of credible estimates. Depending on the 
success of this technology, there could be significant additional 
contributions to reducing overall petroleum consumption through PHEV 
efficiency improvements, plus additional replacement of petroleum with 
electricity.
    Therefore, the Department is proposing to extend the replacement 
fuel production goal of 30 percent of U.S. motor fuels to 2030. While 
this appears achievable for a number of reasons, including those above, 
there are several additional reasons why the Department believes this 
is the appropriate approach to take. First, when Congress passed EPAct 
1992, it indicated that it believed the level of 30 percent replacement 
fuel was appropriate. Current discussions within Congress are also 
focusing toward this level using a similar time frame to the one 
proposed here. (See S. 2025, H.R. 4409, S. 2747, and others.) Second, 
this level of replacement fuel production and timeframe are both 
consistent with the goals of the President's Advanced Energy 
Initiative, announced in early 2006, which also incorporates a 
portfolio of technologies to address our Nation's transportation energy 
situation.
    There are important reasons why a time frame extending out to 2030 
is required to make major changes in motor fuel consumption patterns 
and thus production levels--the lead-time for investments to begin and 
bear fruit, and the retirement cycles for U.S. vehicles. Major 
investments of capital are required to alter the U.S. supply of 
transportation fuels. Because these investments are focused over the 
entire operating life of a production facility (often 30 years), 
potential investors need to have a high degree of certainty that their 
investment will pay off through confidence that the cost of competing 
fuels will be higher than the cost of fuels produced by the subject 
plant far into the future.
    Once the capital is raised, the plant must be built and reach full 
operation, which can also easily take five years or more, depending on 
the complexity and size of the production plant involved. When adding a 
substantial number of new plants (such as cellulosic ethanol and coal-
to-liquid fuels) to meet the 30 percent replacement fuel goal, this 
phase of constructing multiple plants and bringing them up to full 
operating capacity could easily add five or even ten years to the date 
of seeing major impacts on motor fuel consumption. Thus, it can easily 
be 20 years from the date of initial investments until significant 
market penetrations are seen.
    Many of the investments anticipated in 1992 have only recently 
begun. Recent high oil prices are beginning to spur more investment in 
alternative and replacement fuels, but not fast enough to allow the 
Department to set a 2010 replacement fuel production goal at levels any 
higher than the AEO 2006 (~3 percent).
    Although the replacement fuel goal is production based, production 
is closely linked to consumption. On the vehicle side, a similar period 
of lead-time is typically required to make a significant impact on U.S. 
fuel consumption patterns. This is because it takes more than 25 years 
to turn over the U.S. fleet of in-use vehicles. According to the 25th 
Edition of the Transportation Energy Data Book (TEDB 25, U.S. DOE and 
Oak Ridge National Laboratory, ORNL-6974, 2006), after 30 years, 
approximately 93 percent of the 1990 model year vehicles are projected 
to be retired, and slightly less than 96 percent of the 1990 model year 
light trucks will have been scrapped. The median lifetime for 1990 cars 
is now 16.9 years, and 15.5 years for 1990 light trucks. While the 
truck numbers are relatively consistent (compared to 1970 and 1980 
model years), the car numbers have increased substantially (from 11.5 
years in 1970 and 12.5 years in 1980).
    The effects of this can be seen by a U.S. vehicle population of 226 
million in 2003, with annual new light-duty vehicle sales of 
approximately 16.5-17 million/year (or approximately equal to 7 percent 
of the size of the in-use fleet). Thus, any replacement fuel or higher 
efficiency technology which requires actual replacement of vehicles 
must be phased into the U.S. fleet of vehicles over a number of years 
to eventually account for a significant portion of in-use vehicles. 
(See TEDB, Tables 3.8, 3.9, 4.5, 4.6, and 8.1.) In summary, due to both 
lead-times for investments and the time required to turn over nearly 
all of the U.S. fleet of vehicles, a significant change in the 
utilization of U.S. motor fuel consumption patterns could easily take 
two decades.
    The Department wishes to remind all interested parties that not all 
of the factors influencing the likelihood of achieving this goal are in 
the Department's control. Nor are they easy to predict more than 20 
years into the future. The level of replacement fuel that actually 
materializes could be substantially lower or higher than 30 percent due 
to unforeseen and/or uncontrollable events, not the least of which 
could be oil prices substantially higher of lower than currently 
anticipated.

