[Federal Register Volume 76, Number 29 (Friday, February 11, 2011)]
[Rules and Regulations]
[Pages 7936-7974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2476]



[[Page 7935]]

Vol. 76

Friday,

No. 29

February 11, 2011

Part III





Department of Agriculture





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



Rural Business-Cooperative Service



Rural Utilities Service



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



7 CFR Part 4288



Advanced Biofuel Payment Program; Interim Rule

  Federal Register / Vol. 76 , No. 29 / Friday, February 11, 2011 / 
Rules and Regulations  

[[Page 7936]]


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

DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4288

RIN 0570-AA75


Advanced Biofuel Payment Program

AGENCY: Rural Business-Cooperative Service and Rural Utilities Service, 
USDA.

ACTION: Interim rule with request for comments.

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

SUMMARY: The Rural Business-Cooperative Service (Agency) is 
establishing the Advanced Biofuel Payment Program authorized under the 
Food, Conservation, and Energy Act of 2008. Under this Program, the 
Agency will enter into contracts with advanced biofuel producers to pay 
such producers for the production of eligible advanced biofuels. To be 
eligible for payments, advanced biofuels must be produced from 
renewable biomass, excluding corn kernel starch, in a biofuel facility 
located in a State.
    In addition, this interim rule establishes new program requirements 
for applicants to submit applications for Fiscal Year 2010 payments for 
the Advanced Biofuel Payment Program. These new program requirements 
supersede the Notice of Contract Proposal (NOCP) for Payments to 
Eligible Advanced Biofuel Producers in its entirety.

DATES: This interim rule is effective March 14, 2011. Written comments 
on this interim rule must be received on or before April 12, 2011.
    See the Supplementary Information for application dates for 
Advanced Biofuel Payment Program Fiscal Year 2010 funds.

ADDRESSES: Interim rule. You may submit comments on this interim rule 
by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or other courier service requiring a street address to the 
Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., 7th Floor address listed 
above.
    See the Supplementary Information for addresses concerning 
applications for Advanced Biofuel Payment Program Fiscal Year 2010 
funds.

FOR FURTHER INFORMATION CONTACT: For the Advanced Biofuel Payment 
Program, contact Diane Berger, USDA Rural Development, 1400 
Independence Avenue, SW., Room 6865, STOP 3225, Washington, DC 20250. 
Telephone: (202) 260-1508. Fax: (202) 720-2213. E-mail: 
[email protected].
    For information about the Fiscal Year 2010 applications and for 
Advanced Biofuel Payment Program assistance, please contact the 
applicable Rural Development Energy Coordinator, as provided in the 
SUPPLEMENTARY INFORMATION section of this preamble.

SUPPLEMENTARY INFORMATION:

Fiscal Year 2010 Applications for the Advanced Biofuel Payment Program

    Applications for the Advanced Biofuel Payment Program Fiscal Year 
2010 funds will be accepted from February 11, 2011 through April 12, 
2011. Applications received after April 12, 2011 will not be considered 
for Fiscal Year 2010 payments. Application materials may be obtained by 
contacting one of Rural Development's Energy Coordinators or by 
downloading through http://www.grants.gov.
    Submit electronic applications at http://www.grants.gov, following 
the instructions found on this Web site. To use Grants.gov, an 
applicant (unless the applicant is an individual) must have a Dun and 
Bradstreet Data Universal Numbering System (DUNS) number, which can be 
obtained at no cost via a toll-free request line at 1-866-705-5711 or 
online at http://fedgov.dnb.com/webform. Submit completed paper 
applications to the Rural Development State Office in the State in 
which the producer's principal place of business is located.

Rural Development Energy Coordinators

    Note: Telephone numbers listed are not toll-free.

Alabama
Quinton Harris, USDA Rural Development Sterling Centre, Suite 601, 4121 
Carmichael Road, Montgomery, AL 36106-3683, (334) 279-3623, 
[email protected].
Alaska
Chad Stovall, USDA Rural Development, 800 West Evergreen, Suite 201, 
Palmer, AK 99645-6539, (907) 761-7718, [email protected].
American Samoa (See Hawaii)
Arizona
Alan Watt, USDA Rural Development, 230 North First Avenue, Suite 206, 
Phoenix, AZ 85003-1706, (602) 280-8769, [email protected].
Arkansas
Tim Smith, USDA Rural Development, 700 West Capitol Avenue, Room 3416, 
Little Rock, AR 72201-3225, (501) 301-3280, [email protected].
California
Philip Brown, USDA Rural Development, 430 G Street, 4169, 
Davis, CA 95616, (530) 792-5811, [email protected].
Colorado
Jerry Tamlin, USDA Rural Development, 655 Parfet Street, Room E-
100,Lakewood, CO 80215, (720) 544-2907, [email protected].
Commonwealth of the Northern Marianas Islands-CNMI (See Hawaii)
Connecticut (see Massachusetts)
Delaware/Maryland
Bruce Weaver, USDA Rural Development, 1221 College Park Drive, Suite 
200, Dover, DE 19904, (302) 857-3626, [email protected].
Federated States of Micronesia (See Hawaii)
Florida/Virgin Islands
Matthew Wooten, USDA Rural Development, 4440 NW. 25th Place, 
Gainesville, FL 32606, (352) 338-3486, [email protected].
Georgia
J. Craig Scroggs, USDA Rural Development, 111 E. Spring St., Suite B, 
Monroe, GA 30655, Phone 770-267-1413 ext. 113, 
[email protected].
Guam (See Hawaii)
Hawaii/Guam/Republic of Palau/Federated States of Micronesia/Republic 
of the Marshall Islands/America Samoa/Commonwealth of the Northern 
MarianasIslands-CNMI
Tim O'Connell, USDA Rural Development, Federal Building, Room 311, 154 
Waianuenue Avenue, Hilo,

[[Page 7937]]

HI 96720, (808) 933-8313, [email protected].
Idaho
Brian Buch, USDA Rural Development, 9173 W. Barnes Drive, Suite A1, 
Boise, ID 83709, (208) 378-5623, [email protected].
Illinois
Molly Hammond, USDA Rural Development, 2118 West Park Court, Suite A, 
Champaign, IL 61821, (217) 403-6210, [email protected].
Indiana
Jerry Hay, USDA Rural Development, 5975 Lakeside Boulevard, 
Indianapolis, IN 46278, (812) 873-1100, [email protected].
Iowa
Teresa Bomhoff, USDA Rural Development, 873 Federal Building, 210 
Walnut Street, Des Moines, IA 50309, (515) 284-4447, 
[email protected].
Kansas
David Kramer, USDA Rural Development, 1303 SW. First American Place, 
Suite 100, Topeka, KS 66604-4040, (785) 271-2730, 
[email protected].
Kentucky
Scott Maas, USDA Rural Development, 771 Corporate Drive, Suite 200, 
Lexington, KY 40503, (859) 224-7435, [email protected].
Louisiana
Kevin Boone, USDA Rural Development, 905 Jefferson Street, Suite 320, 
Lafayette, LA 70501, (337) 262-6601, Ext. 133, [email protected].
Maine
John F. Sheehan, USDA Rural Development, 967 Illinois Avenue, Suite 4, 
P.O. Box 405, Bangor, ME 04402-0405, (207) 990-9168, 
[email protected].
Maryland (see Delaware)
Massachusetts/Rhode Island/Connecticut
Charles W. Dubuc, USDA Rural Development, 451 West Street, Suite 2, 
Amherst, MA 01002, (401) 826-0842 X 306, [email protected].
Michigan
Traci J. Smith, USDA Rural Development, 3001 Coolidge Road, Suite 200, 
East Lansing, MI 48823, (517) 324-5157, [email protected].
Minnesota
Lisa L. Noty, USDA Rural Development, 1400 West Main Street, Albert 
Lea, MN 56007, (507) 373-7960 Ext. 120, [email protected].
Mississippi
G. Gary Jones, USDA Rural Development, Federal Building, Suite 831, 100 
West Capitol Street, Jackson, MS 39269, (601) 965-5457, 
[email protected].
Missouri
Matt Moore, USDA Rural Development, 601 Business Loop 70 West, Parkade 
Center, Suite 235, Columbia, MO 65203, (573) 876-9321, 
[email protected].
Montana
Michael Drewiske, USDA Rural Development, 900 Technology Blvd., Unit 1, 
Suite B, P.O. Box 850, Bozeman, MT 59771, (406) 585-2554, 
[email protected].
Nebraska
Debra Yocum, USDA Rural Development, 100 Centennial Mall North, Room 
152, Federal Building, Lincoln, NE 68508, (402) 437-5554, 
[email protected].
Nevada
Mark Williams, USDA Rural Development, 1390 South Curry Street, Carson 
City, NV 89703, (775) 887-1222, mark.williams@ nv.usda.gov.
New Hampshire (See Vermont)
New Jersey
Victoria Fekete, USDA Rural Development, 8000 Midlantic Drive, 5th 
Floor North, Suite 500, Mt. Laurel, NJ 08054, (856) 787-7752, 
[email protected].
New Mexico
Jesse Bopp, USDA Rural Development, 6200 Jefferson Street, NE., Room 
255, Albuquerque, NM 87109, (505) 761-4952, [email protected].
New York
Scott Collins, USDA Rural Development, 9025 River Road, Marcy, NY 
13403, (315) 736-3316 Ext. 4, [email protected].
North Carolina
David Thigpen, USDA Rural Development, 4405 Bland Rd. Suite 260, 
Raleigh, NC 27609, 919-873-2065, [email protected].
North Dakota
Dennis Rodin, USDA Rural Development, Federal Building, Room 208, 220 
East Rosser Avenue, P.O. Box 1737, Bismarck, ND 58502-1737, (701) 530-
2068, [email protected].
Ohio
Randy Monhemius, USDA Rural Development, Federal Building, Room 507, 
200 North High Street, Columbus, OH 43215-2418, (614) 255-2424, 
[email protected].
Oklahoma
Jody Harris, USDA Rural Development, 100 USDA, Suite 108, Stillwater, 
OK 74074-2654, (405) 742-1036, [email protected].
Oregon
Don Hollis, USDA Rural Development, 200 SE. Hailey Ave, Suite 105, 
Pendleton, OR 97801, (541) 278-8049, Ext. 129, [email protected].
Pennsylvania
Bernard Linn, USDA Rural Development, One Credit Union Place, Suite 
330, Harrisburg, PA 17110-2996, (717) 237-2182, 
[email protected].
Puerto Rico
Luis Garcia, USDA Rural Development, IBM Building, 654 Munoz Rivera 
Avenue, Suite 601, Hato Rey, PR 00918-6106, (787) 766-5091, Ext. 251, 
[email protected].
Republic of Palau (See Hawaii)
Republic of the Marshall Islands (See Hawaii)
Rhode Island (See Massachusetts)
South Carolina
Shannon Legree, USDA Rural Development, Strom Thurmond Federal 
Building, 1835 Assembly Street, Room 1007, Columbia, SC 29201, (803) 
253-3150, [email protected].
South Dakota
Dana Kleinsasser, USDA Rural Development, Federal Building, Room 210, 
200 4th Street, SW., Huron, SD 57350, (605) 352-1157, 
[email protected].
Tennessee
Will Dodson, USDA Rural Development, 3322 West End Avenue, Suite 300, 
Nashville, TN 37203-1084, (615) 783-1350, [email protected].

[[Page 7938]]

Texas
Billy Curb, USDA Rural Development, Federal Building, Suite 102, 101 
South Main Street, Temple, TX 76501, (254) 742-9775, 
[email protected].
Utah
Roger Koon, USDA Rural Development, Wallace F. Bennett Federal 
Building, 125 South State Street, Room 4311, Salt Lake City, UT 84138, 
(801) 524-4301, [email protected].
Vermont/New Hampshire
Cheryl Ducharme, USDA Rural Development, 89 Main Street, 3rd Floor, 
Montpelier, VT 05602, 802-828-6083, [email protected].
Virginia
Laurette Tucker, USDA Rural Development, Culpeper Building, Suite 238, 
1606 Santa Rosa Road, Richmond, VA 23229, (804) 287-1594, 
[email protected].
Virgin Islands (see Florida)
Washington
Mary Traxler, USDA Rural Development, 1835 Black Lake Blvd. SW., Suite 
B, Olympia, WA 98512, (360) 704-7762, [email protected].
West Virginia
Richard E. Satterfield, USDA Rural Development, 75 High Street, Room 
320, Morgantown, WV 26505-7500, (304) 284-4874, 
[email protected].
Wisconsin
Brenda Heinen, USDA Rural Development, 4949 Kirschling Court, Stevens 
Point, WI 54481, (715) 345-7615, Ext. 139, [email protected].
Wyoming
Jon Crabtree, USDA Rural Development, Dick Cheney Federal Building, 100 
East B Street, Room 1005, P.O. Box 11005, Casper, WY 82602, (307) 233-
6719, [email protected].

Executive Order 12866

    This interim rule has been reviewed under Executive Order (EO) 
12866 and has been determined to be economically significant by the 
Office of Management and Budget. The EO defines a ``significant 
regulatory action'' as one that is likely to result in a rule that may: 
(1) Have an annual effect on the economy of $100 million or more or 
adversely affect, in a material way, the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or Tribal governments or 
communities; (2) Create a serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) Materially alter 
the budgetary impact of entitlements, grants, user fees, or loan 
programs or the rights and obligations of recipients thereof; or (4) 
Raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in this EO.
    The Agency conducted benefit-cost analyses to fulfill the 
requirements of EO 12866. In the benefit-cost analysis, the Agency 
quantified the cost of the Advanced Biofuel Payment Program, but did 
not quantify its benefits. Costs were quantified for the burden of the 
Program to the public and to the Federal government, but its economic 
impacts were not quantified. Qualitative discussions of potential 
impacts of the Program on jobs, the environment, and energy are 
presented in the analysis. While unable to quantify the benefits 
associated with this rulemaking, the Agency believes that the overall 
effect of the rule will be beneficial.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act 1995 (UMRA) of Public 
Law 104-4 establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
governments and the private sector. Under section 202 of the UMRA, 
Rural Development generally must prepare a written statement, including 
a cost-benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or Tribal 
governments, in the aggregate, or to the private sector of $100 million 
or more in any one year. When such a statement is needed for a rule, 
section 205 of UMRA generally requires Rural Development to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, more cost-effective, or least burdensome alternative 
that achieves the objectives of the rule.
    This interim rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, and 
Tribal governments or the private sector. Thus, the rule is not subject 
to the requirements of sections 202 and 205 of the UMRA.

