[Federal Register Volume 72, Number 50 (Thursday, March 15, 2007)]
[Rules and Regulations]
[Pages 12041-12060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-4324]



[[Page 12041]]

=======================================================================
-----------------------------------------------------------------------

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 (EERE), 
Department of Energy (DOE).

ACTION: Final rule.

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

SUMMARY: DOE is publishing this final rule pursuant to the Energy 
Policy Act of 1992 (EPAct 1992). DOE is extending the EPAct 1992 goal 
of achieving a production capacity for replacement fuels sufficient to 
replace 30 percent of the projected U.S. motor fuel consumption 
(Replacement Fuel Goal) to 2030. DOE determined through its analysis 
that the 30 percent Replacement Fuel Goal cannot be met by 2010, as 
established in section 502(b)(2)(B). DOE has determined that the 30 
percent goal can be achieved by 2030.

DATES: Effective Date: This rule is effective June 1, 2007.

FOR FURTHER INFORMATION CONTACT: To request a copy of this Final Rule 
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. Copies of this final rule and supporting documentation for 
this rulemaking will be placed at the following Web site address: 
http://www1.eere.energy.gov/vehiclesandfuels/epact/private/index.html. 
Interested persons 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.

SUPPLEMENTARY INFORMATION:

I. Introduction
II. Background
    A. Replacement Fuel Program
    B. Replacement Fuel Goals
    C. Definitions
    D. Previous Review of Goals
    E. Previous Rulemakings and Court Order
    F. Notice of Proposed Rule (NOPR) for the Replacement Fuel Goal
III. Comments
    A. Comments Received
    B. Discussion of Comments
    C. Assessment of Comments
IV. Determination that the Congressional Goals are Unachievable
V. Goal Modification Analysis
    A. Approach
    B. Building Blocks
    C. Replacement Fuel Scenarios
    D. DOE's VISION Model Analysis
    E. Annual Energy Outlook (AEO) 2007 Results
    F. Additional Reports
    G. Other Issues
VI. Modified Goal
    A. 30 Percent by 2030
    B. Interim Goal
VII. Regulatory Review
    A. Review under Executive Order 12866
    B. Review under Regulatory Flexibility Act
    C. Review under the Paperwork Reduction Act
    D. Review Under the National Policy Act of 1969 (NEPA)
    E. Review Under Executive Order 12988
    F. Review Under Executive Order 13132
    G. Review of Impact on State Governments--Economic Impact on 
States
    H. Review of Unfunded Mandates Reform Act of 1995
    I. Review of Treasury and General Appropriations Act, 1999
    J. Review of Treasury and General Appropriations Act, 2001
    K. Review Under Executive Order 13175
    L. Review Under Executive Order 13211
    M. Congressional Notification
VIII. Approval by the Office of the Secretary

I. Introduction

    On September 19, 2006, DOE published a notice of proposed 
rulemaking (NOPR) announcing its proposed determination that the EPAct 
1992 (Pub. L. 102-486) Replacement Fuel Goal of 30 percent by 2010 is 
not achievable and announcing its proposal to extend the time for 
achieving the 30 percent replacement fuel production capacity goal to 
2030. 71 FR 54771, Sept. 19, 2006.
    EPAct 1992, section 502(a) directed DOE to establish a replacement 
fuel program. (42 U.S.C. 13252(a)) The purpose of this program is to 
``promote the replacement of petroleum motor fuels with replacement 
fuels to the maximum extent practicable.'' (Id., emphasis added.) The 
focus of this program, as indicated in section 502(b)(2), is on 
expanding replacement fuels production capacity. (42 U.S.C. 
13252(b)(2)) Further, section 502(b)(2) specifies an interim 
Replacement Fuel Goal of producing sufficient replacement fuels to 
replace 10 percent by 2000 of the projected consumption of motor fuels 
in the United States and a final goal of 30 percent by 2010. (42 U.S.C. 
13252(b)(2)(A) and (B)) Under section 504, DOE was tasked with 
evaluating these goals and if DOE finds the goals to be unachievable, 
then DOE is directed to modify the goals so that they are achievable. 
(42 U.S.C. 13254(a) and (b)) In modifying the goals DOE can either 
modify the goal percentage or timeframe or both. (42 U.S.C. 13254(b))
    In evaluating and modifying the goals, DOE must balance 
considerations in order to establish goals that are ``achievable.'' (42 
U.S.C. 13254(b)) The Replacement Fuel Goals must promote replacement 
fuels to the ``maximum extent possible'' while remaining 
technologically and economically feasible. (42 U.S.C. 13254(a) and 
(b)(2)) The revised goal adopted today meets these requirements, for 
several reasons. First, DOE based its analysis on the best information 
available, from published and peer-reviewed sources. In particular, 
much of DOE's analysis was based on the Energy Information 
Administration's (EIA) Annual Energy Outlook (AEO) 2005 through 2007. 
Second, DOE's analysis generally was based on the current budget and 
policy framework, under which many technologies show reasonable 
potential for success and market penetration. Thus, the analysis 
assumed virtually no major new policies or funding initiatives beyond 
those already in place. Third and last, the modified goal balances the 
minimum and maximum projected replacement fuel production capacities 
from several reasonable scenarios.
    In the NOPR, DOE evaluated four scenarios, which identified 
projected replacement fuel capacities of 8.65 percent, 17.84 percent, 
35.25 percent, and 47.06 percent, by 2030. (Updated analyses conducted 
in this final rule resulted in the first and third of these becoming 
7.38 percent and 33.13 percent, respectively.) These projections 
reflect considerations of numerous variables including oil prices, 
technological breakthroughs, and market acceptance. The goal proposed 
by DOE fell in the mid-range among these scenarios. Also, the proposed 
goal did not rest upon a single technology, but instead relied on a 
portfolio of options. Explicit in this approach is the assumption that 
not all of the technologies will achieve the same measure of success; 
some will be more successful than others. Similarly, the proposed goal 
did not rely on the most advantageous market conditions.

[[Page 12042]]

Therefore, DOE determined that the proposed goal would meet the 
requirement to balance the objective of section 502(a) to promote 
replacement fuels to the ``maximum extent practicable'' and the section 
504(b) requirement that the Replacement Fuel Goal be ``achievable.'' 
(42 U.S.C. 13252(a) and 13254(b))
    In today's Final Rule, DOE determines that the EPAct 1992 goal of 
establishing sufficient replacement fuel production capacity to replace 
30 percent on an energy equivalent basis of all U.S. motor fuel by 2010 
is not achievable. This determination is based on a similar evaluation 
of the projected U.S. production capacity of replacement fuels as was 
presented in the NOPR. 71 FR 54711. Further, today's Final Rule extends 
the 30 percent Replacement Fuel Goal out to 2030 based on an analysis 
similar to that presented in the NOPR and discussed further below. 
Today's Final Rule complies with DOE's obligation under section 504(b) 
of EPAct 1992 to ``establish goals that are achievable, for the 
purposes of this title.'' (42 U.S.C. 13254(b))
    Today's final rule also implements the March 6, 2006 order of the 
U.S. District Court for Northern District of California to prepare and 
publish a final rule to modify EPAct 1992's replacement fuel production 
goal for 2010. See Center for Biological Diversity v. U.S. Department 
of Energy et. al., 419 F.Supp. 2d 1166 (N.D. Cal. 2006).
    DOE reminds interested parties that the Replacement Fuel Goal is an 
administrative goal guiding the replacement fuel program, including 
administering the EPAct 1992 title V fleet mandates. It is not a 
program plan, implementation plan, national policy, or any other type 
of major program for achievement of the Replacement Fuel Goal. In 
addition, the statutory requirement for the Replacement Fuel Goal is 
potential production capacity. This does not require the fuel 
quantities implied by this goal actually be produced or used.

II. Background

A. Replacement Fuel Program

    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 replacement of 
petroleum fuels with replacement fuels to the maximum extent 
practicable'' (42 U.S.C. 13252(a)). Section 502(a) states:

    The Secretary shall establish a program to promote the 
development and use in light duty motor vehicles of domestic 
replacement fuels. Such a program shall promote the replacement of 
petroleum fuels to the maximum extent practicable. Such program 
shall, to the extent practicable, ensure the availability of those 
replacement fuels that will have the greatest impact in reducing oil 
imports, improving the health of our Nation's economy and reducing 
greenhouse gas emissions.

(42 U.S.C. 13252(a))

    Since 1992, DOE has taken a number of steps to implement EPAct 
1992's replacement fuel programs, under the authority provided in 
titles III, IV and V of the Act. DOE coordinates various aspects of the 
Federal fleet's efforts to comply with the vehicle acquisition 
requirements established under section 303 of EPAct 1992. (42 U.S.C. 
13212). DOE has also 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). 10 CFR Part 490. 
DOE also established the Clean Cities initiative, which supports public 
and private partnerships that deploy alternative fueled vehicles (AFVs) 
and build supporting infrastructure. Clean Cities works closely with 
both voluntary and regulated fleets in specific geographic areas, to 
bring together the necessary ``critical mass'' of demand for 
alternative fuels to support expansion of the refueling infrastructure. 
In addition, DOE conducts research and development on replacement fuels 
production and utilization technologies in conjunction with other 
Federal agencies (such as the U.S. Department of Agriculture (USDA)), 
States, private industry, and universities. All of these programs work 
together to increase the production and utilization of replacement 
fuels and improve the efficiency of vehicles.
    In particular, the regulatory fleet programs have been successful 
in moving fleets covered under EPAct 1992 toward the use of AFVs and 
alternative fuels and reducing the use of petroleum fuels. The 
regulatory fleet programs established under EPAct 1992 have seen 
extremely high levels of compliance. Nearly all individual Federal 
agencies have met their AFV acquisition requirements, and the Federal 
fleet as a whole has exceeded the required 75 percent acquisition level 
for the last four years. Among State and alternative fuel provider 
fleets, compliance has also been high and DOE has been able to work out 
nearly all the relatively few instances of deficient acquisitions with 
the involved fleets, either through the fleets purchasing credits or 
agreeing to acquire additional AFVs in future years.
    Original equipment manufacturers (OEMs) have expanded the number 
and type of AFV models offered, mostly due to the demand from EPAct 
regulated fleet programs, regulatory incentives (Corporate Average Fuel 
Economy (CAFE) credits), and coordinated voluntary activities (Clean 
Cities). In model year 1993, OEMs were only offering a handful of 
different AFVs models. The availability of models and fuel types has 
increased substantially over the past decade. During model year 2006, 
there were over 20 light-duty fuel/vehicle model combinations available 
(with more models promised over the next several years). Virtually all 
of these were E85 flexible fuel vehicles (FFVs). Overall, there are now 
on the order of one million FFVs manufactured annually in the U.S., 
largely to take advantage of the CAFE benefits. At the same time, the 
regulated fleets do acquire many of these vehicles each year.
    The Replacement Fuel Program efforts have also assisted in 
expanding the infrastructure for alternative fuels. In 1992 when EPAct 
was passed, there were not that many alternative fuel refueling 
stations in operation (approximately 3,600) and nearly all were for 
propane. Today, there are approximately 5,400 alternative fuel 
refueling stations in the U.S., including over 1,000 E85 stations in 
operation, with several hundred coming on-line each year over past few 
years. There are also many more compressed natural gas (CNG) stations 
than in 1992, although this number has begun to decrease slightly in 
the last few years as OEM offerings have dwindled. (For the current 
number and location of alternative fuel refueling stations, visit the 
Alternative Fuel Data Center (AFDC) station locator, http://www.eere.energy.gov/afdc/infrastructure/refueling.html.) This overall 
growth in stations has been primarily through the demand generated 
through the regulated fleets and related voluntary efforts under Clean 
Cities. The number of alternative fuel refueling stations remains small 
when compared to the 180,000 total refueling stations Nationwide, but 
is projected to continue increasing.
    In the State of the Union address in January 2006, the President 
announced the Advanced Energy Initiative (AEI), which focuses on 
increasing the use of non-conventional fuels like replacement fuels in 
all sectors of the U.S. economy, with a central focus on the 
transportation sector. AEI sets out an aggressive course for reducing 
the