B. Relevance to the President's Advanced Energy Initiative

    The President's initiative establishes a number of targets that are 
relevant to the replacement fuel goal proposed in this notice. In the 
area of biofuels, the initiative specifically calls for accelerating 
research for cellulosic ethanol so that it is practical and cost-
effective by 2012. The ability to produce cellulosic ethanol at a price 
that is competitive with conventional fuels is a critical step in 
ensuring sufficient supplies of replacement fuels to offset future 
growth in transportation motor fuels use. The replacement fuel 
production goal of 30 percent in 2030 proposed in this notice assumes 
large quantities of cellulosic ethanol will be produced. The initiative 
also continues the Administration's hydrogen fuel initiative by funding 
research and development to make hydrogen a viable transportation fuel.
    The initiative also seeks to offset the growth in transportation 
motor fuel demand through efforts to develop a variety of more fuel-
efficient light-, medium-, and heavy-duty vehicles. The fuel efficiency 
effort includes work underway within DOE's FCVT Program through the 
FreedomCAR and Fuel Partnership and the 21st Century Truck Partnership. 
A central focus of these efforts is to accelerate the introduction of 
high efficiency technologies such as PHEVs and advanced battery-powered 
HEVs. Improvements made in these areas will not only help offset 
petroleum motor fuels in the short and mid-term, but will pave the way 
for fuel efficient fuel cell vehicles in the longer term. As 
highlighted elsewhere in this notice, fuel efficiency improvements 
indirectly contribute to the achievement of the replacement fuel goal 
contained in EPAct 1992 by increasing the percentage of petroleum 
replacement provided by a given amount of replacement fuel.

C. Future Analyses

    The Department also intends to continue to review the replacement 
fuel production goal, as necessary, under the

[[Page 54787]]

Replacement Fuel Program established under section 502(a) of EPAct 
1992. As such, should any future review indicate that the replacement 
fuel production goal, as modified, is not achievable, the Department 
will again institute a rulemaking process to modify the goal to ensure 
that it is consistent with the provisions of EPAct 1992.

VII. Opportunity for Public Comment

A. Participation in Rulemaking

    Interested persons are invited to participate in this proceeding by 
submitting written data, views, or comments with respect to the subject 
set forth in this notice and the proposals made by DOE. All parties are 
encouraged to provide analysis, data or other supporting documentation 
to support their comments as appropriate. The Department encourages the 
maximum level of public participation possible in this proceeding. 
Individual consumers, representatives of consumer groups, 
manufacturers, associations, coalitions, States or other government 
entities, and others are encouraged to submit written comments on the 
proposal. DOE also encourages interested persons to participate in the 
public hearing announced at the beginning of this notice. Whenever 
applicable, full supporting rationale, data and detailed analyses 
should also be submitted.

B. Written Comment Procedures

    Comments on this Notice may be submitted to the Department through 
electronic or hardcopy means. DOE would appreciate an electronic copy 
of the comments to the extent possible. Electronic copies should be e-
mailed to [email protected], or may be submitted through 
the Federal eRulemaking Portal at http://www.regulations.gov. DOE is 
currently using Microsoft Word. If written (hardcopy) comments are 
submitted, eight copies must be provided. The outside of the envelope, 
and the comments themselves, must be marked with the designation 
(Alternative Fuel Transportation Program: Replacement Fuel Goal, NOPR, 
RIN 1904-AB67) and must be received by the date specified at the 
beginning of this notice. In the event any person wishing to submit 
written comments cannot provide eight copies, alternative arrangements 
can be made in advance by calling Mr. Dana O'Hara at (202) 586-9171.
    All comments received on or before the date specified at the 
beginning of this notice of proposed rulemaking and other relevant 
information will be considered by DOE before final action is taken on 
the proposal. All comments submitted will be made available in the 
electronic docket set up for this rulemaking. This docket will be 
available on the worldwide Web at the following address: http://www.eere.energy.gov/vehiclesandfuels/epact/private_fleets.shtml. 
Pursuant to the provisions of 10 CFR 1004.1, anyone submitting 
information or data that he or she believes to be confidential and 
exempt by law from public disclosure should submit one complete copy of 
the document, as well as seven (7) copies, if possible, from which the 
information has been deleted. DOE will make a determination as to the 
confidentiality of the information and treat it accordingly.