National Environmental Policy Act/Environmental Impact Statement

    This renewable energy program under Title IX of the 2008 Farm Bill 
has been operated on an interim basis through the issuance of a Notice 
of Contract Proposal (NOCP). During this initial round of applications, 
the Agency conducted National Environmental Policy Act (NEPA) reviews 
on each individual application for funding. No significant 
environmental impacts were reported. As expected, these applications 
were not from any concentrated grouping of applicant facilities, but 
represented a wide variety of applicants for a diverse range of 
renewable energy proposals. Taken collectively, the applications show 
no potential for significant adverse cumulative effects.
    The Agency has prepared a programmatic environmental assessment 
(PEA), pursuant to 7 CFR part 1940, subpart G, analyzing the 
environmental effects to air, water, and biotic resources; land use; 
historic and cultural resources, and greenhouse gas emissions affected 
by the Advanced Biofuel Payment Program rule. The purpose of the PEA is 
to assess the overall environmental impacts of the programs related to 
the Congressional goals of advancing biofuels production for the 
purposes of energy independence and greenhouse gas emission reductions. 
The impact analyses are national in scope, but draw upon site-specific 
data from advanced biofuel facilities funded under Sections 9003 
(Biorefinery Assistance Guaranteed Loans) and 9004 (Repowering 
Assistance Payments to Eligible Biorefineries), as reasonable 
assumptions for the types of facilities, feedstocks, and impacts likely 
to be funded under this rulemaking for FY 2010-2012. Site-specific NEPA 
documents prepared for those facilities funded under Sections 9003 and 
9004 in FY 2008 and/or 2009 were utilized, as well, to forecast likely 
impacts under the interim rule. However, because there are no site-
specific data on facilities funded under the Section 9003 program, the 
PEA discusses qualitatively the general processes, materials, and 
feedstocks used for the range of heterogeneous facilities in the U.S. 
eligible for producer payments under Section 9005. In addition, the PEA 
provides qualitative analyses of likely programmatic impacts beyond the 
FY 2012 program expiration date, as appropriate. The draft PEA was made 
available to the public for comment on the USDA Rural Business-
Cooperative Service's Web site in May, 2010. No comments were received 
on the draft PEA and the Agency has issued a Finding of No Significant 
Impact (FONSI) for the program, which is available on the Agency Web 
site.

[[Page 7939]]

Executive Order 12988, Civil Justice Reform

    This interim rule has been reviewed under Executive Order 12988. In 
accordance with the rules: (1) All State and local laws and regulations 
that are in conflict with these rules will be preempted; (2) no 
retroactive effect will be given the rules; and (3) administrative 
proceedings in accordance with the regulations of the Department of 
Agriculture's National Appeals Division (7 CFR part 11) must be 
exhausted before bringing suit in court challenging action taken under 
this rule unless those regulations specifically allow bringing suit at 
an earlier time.

Executive Order 13132, Federalism

    It has been determined, under Executive Order 13132 that this 
interim rule does not have sufficient federalism implications to 
warrant the preparation of a Federalism Assessment. The provisions 
contained in this rule will not have a substantial direct effect on 
States or their political subdivisions or on the distribution of power 
and responsibilities among the various government levels.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally 
requires an agency to prepare a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements under the 
Administrative Procedure Act or any other statute unless the agency 
certifies that the rule will not have an economically significant 
impact on a substantial number of small entities. Small entities 
include small businesses, small organizations, and small governmental 
jurisdictions.
    In compliance with the RFA, Rural Development has determined that 
this action will not have an economically significant impact on a 
substantial number of small entities. Rural Development made this 
determination based on the fact that this regulation only impacts those 
who choose to participate in the Program. Small entity applicants will 
not be affected to a greater extent than large entity applicants.
    For this Program, the Agency received approximately 180 
applications in Fiscal Year 2009, and approved 160 entities for 
participation. In assessing whether these entities are small 
businesses, the Agency notes that there is no unique Small Business 
Administration (SBA) definition for biofuel facilities, including 
biorefineries, because biofuel facilities and biorefineries are found 
in a number of North American Industry Classification System (NAICS) 
codes. The majority of existing biofuel facilities produce biodiesel, 
and for these facilities, the small business definition is 1,000 
employees. Based on Agency experience and in-house knowledge of the 
Fiscal Year 2009 applicants and using 1,000 employees as the definition 
of small business, the majority of biofuel facilities applying in 
Fiscal Year 2009 would be classified as small businesses. The Agency 
expects this to continue to be true as the Program continues.
    The average cost to a biofuel facility to participate in the 
Program is estimated to be approximately $500. This cost is not 
expected to impose an economically significant impact on these small 
entities. Because of this minimal cost, the Agency does not believe 
that the cost of applying and participating will dissuade a small 
business from seeking to participate in this program. Further, biofuel 
facilities are expected to realize more in payments than in costs for 
participating in the program. Thus, participating biofuel facilities 
will be able to recoup this expense, although small biofuel facilities 
are likely to take longer to recoup the expense because they will be 
producing less advanced biofuel.
    This regulation only affects biofuel facilities that choose to 
participate in the programs. Lastly, the programs are open to all 
eligible producers, regardless of their size.

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

    The regulatory impact analyses conducted for this rule meet the 
requirements of Executive Order No. 13211, which states that an agency 
undertaking regulatory actions related to energy supply, distribution, 
or use is to prepare a Statement of Energy Effects. The analyses did 
not find that the rule will have any adverse impacts on energy supply, 
distribution or use.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This Program is not subject to Executive Order 12372 because the 
Programs are not listed as covered programs on the Intergovernmental 
Consultation list.

Executive Order 13175

    USDA will undertake, within 6 months after this rule becomes 
effective, a series of regulation Tribal consultation sessions to gain 
input by elected Tribal officials or their designees concerning the 
impact of this rule on Tribal governments, communities and individuals. 
These sessions will establish a baseline of consultation for future 
actions, should any be necessary, regarding this rule. Reports from 
these sessions for consultation will be made part of the USDA annual 
reporting on Tribal Consultation and Collaboration. USDA will respond 
in a timely and meaningful manner to all Tribal government requests for 
consultation concerning this rule and will provide additional venues, 
such as webinars and teleconferences, to periodically host 
collaborative conversations with Tribal leaders and their 
representatives concerning ways to improve this rule in Indian country.
    The policies contained in this rule would not have Tribal 
implications that preempt Tribal law.

Programs Affected

    The Advanced Biofuel Payment Program is listed in the Catalog of 
Federal Domestic Assistance under Number 10.867.

Paperwork Reduction Act

    The information collection requirements contained in the Notice of 
Contract Proposal for the Section 9005 Advanced Biofuels Payments 
Program published on June 12, 2009, were approved by the Office of 
Management Budget under emergency clearance procedures and assigned OMB 
Control Number 0570-0057. As noted in the June 12, 2009 notice, the 
Agency sought emergency clearance to comply with the time frames 
mandated by a Presidential Memorandum in order to implement the Program 
as quickly as possible, and that providing for public comment under the 
normal procedure would unduly delay the provision of benefits 
associated with this Program and be contrary to the public interest. 
Now, however, in accordance with the Paperwork Reduction Act of 1995, 
the Agency is seeking standard OMB approval of the reporting and 
recordkeeping requirements contained in this interim rule. In the 
publication of the proposed rule on April 16, 2010, the Agency 
solicited comments on the estimated burden. The Agency received no 
comments in response to this solicitation. This information collection 
requirement will not become effective until approved by OMB. Upon 
approval of this information collection, the Agency will publish a rule 
in the Federal Register.
    Title: Advanced Biofuels Producer Payment Program.

[[Page 7940]]

    OMB Number: 0570-NEW.
    Type of Request: New collection.
    Abstract: The collection of information is vital to Rural 
Development to make wise decisions regarding the eligibility of 
advanced biofuels producers and their products in order to ensure 
compliance with the provisions of this Program and to ensure that the 
payments are made to eligible producers and advanced biofuels and is 
necessary in order to implement this Program.
    Advanced biofuel producers seeking to participate in the Program 
must enroll in the Program by submitting an Agency-approved 
application, including documentation to support the amount of eligible 
advanced biofuels reported in the application and biofuel 
certifications. Once approved for participation, the producer and the 
Agency enter into an Agency-approved contract. The advanced biofuel 
producer will then submit an Agency-approved form to request payment. 
These requirements are stated in the interim rule.
    The estimated information collection burden hours has increased 
from the proposed rule by 426 hours from 2,273 to 2,699 for the interim 
rule. The majority of this increase is attributable to an increase in 
the number of expected applicants and participants, as the result of 
several factors including expanding the program to non-rural biofuel 
facilities and to foreign-owned biofuel facilities.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 0.8 hours per response.
    Respondents: Advanced Biofuel Producers.
    Estimated Number of Respondents: 393.
    Estimated Number of Responses per Respondent: 9.4.
    Estimated Number of Responses: 3,704.
    Estimated Total Annual Burden on Respondents: 3,115.

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act, to promote the use of the Internet and other information 
technologies to provide increased opportunities for citizen access to 
Government information and services, and for other purposes.

I. Background

    Rural Development administers a multitude of programs, ranging from 
housing and community facilities to infrastructure and business 
development. Its mission is to increase economic opportunity and 
improve the quality of life in rural communities by providing 
leadership, infrastructure, venture capital, and technical support that 
can support rural communities, helping them to prosper.
    To achieve its mission, Rural Development provides financial 
support (including direct loans, grants, loan guarantees, and direct 
payments) and technical assistance to help enhance the quality of life 
and provide support for economic development in rural areas. The Food, 
Conservation, and Energy Act of 2008 (2008 Farm Bill) contains several 
sections under which Rural Development provides financial assistance 
for the production and use of biofuels.
    The Advanced Biofuel Payment Program addresses Section 9005 of the 
Farm Security and Rural Investment Act of 2002 as added by the Food, 
Conservation, and Energy Act of 2008, which authorizes the Secretary of 
Agriculture to ``make payments to eligible producers to support and 
ensure an expanding production of advanced biofuels'' by entering into 
contracts for the production of advanced biofuels to both support 
existing advanced biofuel production and encourage new production. To 
be eligible for payments, advanced biofuels produced must be derived 
from renewable biomass, excluding corn kernel starch, in a biorefinery 
located in the United States.
    On April 16, 2010 [75 FR 20085], the Agency published a proposed 
rule for the Advanced Biofuel Payment Program. Comments were requested 
on the proposed rule, which are summarized in Section III of this 
preamble. Most of the proposed rule's provisions have been carried 
forward into subpart B of this interim rule, although there have been 
several significant changes. Changes to the proposed rule are 
summarized in Section II of this preamble.
    Interim Rule. USDA Rural Development is issuing this regulation as 
an interim rule, effective March 14, 2011. All provisions of this 
regulation are adopted on an interim final basis, are subject to a 60-
day comment period, and will remain in effect until the Agency adopts 
the final rule.

II. Summary of Changes to the Proposed Rule

    This section presents changes from the April 16, 2010, proposed 
rule. Most of the changes were the result of the Agency's consideration 
of public comments on the proposed rule. Some changes, however, are 
being made to clarify proposed provisions. Unless otherwise indicated, 
rule citations refer to those in this interim rule. Changes to the 
proposed rule for the Advanced Biofuel Payment Program include:
    1. Removing the citizenship requirement as an applicant eligibility 
requirement. In addition, the term ``immediate family'' was deleted 
because the term was only used in the context of the citizenship 
requirements.
    2. Adding to the definition of ``larger producer'' and ``smaller 
producer'' provisions for determining whether an advanced biofuel 
producer of biogas or solid advanced biofuels is a ``larger producer'' 
or a ``smaller producer.'' For biogas and solid advanced biofuel, this 
determination will be based on the production of an amount of energy 
considered by the Agency to be equivalent to 150,000,000 gallons of 
liquid advanced biofuel (15,900,000 MMBTU) per year.
    3. Using the term ``biofuel facility'' instead of ``biorefinery'' 
to clarify that eligible advanced biofuels may be produced at 
facilities other than biorefineries.
    4. Replacing the provision that would have allowed payment for an 
advanced biofuel used onsite with a requirement that an advanced 
biofuel must be sold as an advanced biofuel to a third party through an 
arm's length transaction in order to be eligible for payment (see Sec.  
4288.111(a)(4)).
    5. Several revisions were made to application requirements in Sec.  
4288.120, most of which affect the certification provisions:
     Removing the supporting documentation requirements 
associated with the enrollment application;
     Removing the requirement for BQ-9000 certification;
     Clarifying the Renewable Identification Number (RIN) 
requirement;
     Revising ``self-certify'' to ``certify'' (see Sec.  
4288.120(a)(3)(iii);
     Revising the woody biomass documentation to apply to just 
National Forest system lands and public lands; and
     Revising the requirement for supporting documentation 
(Sec.  4288.120(a)(4)) to apply to all advanced biofuel producers, not 
just to those that project an increase in production and new producers.
    6. Allowing the blender to issue a certificate of analysis (see 
Sec.  4288.105(a)(3)), and adding a definition of the term ``blender'' 
to Sec.  4288.102.
    7. Changing the approach the Agency will use in making a Government 
payout to deferring payment pending resolution of the review rather 
than