[[Page 12043]]

Nation's dependence on foreign petroleum, setting a national goal of 
replacing more than 75 percent of the U.S. imports from foreign sources 
by 2025. AEI emphasizes technology developments as the key to reducing 
energy dependence, including several of the same technologies such as 
efficiency improvements, biofuels, and hydrogen. These appear under the 
portion of the Initiative focused on ``Changing the way we fuel our 
vehicles.'' AEI is available on the White House Web site at the 
following location: http://www.whitehouse.gov/stateoftheunion/2006/energy/.
    On January 23, 2007, the President, in the State of the Union 
Address, proposed replacing 20 percent of the projected gasoline usage 
in 10 years (``Twenty in Ten'' initiative). Twenty in Ten builds on the 
foundation established by the AEI from the previous year's State of the 
Union Address with two major elements relevant to today's final rule. 
The first element is to increase the use of alternative fuels to 35 
billion gallons in 2017, reducing projected gasoline consumption by 15 
percent, through advancements in many fields including cellulosic 
ethanol, butanol, and biodiesel. In the second element of Twenty in 
Ten, the President has asked Congress to give the Administration 
authority to reform the fuel efficiency system for passenger cars, as 
was recently done for light trucks and sport utility vehicles (SUVs). 
It is estimated that the projected gains in mileage for passenger cars 
could save another 5 percent of our projected gasoline usage in 2017.
    The Twenty in Ten initiative, which sets a goal for 2017, is 
consistent with the Replacement Fuel Goal adopted today. However, there 
are several notable differences. First, DOE notes that the Twenty in 
Ten initiative relates to projected gasoline consumption, whereas 
today's final goal relates to projected gasoline and diesel fuel 
consumption. Second, the Replacement Fuel Goal is established in terms 
of energy equivalency, where as the Twenty in Ten initiative is in 
terms of absolute volume. Third, while the Twenty in Ten initiative 
emphasizes the same elements as the Replacement Fuel Goal, the Twenty 
in Ten initiative is more aggressive than the revised goal in terms of 
assumptions of increased fuel efficiency of light trucks and passenger 
cars and increased use of renewable and alternative fuels to replace a 
significant portion petroleum usage.\1\
---------------------------------------------------------------------------

    \1\ The President's initiative notes that given the changing 
nature of the marketplace for both cars and light trucks, the 
Secretary of Transportation would determine in a flexible rulemaking 
process the actual fuel economy standard and accompanying fuel 
savings. Additionally, under the Twenty in Ten initiative the EPA 
Administrator and the Secretaries of Agriculture and Energy will 
have authority to waive or modify the required levels of alternative 
and renewable fuel use if they deem it necessary, and the new fuel 
standard will include an automatic ``safety valve'' to protect 
against unforeseen increases in the prices of alternative fuels or 
their feedstocks.
---------------------------------------------------------------------------

    The more aggressive components of the Twenty in Ten initiative are 
based on policy and legislative actions proposed by the President that 
were not considered in today's final rule. The final rule generally 
considered only policies and programs currently in place, and therefore 
the policies proposed in the Twenty in Ten initiative were not 
considered in today's final rule. DOE intends to continue monitoring 
the Twenty in Ten initiative as policies and programs begin to develop, 
and will determine if the Replacement Fuel Goal requires additional 
modification. The Twenty in Ten initiative is available on the White 
House Web site at: http://www.whitehouse.gov/stateoftheunion/2007/initiatives/energy.html.

B. Replacement Fuel Goals

    As previously discussed, section 502(a) requires DOE to implement a 
replacement fuel program. Under such program the Secretary is required 
to review appropriate information and estimate the production capacity 
for replacement fuels and AFVs. The Secretary also has to determine the 
technical and economical feasibility of achieving the capacity to 
produce on an energy equivalent basis, 10 percent of the projected 
motor fuel in the U.S. in 2000 and 30 percent in 2010. Section 502(b) 
established production goals for replacement fuels, and states:

    (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.) Thus section 502(b) sets two 
goals, 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. (42 U.S.C. 13252(b)(2)(A) and (B))

    While the goals in section 502(b) and the programs established 
under section 502(a) are related, the goals are not mandates for the 
programs. Today's review of the Congressional goals is in the context 
of the section 502(a) programs. Section 502(b) states that, ``under the 
programs established under subsection (a), the [DOE] * * * shall review 
appropriate information and'' evaluate the achievability of the goals. 
(42 U.S.C. 13252(b)) Further, in the context of the section 502(a) 
programs, DOE must ``determine the most suitable means and methods of 
developing and encouraging the production, distribution, and use of 
replacement fuels and alternative fueled vehicles[.]'' (42 U.S.C. 
13252(b)(3)) As discussed above, DOE has established various programs 
to implement the goals of sections 502(a) and (b). However, no where in 
the text of section 502 are the goals established as mandates for the 
section 502(a) programs.
    Pursuant to section 504 of EPAct 1992, DOE is required to review 
these goals periodically and publish the results and provide 
opportunities for public comments. (42 U.S.C. 13254(a)) If DOE 
determines that the goals are not achievable, 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)) DOE has determined 
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.
    While DOE has authority to modify the section 502(b) goals, DOE's 
authority to establish requirements under the replacement fuel and 
alternative fuel programs is limited. Section 504(c) provides DOE the 
authority to issue regulations if the achievement of the Replacement 
Fuel Goals contained in section 502(b) are likely to lead to ``a 
significant and correctable failure'' to meet the overall program goals 
established by section 502(a). (42 U.S.C 13254(c)) 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, DOE's authority to

[[Page 12044]]

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 and 
Federal Fleet, which are required by section 501(a)(4) and 303 of 
EPAct, respectively).
---------------------------------------------------------------------------

C. 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.'' (42 U.S.C. 13211(12)) 
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. (42 U.S.C. 13261(13)) 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. 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 motor vehicles. This includes fuels used in light-, 
medium-, and heavy-duty on-road vehicles. 71 FR 54771 (September 19, 
2006).

D. Previous Review of the Goals

    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.'' (42 U.S.C. 13254(a))
    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. DOE is also not aware of any affirmative determination 
by Congress or by any agency that, at the time they were set, the 
statutory goals were explicitly considered achievable. Thus, DOE has 
treated these replacement fuel production capacity levels as the 
starting point for future goal analyses. Regardless of the original 
rationale for the goals, and as described and discussed below, DOE 
periodically has evaluated the feasibility of the goals as provided by 
Congress in EPAct 1992.
    Several previous efforts were made by DOE 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.
    The second major attempt by DOE 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 next report to consider the achievability of the Replacement 
Fuel Goals was the Transitional Alternative Fuels and Vehicles (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 report is available for review at: http://www.eere.energy.gov/vehiclesandfuels/epact/pdfs/plf_docket/tafv99report31a_ornltm.pdf.
    In summary, Technical Report 14, prepared only three years after 
EPAct 1992's passage, did indicate that the 2010 goal could be 
achieved, albeit only under several scenarios relying upon extensive 
policy additions. The section 506 report and TAFV Report both concluded 
that it would be difficult and unlikely, but not impossible, to achieve 
the 30 percent EPAct 1992 Replacement Fuel Goal by 2010. In neither of 
the latter reports, issued in mid to late 2000, did DOE make a 
determination under EPAct 1992 section 504(b) that the statutory 
Replacement Fuel Goals were not achievable. If DOE had made such a 
determination, it would have triggered a statutory obligation to set a 
new, achievable, Replacement Fuel Goal. Instead, DOE chose to take a 
``wait and see'' approach regarding the need to revise the 2010 goal. A 
much more detailed discussion on each of the three reports and their 
conclusions was provided in section III. of the NOPR. 71 FR 54773, 
Sept. 19, 2006.

E. Previous Rulemakings and Court Order

    Section 507(c) directed DOE to issue an Advanced Notice of Proposed 
Rulemaking (ANOPR) that, in part, would evaluate the progress toward 
achieving the Replacement Fuel 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,

[[Page 12045]]

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.
    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 NOPR for the Private and Local Government 
Fleet Determination (68 FR 10320, 10326-10328; March 3, 2003) and a 
summary of those comments was provided in the Replacement Fuel Goal 
NOPR. 71 FR 54771, Sept. 19, 2006.
    Additionally, DOE previously addressed the issue of whether to 
revise the replacement fuel production goal for 2010 in the context of 
its determination that an AFV acquisition mandate for private and local 
government fleets was not necessary. 69 FR 4219 (January 29, 2004). 
Section 507(e) directs DOE to consider whether a fleet requirement 
program for private and local fleets is ``necessary'' for the 
achievement of the Replacement Fuel Goals. (42 U.S.C. 13257(e)) As part 
of DOE'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, Jan. 29, 2004. 
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, Jan. 29, 2004. 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 
(CBD) 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 vacated 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, 419 F.Supp. 2d 1166.) 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. (Id. at 1171.)

F. NOPR for the Replacement Fuel Goal

    DOE proposed to revise the 30 percent by 2010 goal by extending the 
goal date to 2030. 71 FR 54771, Sept. 19, 2006. DOE based the proposed 
revised goal on an analysis which focused on projected production 
capacity for replacement fuels through 2030. DOE based the proposal on 
four reference cases, which were based on three building blocks. The 
three building blocks are: (1) The reference case projected by EIA in 
AEO 2006; (2) the high price case presented in AEO 2006; and (3) 
projections from the DOE programs conducting research and development 
on replacement fuel and vehicle technologies. These building blocks 
provide the basis for the reference cases which project varying levels 
of potential replacement fuel production capacity.
    The four scenarios relied upon in the NOPR analysis were: (1) The 
reference case projected by EIA in AEO 2006; (2) the high price 
scenario presented in AEO 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. Under a 2030 timeframe, 
these scenarios projected a replacement fuel production capacity as a 
percent of on-road fuel use of 8.65 percent, 17.84 percent, 35.25 
percent, and 47.06 percent, respectively. 71 FR 54782-3, Sept. 19, 
2006.
    As presented in the NOPR, DOE proposed to maintain the 30 percent 
goal and move the goal date out 20 years, to 2030. 71 FR 54785, Sept. 
19, 2006. Given the uncertainties inherent in projecting fuel prices 
and technology achievements, DOE tentatively determined that a goal 
slightly above the midpoint of the projections of the four reference 
cases represented an ``achievable'' goal as required by section 504(b). 
(42 U.S.C. 13254(b))
    A detailed discussion of the building blocks and the reference 
cases is provided in section V. of the NOPR. 71 FR 54776, Sept. 19, 
2006. Today's final rule relies on essentially the same analysis 
framework, with updated projections by the EIA. The analysis framework 
and results are summarized below.