C. Public Hearing Procedures

    The time and place of the public hearing are set forth at the 
beginning of this notice. DOE invites any person who has an interest in 
this proceeding, or who is a representative of a group or class of 
persons that has an interest, to make a request for an opportunity to 
make an oral presentation at the hearing. Requests to speak should be 
sent to the address or phone number indicated in the ADDRESSES section 
of this notice and should be received by the time specified in the 
DATES section of this notice.
    The person making the request should briefly describe his or her 
interest in the proceeding and, if appropriate, state why that person 
is a proper representative of the group or class of persons that has 
such an interest. The person also should provide a phone number where 
he or she may be reached during the day. Each person selected to speak 
at the public hearing will be notified as to the approximate time that 
he or she will be speaking. A person wishing to speak should bring ten 
copies of his or her statement to the hearing. In the event any person 
wishing to speak at the hearing cannot meet this requirement, 
alternative arrangements can be made in advance by calling Mr. Dana 
O'Hara, at (202) 586-9171.
    DOE reserves the right to select persons to be heard at the 
hearing, to schedule their presentations, and to establish procedures 
governing the conduct of the hearing. The length of each presentation 
will be limited to ten minutes, or based on the number of persons 
requesting to speak.
    A DOE official will be designated to preside at the hearing. The 
hearing will not be a judicial or an evidentiary-type hearing, but will 
be conducted in accordance with 5 U.S.C. 553 and section 501 of the 
Department of Energy Organization Act. (42 U.S.C. 7191) At the 
conclusion of all initial oral statements, each person may, if time 
allows, be given the opportunity to make a rebuttal statement. The 
rebuttal statements will be given in the order in which the initial 
statements were made.
    Any further procedural rules needed for the proper conduct of the 
hearing will be announced by the Presiding Officer at the hearing. If 
DOE must cancel the hearing, DOE will make every effort to publish an 
advance notice of such cancellation in the Federal Register. Notice of 
cancellation will also be given to all persons scheduled to speak at 
the hearing. The hearing may be canceled in the event no public 
testimony has been scheduled in advance.

VIII. Regulatory Review

A. Review Under Executive Order 12866

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

B. Review Under Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, requires 
preparation of a regulatory flexibility analysis for any rule that is 
likely to have a significant economic impact on a substantial number of 
small entities. Today's action merely proposes a modified replacement 
fuel goal, with no requirements imposed upon any parties. Therefore, 
this action would not result in compliance costs on small entities. 
Therefore, DOE certifies that today's proposed action will not have a 
significant economic impact on a substantial number of small entities, 
and accordingly, no initial regulatory flexibility analysis has been 
prepared.

C. Review Under the Paperwork Reduction Act

    No new recordkeeping requirements, subject to the Paperwork 
Reduction Act, 44 U.S.C. 3501, et seq., would be imposed by today's 
regulatory action.

D. Review Under the National Environmental Policy Act (NEPA)

    10 CFR 1021.102(b) applies the requirements of the National 
Environmental Policy Act to ``any DOE action affecting the quality of 
the environment of the United States, its territories or possessions.'' 
Today's

[[Page 54788]]

action, however, is solely the proposal of a modified replacement fuel 
goal, and not the imposition of any affirmative duty upon any party. 
Therefore, no impact on the quality of the environment flows from 
today's action, and thus the Department is not required to conduct an 
analysis under NEPA.
    The Department did conduct an initial greenhouse gas analysis 
utilizing the VISION model, to determine the relative impact between 
the proposed goal scenario (AEO 2006 reference case plus program goals) 
and the baseline case (AEO 2006 reference case). This analysis can be 
found in section V.F. 2 above.

E. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
Civil Justice Reform, 61 FR 4729 (February 7, 1996), imposes on 
Executive agencies the general duty to adhere to the following 
requirements: (1) Eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation; and (3) provide a clear legal 
standard for affected conduct rather than a general standard and 
promote simplification and burden reduction. With regard to the review 
required by sections 3(a) and 3(b) of Executive Order 12988 
specifically requires that Executive agencies make every reasonable 
effort to ensure that the regulation: (1) Clearly specifies the 
preemptive effect, if any; (2) clearly specifies any effect on existing 
Federal law or regulation; (3) provides a clear legal standard for 
affected conduct while promoting simplification and burden reduction; 
(4) specifies the retroactive effect, if any; (5) adequately defines 
key terms; and (6) addresses other important issues affecting clarity 
and general draftsmanship under any guidelines issued by the Attorney 
General. Section 3(c) of Executive Order 12988 requires Executive 
agencies to review regulations in light of applicable standards in 
sections 3(a) and 3(b) to determine whether they are met or it is 
unreasonable to meet one or more of them. Executive Order 12988 does 
not apply to this rulemaking notice because DOE is merely proposing to 
modify the replacement fuel goal provided in section 502(b)(2) of EPAct 
1992, and is not proposing any regulations that would impose any 
requirements on any parties.

F. Review Under Executive Order 13132

    Executive Order 13132, Federalism, 64 FR 43255 (August 4, 1999), 
imposes certain requirements on agencies formulating and implementing 
policies or regulations that preempt State law or that have 
implications of Federalism. Agencies are required to examine the 
constitutional and statutory authority supporting any action that would 
limit the policymaking discretion of the States and carefully assess 
the necessity for such actions. DOE has examined today's proposed 
modification of the replacement fuel goal and has determined that it 
would not preempt State law and would not have a substantial direct 
effect on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.

G. Review of Impact on State Governments--Economic Impact on States

    Section 1(b)(9) of Executive Order 12866, Regulatory Planning and 
Review, 58 FR 51735 (September 30, 1993), established the following 
principle for agencies to follow in rulemakings: ``Wherever feasible, 
agencies shall seek views of appropriate State, local, and tribal 
officials before imposing regulatory requirements that might 
significantly or uniquely affect those governmental entities. Each 
agency shall assess the effects of Federal regulations on State, local, 
and tribal governments, including specifically the availability of 
resources to carry out those mandates, and seek to minimize those 
burdens that uniquely or significantly affect such governmental 
entities, consistent with achieving regulatory objectives. In addition, 
agencies shall seek to harmonize Federal regulatory actions with 
regulated State, local and tribal regulatory and other governmental 
functions.''
    Because DOE is merely proposing to modify the replacement fuel goal 
under section 502(b)(2) of EPAct 1992, no significant impacts upon 
State and local governments are anticipated. The position of State 
fleets currently covered under the existing EPAct 1992 fleet program is 
unchanged by this action.

H. Review of Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4, requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local and tribal governments and the 
private sector. The Act also requires a Federal agency to develop an 
effective process to permit timely input by elected officials on a 
proposed ``significant intergovernmental mandate,'' and requires an 
agency plan for giving notice and opportunity for timely input to 
potentially affected small governments before establishing any 
requirements that might significantly or uniquely affect small 
governments. On March 18, 1997, DOE published in the Federal Register a 
statement of policy on its process for intergovernmental consultation 
under the Act (62 FR 12820). The notice of proposed rulemaking 
published today does not propose or contain any Federal mandate, so the 
requirements of the Unfunded Mandates Reform Act do not apply.