[[Page 7941]]

making the payout prior to resolution of the review (see Sec.  
4288.135(b)(2)).
    8. Revising the introductory text to Sec.  4288.136 to reference 
Sec. Sec.  4288.134 and 4288.135.
    9. Numerous revisions were made to the payment provisions found in 
Sec.  4288.131, including, but not limited to:
     Providing for payments for actual production and 
incremental production;
     Calculating actual production payment rates each quarter 
rather than on an annual basis;
     Determining payments each quarter based on the actual 
amount of advanced biofuel produced in the quarter;
     Requiring participating producers to submit payment 
applications each quarter such that if a producer does not submit a 
payment application by a quarter's due date, the producer will not 
receive payment for that quarter; and
     Adding payment limitations for advanced biofuels produced 
from forest biomass.
    Several additional conforming changes were made in this section to 
reflect these changes, including deleting the definition for base 
production.
    As summarized above, the Agency has significantly revised the 
payment provisions associated with the Advanced Biofuel Payment Program 
from the payment provisions that were proposed. The Agency received a 
number of comments that suggested different ways to balance competing 
concerns that arise in this program. The revisions made are intended to 
take into account a number of concerns, some of which are competing 
concerns, including:
     Whether we should offer additional payments for 
incremental over base production or offer a single payment approach 
that provides one payment rate for all production;
     Determination of base production amounts;
     Determination of incremental production amounts;
     Does this program distort the other markets for certain 
advanced biofuels feedstocks and if so, should the payment rates for 
biofuels using these feedstocks be adjusted;
     The importance of maintaining current production 
capacities verses encouraging incremental production and should the 
balance between these two program goals be adjusted over time.
    The Agency further took into account a number of factors in 
responding to comments and making program adjustments including:
     The authorizing statute goal to support both existing and 
incremental production;
     Use incremental payments to encourage increases by 
producers that consistently produce advanced biofuels because such 
increases are likely to be sustained;
     The Managers' Conference Report in which the Managers 
encourage the Secretary to consider competing market outlets when 
establishing the payment rate for forest biomass feedstocks used to 
produce advanced biofuels;
     Aligning this program with other Federal programs 
addressing advanced biofuels consistent with the legislative 
authorization of this program;
     The current economic climate for advanced biofuels and how 
that climate may change over time;
     The administrative complexity of implementing a payment 
program; and
     The Agency experience and lessons learned from the 
existing implementation of the program under the Notices of Contract 
Proposal for fiscal years 2009 and 2010.
    Based on the above concerns and factors, the revised payment 
provisions, as found in the interim rule, are summarized below.
    Two tier payments. The Agency is retaining a two-tiered payment 
approach, but with changes from the proposed rule. By implementing this 
two-tiered approach, the Agency continues to encourage both existing 
and new advanced biofuel payments.
     Actual Production Payments. These payments would be made 
for actual production in the fiscal year for which payments are sought. 
These payments will be made on a quarterly basis.
     Incremental Production Payments. These payments would be 
made for incremental production. These payments will be made once, at 
the end of the fiscal year. In order to receive incremental production 
payments, the facility must have produced an eligible advanced biofuel 
in the year preceding the fiscal year in which payment is sought, the 
facility must have had fewer than 20 days (excluding weekends) of non-
production of eligible advanced biofuels in the preceding year, and the 
quantity of eligible advance biofuels in the fiscal year in which 
payment is sought must be greater than the actual quantity of eligible 
advanced biofuel produced in the preceding year. This requirement 
focuses the incremental payments on encouraging production increases 
from producers that are likely to sustain such increases over time 
instead of producers who widely vary production from year to year based 
on short term market conditions.
    Incremental production is being defined as ``The quantity of 
eligible advanced biofuel produced at an advanced biofuel biorefinery 
in the fiscal year for which payment is sought that exceeds the 
quantity of advanced biofuel produced at the biorefinery over the prior 
fiscal year.'' For example, if a facility produced the equivalent of 
100 million BTUs of eligible advanced biofuel in FY2010 and the 
equivalent of 120 million BTUs of eligible advanced biofuel in FY2011, 
20 million BTUs would be eligible for incremental payment in FY2011.
    By determining incremental production in this manner, the Agency is 
removing the need to project productions and the incentive to over-
estimate production. These provisions will also address concerns about 
production manipulation to achieve higher payments (e.g., shut down one 
year and start up the next).
    However, not all facilities and advanced biofuels would be eligible 
for incremental production payments. Specifically:
     If a facility did not produce any advanced biofuel in the 
year prior to the fiscal year in which payment is sought, it would not 
be eligible for incremental production, but would still be eligible for 
actual production payments.
     If a facility produced eligible advanced biofuel in the 
year prior to the fiscal year in which payment is sought, but the 
facility has 20 or more days (excluding weekends) of non-production, it 
would not be eligible for incremental production, but would still be 
eligible for actual production payments. For example, in the previous 
example, if the facility that produced the equivalent of 100 million 
BTUs in FY2010 has 40 days of non-production of eligible advanced 
biofuel, then the facility would not be eligible for incremental 
payments in FY2011 and all 120 million BTUs produced in FY2011 would be 
paid using the actual production payment provisions.
     If the advanced biofuel is a solid advanced biofuel 
produced from forest biomass, the advanced biofuel would not be 
eligible for incremental production, but would still be eligible for 
actual production payments.
    Level of available program funds. The interim rule contains several 
provisions that identify the general amount of funds that will be 
available each fiscal year. Specifically:
     In FY2010, the Agency will allocate 80 percent of the 
available program funds to pay for actual production and 20 percent to 
pay for incremental production.
     In FY2011, the Agency will allocate 70 percent of the 
available program funds to pay for actual production and

[[Page 7942]]

30 percent to pay for incremental production.
     In FY2012, the Agency will allocate 60 percent of the 
available program funds to pay for actual production and 40 percent to 
pay for incremental production.
     In FY2013 and beyond, the Agency will allocate 50 percent 
of the available program funds to pay for actual production and 50 
percent to pay for incremental production.
     Each fiscal year, not more than 5 percent of the available 
program funds will be paid to larger producers.
     Each fiscal year, not more than 5 percent of the program 
funds will be paid for solid advanced biofuels produced from forest 
biomass.
     All actual production payments and the incremental 
production payments will be made so as to expend all of the funds 
available to each.
    The implementation of these provisions will result in calculating a 
single actual production payment rate each quarter that will be applied 
to all producers and a single incremental production rate at the end of 
each fiscal year that will be applied to all eligible producers with 
eligible incremental production. Either payment may need to be 
adjusted, however, if either the larger producer payment limit of 5 
percent of available program funds or the solid advanced biofuel 
produced from forest biomass payment limit of 5 percent of available 
program funds is reached.
    In developing this approach, the Agency determined that, for the 
next several years, a major focus of the program must be to assist the 
advanced biofuels industry in maintaining its production capacity while 
the economy recovers. As the economy improves over the next several 
years as the demand for energy in general increases, the Agency 
believes it is appropriate to shift the focus of the program to 
encourage new production. The payment formula in the interim rule 
reflects this view.
    Type of advanced biofuel produced. While the authorizing statute 
does not limit the type of advanced biofuels eligible for payment under 
this program, there are two concerns that the Agency is addressing in 
the revised payment provisions that will affect payment based on the 
type of feedstock used and on the type of advanced biofuel.
    First. As noted above, the Manager's Conference Report encourages 
the Secretary to consider competing market outlets when establishing 
the payment rate for forest biomass feedstocks used to produce advanced 
biofuels. To address this, the Agency is implementing the following 
provisions:
     For liquid and gaseous advanced biofuels made from forest 
biomass, the BTUs calculated from such advanced biofuels will be 
discounted by 10 percent. The effect of this will be to reduce payment 
that such advanced biofuels would receive compared to the same advanced 
biofuel made from a different feedstock.
     For solid advanced biofuels made from forest biomass, the 
BTUs calculated from such advanced biofuels will be discounted by 85 
percent. The effect of this will be to reduce payment that such 
advanced biofuels would receive compared to the same advanced biofuel 
made from a different feedstock.
     As noted previously, any solid advanced biofuel produced 
from forest biomass would be ineligible for incremental production 
payments, but would still receive actual production payments.
     Each fiscal year, not more than 5 percent of the program 
funds will be paid for solid advanced biofuels produced from forest 
biomass.
    In developing these BTU discounted rates for advanced biofuels 
produced from forest biomass, the Agency is encouraging the use of 
forest biomass for the creation of advanced biofuels consistent with 
Congress' concern that alternative uses of these feedstocks should be 
considered. Given that nearly all of the forest biomass feedstocks have 
alternative uses, the Agency has decided to focus the program on the 
encouragement of the creation of new biofuels from forest biomass as 
opposed to simply finding new ways to burn off the feedstock. In 
determining the relative BTU discount rates, the Agency does not want 
to discourage the use of forest biomass for new types of advanced 
biofuels and, thus, is setting a nominal discount rate for liquid and 
gaseous advanced biofuels produced from forest biomass. However, in the 
case of solid advanced biofuels produced from forest biomass, the 
Agency has determined that the goals of this program are not promoted 
by making substantial payments to such advanced biofuels. Therefore, 
the use of forest biomass as a feedstock that simply creates a solid 
fuel to be burned will receive a substantially higher BTU discount 
rate, which will result in a substantially smaller payment compared to 
other eligible advanced biofuels. In addition, such advanced biofuels 
will not be eligible for incremental payments and the total payments to 
these advanced biofuels will not exceed 5 percent of total available 
program funds in any one fiscal year.
    Second. To encourage a more favorable environmental outcome of this 
program, the Agency is providing an additional economic incentive for 
the production of advanced biofuels that use technologies and 
feedstocks that minimize greenhouse gas emissions and carbon usage. In 
order to carry this out, the Agency is providing an additional 10 
percent BTU bonus if the advanced biofuel meets an applicable renewable 
fuel standard as identified by the U.S. Environmental Protection Agency 
(EPA). The Agency also believes that this change will better align this 
program with other Federal programs addressing advanced biofuels 
consistent with the legislative authorization of this program.

III. Summary of Comments and Responses

    The proposed rule was published in the Federal Register on April 
16, 2010 (75 FR 20085), with a 60-day comment period that ended June 
15, 2010. Comments were received from 1,090 commenters yielding over 
165 individual comments, which have been grouped into similar 
categories. Commenters included members of Congress, Rural Development 
personnel, trade associations, State agencies, universities, 
environmental organizations, and individuals. As a result of some of 
the comments, the Agency made changes in the rule. The Agency sincerely 
appreciates the time and effort of all commenters. Responses to the 
comments on the proposed rule are discussed below.

On-Site Use Eligibility

    Comment: Several commenters supported allowing advanced biofuels 
used for on-site purposes to be eligible for payments under this 
program. A number of different reasons were cited:
     Broadening payments to cover on-site usage of eligible 
advanced biofuels would encourage increasing production and use of 
advanced biofuels, which is exactly the goal of the program. The 
Advanced Biofuel Payment Program's goal of developing a stable 
renewable energy industry to supply increasing amounts of the country's 
energy needs, plus the implicit objective of reducing greenhouse gas 
(``GHG'') emissions in the production and use of advanced biofuels is 
equally met whether the advanced biofuel is sold and used as a 
transportation fuel blend component, sold and used as non-
transportation renewable energy, or is used on-site by the advanced 
biofuel producer to displace fossil fuel derived energy to meet process 
energy needs.
     One object of the program is to expand beyond 
transportation fuels. On-

[[Page 7943]]

site stationary fuel requirements are an appropriate use of funds.
     There are a number of ethanol biorefineries that have the 
potential to generate renewable biogas to offset up to 100 percent of 
current fossil fuel usage for process energy and/or electricity. It 
would be extremely difficult and impractical to require the biogas 
generated to be put into a commercial pipeline and utilized off-site. 
There would be unnecessary costs to further refine the gas to meet 
commercial natural gas line specifications and to pressurize the gas 
enough to put into the higher pressure commercial mains that have 
pressures as much as 600 psi or more. It would be more practical to 
utilize the biogas on-site as it can be generated and used without 
extensive refinement and pressurizing. Plus it can be consumed entirely 
for process energy demands at a typical ethanol biorefinery. However, 
the option for a facility to produce biogas that could be used 
commercially off-site or to an adjacent facility should remain open for 
those facilities and agreements that could be established to utilize 
the advanced biofuel elsewhere.
     The production of advanced biofuels should be encouraged 
whether the use is in transportation fuel or for internal use. For 
example, sweet sorghum to ethanol facilities will produce gaseous 
advanced biofuels via anaerobic digesters. This biogas will be used 
internally in the facility and should be eligible for payment.
    These commenters recognize the need to be able to verify the on-
site usage and made recommendations on how this could be done.
    One commenter proposes that on-site usage of advanced biofuels by 
the advanced biofuel producer be monitored and verified with flow 
meters installed ahead of the point of usage on-site. Such flow meters 
can be totalized to properly account for quarterly usage rates.
    Two commenters state that on-site usage should be monitored by 
installation of meters that have been verified for accuracy by an 
independent third party. The meters should be checked annually by an 
independent third party, and a report by the independent third party 
should be submitted along with the other necessary documentation to 
secure a payment under the program.
    One commenter notes that all legitimate fuel manufacturers must 
record all inputs and outputs. A simple mass balance approach would 
verify the production of fuel. Use of the fuel is not a requirement for 
the program regardless of the kind of fuel produced. Thus, it is the 
production of fuel that is verified by USDA not the use of fuel 
regardless of where or even if the fuel is ultimately used.
    One commenter believes that entities that utilize the advanced 
biofuel produced for internal purposes should be entitled to Program 
payments. There are a number of ethanol biorefineries that have the 
potential to generate renewable biogas to offset up to 100 percent of 
current fossil fuel usage for process energy and/or electricity. It 
would be extremely difficult and impractical to require the biogas 
generated to be put into a commercial pipeline and utilized off-site. 
There would be unnecessary costs to further refine the gas to meet 
commercial natural gas line specifications and to pressurize the gas 
enough to put into the higher pressure commercial mains that have 
pressures as much as 600 psi or more. It would be more practical to 
utilize the biogas on-site as it can be generated and used without 
extensive refinement and pressurizing. Plus, it can be consumed 
entirely for process energy demands at a typical ethanol biorefinery. 
However, the option for a facility to produce biogas that could be used 
commercially off-site or to an adjacent facility should remain open for 
those facilities and agreements that could be established to utilize 
the advanced biofuel elsewhere.
    Any on-site usage should be verified utilizing standard flow meter 
instruments that are commonly utilized by the natural gas industry. 
Calibration should be completed according to the manufacturer's 
recommendations or an equivalent method. An independent third party 
could be utilized for accuracy verification along with a letter sent to 
USDA that documents the meter accuracy and certifies the amount of 
biogas generated for payments. Any biogas amount sent to a flare should 
not be considered for payment as that amount is not offsetting fossil 
fuel usage.
    Response: The Agency agrees the focus of the program is increasing 
the production of advanced biofuels, with the statute authorizing this 
program requiring that payment be made to encourage the support and 
expansion of production of advanced biofuels. The Agency has determined 
that the best way to implement the goals of this program is to provide 
funds to the production of advanced biofuels that enter the marketplace 
and are sold on the market for use as an advanced biofuel. Many 
entities may produce biofuels that qualify as an advanced biofuel, but 
do so with the intent to use the biofuel on-site to, for example, heat 
or power their business. Most of these entities would not be considered 
advanced biofuel producers. Therefore, the Agency is not extending this 
program to pay for advanced biofuels that are used on-site.
    Comment: One commenter recommends that advanced biofuel producers 
who do not sell to the public not be rewarded because the only ones 
benefiting are the ones making and using their own fuel, but it is the 
public's tax dollars paying for the program.
    Response: For the reasons cited in the response to the previous 
comment, the Agency agrees with the commenter, and has revised the rule 
text to require that the advanced biofuel be sold to a third party 
through an arm's length transaction.
    Comment: One commenter requests that biogas production by an 
ethanol plant be eligible for payment under this program. The commenter 
states that it plans to produce cellulosic ethanol and biogas for its 
cellulosic ethanol process. The ethanol will be marketed, and the 
commenter understands would be eligible for payments under this USDA 
program. The commenter believes that biogas production by an ethanol 
plant should also be eligible for payments under this program. 
According to the commenter, statistics on production, usage, and 
marketing of the biogas can be tracked and verified.
    Response: If the biogas is produced from renewable eligible 
feedstock producing renewable energy, the Agency would pay on that 
biogas if it qualifies as an advanced biofuel and is sold in the 
marketplace as an advanced biofuel through an arm's length transaction 
to a third party. If the biogas, however, is used on-site, it is not 
eligible for payment under this program for the reasons discussed 
above.