III. Comments

A. Comments Received

    The NOPR solicited comments on the proposed Replacement Fuel Goal 
modification. Written comments were received from a total of sixteen 
organizations. This included the following four specific organizations 
providing substantive comments:
     The American Automotive Leasing Association (AALA),
     The CBD/Friends of the Earth,
     The National Association of Fleet Administrators (NAFA), 
and
     NGVAmerica.
    The other twelve sets of comments were from Clean Cities 
coordinators or stakeholders, or were organizations that were not 
identified specifically as related to Clean Cities, but which provided 
similar type or level of comments to those received from the Clean 
Cities organizations. Thus, for most of the discussion below, these 
Clean Cities and related comments were grouped together. These 
organizations included:
     Central Texas Clean Cities.
     City of Victoria.
     DieselGreen/Austin Biodiesel Cooperative.
     Granite State Clean Cities.
     Greater New Haven Clean Cities Coalition, Inc.
     Greater New Orleans Regional Planning Commission.
     Kansas City Clean Cities.
     Maine Clean Communities.
     Norwich Clean Cities.
     Public Solutions Group, Ltd./Central Texas Clean Cities.
     St. Louis Clean Cities.
     Synetek Research Co.
    It should be noted that within these comments, most Clean Cities 
organizations utilized a common framework for their comments, relying 
upon shared key points. Within these organizations, however, two 
(Granite State Clean Cities and Maine Clean Communities) provided 
somewhat more expansive and detailed comments.
    On October 3, 2006, DOE held a hearing at DOE headquarters in 
Washington, DC. Approximately one dozen people attended, including 
representatives from AALA, NGVAmerica, several media organizations, and 
DOE program staff and related personnel. In addition, one member of the 
general public also attended. A list of attendees is available at 
http://www1.eere.energy.gov/vehiclesandfuels/epact/pdfs/plg_docket/hearing_attendee_list.pdf.

[[Page 12046]]

Program technical staff presented a short overview of the rulemaking 
process (available at http://www1.eere.energy.gov/vehiclesandfuels/epact/pdfs/plg_docket/ohara_presentation.pdf). No entities prepared 
or delivered detailed testimony at this hearing. Discussions during the 
hearing were relatively short and of a much more general nature with 
all points raised also included within the written comments received. 
Therefore, no separate discussion of the comments from the hearing is 
necessary. The transcript from this hearing is available at http://www1.eere.energy.gov/vehiclesandfuels/epact/pdfs/plg_docket/hearing_transcript.pdf.
    Due to technical difficulties in receiving comments on the NOPR 
electronically, on January 18, 2007, DOE published a limited re-opening 
of the comment period; 72 FR 2212, Jan. 18, 2007. This notice re-opened 
the comment period until January 31, 2007. During this additional 
period, one additional set of comments was received from the National 
Propane Gas Association (NPGA).

B. Discussion of Comments

    In order to address the comments in a clear manner, they were split 
out into several basic categories. These include:
     Approach--comments concerning DOE's approach to addressing 
its requirements concerning evaluating and modifying the Replacement 
Fuel Goal;
     Goal--comments concerning the level and time-frame for the 
proposed modified goal, schedule for review of the modified goal, and 
whether an interim goal was necessary;
     Assumptions--comments concerning the detailed assumptions 
made by DOE in its analysis; and
     Programmatic/DOE's Role--comments concerning possible 
programs or DOE's overall role concerning achievement of the 
Replacement Fuel Goal.
    In addition to identifying the comments in each section below, the 
discussion of the final analysis further addresses, where appropriate, 
specific issues raised by commenters.
Approach
    One commenter indicated that DOE's interpretation of ``achievable'' 
was reasonable, and that the current goal needed to be modified. This 
commenter also indicated that DOE was correct to focus on more than 
just a single technology, and on the entire fuel supply chain. Another 
commenter also indicated that DOE should base the revised goal upon 
reductions across the entire transportation sector, and not just 
regulated fleets. In response, DOE reiterates that it did base its 
approach upon a number of technologies and fuels, and did look at fuel 
savings and substitution within the entire on-road transportation 
sector. As indicated in the NOPR, DOE looked at the entire highway 
transportation sector in determining the Replacement Fuel Goal. DOE 
also looked at technologies such as hybrids, fuel cell vehicles, 
advanced energy efficient vehicles, and dual-fuel/FFVs. The fuels used 
in the analysis included ethanol, biodiesel, natural gas, coal to 
liquids, gas to liquids, and hydrogen. 71 FR 54771, Sept. 19, 2006.
    Different opinions were expressed concerning DOE's approach with 
respect to determining if the Private and Local Government Fleets Rule 
is necessary. One commenter specifically indicated its satisfaction 
with the approach taken by DOE, while another specifically indicated 
its objection. A third commenter simply cautioned DOE to resist the 
urge to set a new Replacement Fuel Goal level solely for the purpose of 
justifying a Private and Local Government Fleet Rule. This same 
commenter spent the majority of its comments stating why such a fleet 
rule is wrong.
    In response, DOE is focused only on the development of an 
achievable goal that meets the requirements of sections 502(a) and 
504(b) of EPAct 1992 in this rule. DOE is not predisposed to any 
outcome beyond setting the goal. The Private and Local Government Fleet 
Rule determination is a separate rulemaking process from the 
Replacement Fuel Goal modification, and DOE is continuing to treat 
these as separate processes. The fleet rule determination will not be 
commenced until the revised Replacement Fuel Goal is set, and the 
determination process will specifically include an opportunity for 
comment on a proposed determination prior to development of the final 
determination.
Goal/Schedule/Interim Goal
    Two specific commenters plus a number of the Clean Cities and 
related organizations objected to what they stated is a 20-year delay 
in the goal, from 2010 to 2030. They indicated that a more progressive 
goal is needed, and one that has a stronger focus upon program 
development and implementation. Similarly, one of the individual 
commenters indicated that it did not understand why the inability to 
meet the goal in 2010 permits a 20-year delay. While a number of these 
commenters indicated that they wanted to see DOE set a ``higher goal,'' 
few offered concrete proposals as to what that goal should be and how 
it would be achievable. Two Clean Cities coordinators did specifically 
suggest that DOE select one of the more accelerated paths included 
within its NOPR analysis, such as utilizing one of the ``program 
development'' cases. At the same time, one commenter felt that DOE's 
proposed goal was reasonable, based upon comparison to similar actions 
of States and several foreign governments.
    In response to commenters requesting a more aggressive goal than 
what was proposed, DOE notes that it has a statutory obligation to 
balance certain considerations in order to establish goals that are 
``achievable.'' (42 U.S.C. 13254(b)) The replacement fuel production 
capacity goals must promote replacement fuels to the ``maximum extent 
possible'' while at the same time remaining technologically and 
economically feasible. (42 U.S.C. 13254(a) and (b)(2)) DOE interprets 
``achievable'' to mean that there is a reasonable expectation of 
reaching the goal in the time period specified. DOE considered the 
various options within the current budgetary and policy framework and 
selected what DOE determined is a goal which is set at the ``maximum 
extent practical'' and still ``achievable.'' The current EIA baseline 
projection for replacement fuels by 2030 is only 7.38 percent. Today's 
analysis indicated that if all DOE's technical programs were as 
successful as predicted and the technologies were fully adopted in the 
marketplace, the maximum replacement fuel that could be achieved is 33 
to 47 percent. To expect DOE to be 100 percent successful in its 
development programs is unreasonable. By their very nature, many of the 
research programs are high risk.
    One individual commenter and several Clean Cities and related 
organizations generally claimed that there are significant 
environmental, energy security, and economic impacts in delaying the 
goal. However, the commenters did not provide specific estimates of 
these potential impacts or how moving the goal to 2030 would result in 
such impacts.
    One individual commenter and two Clean Cities coordinators 
specifically called for DOE to set an interim goal. DOE notes that in 
the Court's order directing DOE to revise the Replacement Fuel Goal, 
the Court focused almost entirely upon the 2010 goal. (Center for 
Biological Diversity, 419 F.Supp. 2d 1166.) Further, the Court clearly 
directed DOE to revise the ``goal.'' (Center for Biological Diversity 
v. U.S.

[[Page 12047]]