I. Review of Treasury and General Government Appropriations Act, 1999

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999, Public Law 105-277, requires Federal agencies to issue a 
Family Policymaking Assessment for any proposed rule that may affect 
family well-being. Today's notice of proposed rulemaking would not have 
any impact on the autonomy or integrity of the family as an 
institution. Accordingly, DOE has concluded that it is not necessary to 
prepare a Family Policymaking Assessment.

J. Review of Treasury and General Government Appropriations Act, 2001

    The Treasury and General Government Appropriations Act, 2001 (44 
U.S.C. 3516 note) provides for agencies to review most disseminations 
of information to the public under guidelines established by each 
agency pursuant to general guidelines issued by the Office of 
Management and Budget (OMB). OMB's guidelines were published at 67 FR 
8452 (February 22, 2002), and DOE's guidelines were published at 67 FR 
62446 (October 7, 2002). DOE has reviewed today's notice under the OMB 
and DOE guidelines, and has concluded that it is consistent with 
applicable policies in those guidelines.

K. Review Under Executive Order 13175

    Under Executive Order 13175, Consultation and Coordination with 
Indian Tribal Governments, 65 FR 67249 (November 9, 2000), DOE is 
required to consult with Indian tribal officials in development of 
regulatory policies that have tribal implications. Today's notice would 
not have such implications. Accordingly, Executive Order 13175 does not 
apply to this notice.

L. Review Under Executive Order 13211

    Executive Order 13211, Actions Concerning Regulations That 
Significantly Affect Energy, Supply,

[[Page 54789]]

Distribution, or Use, 66 FR 28355 (May 22, 2001) requires preparation 
and submission to OMB of a Statement of Energy Effects for significant 
regulatory actions under Executive Order 12866 that are likely to have 
a significant adverse effect on the supply, distribution, or use of 
energy. A mere modification to the replacement fuel goal under EPAct 
1992 section 502(b)(2) does not require fleets, suppliers of energy, or 
distributors of energy to do or to refrain from doing anything. 
Consequently, DOE has concluded there is no need for a Statement of 
Energy Effects.

IX. Approval by the Office of the Secretary

    The issuance of the proposed rule for the replacement fuel goal 
modification has been approved by the Office of the Secretary.

    Issued in Washington, DC, on September 6, 2006.
Alexander A. Karsner,
Assistant Secretary, Energy Efficiency and Renewable Energy.

List of Subjects in 10 CFR Part 490

    Administrative practice and procedure, Energy conservation, Fuel 
economy, Gasoline, Motor vehicles, Natural gas, Penalties, Petroleum, 
Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Department of Energy 
is proposing to amend Chapter II of title 10 of the Code of Federal 
Regulations as set forth below:

PART 490--ALTERNATIVE FUEL TRANSPORTATION PROGRAM

    1. The authority citation for part 490 is revised to read as 
follows:

    Authority: 42 U.S.C. 7191 et seq.; 42 U.S.C. 13201, 13211, 
13220, 13251 et seq.

    2. In Sec.  490.1 of subpart A, paragraph (b) is revised to read as 
follows:


Sec.  490.1  Purpose and Scope.

* * * * *
    (b) The provisions of this subpart cover:
    (1) The definitions applicable throughout this part;
    (2) Procedures to obtain an interpretive ruling and to petition for 
a generally applicable rule to amend this part; and
    (3) The goal of the replacement fuel supply and demand program 
established under section 502(a) of the Act (42 U.S.C. 13252(a)).
    3. Subpart A is amended by adding Sec.  490.8 to read as follows:


Sec.  490.8  Replacement fuel production goal.

    The goal of the replacement fuel supply and demand program 
established by section 502(b)(2) of the Act (42 U.S.C. 13252(b)(2)) and 
revised by DOE pursuant to section 504(b) of the Act (42 U.S.C. 
13254(b)) is to achieve a production capacity of replacement fuels 
sufficient to replace, on an energy equivalent basis, at least 30 
percent of motor fuel consumption in the United States by the year 
2030.

[FR Doc. E6-15516 Filed 9-18-06; 8:45 am]
BILLING CODE 6450-01-P