Follow Intent of Program

    Comment: One commenter, while noting that the proposed rule is 
clear in its intent to encourage both the introduction of incremental 
advanced biofuels into the marketplace and support of existing 
production, believes that the proposed rule needs to be more explicit 
with respect to enabling long term solutions that address our greatest 
energy policy need, which can be summed up as ``low carbon 
transportation fuels.'' Specifically, the commenter suggests that, in 
developing renewable transportation fuels that will gain broad 
acceptance and avoid public and environmental scrutiny, it is important 
to consider the following:
    (1) Establishing an inventory of truly sustainable biomass 
feedstock.

[[Page 7944]]

    (2) The ability to integrate bioenergy crops into the agricultural 
sector as an incremental opportunity without social or environmental 
consequences.
    (3) Creating fuels fungible to the marketplace that can displace 
imported sources and reduce energy dependence.
    Response: The purpose of the program is to provide a payment to 
producers who produce advanced biofuel. With respect to comment 
1 above, the Agency has determined that establishing an 
inventory of truly sustainable biomass is more appropriate for other 
energy programs. With respect to comments 2 and 3 
above, the Agency is satisfied that the concerns expressed in those 
comments are reflected in the statutory definition of advanced biofuel 
and, therefore, these concerns do not need to be further considered by 
the Agency at this time.
    Comment: One commenter believes that the proposed rule is following 
the intent of the program except that corn starch ethanol production 
should not be excluded as a potential advanced biofuel. The commenter 
recommends that it be classified as an advanced biofuel if the 
lifecycle GHG analysis meets the 50 percent GHG reduction requirement 
for an advanced biofuel. If the intent is to encourage the production 
of advanced biofuels and, if corn starch to ethanol facilities can meet 
the definition of an advanced biofuel by incorporating measures to 
reduce GHG emissions, then those facilities should not be excluded.
    Response: The authorizing statute defines advanced biofuel, in 
part, as ``fuel derived from renewable biomass other than corn kernel 
starch.'' Because the authorizing statute specifically excludes corn 
kernel starch for the definition of advanced biofuel, the Agency cannot 
include it in this program.

Payment Rates Appropriateness--Base Production Versus Incremental 
Production

    Comment: Commenters do not support different payments rates for 
base production and incremental production and recommend eliminating 
this differentiation. These commenters believe that providing different 
payments levels for base and incremental production makes the program 
more complex than necessary, and could create inequity among producers. 
According to the commenters, establishing a differential payment could 
potentially create an inequity between competitors by unfairly 
punishing a producer who maintained continuous production during 
difficult economic conditions, while rewarding a producer who shut down 
and restarted. Two commenters are concerned that a higher payment for 
incremental production will create an incentive to produce for a year, 
shut down, and then return to production.
    The differential payment and the calculations for producers based 
on the number of months in existence also creates an unnecessary 
complexity to the administration of the program. USDA's method for 
calculating base and incremental production levels under the NOCP is 
convoluted and confusing. Providing equal payment levels for base and 
incremental production would result in a simpler, more efficient, fair 
and equitable program.
    Response: The Agency appreciates the concerns raised by the 
commenters, which the revised payment provisions address, which are 
presented earlier in Section II of this preamble. Even though the 
Agency is retaining a two-tiered payment system, the provisions 
associated with the determination of production and the payment rate 
calculation process for actual production and incremental production 
have been simplified. The same actual production payment rate and the 
same incremental production payment rate would be calculated for all 
participants.
    As described earlier in the preamble, under the new payment 
provisions, there is no longer a set payment differential between 
``base'' production and ``incremental'' production, which was the 
source of concern to many of the commenters. Instead, one set of 
payments will be made (quarterly) based on actual production in the 
fiscal year for which payment is sought and the other set of payments 
will be made (at the end of the fiscal year) based on the production in 
the fiscal year that exceeds the quantity of actual production in the 
preceding fiscal year (referred to as ``incremental'' production). In 
addition, the funds available for actual production payments and for 
incremental production payments are identified each fiscal year.
    The Agency acknowledges that the new provisions will also result in 
uncertainty as to how much a producer will receive from actual payment 
production and from incremental production, because there is no way to 
predict all of the variables that will affect payments, including how 
many producers will participate, how much will be produced, and how 
much production will be eligible for incremental production payments. 
However, by removing the defined payment differential, any ``inequity'' 
that might have existed under the proposed payment provisions among 
producers who maintained continuous production and those who did not 
would be significantly reduced, if not eliminated.
    Comment: Numerous commenters support replacing the proposed two-
tier payment system with a single level of payment for all eligible 
fuel for the reasons discussed in the following paragraphs. One of the 
commenters noted that the two-tier payment system should be eliminated 
at least for the biodiesel producers, because, according to this 
commenter, there is no justification to incentivize new capacity in the 
biodiesel/renewable diesel industry where capacity dwarfs the feedstock 
availability and likely demand under the Renewable Fuel Standards 2 
(RFS-2).
    According to the commenters, there are several benefits to this 
approach. First, the commenters note that different payments for base 
and incremental production makes the program more complex than 
necessary and that a single level of payment will simplify 
administration of the program for both USDA and participants. This will 
also eliminate any potential incentive to engage in gaming of 
production totals to maximize incremental payments. One of the 
commenters notes that, based on this recommendation, for example, for 
the Fiscal Year 2010 program, one payment would be given for the 
gallons produced between October 1, 2009, and March 30, 2010, and 
second payment for production from April 1, 2010 to September 30, 2010 
period without any incremental gallons changes.
    Second and more importantly, the two-tier approach could create 
inequities among producers, while a single level of payment (combined 
with the removal of the rural area and domestic ownership requirements) 
will provide a level playing field for all advanced biofuels producers 
in the marketplace; a differential that provides 5 times greater 
payment for incremental production is very significant and would create 
an uneven playing field between competing plants. The five-to-one 
payment differential provided for in the proposed rule has the 
potential to put otherwise equivalent advanced biofuels of identical 
quality and cost at a significant disadvantage in the highly 
competitive, low margin, high volume fuels marketplace. Equitable 
treatment under the program is consistent with the goal established by 
Congress of supporting the existing production as well as new 
production of existing advanced biofuels.
    Commenters note that the biodiesel industry has built significant 
capacity, much of which is not currently being

[[Page 7945]]

utilized. A differential that provides 5 times greater payment for 
incremental production is significant and would create an uneven 
playing field between competing plants.
    A third commenter points to an approach that makes program payments 
based on total gallons produced rather than the ``base production'' 
versus ``incremental production'' payment method currently included in 
the proposed rule. As the biodiesel industry is still in the infant 
stages, the commenter maintains that it is just as important for this 
program to help ensure the continued operation of existing facilities 
as it is to encourage expanded production or new facilities. According 
to the commenter, elimination of the program's two-tiered payment 
structure would promote more equal treatment for each gallon of 
biodiesel produced in the U.S.
    One commenter states that all advanced biofuels under this program 
should be treated similarly. According to the commenter, differentiated 
payments to certain advanced biofuels and not others will create 
artificial market distortions. These distortions are created because 
the Agency is picking winners and losers in the advanced biofuels arena 
based on arbitrary requirements. The market will then reward those who 
luckily meet the requirements or can adjust their production to meet 
the requirements. Some will be disadvantaged because the rules are 
changing after the plant has been built or commenced construction and 
cannot be changed (e.g., location). Advanced biofuel produced in the 
U.S. and its territories is considered biofuel by the marketplace. It 
does not depend on the amount of biofuel produced in the previous year 
at the production plant. For these reasons, the support differential 
between incremental and base production should be eliminated and there 
should be no prior year production restrictions on the payments.
    One commenter understands the importance of enabling new production 
and the spirit of incentivizing incremental production and believes 
that this mechanism should work to incentivize additional production of 
advanced biofuels over current volumes. However, the commenter is 
concerned that the proposed rule seems to incentivize reduced 
production in the base year, so the facility can take advantage of a 5 
times multiplier in the subsequent year. The commenter believes this 
would not be productive for the advanced biofuel industry. The proposal 
states that ``for a biorefinery that has been in existence less than 12 
months before October 1 of the sign-up fiscal year or that begins 
producing eligible advanced biofuels on or after October 1 of the sign-
up fiscal year, there is no incremental production; all production for 
that sign-up fiscal year will be considered base production.'' The 
commenter does not believe this is, or should be, the intention of the 
program and recommends that the Agency revisit the definition of base 
production rate so that facilities coming online will be incentivized 
to bring as much capacity into production as early as possible.
    One commenter believes that a two-tier system produces significant 
administrative problems especially regarding the issue of when the 
advanced biofuel is produced. According to the commenter, the proposed 
ability to claim a high tier payment rate versus a low tier payment 
rate simply encourages program participants to game the payment system. 
The commenter, therefore, encourages the Agency to replace the proposed 
two-tier payment rate with a single payment rate, which will allow 
easier and more accurate administration by all parties while at the 
same time discouraging gaming the program.
    The commenter suggests that instituting a single payment rate helps 
level the playing field between competitive producers. The proposed two 
tier system will, at times, allow some producers to enjoy a five-to-one 
payment advantage over a competitor producing an identical fuel.
    The commenter further states that a single payment level also 
delivers equal treatment under the program, which the enacting statute 
provides by supporting both existing and new production of advanced 
biofuels.
    Response: The Agency is maintaining a two-tier system to support 
the authorizing statute's goal of supporting both existing and 
incremental production. However, the implementation of this two-tier 
system is significantly different from what was in the proposed rule 
and these changes address the concerns expressed by the commenters.
    As discussed in the response to the previous comment, the new 
payment provisions make the calculation of payments easier than under 
the proposed payment provisions, make the calculation of incremental 
production more objective and easier to calculate, and eliminate the 
``5 times the base production rate'' provision for incremental 
payments, which creates the more level playing field that the 
commenters are looking for.
    With regard to concern over the potential gaming under the proposed 
payment provisions by under reporting production to maximize 
incremental production, the payment provisions have been revised to 
eliminate this. To receive incremental payments under the interim rule, 
an advanced biofuel facility must have produced an eligible advanced 
biofuel in the year preceding the fiscal year in which payment is 
sought and must not have had more than 20 days (excluding weekends) of 
non-production of eligible advanced biofuels. Further, any advanced 
biofuel facility that did not produce an eligible advanced biofuel in 
the year preceding the year in which payment is sought would not be 
eligible for incremental payments. These provisions will eliminate the 
``gaming'' for reporting production and will eliminate the specific 
concern expressed about ``unfairly punishing a producer who maintained 
continuous production during difficult economic conditions, while 
rewarding a producer who shut down and restarted.''
    The payment provisions in the interim rule divide the program funds 
between actual production and incremental production, with no pre-
determined relationship between payment rates ($/BTU). Thus, there is 
no pre-determined relationship between actual production payments and 
incremental production payments. Incremental production payments may be 
higher, lower, or the same as actual production payments. This further 
reduces any incentive to try to ``game'' payments under this program 
and results in a more equitable program to all participants as the 
economy seeks to recover.
    Furthermore, as revised, the program provides more funds to actual 
production in the earlier years relative to incremental production in 
order to assist all facilities through the current economic 
difficulties facing the country, and provides more funds in the later 
years to encourage expansion.
    With regard to the suggestion that a two-tiered system be 
eliminated at least for the biodiesel producers, the Agency disagrees 
with the commenter, because the rule needs to look at the long term and 
not at the short term market conditions, as the commenter is doing.
    Finally, with regard to the comment that ``all advanced biofuels 
under this program should be treated equally,'' the new payment 
provisions address the issues identified by the commenter by removing 
the location requirement and adjusting the calculations associated with 
actual production and incremental production. However, the Agency notes