Dept. of Energy et. al., No. 05-cv-01526-WHA Document 54 p. 2 (N.D. 
Cal. March 30, 2006) (Order re Timing of Relief)) The Court's use of 
``goal'' in the singular provides direction to revise the 2010 goal, 
and DOE developed the NOPR accordingly.
    To the extent that an ``interim goal'' allows the public to 
understand the trajectory of the replacement fuel production necessary 
to meet the 2030 goal, DOE's analysis developed data points at 2020, 
2025 and 2030 for all four scenarios evaluated. The charts provided 
below indicate a range of percentages which provide benchmarks for 
evaluating progress towards the achieving the goal. Moreover, the 
annual publication of EIA analyses of replacement fuel contributions in 
the Annual Energy Review (AER) and AEO provides an indication of 
progress. For example, the replacement fuel production capacity levels 
were estimated in the range between approximately 6 and 17 percent in 
the NOPR for 2020. As updated in the analysis for this final rule, the 
two 2020 reference case-based scenarios project a replacement fuel 
capacity between 5 and 14 percent. DOE and the public will be able to 
compare the AEO projections and AER data to the Replacement Fuel Goal 
analysis presented in today's final rule and the NOPR.
    Two commenters specifically requested that DOE provide a specific 
schedule for reviewing the Replacement Fuel Goal in the future. These 
commenters stated that the information resulting from such reviews 
should be published more frequently. The statutory requirement in 
section 504(a) is for periodic review. As discussed above, EIA 
publishes the AEO report annually, which estimates the replacement fuel 
production capacity of the U.S. DOE will review the annual AEO reports 
and based in part on these reports determine whether a more 
comprehensive review of the Replacement Fuel Goal is warranted.
    Finally, a commenter specifically indicated that ``DOE should note 
that future reviews may also result in modifying the goal to reduce the 
timeframe or increase the replacement fuel percentage if achievable in 
order to effectuate the intent of the Act and the Replacement Fuel 
Program.'' DOE acknowledges that if future reviews show results more or 
less favorable to achievement of the goal, then DOE could increase/
decrease the level or accelerate/push out the date. DOE has no pre-
conceived concepts as to what any future reviews of progress toward the 
goal will show. The statutory requirement of the periodic review is for 
DOE to evaluate the goal and determine if the goal is practical and 
achievable. If the goal is not achievable, DOE has the responsibility 
to develop an achievable goal that is ``technically and economically 
feasible'' and promotes replacement fuels to the ``maximum extent 
practicable'' in a specific timeframe, whatever that may be.
Analysis Assumptions
    One individual commenter and two Clean Cities coordinators stated 
that the future oil prices upon which DOE based its analyses should 
have been much higher. Therefore, these commenters asserted, the 
decision on replacement fuel penetration levels should have been closer 
to the EIA high price case, or even based on prices higher than EIA's 
high price case. In response, DOE determined that it was inappropriate 
to assume significantly higher fuel prices than those presented in the 
AEO reports without a sufficient basis upon which to determine such 
prices. A case in point: there has been a significant drop in the cost 
of crude oil since the publication of the NOPR on September 19, 2006. 
Last summer crude prices were over $70 per barrel, but prices had 
fallen below $50 per barrel by late January, 2007. (EIA Petroleum 
Navigator at http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm) 
In addition, EIA analysis from AEO Reports indicates that higher oil 
prices do encourage more replacement fuel usage and increased energy 
efficiency. However, higher oil prices also cause drivers to use less 
petroleum overall. This coupled with the increased use of replacement 
fuels and increased energy efficiency can cause oil prices to fall.
    DOE is required to develop a goal that is achievable. Commenters 
did not provide any data to justify reliance on abnormally high oil 
prices for a sustained period or years. Therefore, DOE based its 
analysis upon EIA analyses. If projections for future prices increase 
significantly, DOE will review the annual AEO and based in part on 
these reports determine whether further review of the Replacement Fuel 
Goal is warranted.
    One commenter indicated that it felt DOE underestimated the 
contribution of conservation in the overall analysis. In response, DOE 
did address conservation, and believes that conservation was given a 
sizable role in both of the program development cases. The program 
development cases included energy efficiency gains from hybrids, 
advanced diesels, and fuel cell vehicles. The EIA data only takes into 
account the annual energy efficiency gains that vehicles have gained 
historically, typically around 1.2 percent. As presented in the NOPR, 
DOE analyzed two cases that incorporated savings of approximately 3 
million barrels per day in 2030, above and beyond any conservation 
efforts already taken into account in EIA data.
    One commenter stated that DOE's assertion that research and 
development programs will accomplish their goals is unrealistic, and 
thus contradicts DOE's approach to ``achievable.'' DOE notes that it 
used approximately a 50 percent, not 100 percent, success rate for all 
of DOE's programs in arriving at the final Replacement Fuel Goal. As 
reflected in the NOPR, estimates for the maximum contributions from 
successful commercialization of technologies resulting from DOE 
research and development to the overall goal by 2030 were no more than 
30 percent replacement fuel. The two EIA base cases (reference and high 
price (NOPR Tables 1 and 2)) projected levels of approximately 9 to 18 
percent replacement fuel. Adding approximately half of the DOE research 
and development technologies to the EIA base cases results in projected 
levels of approximately 24 to 33 percent replacement fuel. Therefore, 
DOE proposed in the NOPR a goal within the range of the identified 
scenarios, and did not rely upon DOE research and development programs 
achieving all of their goals.
    One commenter plus a number of Clean Cities-related organizations 
specifically questioned the Department's exclusion of plug-in hybrid 
electric vehicles (PHEVs) as inadequate, and disagreed with projections 
showing that the contribution from electricity would not grow 
significantly during the period of the analysis. No commenter submitted 
any data supporting a more concrete role for these vehicles, or what 
their overall effect would be. As stated in the NOPR, DOE has 
determined that it is premature to specifically evaluate this new 
technology, especially to the level of detail of the analysis done for 
this action. DOE recognizes that PHEVs offer a significant potential 
for reducing petroleum use in the U.S. transportation sector. As such, 
PHEVs were evaluated as part of the total hybrid vehicle market 
analysis. Modeling used for this analysis indicates that conventional, 
flex-fuel, and PHEVs as well as fuel-cell hybrids will be vying for the 
same market segments by 2030. The entire market segment was evaluated 
and significant gains in fuel efficiency and replacement fuels were 
indicated. However, DOE does not have sufficient data to evaluate the 
specific contributions to petroleum

[[Page 12048]]

reduction attributable to PHEVs. Furthermore, DOE notes that its 
analysis is based upon replacement fuels competing in the marketplace. 
Nothing in the 30 percent goal prevents PHEVs from capturing a larger 
share of the replacement fuel market than is indicated by DOE's 
analysis. If PHEVs develop quickly and impact the relative 
contributions of electricity and energy efficiency relied upon in the 
current analysis, DOE will take notice and determine if the Replacement 
Fuel Goal requires additional modification.
    Considerable analysis was done in the NOPR scenario 3 to determine 
what the vehicle sales would have to be in order to generate a demand 
for replacement fuel commensurate with a 35 percent Replacement Fuel 
Goal by 2030. 71 FR 54783. The VISION results are in Figures 5 and 6 in 
the NOPR. 71 FR 54784. For a level of replacement fuel demand that 
would be equivalent to the replacement fuel production capacity under a 
35 percent by 2030 Replacement Fuel Goal, the VISION model projected 
that non-conventional light-duty vehicles would comprise 99 percent of 
new LDV sales in that model year. The breakdown of the LDVs were FFVs--
24 percent of new vehicle sales; Hybrids--37 percent of new vehicle 
sales; Diesels--22 percent of new vehicle sales; Fuel Cell Vehicles--15 
percent of new vehicle sales; and other AFVs--1 percent of new vehicle 
sales.
    Similarly, two commenters and several Clean Cities-related 
organizations indicated that they felt the potential from natural gas 
and gas-to-liquids (GTL) was underestimated. One of these commenters 
also raised environmental concerns about GTL. Thus it was unclear 
whether this particular commenter wanted a greater role shown for this 
technology or not. In response to the overall concerns about potential 
for any particular technology, DOE relied upon the best information it 
had available, relying primarily upon the EIA AEO data. Neither 
commenter nor the Clean Cities-related organizations submitted specific 
data on these or other technologies.
    In general, however, even if the contribution of a particular 
technology (whether natural gas, GTL, PHEVs, or others) were increased, 
DOE would anticipate that much of this change might be at the expense 
of another included technology. As presented above, the total level of 
replacement fuel usage is relatively fixed. Thus, the gains for one 
technology will likely be offset by reductions in another technology, 
as opposed to increasing the number of non-conventionally fueled motor 
vehicles. Therefore, given that other replacement fuels may have a 
larger share of the market than our analysis might otherwise indicate, 
the overall results for replacement fuel production capacity will 
remain the same. Should better data become available DOE will review it 
and revise the goal as necessary.
    One commenter also questioned EIA's projections about coal-to-
liquids (CTL), since current oil prices already appear above the level 
needed for economic parity, but plants have not been built. As 
discussed in the NOPR, having economic parity now or achieving it only 
recently does not mean that the plants would already be in place. As 
DOE indicated in the NOPR, financial investors often need to see 
current and projected conditions that appear favorable for several 
years before they are moved to act. Once investment begins, it can be a 
number of years before any plants are on-line. Today, some of this 
initial investment appears to be happening, since conditions now appear 
favorable, but it may be many years before significant contributions 
are anticipated from this technology. In addition, as shown in section 
V.E. below, under the updated analysis based upon the AEO 2007, the 
projected contribution from CTL decreased significantly.
    One commenter indicated that it was unclear if DOE used Government 
Performance and Results Act (GPRA) analyses, or if not, why not. DOE 
did use GPRA analyses for a number of the program developments 
technologies, as indicated in the NOPR. 71 FR 54777, 54778, 54781. Two 
such examples are the energy efficiency gains from the FreedomCAR and 
Vehicle Technologies (FCVT) program and in the Hydrogen Fuel Cell and 
Infrastructure Technologies (HFCIT) Program (commonly referred to as 
the ``Hydrogen Program'') in the building blocks section (V.B.3) of the 
NOPR. 71 FR 54777. Where current analyses existed for technology 
programs, they were used. Item D11 in the electronic docket (available 
at http://www1.eere.energy.gov/vehiclesandfuels/epact/private/plg_docket.html) specifically provides a link to EERE's GPRA analyses for 
all relevant technology programs.
    One commenter questioned whether DOE's analysis assumed new Federal 
incentives for certain fuels, but not for others (particularly natural 
gas). This commenter also indicated that DOE needed to explain how 
different fuels react differently to higher prices. Generally, DOE did 
not assume new incentives or policies that would promote a specific 
alternative fuel. In the limited instances in which a new policy was 
assumed, DOE identified its assumptions, which were based upon 
information received from EIA or the relevant technology programs.
    One instance in which policies beyond those existing were assumed 
was for the hydrogen and fuel cell technologies. These technologies 
were identified as an exception because DOE recognizes that they will 
need additional support later in getting the technology into the 
market. Most of the other replacement fuels and technologies are viable 
in the market or they have or are getting tax breaks, subsidies, or 
other price supports until they become market viable. In order for fuel 
cell technologies to have the same opportunities in the market they may 
require similar types of support as previous technologies as well as 
potentially new types of assistance.
    One commenter indicated that DOE did not adequately address the 
benefits of other Federal, State, local, and private efforts, including 
other EERE, FCVT, and USDA activities. In particular, this commenter 
indicated that DOE should include a discussion of other efforts and 
indicate how the President's AEI fits in. The commenter did not 
indicate specific programs that should be included in DOE's analysis 
that would contribute significantly to the Replacement Fuel Goal. It 
should be noted that DOE did much of what this commenter claims it did 
not. In particular, the ``program developments'' scenarios were 
specifically based upon EERE and FCVT efforts, and DOE did discuss the 
AEI in section VI.B. of the NOPR. 71 FR 54786. DOE also is working with 
USDA in development of biofuels especially in the area of cellulosic 
ethanol. In preparing this final rule, DOE has taken into account the 
Renewable Fuel Standard (RFS) from EPAct 2005 and also considered the 
Twenty in Ten initiative.
    The same commenter indicated that DOE did not address the 
utilization side of the equation sufficiently. Again, the Replacement 
Fuel Goal is a production capacity goal, not a utilization goal. 
However, DOE recognizes that production and use are related. DOE did 
look at utilization in the VISION modeling, provided in tables 5 and 6 
of the NOPR. 71 FR 54784. Moreover, the commenter failed to provide 
data for a revised analysis to reflect the commenter's concern.
    One commenter pointed out perceived discrepancies between the EIA 
and VISION model analyses concerning the makeup of the LDV market. 
While DOE acknowledges that these two analyses differ somewhat in

[[Page 12049]]

their pathways, they are in relative agreement on the overall 
destination points. DOE analysis looked at the potential capacity to 
produce replacement fuels as required by section 502(a) and (b). In 
order to validate that data, a second analysis was performed using a 
fuel usage model. The VISION model looked at what replacement fuels 
could be used in what type of vehicles based on available knowledge of 
the different vehicle technologies. The total replacement fuel figures 
were very similar even though there were slight variations of the fuel 
mix and vehicle technologies. These simply show two different paths to 
the same result, based upon the particular assumptions of their 
analysts and the mechanisms within the models. DOE is not stating any 
one specific fuel or technology advancement, or specific set of 
advancements, has to occur for the Replacement Fuel Goal to be 
achieved. DOE believes that a portfolio of technologies, some indicated 
here, as well as possibly some that were not included, are required to 
achieve any goal.
    Finally, one commenter took particular issue with DOE's approach to 
its greenhouse gas (GHG) analysis. This commenter stated that DOE used 
the wrong baseline for assessing GHG emissions. The commenter indicated 
that DOE should have used the levels ``the U.S. would have achieved if 
DOE had implemented Congress's original fuel replacement goals.''
    In response, DOE believes that the commenter's assertion is 
incorrect on several counts. First, DOE does not have authority to 
mandate achievement of the goal. DOE has authority to conduct programs 
in accordance with the goals, to review the goals, and modify the 
goals. The commenter's implication that DOE could have mandated 
achievement of the 30 percent goal by 2010 is therefore incorrect. 
Second, a GHG analysis as suggested by the commenter would require the 
establishment of a fictitious baseline based upon a completely 
fabricated fuel mix that possibly could be used to meet the goal in 
2010 whether or not a 2010 goal was ever achievable. Since DOE has 
found that the goal is unachievable, it does not know what the fuel mix 
would have been in 2010 if the 30 percent goal had been achieved, which 
is critical to determining the baseline contribution of GHGs. Without 
such a breakdown, no such estimate can be made.
    This commenter further asserted that DOE was required to perform an 
environmental assessment as part of this rulemaking. As discussed below 
in section VII, Regulatory Review, DOE has not conducted an 
environmental assessment, which is consistent with the Court's holding 
in Center for Biological Diversity. (419 F. Supp 2d at 1173.)
Programmatic/DOE's Role
    Three commenters and several Clean Cities-related organizations 
specifically called for DOE to promote programs or incentives and make 
recommendations to further the goals of the Replacement Fuel Programs. 
This Final Rule requires DOE to select a specific goal that is 
achievable. DOE notes that the Administration is making proposals and 
recommendations relevant to alternative fuel production and use. The 
President's 2007 State of the Union Address on January 23, 2007, made 
two clear and strong recommendations. Twenty in Ten proposed increasing 
the RFS to 35 billion gallons of renewable and alternative fuel in 2017 
and giving Department of Transportation (DOT) authority to set CAFE 
standards for passenger vehicles based on vehicle attributes consistent 
with DOT's recent rule for light-duty trucks. Thus, the President's 
``Twenty in Ten'' initiative contains replacement fuel and energy 
efficiency as its main elements, which is the same approach employed by 
the Replacement Fuel Goal established today.
    In addition, one of the previous commenters cited CAFE standards as 
an opportunity for DOE to take action. As part of his Twenty in Ten 
initiative, the President has called for reforms in the CAFE standards. 
However, concerning CAFE, Congress has limited authority in this area 
to itself and the DOT, not DOE. While DOT does confer with DOE in this 
area, Congress has established the authority for CAFE regulations 
within DOT. (49 U.S.C. 32902).
    Two commenters called for DOE to establish a replacement fuel 
program and develop a plan for its implementation. In addition, one of 
these specifically called for DOE to solicit input from stakeholders 
concerning measures to advance replacement fuels. In response, DOE 
notes that the research and development programs provided the data and 
development plans relied on for the analysis. As for a replacement fuel 
program under the context of EPAct 1992 (particularly section 502(a)), 
DOE has, for more than a decade, been conducting a program focused on 
the replacement of petroleum in the transportation sector. These on-
going efforts include activities such as the Federal Fleet 
requirements, the State and Alternative Fuel Provider Fleets 
Regulations, and the Clean Cities initiative. As for soliciting input 
from stakeholders, the NOPR specifically provided opportunity for 
comment by stakeholders interested in replacement fuels, both through 
written comments and testimony at the hearing. In addition, DOE 
continues an open dialog in this area with interested stakeholders, 
particularly through the Clean Cities initiative.
    One commenter specifically called for DOE to work with the 
Environmental Protection Agency (EPA) to ensure that regulations for 
conversions ``are not overly burdensome for those wishing to convert 
vehicles * * * to alternative fuels.'' DOE has a history of working 
with EPA in alternative fuel-related areas, and will continue to do so.
    One commenter disagreed with DOE's assertion that its authority 
under this rulemaking is limited by EPAct 1992. It cited EPAct's 
section 504(c), which states that:

    If the Secretary determines that the achievement of goals 
described in section 502(b)(2) of this title would result in a 
significant and correctable failure to meet the program goals 
described in section 502(a) of this title, the Secretary shall issue 
such additional regulations as are necessary to remedy such failure.

(42 U.S.C. 13254(c)).

    DOE has read this clause to mean that, if the numerical Replacement 
Fuel Goal (30 percent in 2010 from 502(b)(2)) conflicts with the 
overall replacement fuel program goal of replacing motor fuels to the 
maximum extent practical (from 502(a)), then DOE has additional 
regulatory authority to rectify the conflict. However, DOE's additional 
authority to establish regulations under EPAct 1992 is limited. Section 
504(c) continues:

    The Secretary shall have no authority under this Act to mandate 
the production of alternative fueled vehicles or to specify, as 
applicable, the models, lines, or types of, or marketing or pricing 
practices, policies, or strategies for, vehicles subject to this 
Act. Nothing in this Act shall be construed to give the Secretary 
authority to mandate marketing or pricing practices, policies, or 
strategies for alternative fuels or to mandate the production or 
delivery of such fuels.

(42 U.S.C. 13254(c)).

    Finally, several Clean Cities related organizations called for DOE 
generally to enforce EPAct, support mandated fleets with funding, 
increase funding to Clean Cities coalitions, and to ``propose real 
solutions.'' An additional commenter also raised the issue of funding 
for relevant programs. In response, DOE asserts that it is indeed 
enforcing EPAct fleet programs, through programs focused specifically 
on regulated fleets under titles III and V of EPAct. These programs, as 
mentioned

[[Page 12050]]

above, have been highly successful at accomplishing their missions 
within the context of the scope and authority provided by Congress. DOE 
remains committed to Clean Cities as a key element of its replacement 
fuel efforts. DOE intends to continue to utilize Clean Cities to 
identify new opportunities for success in the implementation of 
replacement fuel and energy efficiency technologies as they become 
available for deployment. As for the non-specific request that DOE 
propose ``real solutions,'' DOE has provided its detailed analysis 
supporting its decision concerning modification of the Replacement Fuel 
Goal, which also incorporates the technology development plans of many 
of its research and development programs.

C. Assessment of Comments

    There are several important observations that can be made about the 
comments received. First, no commenter supplied any data to dispute 
DOE's analysis. Commenters did discuss the potential of particular 
technologies, but data from which DOE could make projections of the 
technology impacts was not provided, nor were any indications that 
modifying the analysis as generally proposed by several commenters 
would result in any significant net changes to the results of DOE's 
analysis. Second, a number of commenters (especially the Clean Cities 
and related organizations) merely asserted an objection to delaying the 
goal by 20 years, without any comment on the achievability of the 
proposed goal or an alternative goal. Third, many commenters did not 
appear to fully understand the purpose of the goal and the purpose of 
this rulemaking. As indicated in the NOPR and in the discussion above, 
DOE is directed by statute to analyze the existing goal of 30 percent 
replacement in 2010, and if found not to be achievable, modify the 
goal. However, many commenters discussed issues beyond the scope of 
this rulemaking, e.g., funding policies, establishment of particular 
programs, and other wide-ranging regulatory actions.
    In conclusion, the comments received have not persuaded DOE that it 
erred in its analysis or in its choice of revised goal, as included in 
the NOPR. DOE does note its continuing responsibility to periodically 
conduct analyses of the progress toward this goal, and to modify the 
goal again if and when appropriate. Such modification could include 
proposing either earlier or later achievement, or also a higher or 
lower replacement fuel level.

IV. Determination That Congressional Goals Are Unachievable

    DOE has determined that the 2000 goal was not achieved and that the 
2010 goal is not achievable. 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. DOE is also not aware of any affirmative 
determination by Congress or by any agency that, at the time they were 
set, the statutory goals were reasonably achievable.
    As indicated in the NOPR, the actual data reported for 2000 
indicated that 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 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 AER 2005 (the last such review completed prior to 
this final rule), replacement fuels supply approximately 2.5 percent of 
the total motor vehicle fuel used in 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 some increased use of 
alternative and replacement motor fuels. There are two reasons for this 
trend. First, as discussed in the NOPR, 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 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. (AER 2005.) Second, the comparatively small 
growth in total replacement fuels production and use has been matched 
by the growth in petroleum-based motor fuel use.
    The EIA AEO 2007 reference case projected that replacement fuels in 
2010 will account for approximately 4.5 percent of total motor fuel 
use, or approximately 8.7 billion gallons of gasoline equivalent 
replacement fuel (although it is possible higher oil prices and the 
President's recent proposals will result in greater use of biofuels 
during this period). 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. 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 are expected to account for 
about 85 percent of the replacement fuels produced in 2010, with the 
remaining balance made up of mostly natural gas and propane.
    DOE did not receive any data or information from commenters as to 
the projected production capacities of replacement fuel by 2010. In 
addition, the commenters did not provide any data or information to 
indicate how the replacement fuel production capacity of 30 percent in 
2010 could be achievable. DOE therefore determines that the 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.

V. Goal Modification Analysis

    As part of its preparation for the NOPR, DOE conducted an analysis 
focused on projecting potential production capacity for replacement 
fuels through 2030. This was necessary to determine how the Replacement 
Fuel Goal should be modified. DOE has relied upon this analysis and 
other more recent information and data currently available in the 
development of this final rule. DOE has identified 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.''
    Because of the detailed analytical description provided in the NOPR 
concerning this analysis, and because

[[Page 12051]]

today's notice relies on substantially similar analytical framework 
(e.g., building blocks and scenarios, and assumptions), a discussion of 
the analysis conducted by DOE will primarily be provided in summary 
form here. For more detail on the analysis, consult section V. of the 
NOPR. 71 FR 54776. During the period since the publication of the NOPR, 
EIA released portions of the AEO 2007. In order to meet the court 
ordered deadline and because the full AEO 2007 is unavailable, DOE 
could not update all of its analysis described in the NOPR. DOE does 
provide a comparison of the results using AEO 2006 and the available 
portions of AEO 2007 at the end of this section.

A. Approach

    As discussed previously, DOE has two statutory criteria for 
modification of the Replacement Fuel Goal. First, the goal has to be 
aggressive enough to meet the intent of the program goal to promote 
replacement fuels to the ``maximum extent practicable.'' (42 U.S.C. 
13252(a)). Secondly, the Replacement Fuel Goal has to be 
``achievable.'' (42 U.S.C. 13254(b)).
    In meeting these criteria, DOE had several options in modifying the 
Replacement Fuel Goal, 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 4.5 percent projected in the AEO 2007. Second, DOE could 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. DOE's evaluated 
credible data, projections, and other information covering 
approximately the next 25 years, to see what could be achievable. DOE's 
evaluation and analysis went out to 2030, since that is the last date 
for which credible input existed, particularly in the form of data from 
AEO 2006 and the recently released portions of AEO 2007.
    In general, the analytical framework included only existing 
statutory authorities and incentives in the development of the 
technologies. The only exception was in hydrogen and fuel cell 
technologies which did consider some level of additional or new 
incentives and/or mandates in the future. Therefore, the primary 
variables in DOE's analysis were projected technological and cost 
improvements. Hydrogen and fuel cell technologies were specifically 
identified as an exception because DOE recognizes that the hydrogen 
economy will require additional support later in the market 
introduction phase. Most of the other replacement fuels and 
technologies are viable in the market or they are getting or have 
gotten tax breaks, subsidies, or other price supports until they become 
viable in the market.
    One commenter claimed that DOE's analysis assumes continued support 
in terms of tax credits and other incentives that are currently 
provided but are scheduled to expire before 2030. In response, DOE 
believes it was careful to keep such variations to a minimum. Most of 
the technologies did not assume continue price support or other 
incentives. The projected results from technology programs were 
primarily based upon reaching technology cost goals that would result 
in cost competitiveness without subsidies. Therefore, DOE did not 
assume any new policies for nearly all technologies. The only 
exception, as indicated above, was hydrogen and fuel cell technologies, 
which embedded a higher level of support into its GPRA projections.