[[Page 7946]]

that the new payment provisions adjust payments if the advanced biofuel 
is produced from forest biomass or if the advanced biofuel meets an 
applicable renewable fuel standard as identified by the EPA. The 
adjustment for using forest biomass is in response to the Managers 
Conference Report associated with the authorizing statute. The 
adjustment if the advanced biofuel meets an applicable renewable fuel 
standard as identified by EPA is in response to encouraging a more 
favorable environmental outcome of this program and aligning it with 
other Federal programs addressing advanced biofuels consistent with the 
legislative authorization of this program.
    Comment: One commenter supports a revision to the application 
process that eliminates the projected incremental amount from the 
annual application (Form RD 4288-1) submission. While the commenter 
believes that the differential payment between base and incremental 
production should be eliminated from the program, even if the 
differential payment remains, the commenter believes that it is 
unnecessary to ask producers to attempt to project their production 
given the vast uncertainty that exists in the biofuels market today. 
Furthermore, the commenter claims that, as proposed, producers would be 
penalized if they underestimated their projected production, as any 
amount produced above the projected amount is not eligible for payment. 
According to the commenter, this incentive for applicants to vastly 
overestimate production is not useful to USDA in pre-determining the 
expected payment rates and could lead to under-subscription of the 
program funds when the final, actual production amounts are reported 
and verified.
    Another commenter also believes that each producer will report the 
highest possible production for the upcoming fiscal year to ensure that 
all potential production from the production facility will be eligible 
to receive the subsidy. Therefore, the volumes used for the 
determination of the payment amounts by the USDA will be overstated. 
This will reduce the payout for all producers and result in funds being 
left over at the end of each fiscal year. This commenter suggests a 
solution to this problem would be to allow for the modification of the 
payment rate in the fourth fiscal quarter after the receipt of all 
production reported in Form RD 4288-3. This adjustment would only be 
made if the initial payment rate results in excess funds being 
available if the initial payment rate is used for fiscal year fourth 
quarter production. If excess funds are available, then the 
modification would result in an increase in the payment rates to 
producers. The increased payment rate would be calculated similarly to 
the original determination, except that the total BTUs in the 
calculation would be based on actual production from the total fiscal 
year as reported on all Form RD 4288-3 submitted to the USDA for that 
fiscal year. After calculation of the increased rate for all production 
in the fiscal year, then each producer would be paid for their fourth 
quarter production at the new rate and for production in the first 
three quarters at the difference between their increased rate and the 
original rate. The advantages of this recalibration at the end of the 
fiscal year are to ensure that all funding allocated by Congress is 
used in the intended year and to eliminate the necessary bias to 
overstating production in the estimates submitted on Form RD 4288-1 at 
the beginning of the fiscal year.
    One commenter also suggests that USDA remove the requirement from 
the current Form RD 4288-1 that participants estimate future 
incremental production. Because producers cannot receive payments for 
amounts beyond this estimate, the commenter believes that there is an 
incentive to overestimate future incremental production, which in turn 
makes it difficult for USDA to accurately determine payment rates.
    As an alternative, several commenters support having producers 
report their previous year production on Form RD 4288-1 and actual 
production on Form RD 4288-3.
    Response: The Agency agrees that initial projections for Form RD 
4288-1 are difficult to make given the market forces in the biofuel 
industry and has eliminated the requirement to submit projections for 
this program. The Agency acknowledges having payments based on actual 
production will improve the program. Thus, under the interim rule, 
payments will be made, in part, quarterly on actual production.
    Comment: One commenter recommends that, should the Agency retain 
the requirement on Form RD 4288-1 that participants project future 
production, the Agency should then utilize a reconciliation process at 
the end of the fiscal year that allows for modification of the payment 
rate in the fourth quarter after the receipt of all production reported 
on Form RD 4288-3. This adjustment would only be made if the initial 
payment rate utilized in the first three quarters of the year would 
result in excess funds being available if applied to actual fourth 
quarter production. If excess funds are available, then the 
modification would result in an increase in the payment rates to 
producers. The increased payment rate would be calculated similarly to 
the original determination, except that the total BTUs in the 
calculation would be based on actual production from the total fiscal 
year as previously reported on Form RD 4288-3 in the preceding 
quarters. After calculation of the increased rate for all production in 
the fiscal year, each producer would be paid for their fourth quarter 
production at the new rate and for production in the first three 
quarters at the difference between their increased rate and the 
original rate. Providing for this sort of reconciliation in the fourth 
quarter will ensure that all funding allocated by Congress is utilized 
while minimizing the incentive to overstate estimated production at the 
beginning of the fiscal year.
    Response: The Agency acknowledges that the payment methodology 
contained in the proposed rule may not utilize all funds and, 
therefore, revised the rule to ensure that all funds available to the 
program each fiscal year are expended for that fiscal year. Under the 
new payment provisions, participants will not be required to project 
future production. Payments for actual production will be distributed 
quarterly and payments for incremental production will be paid after 
the end of each fiscal year. There will be no ``carry over'' funds 
under the revised payment provisions.
    Comment: One commenter states that, when signing up for the 
program, applicants have to identify their production estimates and 
that they will get paid off the estimates. If an advanced biofuel 
producer goes over the estimated production, the advanced biofuel 
producer will not get paid for the extra production. The commenter then 
asked: Isn't the purpose to have more production each year, to 
encourage new production, and pay a higher rate for incremental 
production? Thus, the commenter believes that advanced biofuel 
producers should be paid for all production, not just estimated.
    Another commenter states that it appears that an advanced biofuels 
producer would be unable to predict its advance biofuels payment for a 
given year because the incentive is based on funds available and the 
number of eligible producers. The commenter, therefore, recommends that 
the Agency offer at least a range of incentive amounts per gallon so 
that biorefineries may plan.
    Response: While the commenter seems to misunderstand the proposed 
payment provisions (payments will not be made based on estimated

[[Page 7947]]

production), the Agency acknowledges the comments and revised the 
payment methodology to clarify that payments will be made based on 
actual production and producers will be paid for all actual eligible 
advanced biofuel production.
    The Agency disagrees with the comment to provide a range of 
incentive payment on a per gallon basis, because it is not possible to 
do so given the variables associated with making payments. Such 
variables include the number of producers participating in the program 
each year, the quantity of eligible advanced biofuels produced in the 
fiscal year, and the quantity of advanced biofuels eligible for 
incremental production payments. By specifying each fiscal year the 
level of funds that will be available for actual production payments 
and for incremental production payments, some additional information is 
provided to producers to assist in their planning.

Alternate Approaches in a Tiered Approach

    Several commenters suggested possible modifications to the two-
tiered approach.
    Comment: One commenter suggests that, if there is to be a 
differential payment that applies to all eligible advanced biofuels, 
the commenter recommends that the base production be equal to each 
facility's peak production and never go lower. This would reduce the 
incentive for a producer to start up and shut down to take advantage of 
a higher Bioenergy Program payment.
    Response: The Agency agrees that ``base'' production as it related 
to incremental production needs to be revised, but disagrees that it 
should be equal to a facility's peak production. As noted previously, 
the Agency has revised the payment provisions to provide payment for 
actual production and incremental production. Because incremental 
production is only paid for production over the previous year's actual 
production, provided the facility produces an advanced biofuel with no 
fewer than 20 days (excluding weekends) of non-production, any 
incentive for the producer to start-up and shut down is removed.
    Comment: One commenter suggests that, if the Agency believes that 
incremental payments rates are necessary for new fuels such as 
cellulose ethanol, such payment differentials should be confined to 
such fuels. If the object of differential payments is to incent new 
technology such as cellulose ethanol, USDA could implement a two tier 
payment program for non-biodiesel and non-renewable diesel. According 
to the commenter, biodiesel and renewable diesel have no need for 
incenting new capacity or new production when there is already in an 
excess capacity situation.
    Response: As discussed in a previous response, the Agency has 
revised the payment provisions in the rule. Rather than including 
provisions that call out specific types of advanced biofuels for 
preference, the Agency has revised the payment provisions, as described 
earlier, to discount the BTUs associated with advanced biofuels 
produced from forest biomass and to provide ``bonus'' BTUs if an 
advanced biofuel meets an applicable renewable fuel standard as 
identified by the EPA. By doing so, the Agency is encouraging the 
production of all other types of advanced biofuels.
    With regard to the commenter's concern about the excess capacity 
situation associated with biodiesel and renewable diesel, the phased in 
payment provisions to increase the percentage of funds for incremental 
production from 20 percent to 50 percent is designed to help address 
the current situation of over-capacity; that is, the Agency expects 
that as the economy improves, the over-capacity situation identified by 
the commenter will be significantly reduced.
    Comment: Two commenters suggest that, if the differentiation of 
payments based on Base and Incremental Production is maintained, then a 
biorefinery that began production in the previous fiscal year, but not 
produced for all of that fiscal year, should not have all of its 
production count as base production. The goal of the program is to 
incentivize incremental production. The production from the previous 
fiscal year should be used as base production. Then the production 
above this base production would be incremental production because this 
volume is incremental to the marketplace and should be counted as such. 
One of the commenters also states that all volume from a new production 
facility is incremental production (0 production the year before) to 
the marketplace and should be counted as such.
    Two other commenters believe that an incremental rate of three to 
five times is an appropriate stimulus for expanding production, while 
still allowing for a base payment rate that will provide stability to 
existing producers. These commenters do not support a larger 
incremental payment (as raising the incremental rate will lower the 
base rate) because a new producer will have his first year of 
production counted as base production. This seems to penalize new 
producers from entering into production versus existing producers 
expanding their current production. The commenters believe that new 
production, whether from new or existing biorefineries, should be paid 
at the incremental rate. One of the commenters points out that the 
first sweet sorghum to ethanol facility that is proposed to come into 
production will begin producing advanced biofuels in December 2011. 
This will mean that three quarters in the 2012 fiscal year will be paid 
at base production instead of incremental production. A new facility 
has its greatest cash flow needs at the beginning of operation, not a 
year later. By providing incremental payments to this new production, 
USDA can help provide this needed first year cash flow.
    One commenter supports the policy goal of promoting increased 
biofuel production through a tiered payment system. However, the 
commenter believes the program is inappropriately focused on 
incremental production from existing facilities rather than production 
from new facilities. Under the proposal, incremental production would 
receive a payment five times larger than ``base'' production and 
production from new facilities would be considered ``base'' production 
in its first year. The commenter does not believe this is responsive to 
the policy goal of encouraging increased biofuel production. Indeed, it 
will perversely favor increased production at existing facilities to 
the detriment of new facilities producing second and third generation 
advanced biofuels. The commenter suggests that new facilities be 
treated as incremental production for the first several years, after 
which they would establish their baseline. It is revenue in these first 
several years that will be most critical to the nascent advanced 
biofuels industry.
    Several commenters express concern over the provision for when a 
facility would be paid for its incremental production.
    One commenter believes that waiting until year 2 to receive the 
incremental production rate discourages rather than encourages maximum 
production of new, advanced biofuels as soon as possible and during the 
first year of production. The commenter recommends that all production 
be considered incremental production unless the biorefinery is in 
operation as of the time of the NOCP.
    One commenter expresses similar concerns, that the current 
definition of incremental production does not encourage new capital 
investment to build new facilities or to increase the capacity at 
current facilities. The commenter recommends that base

[[Page 7948]]

production be identified as production from plants completed prior to 
October 1, 2010, and that incremental production be identified as 
production coming from new facilities or incremental capacity additions 
to current facilities completed after October 1, 2010.
    One commenter also believes that as proposed the rule penalizes 
plants that expedite the introduction of new gallons to the market. The 
commenter states that new gallons should receive the incremental 
payment only once, but at least once, and should be eligible regardless 
of when the plant starts up. According to the commenter, facilities not 
in production for 12 months prior to the sign up period that come on 
line and quickly ramp up to capacity may be faced with a scenario where 
all of their capacity is base capacity. Thus, the rule seems to 
encourage reduced production in the base year, just so the facility can 
take advantage of a 5x multiplier in the subsequent year. In order to 
avoid discouraging rapid deployment, the commenter suggests that, for 
facilities not in production at least 12 months prior to the sign up 
period, base production should be calculated by dividing the amount of 
total volume produced up to the sign up period, by the number of months 
in operation, and multiplying by 12.
    One commenter recommends revising the Agency's decision regarding 
the incremental production for biorefineries that have been in 
existence for less than 12 months. As proposed, such biorefineries will 
not be eligible for incremental payments. The commenter recommends 
reducing the timeline for incremental payments eligibility from 12 
months to 6 months of production. According to the commenter, the first 
year of production is a critical time period for the biorefinery, such 
that financial support within this time period from this program will 
greatly increase the odds of commercialization success for the 
biorefinery. Recognition of the improvements in production through an 
increase in payment is an important step in that process.
    Response: The Agency acknowledges the complexity of providing 
incentives to produce advanced biofuels in both the base and 
incremental scenario. As has been stated previously, the Agency has 
overhauled the payment provisions to provide for actual production and 
incremental production. Incremental production is paid only where a 
facility produced eligible advanced biofuels at an advanced biofuel 
facility that has no more than 20 days (excluding weekends) of non-
production of eligible advanced biofuels in the year prior to the 
fiscal year in which payment is sought. The Agency has determined that 
the revised payment provisions are easier to implement and remove the 
estimation of production, such that a more objective system is used.
    The key revision in the payment program relative to these comments 
is the proportion of funds that will be paid for actual production 
relative to incremental production. For example, for fiscal year 2011, 
70 percent of available program funds will be available to actual 
production and 30 percent will be available for incremental production. 
Thus, in the earlier years of the program, more funds will be available 
to help existing biorefineries and new biorefineries than will be 
available for increasing production at existing biorefineries.
    While the Agency has not revised the provision that a new facility 
would not be eligible for incremental payments, there is no longer a 
defined relationship between the actual production payment rate and the 
incremental production payment rate and the amount of funds paid to 
facilities for actual production versus incremental production is 
unknown. Because more program funds will be made available in the 
earlier years of the program for actual production than for incremental 
production, it is likely that a new facility would benefit more under 
the revised payment provisions than under the proposed payment 
provisions. Once the new facility is established, it would be equally 
eligible for incremental production payments.

Equivalent BTUs

    Comment: One commenter agrees with a per BTU payment method, but is 
concerned that equivalent BTU payments for solid fuels and liquid fuels 
will put liquid fuels at a significant disadvantage. The commenter 
provides the following reasons:
    The fuel pellet industry is mature and enjoys significant market-
driven growth potential. The advanced liquid fuel industry is very much 
in infancy and growth is limited due to challenging economics. This 
program should place priority on enabling early adopters in the 
advanced liquid fuel sector, which will help attract additional 
investment needed for growth. Having an equivalent BTU payment between 
fuel types dilutes the funding pool for liquid fuel producers and 
provides incentives for ``business as usual'' in the fuel pellet space. 
Placing priority on liquid fuels also helps solve the very important 
public policy issue of filling the advanced biofuel carve out in RFS-2.
    The proposed rule includes restrictions on liquid fuel producers, 
but not solid fuel producers. Without restrictions, the commenter 
assumes that the existing wood pellet industry will draw from the same 
funding pool as the ``small'' liquid fuel producer. Up against an 
established industry, the predominance of funding will be awarded to 
existing solid fuel production and do little to enable new advanced 
liquid fuels.
    The costs to construct and operate liquid fuel plants are 
significantly higher than that of solid fuels. Even corn ethanol 
capital costs can be 5 times higher per BTU than the costs associated 
with building a pellet plant and operational costs are over 2 times 
higher on a per BTU basis. These ratios could easily double for a 
cellulosic advanced biofuel facility where capital costs are being 
reported at well over twice that of a corn ethanol plant (or nearly 10 
times that of a pellet plant).
    To establish a level playing field, the commenter recommends that 
payments across fuel types should have some proportion to investment 
and should favor transportation fuels that displace imported fuels, and 
offers the following suggestions:
     Separate the funding into pools for the different fuel 
types.
     Include solid fuel producers in the ``large'' producer 
category.
     Include a multiplier for liquid fuel BTUs.
    Response: The Agency has revised the payment provisions to discount 
the BTUs from eligible solid advanced biofuels produced from forest 
biomass and this revision addresses the commenter's concern.
    In addition, the Agency added the following provision to the rule: 
A producer who has a production of 150 million gallons of liquid 
advanced biofuel or 15,900,000 MMBTU of biogas or solid biofuel will be 
considered a ``larger producer.'' The following paragraph presents the 
assumptions and methodology used to derive the 15,900,000 MMBTU 
equivalent.
    The Agency concluded that the most appropriate way to determine 
equivalency for biogas and solid advanced biofuels when comparing to 
liquid advanced biofuels was to establish an ``average'' heat content 
for advanced biobased liquid fuels that could be used as a benchmark. 
The Agency chose to use a 50-50 mixture of typical ethanol and 
biodiesel fuel as the benchmark liquid fuel for the equivalency 
determination. The heat content value for the benchmark liquid fuel was 
derived from information presented on Table 13.1 (U.S. Default

[[Page 7949]]

CO2 Emission Factors for Transport Fuels) of The Climate 
Registry's ``General Reporting Protocol'' published in May, 2008. Table 
13.1 lists the heat content of ethanol as 0.084 MMBTUs per gallon and 
the heat content of biodiesel as 0.128 MMBTU per gallon. These two 
values were averaged (0.084 + 0.128 = 0.212/2 = 0.106 MMBTU per gallon) 
and multiplied by 150,000,000 gallons (150,000,000 gallons * 0.106 
MMBTU/gallon = 15,900,000 MMBTU) to generate the BTU content of an 
amount of biogas and solid advanced biofuels that would be considered 
equivalent to the liquid advanced biofuels threshold for defining 
``larger producer.''
    Lastly, with regard to the suggestion that the program favor 
transportation fuels directly, the Agency has revised the rule to 
provide ``bonus'' BTUs to an advanced biofuel meets an applicable 
renewable fuel standard as identified by the EPA in order to achieve a 
more favorable environmental outcome of this program and to align it 
with other Federal programs addressing advanced biofuels consistent 
with the legislative authorization of this program. As a result of this 
provision, BTUs from such liquid advanced biofuels would receive a 
``multiplier'' as suggested by the commenter.
    Comment: Two commenters believe that, while the mechanism to 
develop a per BTU payment structure is sound, not all BTUs are created 
equal. According to the commenters, providing an equivalent BTU payment 
for woody biomass and liquid fuels products puts liquid fuels at a 
disadvantage. For example, the fuel pellet industry has reached a level 
of maturity that far surpasses the advanced liquid fuel industry.
    The commenters believe that this program should place priority on 
enabling early adopters in the advanced liquid fuel sector because such 
priority may help the sector attract additional investment and provide 
for growth in the industry. Having an equivalent BTU payment dilutes 
the funding pool for liquid fuel producers and provides incentives for 
``business as usual'' in the fuel pellet space. Placing priority on 
liquid fuels also helps solve the very important public policy issue of 
filling the advanced biofuel carve-out in RFS.
    The rules as written establish clear restrictions on liquid fuel 
producers, but not solid or gaseous fuel producers. As such, the 
commenter assumes that all eligible solid fuel producers (i.e., wood 
pellets) will draw from the same pool of funding as the ``small'' 
liquid fuel producer (less than 150 million gallons per year). Up 
against a mature industry, the predominance of funding will be 
allocated to solid fuel production and do little to enable advanced 
liquid fuels. The capital costs and conversion costs for liquid fuels 
are significantly higher than that of solid fuels. When comparing fuel 
pellet costs to corn ethanol costs (the cheapest comparison possible 
and any eligible advanced liquid fuel will certainly cost more than 
corn ethanol), capital costs are 4-5 times higher per BTU for liquid, 
and operational costs are 2-3 times higher. Payment ratios should have 
some proportion to investment and should favor liquid fuels that 
displace imported fuel feedstock.
    For these reasons, should USDA evaluate advanced biofuels applying 
for this program based on BTU content, they should evaluate BTU content 
against like fuel types only, i.e., liquid fuels against liquid fuels, 
solid fuels against solid fuels and gaseous fuels against other gaseous 
fuels.
    Another commenter, in referring to the determination of the 
equivalency values for payment, urges the Agency keep the final rule 
for this program as simple and streamlined as possible and place 
priority on liquid fuels as a non-mature industry that displaces 
imported fuel feedstock. In support of this, they included their 
opinions that were submitted to EPA during the RFS rulemaking process 
surrounding equivalency values on energy content of liquid biofuels as 
follows:
    ``[The commenter] supports EPA's approach on basing the equivalency 
values on the energy content and renewable content of each renewable 
liquid fuel in comparison to denatured ethanol, consistent with the 
approach under RFS-1. This would be consistent with other approaches 
such as non-liquid renewable fuels (biogas and renewable electricity) 
which continue to be valued based on the energy contained in one gallon 
of denatured ethanol and would not be changed under EISA. A straight 
volume approach would create a disincentive for the development of new 
renewable fuels that have higher energy content than ethanol because of 
the higher cost to incorporate more carbon into your base molecule. The 
use of energy-based equivalence values could thus provide a level 
playing field in terms of the RFS-2 program's incentives to produce 
different types of renewable fuel from the available feedstock. The 
commenter agrees that the existence of four standards under RFS-2 does 
not obviate the value of standardizing for energy content, which 
provides a level playing field under RFS-1 for various types of 
renewable fuels based on energy content.''
    Response: The purpose of the program is to support and ensure an 
expanding production of advanced biofuels. In addition, dividing 
funding among the different types of advanced biofuels (beyond the 
provisions associated with advanced biofuels produced from forest 
biomass and advanced biofuels meet applicable renewable fuel standards 
as identified by the EPA) as suggested by the commenter, would add 
complexity to both the calculation of payments under and the 
administration of the program. In the interim rule, however, the Agency 
has established a value of 15,900,000 MMBTU of biogas or solid biofuel 
as being equivalent to 150,000,000 gallons of liquid advanced biofuel. 
As the program matures, the Agency will continue to evaluate the use of 
the equivalent BTUs basis in making payments on the advanced biofuel 
industry as a whole.
    Comment: One commenter notes that the difficulty in the economic 
decision to produce advanced biofuels is with the uncertainty of 
payment level from a competitive funding pool. Without knowing what the 
payment will be, facilities may be hesitant in moving forward with 
advanced biofuel related production especially if the economics are 
questionable. The commenter believes more consistent advanced biofuel 
production could occur if a payment rate structure and formula could be 
established to lessen the uncertainty so that biorefineries with 
operational flexibility in creating advanced biofuels would be 
encouraged to do so based on good economics. The appropriateness of the 
payment rates can be periodically evaluated and adjusted based on 
economic conditions and program results for expanding biofuel 
production.
    Response: While the Agency acknowledges the commenter's concern 
over the uncertainty of payment level and economic decisions, there are 
too many variables outside the control of the Agency to reduce this 
uncertainty. Such variables include the number of applicants, the types 
of advanced biofuels, and the quantity of advanced biofuels seeking 
payment in any funding pool. The Agency notes that, by specifying each 
fiscal year the level of funds that will be available for actual 
production payments and for incremental production payments, some 
additional information is provided to producers to assist in their 
planning.

[[Page 7950]]

Foreign Ownership

Comments in Support of Allowing Foreign Ownership
    Comments: USDA received a large number of comments (over 1,000) 
related to the question of whether advanced biofuel biorefineries with 
foreign ownership should be allowed to participate in the program. Most 
of the commenters state their support for allowing foreign ownership 
(their opposition to the proposed 51 percent domestic ownership 
requirement). The commenters include U.S. Congressional 
Representatives, trade associations, industry representatives, and 
biorefinery employees. A large majority of the commenters supplied 
comments specifically related to one foreign-owned biorefinery, the 
Louis Dreyfus biorefinery in Claypool, Indiana. The key points offered 
by the commenters are summarized, as follows:
     Allow the Dreyfus facility to compete on a level playing 
field by revising the biofuel payment policy to allow the Claypool 
plant to be treated like the rest of the industry.
     The Dreyfus facility needs the payments to stay 
competitive with the other plants.
     Adverse local economic effects if plant is not included in 
payment program. This could lead to plant closure and a loss of jobs as 
well as income to local farmers and businesses.
     They are a positive influence on the local, regional, and 
National community.
     The plant meets the priorities associated with the payment 
program (incentivize increased U.S. production of biodiesel, creates 
jobs, boosts economic activity in rural areas).
     The biodiesel generated at this plant helps America break 
free of its dependence on foreign oil/provides a source of clean 
burning biofuel.
     Taking money away from Dreyfus would lower their bean 
price and raise our bottom line.
     Dreyfus has brought jobs to the U.S., while a lot of 
companies are taking jobs overseas (e.g., to China).
     The facility has boosted the local economy; created local 
jobs during construction, material acquisitions, direct jobs, supports 
dozens of jobs in related businesses.
     Increases economic opportunity for farmers through the 
purchase of local soybeans, increasing the farmer's basis and 
decreasing transportation costs. The facility's location allows more 
efficient transport of soybeans grown.
     The Company has improved/invested in local infrastructure.
     Provides an excellent market for soybeans and a positive 
impact on soybean prices.
     Pays local, State, and Federal taxes; complies with U.S. 
laws and regulations.
     Eliminating the 51 percent domestic ownership provision 
would send a strong message to other countries that the U.S. is a great 
place to locate their business.
     Given the tough economic times, USDA should be encouraging 
as much investment in local communities as possible.
     Investments made in biofuels extend beyond the producer by 
also supporting rural economies. The new generation of advanced 
biofuels is a critical next step in bolstering this industry and 
capitalizing on the investments already made. The development of 
advanced biofuels in this country cannot be accomplished without the 
contribution of major investments, including foreign investments.
     The Dreyfus Company has made substantial investment in the 
U.S., locating its plant in the U.S., employing U.S. citizens, and 
using U.S. soybeans grown by American farmers to produce a renewable 
fuel. Dreyfus provides American jobs and pays American taxes the same 
as the other plants allowed to participate in the payment program and 
should not be left out.
     The statute, as now written, does not have qualifiers or 
eligibility for payments; merely, provided payments to all producers of 
advanced biofuel. The statute only defines an eligible producer as a 
``producer of advance biofuels'' and contains no other conditions; it 
simply provides payments to all producers of advanced biofuel and 
defines advanced biofuel to include biodiesel.
    Numerous commenters believe that the Agency does not understand the 
financial benefits the Louis Dreyfus facility has on rural Indiana. The 
commenters point out that this company employs U.S. citizens, buys U.S. 
grown soybeans, and invests in U.S. rural infrastructure. The 
commenters state that this is the definition of rural development. 
Therefore, the commenters support changing the 51 percent U.S. 
ownership provision to include any facility included in the U.S., 
including the Louis Dreyfus facility, producing an advanced biofuel. 
The commenters believe that making this change would send a strong 
message to other countries that the U.S. is a great place to locate 
their business. Finally, these commenters suggest that, given these 
adverse economic times, we should be encouraging as much investment in 
our rural communities as possible. The commenters point out that the 
Louis Dreyfus company has made that commitment to Indiana, its farmers, 
and its rural communities and we should applaud, not penalize them, for 
their investment.
    Several commenters question whether the Agency is following the 
intent of the program by including the citizenship or eligibility 
requirements as part of the program. The commenters state that the 
Agency's decision to implement eligibility restrictions is a 
significant departure from Congressional intent and those restrictions 
should be eliminated from the program. The intent of the program (even 
as detailed by USDA in their NOCP for 2009) is to stimulate rural 
economies (provide jobs), and to promote the production of biofuels 
within the U.S. Neither of these goals is promoted by including a 
citizenship requirement in the rule.
Comments Opposed to Allowing Foreign Ownership
    Comment: Six commenters do not support allowing advanced biofuel 
biorefineries with foreign ownership to participate in the program. 
These commenters generally expressed the concern that the money used to 
fund this program comes from American taxpayers and should not go to 
foreign companies.
    One commenter believes that this program should promote American 
companies and states that foreign companies, even if they hire local 
people, have driven out other U.S. companies who also are hiring U.S. 
employees and keep profits at home in the U.S.
    Another commenter understands a key to the Bioenergy Program for 
Advanced Biofuels is to promote a dynamic business environment in rural 
America. The commenter states that one way to continue that dynamic 
business environment is to promote U.S.-owned businesses. The commenter 
notes that the National Biodiesel Board (NBB) reports that more than 
170 American companies have invested in production capacity that 
currently approaches 2.7 billion gallons nationwide. The commenter is 
owned directly and indirectly by nearly 5,000 Midwest investors who 
have helped build the U.S. biodiesel industry. An overwhelming majority 
of those investors are rural taxpayers who have invested in a U.S.-
owned and operated company in order to promote our nation's energy 
goals and support U.S. agriculture. The U.S. biodiesel industry will 
spend about $1.3 billion on raw

[[Page 7951]]

materials, goods and services to produce 475 million gallons of 
biodiesel this year. In doing so the biodiesel industry will add $4.1 
billion to GDP this year, increase household income by nearly $1 
billion, and support nearly 23,000 jobs in all sectors of the economy. 
In addition, the biodiesel industry will provide $445 million of tax 
revenue to the Federal treasury and $383 million to State and local 
governments.
    Another commenter expressed concern that illegal immigrants might 
be taking jobs away from Americans if foreign-owned companies are 
allowed to participate.
    One commenter further suggests that the program be restricted to 
only those producers that are 100 percent (rather than 51 percent) 
domestically owned.
    One commenter is opposed to providing of any further tax relief to 
Louis Dreyfus' bio-fuels activities. According to the commenter, (1) 
the owners of this facility have already had years of tax relief, which 
they knew would run out at a specific time; (2) that they are foreign 
owned and received these tax breaks shows how the U.S. has helped them, 
so now they should be able to stand on their own without further 
hurting the tax base; and (3) they have publicly stated that if they do 
not get the continuation of the tax relief it will not alter their 
plans and they will continue to operate as they are now, so there would 
be no negative impact on the community.
    Response: The Agency has reconsidered the citizenship requirement 
and has decided to eliminate this requirement from the rule. The Agency 
agrees that the beneficial impacts of the program will be at the local 
level regardless of ownership.
    Comment: One commenter recommends that the program include a 
requirement that eligible facilities be located in the United States, 
the Republic of Palau, the Federated States of Micronesia, the Republic 
of the Marshall Islands, America Samoa and the Commonwealth of Puerto 
Rico. Focusing on the facility location rather than citizenship would 
alleviate the issue of disparate treatment based upon national origin. 
Furthermore, individual or entity eligibility requirements would reveal 
producers that were ineligible.
    Response: As noted in the previous response, the citizenship 
requirement has been removed from the rule. Thus, this comment is moot.