B. Building Blocks

    The Replacement Fuel Goal proposed in this action was developed 
after careful consideration of existing market factors, energy 
forecasts, and programs directed by DOE and its national laboratories. 
Three combined building blocks were considered: (1) The reference case 
projected by EIA in the AEO 2006 with updates from AEO 2007; (2) the 
high price case presented in the AEO 2006; and (3) projections from the 
DOE programs conducting research and development 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.
    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, DOE 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.
AEO Reference Case Description
    The AEO reference case is the base case prepared by EIA. It takes 
into account developments that are likely to occur as a result of 
policies that existed at the time the forecast was developed. AEO takes 
into account expected improvements and cost reductions in many 
technologies, but does not attempt to project the impact of DOE 
technology development programs. 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 under AEO 2006. AEO 2006, which was first released in late 2005, 
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.)
    In the AEO 2007 Reference Case update, EIA estimated that ``the 
average world crude oil price declines slowly in real terms (2005 
dollars), from a 2006 average of more than $69 per barrel * * * to just 
under $50 per barrel * * * in 2014 as new supplies enter the market, 
then rises slowly to about $59 per barrel * * * in 2030.'' Thus the 
2030 world oil price in the AEO 2007 reference case is slightly above 
the 2030 price in the AEO 2006 reference case ($59 versus $57). It 
should be noted that EIA specifically used the same rationale in 
developing its projections in the AEO 2007 as it had in the AEO 2006, 
indicating the following:

    The world oil price in AEO2007 is defined as the average price 
of low-sulfur, light crude oil imported into the United States--the 
same definition used in AEO2006. This price is approximately equal 
to the price of the light, sweet crude oil contract traded on the 
New York Mercantile Exchange (NYMEX) and the price of West Texas 
Intermediate (WTI) crude oil delivered to Cushing, Oklahoma. The 
weighted average U.S. refiners' acquisition cost of imported crude 
oil is $5 to $8 per barrel less than the price of imported low-
sulfur, light crude oil.

(AEO 2007.) For more information on the AEO 2007 (Early Release), see 
http://www.eia.doe.gov./oiaf/aeo/index.html.
AEO High Price Case Description
    The high price case makes ``more pessimistic assumptions for 
worldwide

[[Page 12052]]

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 lower than recent levels, rising 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, roughly comparable to 
today's prices. 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. It should be noted that at the 
time of preparation of this final rule, EIA had not yet released its 
updated High price case for the AEO 2007.
DOE Program Development Case Description
    Section 504(b) of EPAct 1992 requires that the goal, as modified, 
be achievable. (42 U.S.C. 13254(b)) As part of the determination as to 
whether a goal would be achievable, DOE considered technologies that 
are technically and economically feasible today. DOE also considered 
technologies that currently may not be technologically or economically 
feasible, but that may be reasonably expected to be technologically and 
economically feasible given the achievement of certain conditions in 
the timeframes necessary to contribute to the goal. Many of these 
technologies are currently being developed under DOE's own programs.
    The DOE program development case represents the estimated potential 
replacement fuel levels achieved if industry commercializes in 
significant amounts the new technologies and new fuels being developed 
by DOE and its industry partners through research and development 
programs. These estimated levels are predicated on continuing existing 
research and development 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 EERE and Fossil Energy programs, and 
included GPRA (Public Law 103-62; August 3, 1993) 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 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. The GPRA analysis was 
specifically relied on for the figures used for the Hydrogen Program 
and the fuel-efficiency savings rates projected for technologies 
arising from the EERE's FCVT Program. It should be noted that the GPRA 
figures are based on the AEO 2005 forecast and not AEO 2006 or AEO 2007 
because AEO 2006 and AEO 2007 were not available when the most recent 
GPRA analysis was conducted. The GPRA analyses are updated every 2 or 3 
years and have not been updated since the publication of the NOPR. In 
the case of hydrogen, therefore, this means that the analysis presented 
here is based on AEO 2007. In the case of energy efficient vehicle 
technology savings, DOE calculated a savings rate based on the 2007 
GPRA report and applied this figure to AEO 2006's (or for the updated 
Reference Case analysis for AEO 2007's) projection of on-road motor 
fuel use.
    The analysis conducted by DOE addressed a number of programs and 
fuels that contribute to the Replacement Fuel Goal, including energy 
efficiency measures, ethanol, biodiesel, coal-to-liquid fuels, gas-to-
liquid fuels, hydrogen, and other alternative fuels. These programs and 
fuels were described in section V. of the NOPR. 71 FR 54776.

C. Replacement Fuel Scenarios

    The previous section summarized the building blocks reviewed by 
DOE. This section describes how the various building blocks are 
combined 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 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. Near the end of this section, a 
comparison of the reference case analyses based upon the AEO 2006 and 
AEO 2007 is provided.
Reference Case Scenario
    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 based 
upon AEO 2006. 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.
---------------------------------------------------------------------------

    \3\ 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 efficiency 
savings reflected in the line below in each table represent those 
additional savings due to FCVT program developments.

        Figure 1.--Summary of Results for Reference Case Scenario
------------------------------------------------------------------------
               Reference                    2020       2025       2030
------------------------------------------------------------------------
On-road Fuel Use \3\...................      14.42      15.36      16.46
Additional Fuel Efficiency Savings            0.00       0.00       0.00
 (FCVT)................................
OnRoad Fuel Use w/Additional Fuel            14.42      15.36      16.46
 Efficiency Savings....................
Ethanol................................       0.49       0.51       0.51
Biodiesel..............................       0.02       0.02       0.02
Hydrogen/FCVs..........................      0.001      0.001      0.002
Coal to Liquids........................       0.23       0.58       0.76

[[Page 12053]]

 
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%
------------------------------------------------------------------------
[Note: Results in million barrels per day (mbpd) unless otherwise noted]

High Price Case Scenario
    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 motor 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.

       Figure 2.--Summary of Results for High Price Case Scenario
------------------------------------------------------------------------
               High price                   2020       2025       2030
------------------------------------------------------------------------
On-road Fuel Use.......................      13.20      13.97      14.86
Additional Fuel Efficiency Savings            0.00       0.00       0.00
 (FCVT)................................
OnRoad Fuel Use w/Additional Fuel            13.20      13.97      14.86
 Efficiency Savings....................
Ethanol................................       0.54       0.60       0.62
Biodiesel..............................       0.03       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................       0.09       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%
------------------------------------------------------------------------
(Note: Results in mbpd unless otherwise noted).

Reference Case With Program Developments Scenario
    This scenario combined the reference case assumptions regarding 
transportation energy demand with projections for successful DOE 
research and development 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 and above those included in the reference 
case based on the fuel efficiency improvements and change in vehicle 
penetration rates attributed to commercialization of technologies 
undergoing research and development at DOE. 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 efficiency savings and significant biofuels (ethanol and 
biodiesel) production. The additional fuel efficiency improvements 
represent over 3 mbpd savings by 2030. The two biofuels also combine to 
replace more than 3 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
------------------------------------------------------------------------
        Reference/program goals             2020       2025       2030
------------------------------------------------------------------------
On-road Fuel Use.......................      14.42      15.36      16.46
Additional Fuel Efficiency Savings            0.55       1.11       3.04
 (FCVT)................................
OnRoad Fuel Use w/ Additional Fuel           13.88      14.25      13.42
 Efficiency Savings....................
Ethanol................................       1.33       1.95       2.58
Biodiesel..............................       0.37       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

[[Page 12054]]

 
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%
------------------------------------------------------------------------
(Note: Results in mbpd unless otherwise noted).

High Price Case With Program Developments
    This scenario combines the high price case assumptions with the 
program developments. It includes the same assumptions regarding CTL 
use as discussed above. The program development assumptions regarding 
potential replacement fuels and fuel efficiency savings 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 motor 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
------------------------------------------------------------------------
        High price/program goals            2020       2025       2030
------------------------------------------------------------------------
On-Road Fuel Use.......................      13.20      13.97      14.86
Additional Fuel Efficiency Savings            0.50       1.01       2.74
 (FCVT)................................
On-Road Fuel Use w/Additional Fuel           12.70      12.96      12.12
 Efficiency Savings....................
Ethanol................................       1.33       1.95       2.58
Biodiesel..............................       0.37       0.51       0.65
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................       0.09       0.10       0.11
Petroleum Use..........................      10.58       9.28       6.41
                                        --------------------------------
    Total Replacement Fuel.............       2.12       3.68       5.70
------------------------------------------------------------------------
Portion Replacement Fuel...............    16.710%    28.400%    47.060%
------------------------------------------------------------------------
Note: Results in mbpd unless otherwise noted.

D. DOE's VISION Model Analysis

    To validate the results of its analysis, DOE used the VISION model 
to look at what the vehicle mix would have to be for the replacement 
fuel production levels suggested by the different scenarios considered. 
The Replacement Fuel Goal is a production capacity goal not a fuel use 
goal. However, production capacity (supply) is tightly linked with fuel 
usage (demand). The primary 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 secondary 
use was to project the greenhouse emission impacts under each of the 
scenarios. (For more information on VISION, see http://www.transportation.anl.gov/software/VISION/index.html.)
    The VISION model results matched very closely with those from the 
analysis for this rule. In most cases the VISION model projected 
slightly higher replacement fuel levels due to differences in 
assumptions about overall petroleum consumption, efficiency gains, and 
heating values for fuels. The projected emission results indicated that 
the annual emissions will decrease from approximately 846 million 
metric tons of carbon equivalent (MMTCe) for the AEO 2006 reference 
case scenario, to just under approximately 500 MMTCe for the AEO 2006 
reference case with program development scenario. Additional results 
and discussion on the VISION results for vehicle mix and greenhouse 
emissions impact can be found in section V.D. of the NOPR. 71 FR 54783.
    One commenter pointed out apparent discrepancies between the EIA 
and VISION model analyses concerning the makeup of the LDV market. 
While DOE acknowledges that these two analyses differ somewhat in their 
pathways, they are in relative agreement on the overall destination 
points. Comparison of the VISION model with the combined scenarios 
validates that the combination of replacement fuels analyzed by DOE, is 
achievable under the framework of this rule.

E. AEO 2007 Results

    DOE utilized AEO 2006 in conducting the analysis for the NOPR. In 
December 2006, EIA began to make available portions of its AEO 2007. 
(See http://www.eia.doe.gov/oiaf/aeo/index.html.) EIA released its 
reference case update, which allowed DOE to conduct comparative 
analysis of its Replacement Fuel Goal analysis, namely the two 
scenarios based specifically upon the reference case. At the time of 
preparation of this final rule, EIA had not yet released its high price 
case, thus DOE could not update all four scenarios.
    Overall, the AEO 2007 update did result in a few differences in the 
Replacement Fuel Goal analysis, although overall (net) impacts were 
relatively minor. Figure 5 below shows a comparison of the year 2030 
results for the reference case scenario and the reference case with 
program developments scenario (portrayed in the table as ``Reference/
Program Goals'').