Non-Rural Eligibility

    Comments were received for allowing advanced biofuel biorefineries 
located in non-rural areas to participate in this program and for 
disallowing such biorefineries from participating.
    Reasons cited by commenters for allowing non-rural advanced biofuel 
biorefineries to participate included:
    1. A rural area requirement unfairly excludes valuable biodiesel 
production facilities that make quality fuel, utilize domestic 
feedstock, and benefit American farmers and their communities. 
Biodiesel made from restaurant waste oil is a good example of a 
renewable biofuel currently sourced and produced most efficiently in 
urban areas. To exclude these producers seems to us contrary to the 
goals of the program.
    2. For a biorefinery, the cost of feedstock can typically represent 
80 percent of the total cost of finished product. A sustainable, 
reliable supply of feedstock is the centerpiece of a successful 
renewable fuel plant. These plants, regardless of where they are 
located, offer long-term opportunities for the feedstock producers in 
the rural agricultural community. The opportunities include those 
associated with employment of a local/rural labor force, seed sales, 
farm equipment, fertilizer sales, feedstock storage and trans-load 
terminals, and transport. One of the commenter's observes that the 
rural economic development potential resulting from a new biofuel 
facility far exceeds the potential of the community where the facility 
is actually located. As an example, the commenter's facility will 
result in 55 manufacturing jobs and a local tax revenue of 
approximately $1.5 million.
    An independent economic impact analysis found that for the rural 
communities where our barley will be grown, 450 farm jobs will be 
created and farmers will have access to a new winter barley market that 
will offer a $100 million revenue opportunity. The rule, as proposed, 
allowing eligibility to facilities in non-rural communities is critical 
to the success of the Program and clearly maintains the spirit of 
enhancing rural development.
    3. The rural area requirement was not contemplated in the statute 
or intended by Congress.
    4. The Bioenergy Program was established under the Energy Title 
(Title IX) of the Farm Bill. It is not a Rural Development (Title VI) 
program; thus, the rural area requirement should not apply.
    5. Regardless of whether or not an advanced biofuel production 
facility is located in a rural area, that facility will still be 
employing U.S. citizens, paying U.S. taxes, and creating demand for 
U.S. agricultural products and services by operating on feedstock 
produced by U.S. farmers. Therefore, any ``non-rural'' facility's 
participation in the program will positively impact U.S agriculture and 
rural development nearly as much as the participation of a ``rural 
facility.'' In order to promote equitable as well as expanded U.S. 
biodiesel production, participation in this program should not be based 
on geography.
    6. Exclusion of some production facilities located in the U.S. 
would create inequity in the advanced biofuels market. Those entities 
excluded from the program would be placed at a competitive disadvantage 
to other producers that are eligible. In some cases, there would be 
facilities located in the same State or region that would be treated 
differently.
    7. In the case of the Bioenergy Program, the rural development 
benefits accrue from the significant use of renewable domestic 
agricultural feedstock. This benefit exists regardless of the location 
of the biofuel production facility.
    8. Farmers, in particular, have realized significant economic 
benefits as a result of the expanded markets and increased demand for 
agricultural feedstock and co-products resulting from biodiesel 
production.
    9. The possibility that the rural area requirement would be imposed 
was not raised by USDA during the public hearing on the Bioenergy 
Program or at any time prior to the release of the NOCP.
    10. The previous version of this program was administered by the 
Farm Service Agency (FSA) with no rural area requirement. The rural 
area requirement was not included in the preceding Bioenergy Program 
and was never discussed publicly by USDA prior to issuance of the 
NOCPs. The arbitrary limitation on program eligibility is inconsistent 
with the policy objectives Congress sought to address when it enacted 
Section 9005 of Public Law 110-234.
    11. Biodiesel producers operate in a high volume, low margin 
competitive fuels marketplace. Slight variations in pricing will impact 
a producer's ability to sell fuel. Disqualifying similarly situated 
producers from participating in the program based solely on their 
geographic location will create artificial market distortions and put 
some producers at a distinct economic disadvantage. In the interest of 
equity and promoting the expanded production of advanced biofuels, all 
biodiesel producers who manufacture fuel meeting the ASTM D6751 fuel 
specification should be permitted to receive program payments, 
regardless of their plant's physical location. It is

[[Page 7952]]

worthwhile to note that farmers and feedstock providers in rural areas 
accrue the economic benefits of increased demand for biomass feedstock, 
regardless of whether a plant is located in a rural or urban area. This 
is a result consistent with overall mission of USDA's Rural Business-
Cooperative Service.
    12. Including a rule based simply on population fails to fully 
recognize the contribution the commenter's business makes to farm 
families and the rural communities surrounding our city. While 
Owensboro's population slightly exceeds 50,000 people, our town and our 
region are predominately rural rather than urban.
    13. The ``Rural Area'' requirement should not be included in the 
final rule. Domestic feedstock derived from plant or vegetative matter 
that is converted into advanced biofuels directly supports the U.S. 
rural agricultural model. The requirement of the facility to be located 
in a rural area minimizes the national effort to produce biofuels that 
support geographic fuel needs. In all aspects, rural agriculture is 
strongly supported by the production and use of feedstock grown in the 
United States.
    14. Excluding plants in rural areas is inconsistent with the 
overall goals of USDA biofuels programs, which is to increase domestic, 
renewable energy sources and expand markets for farmers.
    15. A rural area requirement unfairly excludes valuable biodiesel 
production facilities that make quality fuel, utilize domestic 
feedstock, and benefit American farmers and their communities. Rural 
development benefits accrue from the significant use of renewable 
domestic agricultural feedstock. This benefit exists regardless of the 
location of the biofuel production facility.
    16. As a general rule, a majority of the feedstock will inherently 
come from the rural community, and be produced/collected/harvested by a 
local labor force. Similarly construction and operation workforces will 
be predominantly local. The rural economic development potential 
resulting from a new biofuel facility is substantial. One advantage of 
advanced biofuels is that they can be produced all over the country 
utilizing multiple feedstock. Projects should not be evaluated 
negatively on one of advanced biofuels industries greatest assets, 
flexibility. The rule, as proposed, allowing eligibility to facilities 
in non-rural communities is critical to the success of the program and 
clearly maintains the spirit of enhancing rural development.
    17. Offering eligibility to facilities in non-rural communities is 
critical to the success of the program goals and the advanced biofuels 
industry. Restricting the location of these facilities is not necessary 
to maintain the spirit of enhancing rural development and the 
geographic diversity of advanced biofuels production. More flexibility 
of site selection, not less, should be installed in these programs.
    18. Having a consistent, cost competitive regional supply of 
feedstock is key to the success of any project. Non rural plants that 
use agricultural feedstock will most certainly rely on the surrounding 
rural communities to produce, harvest, store, and handle feedstock 
needs. With feedstock cost representing the largest operational cost of 
a biorefinery, this in turn means that most of what the plant spends 
goes to the rural community in paying for that feedstock. This should 
demonstrate that the biorefinery does not need to be in a rural area to 
fulfill program goals. Excluding plants that are not in rural areas 
denies the supporting rural community significant opportunity.
    19. Geographic requirements will not serve the goal of promoting a 
stable advanced biofuel industry in the U.S. Siting of biofuel 
facilities will be dependent on available feedstock, infrastructure, 
logistics, and other factors. Undoubtedly, many advanced biofuel 
facilities will be located in rural areas due to feedstock 
availability. However, to the extent that qualifying renewable biomass 
is located in other areas, the Agency should not discourage utilization 
of these resources and the development of the advanced biofuels 
industry by excluding non-rural facilities from eligibility for the 
payments program.
    20. Advanced biofuel produced in the U.S. and its territories does 
not depend on the location of the production plant.
    One commenter commends the proposed removal of a rural location 
requirement for advanced biofuel producers under this program. It is 
appropriate for USDA Rural Development to wish to see such facilities 
located in rural areas, but the very existence of this emerging sector 
will benefit rural areas generally, which are the source of most of the 
feedstock used for biofuels. In Oregon, one of the primary producers of 
biodiesel is located in Salem, Oregon, an urban area. Yet it provides 
an invaluable processing facility for vegetable oilseed raised in rural 
areas of the State. The past practice of disqualifying urban sites 
excluded Oregon's lead producer of advanced biofuels from the benefits 
of the program, and thus limited Oregon's ability to expand its biofuel 
industry. In an emerging industry that is still attempting to establish 
itself, such disqualification is not helpful. The new approach found in 
the proposed rule should be retained in the final rule.
    One commenter suggested that the Agency change the 50,000 
population criterion to 500,000 to 1 million persons. Such a change 
would enable the commenter's facility, which is located next to two 
interconnected railroads, to easily bring in feedstock and ship out 
finished biodiesel, allowing the facility to build on the relationships 
with local/domestic farm institutions.
    One commenter, a biofuel producer, notes that they are invested 
heavily in the future of agriculture in our region. There are more than 
4,000 farm families who grow soybeans in our market area. Our presence 
in the market adds competition for the available soybeans and benefits 
all soybean farmers. Losing the eligibility of the Advanced Biofuel 
Payment Program takes away a portion of our ability to fairly compete 
in the marketplace and ultimately hurts soybean prices paid to farmers. 
This is especially true given the current economic conditions facing 
biodiesel.
    Our eligibility in this program would allow us to maintain some 
level of production. The stated purpose of the Advanced Biofuels 
Program is to ensure expanded production of biofuels and promote 
sustainable economic development in rural America. Excluding our 
facility in this program creates a competitive disadvantage and 
inequity in the marketplace.
    In fact, a competing biodiesel facility could locate less than five 
miles from our existing location and would be eligible for Rural 
Development programs that would assist in construction grants and 
loans. They would be eligible for:
     Biorefinery Assistance Loan Guarantees (section 9003).
     Rural Business Enterprise Grants (RBEG) Program.
     Rural Energy for America Program Grants (REAP Grants).
     REAP Energy Audit.
     REAP Renewable Energy Development Assist.
    Based on the underlying law and the stated purpose of the program 
``to support and ensure an expanding production of Advanced Biofuels,'' 
the commenter believes it should be eligible for payments in this 
program and all other Rural Development programs.
    The commenter also points out that the city of Owensboro and the 
surrounding rural areas are economically linked and interdependent. The 
commenter's

[[Page 7953]]

business is dependent on the farmers in our neighboring rural areas to 
supply our basic raw material. Furthermore, the commenter has made a 
significant investment in resources to produce biofuels and for more 
than 100 years have been a partner in building a more prosperous 
agricultural economy in our region. The commenter believes it is an 
example of the type of business the legislation intended to benefit and 
that if eligible, then thousands of soybean producers will also 
benefit.
    One commenter uses used cooking oil (UCO) as a feedstock to produce 
UCO-based biodiesel, which advances the goals of this program. The 
commenter refers to studies in the State of California and the European 
Union that have demonstrated that UCO-based biodiesel has one of the 
lowest life cycle carbon footprints of any road ready fuel available on 
the worldwide market (http://www.arb.ca.gov/fuels/lcfs/workgroups/workgroups.htm#pathways). Using UCO as a feedstock poses significant 
challenges that require technologies not needed by producers that use 
virgin oils such as canola and soybean oil. The additional cost of 
obtaining this equipment to process this feedstock could be offset 
through funding from this program.
    However, producing UCO-based biodiesel depends on being close to 
cities and population centers where large quantities of UCO are 
produced daily and where larger populations generate higher amounts of 
carbon and pollution. This fuel is not viably produced in a rural area 
where any significant quantity of UCO would, by necessity, require 
shipment from cities and large population centers. This shipment would 
raise both the cost of acquisition of feedstock and the life cycle 
carbon footprint of the fuel through its transportation. This cost 
would mitigate any benefit received through the program and the 
proceeds would be consumed through increased cost as opposed to being 
used for infrastructure upgrades.
    As a result, if a rule is implemented with a rural production 
requirement, the commenter and other producers working on a similar 
business model will be unqualified to participate and the significance 
investments made to produce UCO-based fuel will go unsupported. 
Therefore, the commenter recommends that any requirement that biofuel 
production be in a rural area be removed from any final rule.
    One commenter notes the importance of the applicability of the 
Bioenergy Program to all U.S.-based biodiesel facilities, especially 
those majority-owned by U.S. farmers. The rural area requirement, as 
applied last year, eliminated much U.S.-based biodiesel production. It 
is particularly concerning that the program eliminated U.S.-based 
biodiesel facilities owned by U.S. farmers. The prior application of 
the rural area requirement unfairly excluded valuable biodiesel 
production facilities that make quality fuel, utilize domestic 
feedstock, and benefit American farmers and their communities. Rural 
development benefits accrue from the significant use of renewable 
domestic agricultural feedstock. This benefit exists regardless of the 
location of the biofuel production facility.
    One commenter states that, if the final rule continues the rural 
area requirement, it would not be consistent with the intent of the 
program to ``provide assistance to entities that create jobs and 
increase investment through the production of advanced bioenergy.''
    Reasons for disallowing non-rural advance biofuel facilities from 
participating included:
    1. This is a rural development program and it should be used in 
rural areas. Requiring a rural location for biorefineries is inherently 
consistent with the mission of USDA's Rural Business-Cooperative 
Service and as such USDA should include the previous NOCP's rural 
location as a requirement for this program.
    2. In previous notices of contract proposal (Fiscal Year 2009 and 
Fiscal Year 2010), this program was restricted to facilities located in 
rural areas. In addition, the stated mission of Rural Development is to 
help improve the economy and quality of life in rural America. The 
Agency should continue to support economic development, biorefinery 
construction, and advanced biofuels production in rural areas through 
the Advanced Biofuel Payment Program. This will ensure that future 
NOCPs are consistent with the NOCPs already issued and achieve the 
mission of USDA.
    3. While not specifically stated in the 2008 Farm Bill language, 
the program was created by the Farm Bill and should serve rural 
economies where farms are located. USDA has concentrated heavily on 
rural economic development over the last two years and has mentioned it 
as a cornerstone of the upcoming 2012 Farm Bill. This program can 
continue current economic activity and stimulate new activity by 
promoting the production of advanced biofuels in rural areas.
    4. Most producers located in rural areas operate at smaller 
capacities as compared to those in urban areas and, therefore, do not 
benefit from certain ``economies-of-scale'' that larger producers may 
be able to benefit from. This further reduces already thin margins that 
many rural producers are operating under, and the relief in feedstock 
pricing that would be provided under this rural program is critical to 
the rural producer's ability to be competitive in the biodiesel 
marketplace.
    5. The intent of the originating statute was to incent rural 
community economies and as such requests USDA to reinstate a rural 
location requirement as contained in previous NOCPs. Many non-rural 
located biodiesel refineries have the innate ability to import foreign 
feedstock for refining into biodiesel.
    6. The intent of Congress was to not only incent rural located 
biorefineries, but to enhance the economics thru increased demand for 
U.S.-based biomass feedstock produced in the rural areas of the U.S.
    Response: The Agency has reconsidered the proposed rural area 
requirement and agrees with the commenters that the beneficial impacts 
of the program will generally be in rural areas even if the biofuel 
facility is located in an area that does not meet the proposed rural 
area definition. Biomass production is expected to occur largely in 
rural areas and, thus, rural economies will benefit from the increased 
use of biomass. The Agency is, therefore, removing the proposed rural 
area requirement from the rule.