[[Page 12055]]



 Figure 5.--Summary of Results for Reference Case and Reference Case With Program Development Scenarios for 2030
----------------------------------------------------------------------------------------------------------------
                                                                   Reference   Reference  Reference/  Reference/
                                                                     case        case       program     program
                               AEO                               ------------------------    goals       goals
                                                                                         -----------------------
                                                                     2006        2007        2006        2007
----------------------------------------------------------------------------------------------------------------
On-Road Fuel Use................................................       16.46       16.27       16.46       16.27
Additional Fuel Efficiency Savings (FCVT).......................        0.00        0.00        3.04        3.01
On-Road Fuel Use w/Additional Fuel Efficiency Savings...........       16.46       16.27       13.42       13.26
Ethanol.........................................................        0.51        0.62        2.58        2.58
Biodiesel.......................................................        0.02        0.03        0.65        0.65
Hydrogen/FCVs...................................................       0.002       0.002        0.47        0.47
Coal to Liquids.................................................        0.76        0.44        0.76        0.44
Gas to Liquids..................................................        0.00        0.00        0.15        0.15
Other Alternative Fuels.........................................        0.12        0.11        0.12        0.11
Petroleum Use...................................................       15.03       15.07        8.64        8.87
                                                                 -----------------------------------------------
    Total Replacement Fuel......................................        1.42        1.20        4.73        4.39
----------------------------------------------------------------------------------------------------------------
Portion Replacement Fuel........................................       8.65%       7.38%      35.25%      33.13%
----------------------------------------------------------------------------------------------------------------
(Note: Results in mbpd unless otherwise noted.)

    The first change seen from the AEO 2007 reference case update is 
that motor fuel use drops from 16.46 to 16.27 mbpd. As for the 
replacement fuels, ethanol and biodiesel increase slightly, while CTL 
drops significantly. This change in the biofuels reflects EIA's 
readjusting for the RFS and the accompanying increased use of blends. 
EIA has indicated that the primary cause for the change to the CTL 
projection is higher capital costs. Discussions with industry indicated 
that the capital costs for CTL facilities were higher than originally 
anticipated, resulting in less facilities being built. Other 
alternative fuels are relatively flat however, and within this number 
electricity actually grows by nearly 40 percent over the AEO 2006 with 
a corresponding reduction in liquid petroleum gas. Overall these 
figures are very small and the changes are a reflection of minor 
adjustments in EIA's earlier assumptions. AEI also indicated that PHEVs 
were incorporated in their modeling analysis but that the resulting 
electricity use was negligible. The overall impact on the reference 
case replacement fuel percentage is to reduce the replacement fuel 
contribution from 8.65 percent down to 7.38 percent, a change of 
approximately 1.3 percentage points or 15 percent.
    The impact of the 2007 AEO reference case update has much less 
overall significance to the reference case plus program developments 
scenario. This is because the efficiency contribution and many of the 
replacement fuel contributions in this scenario were the result of 
programmatic inputs, such as from GPRA or other technical analyses 
conducted by DOE's research and development programs. These did not 
change, as new analyses have not been conducted by the programs since 
publication of the NOPR. The programmatic inputs include additional 
fuel efficiency savings (implemented solely as an unchanging percentage 
of overall on-road fuel use), ethanol, biodiesel, hydrogen, and GTL. 
Thus, the biggest impact on this scenario came from the EIA change to 
its reference case projection for CTL (which was used in both the 
reference case and reference case plus program developments scenarios 
of this analysis). The resulting impact was to reduce the replacement 
fuel contribution under the reference case plus program developments 
scenario slightly from 35.25 percent to 33.13 percent, a reduction of 
just over 2 percentage points or 6 percent.
    In summary, overall, the changes due to the use of the AEO 2007 
reference case did not result in major impacts on the replacement fuel 
analysis as included in the NOPR. Thus, DOE did not see sufficient 
changes to warrant modifying the Replacement Fuel Goal as proposed in 
the NOPR.

F. Additional Reports

    DOE also reviewed additional reports and analyses released during 
the period since the NOPR that are relevant to the development of the 
final rule. DOE notes three such reports.
    In October 2006, the Council on Foreign Relations (CFR) released 
National Security Consequences of U.S. Oil Dependency, Report of an 
Independent Task Force (CFR Report). The CFR task force is chaired by 
John Deutsch (former director of Central Intelligence and Deputy 
Secretary of Defense) and James R. Schlesinger (former Secretary of 
Defense and the first Secretary of Energy). This report was focused on 
examining ``the consequences of dependence on imported energy for U.S. 
foreign policy.'' In doing so, it focused its attention on ``how oil 
consumption (or at least growth in consumption) can be reduced and why 
and how energy issues must become better integrated with other aspects 
of U.S. foreign oil policy.'' (See CFR Report p. xi.) Consistent with 
DOE's analysis supporting today's final rule, the Council's analysis 
``concentrates on the next twenty years, a period long enough to put 
necessary policy measures into place but not so distant as to encounter 
a wider range of future geopolitical or technological uncertainties.'' 
(See CFR Report p. 4.) The Council then went on to emphasize many of 
the same technologies that DOE relies upon in today's action, such as 
energy efficiency, batteries, fuel cells, and biofuels. The Council 
also pointed out, as DOE did in the NOPR, that energy market forces are 
now leading to innovation by encouraging entrepreneurs to invest in new 
energy products and services, particularly research and development. 
While focusing on a different objective than today's final rule, the 
CFR Report relied on many assumptions and analyses that appear 
consistent with those employed by DOE in today's action.
    In November 2006, the President's Council of Advisors on Science 
and Technology (PCAST) released The Energy Imperative: Technology and 
the Role of Emerging Companies (PCAST Report). PCAST was formed under 
Executive Order 13226 in September 2001 to advise the President ``on 
matters

[[Page 12056]]

involving science and technology policy.'' The PCAST Report 
recommendations focus on ``immediate steps that could be taken to 
reduce our Nation's reliance on foreign oil and to reduce atmospheric 
emissions from energy production and use.'' (PCAST Report cover 
letter.) For transportation, PCAST suggests ``steps for a major 
transition to biofuels and to electric or hydrogen-powered vehicles.'' 
(PCAST Report cover letter.) The major transportation-related 
recommendations focus specifically on increasing production of and 
demand for biofuels, as well as reviewing CAFE standards to make needed 
reforms and encourage non-fossil-fuel use. Thus, the PCAST report 
highlights two of the more important elements of DOE's replacement fuel 
analysis, biofuels and energy efficiency, and is also generally 
consistent with the President's recent State of the Union Address.
    The Energy Security Leadership Council (ESLC) released 
Recommendations to the Nation on Reducing U.S. Oil Dependence in 
December 2006. ESLC is chaired by General P.X. Kelley, USMC (Ret.), the 
former Commandant of the Marine Corps, and Frederick W. Smith, 
Chairman, President, and CEO, FedEx Corporation. Other Council members 
include various leaders of industry as well as former Defense and 
Homeland Security officials and high-ranking military officers. As in 
today's action, the Council used the year 2030 as its focal point for 
analysis. Consistent with the DOE's Replacement Fuel Goal analysis, 
ESLC focused heavily upon improved efficiency of vehicles and 
increasing supply and demand of biofuels. Its corollary recommendations 
included suggestions relating to improving the efficiency of medium- 
and heavy-duty trucks (through both hybrid technologies and fuel 
efficiency standards) and carbon sequestration (to enable coal-to-
liquids and other fuels production). Thus, the ESLC's portfolio also 
appears to be generally consistent with the portfolio relied upon by 
DOE.
    Each of these reports provides interesting and thoughtful 
perspectives on issues that are closely related to those addressed in 
this final rule. While the reports do not include quantitative analyses 
that would either support or undercut DOE's analysis, they do use 
approaches that are similar to those used by DOE and they draw 
conclusions that appear to be generally consistent with those reached 
by DOE in this final rule. For example, each focused on a portfolio of 
options, with the greatest emphasis on energy efficiency, biofuels, and 
other non-petroleum fuels. They also considered 20-25 year time-frames, 
similar to those used by DOE.

G. Other Issues

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)) The replacement fuels analyzed for 
today's final goal are assumed to be primarily domestic in nature. The 
only replacement fuels analyzed that showed potential for being 
imported are GTL, 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. All biodiesel, CTL, and 
hydrogen are assumed to be domestic. Thus, DOE has assumed that the 
overwhelming majority of the replacement fuels included in its analyses 
will be domestic in nature. However, since the actual contribution of 
imports to the supply of these replacement fuels will be determined by 
markets, DOE intends to closely monitor the development of markets in 
this area. If it determines that these assumptions are not valid, it 
will consider whether changes in the Replacement Fuel Goal are 
warranted.
    One commenter did indicate a concern about any assumptions that may 
have been made about exports of replacement fuels, and that any 
decision to reduce exports might constitute a major shift in trade 
policy. It should be remembered that the Replacement Fuel Goal is a 
production capacity goal. Therefore, for the purposes of the analysis, 
DOE was concerned with whether there would be sufficient capacity to 
produce a given amount of replacement fuels. A consideration of whether 
some portion of those fuels might ultimately be exported, if export was 
the opportunity that made the most sense, was outside the scope of 
DOE's analysis.
GHG
    As part of its analysis of the replacement fuel levels considered 
in this Final Rule, DOE evaluated the overall GHG implications of the 
various scenarios. 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 GHG emissions associated with CTL fuels if the 
carbon dioxide emitted during fuel production is not captured and 
sequestered. EIA indicates that there are currently no plans to 
sequester the carbon associated with CTL production absent new policies 
or requirements, so DOE has not assumed 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 GHG emissions.
    On a life cycle basis, replacement fuel percentages projected by 
the VISION model goal would achieve a reduction in GHG emissions of 
over 40 percent compared to the reference case. The annual emissions 
are projected to 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 projected reduction is 
primarily due to the high utilization of biofuels, most of 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 expected 
that significant reductions would occur.
    The full VISION model is typically not updated until the middle of 
the calendar year, several months after release of all of the Annual 
Energy Outlook. Therefore, it was not possible to conduct a complete 
update to the GHG emission analysis conducted for the NOPR. A 
preliminary effort was made, focusing primarily upon the contribution 
from CTL because it was the only component of the analysis that changed 
significantly that could have a detrimental impact on GHG. Initial 
estimates indicate that GHG emissions from CTL are significantly 
greater than previously estimated. Additional studies since the 
original NOPR analysis indicated that the life-cycle GHG emissions from 
CTL produced was underestimated. At the same time, however, the updated 
analyses based upon the AEO2007 reference case indicate that the CTL 
contribution in the 2030 time-frame will be considerably less than 
estimated in the NOPR. The increase in per unit GHG emissions was of a 
comparable degree to the decrease in the projected contribution of CTL 
to the replacement fuel market. Thus, according to the most current 
analysis,

[[Page 12057]]

the net result is that there is no change in GHG emissions as compared 
to the estimates in the NOPR. There is still a projected 40 percent 
drop in GHG emissions versus the baseline reference case.
    One commenter took particular issue with DOE's approach to its GHG 
analysis. This commenter claimed that DOE used the wrong baseline for 
assessing GHG emissions. The commenter indicated that DOE should have 
used the levels ``the U.S. would have achieved if DOE had implemented 
Congress's original fuel replacement goals.'' DOE disagrees with this 
comment.
    First, as stated above, the goal established by Congress and 
modified today is not a mandate. DOE's authority is limited to 
supporting achievement of the goal, reviewing the goal, and modifying 
the goal. As such, the commenter's suggestion that DOE was required to 
implement the goals is a mischaracterization.
    Second, the baseline suggested by the commenter would be based upon 
a hypothetical fuel mix used to meet the goal in 2010. Since DOE has 
found that the goal is unachievable, it does not know what the fuel mix 
would have been in 2010 to achieve a 30 percent level. This fuel mix is 
critical for determining the baseline contribution of GHGs. Without 
such a breakdown, no such estimate can be made.

VI. Modified Goal

A. 30 Percent by 2030

    DOE is establishing a modified Replacement Fuel Goal of 30 percent 
by 2030. The modified Replacement Fuel Goal is based primarily on the 
evaluation of four scenarios across a range of probable market 
conditions and involves a portfolio of technology options as presented 
in the NOPR. The four scenarios project a replacement fuel percentage 
that ranges from just over 7 percent to a little above 47 percent in 
the 2030 timeframe. DOE selected a goal that falls near the middle of 
this range, providing a balance between the most optimistic and 
pessimistic scenarios analyzed by DOE. Based on the analysis as 
presented in the NOPR and summarized in this notice DOE determines that 
a fuel production capacity of 30 percent by 2030 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. (42 U.S.C. 
13245(b).) 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 
(42 U.S.C. 13242(b)(2).) As stated in the NOPR, DOE has determined 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. In order to further ensure that the final goal is 
achievable, as discussed above, the final rule generally considered 
only policies and programs that are currently in place.
    In establishing the Replacement Fuel Goal adopted today, DOE 
assumed that not all technologies would be fully adopted into the 
marketplace. This assumption is consistent with statements provided by 
one commenter, who stated that to assume that research and development 
programs will accomplish all of their goals is unrealistic. This 
assumption provides an appropriate balance between the statutory 
requirements of the ``maximum extent practicable'' and ``achievable.''
    DOE has determined that a timeframe of 2030 is necessary to achieve 
the 30 percent level of the Replacement Fuel Goal adopted today. There 
are important reasons why a timeframe 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 establish industrial 
capacity to produce replacement fuels. Such investments are typically 
focused over the entire operating life of a production facility (often 
30 years) and potential investors may require a high degree of 
certainty that the cost of competing fuels will be higher than the cost 
of fuels produced by the subject plant far into the future, thus 
allowing a positive return on investment. Barriers to such major 
investments include uncertainty of world oil prices, high cost of 
production coupled with high initial capital cost, and the long 
decision-to-production lead times.
    Once investments are made to develop replacement fuel production, 
production facilities must be built. It can take five years or more 
from the start of construction on a new facility until full operation 
is achieved, depending on the complexity and size of the production 
facility involved. Achievement of the 30 percent Replacement Fuel Goal 
is projected to require a substantial number of new production 
facilities (such as plants to produce cellulosic ethanol and CTL 
fuels). Construction of production facilities is not expected to occur 
simultaneously, thereby resulting in an additional five or even ten 
years until production capacity is at a level necessary to achieve the 
Replacement Fuel Goal.
    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 DOE to 
set a 2010 replacement fuel production goal at levels any higher than 
the AEO 2007 ( ~4.5 percent).
    Although the Replacement Fuel Goal is production (supply) based, 
production is closely linked to fuel usage (demand). 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 motor 
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 LDV 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.)
    DOE has determined to maintain the level of the goal at 30 percent 
for two reasons. First, when Congress passed EPAct 1992, it indicated 
that it believed the level of 30 percent replacement fuel was 
appropriate. Second, this level of replacement fuel production is both 
consistent with the overall goals of the President's AEI and Twenty in 
Ten initiatives, to promote replacement fuels and energy efficiency.

[[Page 12058]]

    Since DOE's analysis of the Replacement Fuel Goal was originally 
published in the NOPR, DOE has continued to review relevant data and 
published reports to inform today's decision. Overall, the reports 
appear to rely on an analytical framework consistent with that relied 
upon for today's final rule, further supporting the reasonableness of 
DOE's approach.
    DOE also reviewed comments received in response to the NOPR and 
found that none included data to support a Replacement Fuel Goal other 
than that adopted in this final rule. It should be noted that nearly 
all of the public comments agreed with the need to modify the goal, but 
a majority disagreed with the Department's choice to move the goal to 
2030. As discussed above in section III, a variety of commenters 
requested that DOE establish a more aggressive goal with a stronger 
focus upon program development and implementation. While a number of 
these commenters indicated that they wanted to see DOE set a ``higher 
goal,'' few offered concrete proposals as to what that goal should be 
and how it could be achieved.
    DOE is required to set a goal that is deemed achievable. As 
illustrated in the analysis above and that provided in the NOPR, DOE 
has set out a rational pathway to the achievement of a goal, based upon 
widely accepted forecasts (such as the EIA forecast) and information 
provided by DOE research and development programs. In addition, the 
documents provided by the research and development programs and 
included within the docket, include the individual pathways for 
contributing to the achievement of the modified Replacement Fuel Goal. 
As for utilizing either of the ``program developments'' cases as the 
specific goal level, DOE explicitly rejected a goal based solely on 
these levels because of the fact that not all research and development 
programs can be expected to achieve all milestones. DOE is unable to 
set a more accelerated pathway based upon the information it has at 
this time.
    In summary, due to both lead-times for fuel supply 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 take more than two decades. Today's decision 
is based primarily on the existing budgetary and policy framework. 
Therefore, it is largely a reflection of existing and expected 
conditions. In and of itself, it is not an action plan or roadmap for 
expanding replacement fuel production capacity. Nothing in this action 
precludes appropriate parties (such as Federal, State, or local 
governments, or private industry) from taking steps to accelerate 
achievement of the goal.

B. Interim Goal

    As proposed, today's final rule adopts a revised the Replacement 
Fuel Goal for 2030. Today's rule does not adopt an interim Replacement 
Fuel Goal. The court order under which today's final rule is being 
issued, directed DOE to ``revise the goal for replacement fuels 
contained in the Energy Policy Act of 1992.'' Center for Biological 
Diversity v. U.S. Dept. of Energy et. al., No. 05-cv-01526-WHA Document 
54 p. 2 (N.D. Cal. March 30, 2006) (Order Re Timing of Relief); 
emphasis added. As indicated by the court, DOE is only required to 
revise a single goal, and not the final goal and the interim goal.
    Several commenters urged DOE to establish a revised interim goal in 
conjunction with a revised final goal. Commenters stated that Congress 
established the ten percent by 2000 interim goal as a method of 
evaluating the Nation's progress in achieving the original thirty 
percent by 2010 final goal. Commenters further stated that a revised 
interim goal is necessary to provide for an evaluation of progress 
towards achieving the revised goal, and is necessary so that DOE may 
identify difficulties in achieving the revised goal earlier in the 
process.
    A revised interim goal is not necessary for evaluating the progress 
in achieving the revised final goal adopted in today's final rule. The 
EIA AEO provides the current production capacity of alternative fuel in 
comparison to the consumption of motor fuel in the Untied States. The 
EIA AEO provides a de facto report on the progress in achieving the 
revised Replacement Fuel Goal. As such, DOE determined that an interim 
goal is not needed to monitor the progress of the Replacement Fuel 
Goal.
    Further, DOE will periodically evaluate the prospects for achieving 
the Replacement Fuel Goal set in today's rule, including tracking the 
levels projected for intervening years, and will publish the results of 
its evaluations as appropriate. If the AEO projections should indicate 
that the goal, as revised in this action, no longer meets the criteria 
of achievable, or if it appears that the goal can be achieved earlier 
or a greater level can be achieved, DOE will institute a rulemaking 
process to modify the goal at that time.

VII. Regulatory Review

A. Review Under Executive Order 12866

    Today's final rule 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, 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 modifies the Replacement Fuel 
goal, with no requirements imposed upon any entity. Therefore, this 
action will not result in compliance costs on small entities. DOE 
certifies that this final rule will not have a significant economic 
impact on a substantial number of small entities, and accordingly, no 
regulatory flexibility analysis has been prepared.

C. Review Under the Paperwork Reduction Act

    No new record keeping requirements, subject to the Paperwork 
Reduction Act, 44 U.S.C. 3501, et seq., are imposed by this final rule.

D. Review Under the National Environmental Policy Act of 1969 (NEPA)

    DOE has not prepared an environmental impact statement (EIS) or an 
environmental assessment (EA) for the final rule, as neither is 
required. The final rule implements the March 6, 2006, Order of the 
U.S. District Court of California to modify the EPAct 1992 Replacement 
Fuel Goal. Center for Biological Diversity, 419 F.Supp 2d 1166. In its 
order, the Court determined that EPAct 1992 imposed mandatory action on 
the Secretary in requiring that the goal be modified, if the Secretary 
determines the goal is unachievable. Since DOE lacked discretion, the 
Court determined that NEPA did not apply. In the final rule, DOE has 
determined that the ``30 percent by 2010'' goal is unachievable. 
Therefore, modification of the goal is mandatory, and consistent with 
the Court's Order, neither an EA or EIS is required.

E. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of

[[Page 12059]]

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 
modifying the Replacement Fuel Goal provided in section 502(b)(2) of 
EPAct 1992, and is not establishing any regulations that would impose 
any requirements on any person or entity.

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 federalism 
implications. 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 modification of 
the Replacement Fuel Goal and has determined that it will not preempt 
State law and will 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, 
as appropriate, agencies shall seek to harmonize Federal regulatory 
actions with regulated State, local and tribal regulatory and other 
governmental functions.''
    Because DOE is modifying the Replacement Fuel Goal under section 
502(b)(2) of EPAct 1992, and is not establishing any requirements, 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 final rule published today does not 
establish 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 final rule does 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 final rule 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 final rule 
does not have such implications. Accordingly, Executive Order 13175 
does not apply.

L. Review Under Executive Order 13211

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

[[Page 12060]]

M. Congressional Notification

    As required by 5 U.S.C. 801, DOE will submit to Congress a report 
regarding the issuance of today's Final Rule prior to the effective 
date set forth at the outset of this Final Rule. The report will state 
that it has been determined that the rule is not a ``major rule'' as 
defined by 5 U.S.C. 801(2).

VIII. Approval by the Office of the Secretary

    The issuance of this Final Rule for the Replacement Fuel Goal 
modification has been approved by the Office of the Secretary.

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.

    Issued in Washington, DC, on March 6, 2007.
Alexander A. Karsner,
Assistant Secretary, Energy Efficiency and Renewable Energy.

0
For the reasons set forth in the Preamble, the Department of Energy is 
amending Chapter II of title 10 of the Code of Federal Regulations as 
set forth below:

PART 490--ALTERNATIVE FUEL TRANSPORTATION PROGRAM

0
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.

0
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)).

0
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. E7-4324 Filed 3-14-07; 8:45 am]
BILLING CODE 6450-01-P