Immediate Family Citizenship

    Comment: Several commenters disagree with the provision of the rule 
that would allow ownership by an entity composed of immediate family 
members where only one member of the family is a U.S. citizen. One 
commenter maintains this should not be allowed because the money used 
to fund this program is ``U.S. money.'' Commenters point out that, if 
the citizenship requirement is removed, then this requirement becomes 
moot.
    Another commenter states that the Agency provided no rationale for 
why the citizenship requirement should be ignored if only one member of 
an immediate family owned even a fractional interest in a company 
otherwise owned by foreign investors.
    Response: As noted in a response earlier in this preamble, the 
Agency is removing the citizenship requirement from the rule. Thus, as 
pointed out by the commenters, the immediate family citizenship 
requirement is also removed and these comments are moot.

[[Page 7954]]

Different Payment Rates Associated With Greenhouse Gases (GHG)

    Comments were received both for and against instituting different 
payment rates based on GHG emission reductions, including some comments 
suggesting that the Agency delay implementing a differentiation payment 
rate based on GHG emission reductions.
Comments in Favor
    Comment: Four commenters support the concept of basing payments on 
GHG emissions. Three of the commenters believe that the Agency should 
implement such provisions now, while the fourth commenter suggests a 
more cautious approach.
    One commenter supports payments based on GHG emissions because it 
would be consistent with Executive Order 12514 and RFS, and, by paying 
more for fuels that have a greater impact on GHG emissions reduction, 
the program will encourage the production of these fuels. The commenter 
recommends adding to the existing calculation a multiplier similar to 
Renewable Identification Numbers (RINs), but with broader applicability 
such as The General Reporting Protocol of The Climate Registry.
    One commenter recommends that, in order to simplify the process, 
advanced biofuels producers have their fuels certified by the EPA for 
the purposes of the RFS to determine GHG reduction. The commenter 
proposes that advanced biofuels that achieve a minimum 60 percent 
reduction receive an incremental 5x payment rate compared to advanced 
biofuels that meet the 50 percent reduction threshold necessary to 
qualify as an advanced biofuel for the RFS. The RFS 2022 goal for 
cellulosic biofuel, which must attain a 60 percent GHG reduction, is 16 
billion gallons. Cellulosic biofuel will make up the majority of the 
total RFS goal of 36 billion gallons by 2022 and yet currently there is 
no commercial production of this alternative transportation fuel. 
Therefore, USDA, in cooperation with the Department of Energy and EPA, 
should use the Advanced Biofuel Payment Program to spur the near-term 
production of cellulosic biofuels by distributing larger incentive 
payments than other advanced biofuels.
    One commenter recommends that the calculation be higher by the 
percent of difference. The commenter illustrates this as follows: If 
one advanced biofuel is 20 percent and another advanced biofuel is 50 
percent, there should be a 30 percent pay difference.
    One commenter agrees that incentivizing GHG performance is clearly 
important, but believes that establishing a healthy industry first is 
more important, noting that the advanced biofuel industry has to get 
good before it gets great and the push toward increasingly lower GHG 
numbers should not be done at the sake of discouraging commercial scale 
capacities of other, more competitive renewable fuels, and it should 
not be done at the sake of overlooking valuable feedstock options. If 
the Agency chooses this path, the commenter recommends that the Agency 
should also look to provide higher payments based on a reduced level of 
difficulty to grow, harvest, and transport feedstock to the facility 
because a reliable, competitively cost feedstock is critical to a 
successful, long term business plan. The commenter states that 
incentivizing a high GHG performing fuel that fails to offer a long-
term, sustainable feedstock option is counterproductive and that fuels 
derived from recurring, sustainable crops that can be integrated into 
the agriculture sector offers greater benefit to an industry trying to 
establish itself. Based on this, the commenter offers the following 
suggestion:
    Establish a schedule of payment multipliers based on impact of 
fulfilling program goals. As an example, annually recurring crops grown 
incremental to current crops on existing acres and perennial crops that 
can be grown on marginal acres should receive a multiplier. Fuels 
assigned an advanced ``D code'' by EPA's Renewable Fuel Standard should 
also be considered for a multiplier.
    Lastly, the commenter assumes that solid fuels would be exempt 
(and, therefore, not disadvantage liquid fuels) because there is no 
established GHG benchmark for solid fuels.
    One commenter supports the proposed approach to offer different 
payment rates based on the advanced biofuels' lifecycle GHG emissions. 
A workable approach would be use the EPA's categorization and 
registration of renewable fuels, i.e. advanced biofuels and cellulosic 
biofuels, with threshold GHG emission reductions of 50 percent and 60 
percent, respectively, as the basis for this differential payment 
scheme. Under this approach, advanced biofuels designated as cellulosic 
biofuels by the EPA and registered as cellulosic biofuels with the EPA 
would receive a greater payment than those designated and registered as 
advanced biofuels.
    One commenter supports a payment structure that is based on GHG 
emissions relative to petroleum as determined by EPA for the RFS. The 
commenter believes that this is a preferable approach for biodiesel 
producers compared to a structure in which differential payments are 
made on base versus incremental production. According to the commenter, 
the GHG-based structure would avoid penalizing biodiesel plants that 
have kept producing during difficult economic times. The commenter 
recommends that a GHG-based program provide the same higher payment 
levels to all of the biofuels determined by EPA to exceed 50 percent 
GHG emissions reductions, with no differentiation between base and 
incremental production.
    One commenter believes that the USDA Bioenergy Program regulations 
should be kept simple to encourage streamlined administration of the 
program. While we do not believe that the indirect land use change 
calculations included in the RFS regulation are mature or have been 
adequately vetted in the scientific community, if USDA does include 
lifecycle GHG emission reduction benchmarks as a way to reward lower 
emitting fuels with a higher payment rate, the commenter recommends:
    (1) Relying on already established regulations instead of creating 
a new set of regulations for those calculations (i.e., EPA RFS), and
    (2) Not complicating the program with multiple payment levels USDA 
will need to create and monitor, simply create a higher payment rate 
for advanced biofuels, as defined in the Farm Bill, that meet the RFS 
lifecycle GHG emission reduction requirements.
    The commenter also urges the Agency to make sure the program is 
flexible so that a producer can reapply in order to meet the higher 
payment criteria for the same project as it evolves. It should also be 
assumed that producers of advanced liquid biofuels would not produce 
fuels that do not meet the RFS qualifications; therefore, including 
lifecycle GHG emission reduction requirements in this program for 
liquid transportation fuels would be redundant and the commenter 
cautions against adding any unnecessary regulations to this program 
that could slow or complicate the process and therefore retard 
commercialization and production.
    Once again, liquid biofuels are the only advanced biofuels that 
currently have a regulatory framework in place for measuring GHG 
emission reductions compared to their counterparts. Because the 
definition of advanced biofuels in this proposed rule applies to solid, 
liquid, or gaseous fuels, the Agency would need to determine how it 
will quantify gaseous and solid advanced biofuels emission reductions 
when compared to their counterparts. For

[[Page 7955]]

reference, the commenter submitted its opinions of land use change in 
the regulation in its comments to the proposed rule by EPA on the 
administration of the RFS. A relevant excerpt is below:

    ``RFS driven biofuels demand on global agricultural land are 
miniscule compared to other land use factors. This does not mean 
that we can ignore the indirect land use effects of biofuels, since 
the goal ultimately for biofuels would be to play an even larger 
role in the energy supply. It does suggest, however, that current 
policies can be designed in such a way that they encourage 
investment in biofuels without immediate risk of severe land 
impacts. In the mean time, further analysis can be done to determine 
how and if policies for large scale deployment can be implemented to 
safeguard land resources and prevent unintended carbon emissions.
    Regulating land use related emissions of carbon through biofuels 
may result in the premature stifling of a potentially important 
sustainable energy resource for transportation, while doing nothing 
to address the serious problems of unsustainable global land 
management that continue to destroy valuable natural land resources 
and to contribute a tremendous amount of carbon to the atmosphere.
    Unsustainable farm practices worldwide may be responsible for as 
much as 5 million hectares per year of lost agricultural land due to 
degradation and loss of performance. To put that number in context, 
this annual loss of land is equivalent to losing 1 to 2 billion 
gallons of annual ethanol production each year.
    Given these considerations, the commenter urges EPA to fully 
acknowledge the extent of the uncertainty in estimation of emissions 
from land use change, and ensure that emerging biofuels technologies 
are not disqualified from participation in the RFS-2 program unless 
clearly demonstrated to be out of compliance with the program's GHG 
performance requirements under the full range of reasonable 
assumptions for the pertinent methodology, including assumptions 
that have not been adopted in EPA's proposed methodology.
    Specifically, should a biofuel satisfy its GHG performance 
requirement under any reasonable set of assumptions under EPA's 
uncertainty analysis, it should be deemed to qualify.''

    One commenter supports the proposal to link payments to the 
achievement of GHG reductions. However, the commenter encourages the 
Agency to maximize GHG reductions from biofuels by basing payments on 
the full lifecycle reductions actually achieved, not merely on 
achieving minimum thresholds. The existing RFS-2 program only requires 
that biofuels meet specific thresholds (such as a 60 percent reduction 
for cellulosic biofuels), but the program offers no incentives for 
producers to exceed those thresholds. Conversely, low-carbon fuel 
standards being developed by California and the northeastern States 
encourage maximum reductions by fully crediting the reductions 
achieved. The latter approach will best help the Agency achieve 
incremental GHG reductions and support the Administration's goal of 
reducing GHGs.
    One commenter states that, in the case of a biofuel (e.g., canola 
biodiesel) whose lifecycle analysis is still pending at EPA, the Agency 
should ensure that if it is subsequently determined to be eligible, 
then all such biofuel produced during that fiscal year would be 
eligible for Bioenergy Program payment, even if the production occurred 
before the EPA lifecycle analysis was concluded.
    Another commenter provides similar, but more extensive comments. 
This commenter notes that EPA is currently conducting a lifecycle 
analysis on canola biodiesel to determine if it meets the 50 percent 
GHG emissions reduction threshold required for eligibility for the 
biomass-based diesel pool. The commenter and canola biodiesel 
stakeholders that are working with EPA on this process are confident 
that canola biodiesel will exceed the 50 percent threshold. EPA has 
determined that biodiesel produced from soybean oil, a vegetable oil 
similar to canola oil, exceeds the 50 percent threshold. The commenter 
believes that the lifecycle factors associated with canola will enable 
it to meet and exceed the required GHG emissions reductions. EPA has 
indicated its intention to have the canola lifecycle concluded in the 
next several months.
    The fact that the canola lifecycle analysis has not been completed 
creates uncertainty for canola biodiesel producers and makes it 
difficult for the commenter to advocate using the EPA GHG emissions as 
a basis for the Bioenergy Program payments. A GHG emissions based 
payment structure could be preferable to the existing structure that 
provides a differential payment for incremental production. The GHG-
based structure would avoid penalizing biodiesel plants that have kept 
producing during difficult economic times.
    If the Agency utilizes a Bioenergy Program payment structure that 
is based on GHG emissions as determined by EPA for the RFS, then the 
Agency should ensure that if canola biodiesel is subsequently 
determined by EPA to exceed the 50 percent threshold, then all such 
biofuel produced during that fiscal year would be eligible for the 
higher Bioenergy Program payment, even if the production occurred 
before the EPA lifecycle analysis was concluded. A GHG-based program 
should provide the same higher payment levels to all of the biofuels 
determined by EPA to exceed 50 percent GHG emissions reductions. The 
payment should not differentiate between base and incremental 
production.
    Two commenters note that, if the Agency utilizes a program 
structure that provides a higher payment level based on GHG emission 
reductions, then the application process should not require significant 
revision. During step one, applicants can provide proof of their 
registration with EPA for participation in the RFS. During step three, 
producers can provide the actual amounts produced to qualify for the 
higher payment level and, according to one commenter, the RIN or 
appropriate proof of RFS eligibility to qualify for the higher payment 
level.
    One commenter supports a Bioenergy Program payment structure that 
is based on the GHG emissions relative to petroleum as determined by 
EPA for the RFS. This would be a preferable approach for biodiesel 
producers compared to a structure in which differential payments is 
made on base versus incremental production. The GHG-based structure 
would avoid penalizing biodiesel plants that have kept producing during 
difficult economic times. A GHG-based program should provide higher 
payment levels to those biofuels determined by EPA to exceed 50 percent 
GHG emissions reductions. The payment should not differentiate between 
base and incremental production.
    One commenter states that this program is intended to lower 
greenhouse gas emissions and reduce and replace the nation's current 
dependency on petroleum while creating green jobs. Biodiesel is one of 
the only EPA approved road ready biofuels that is capable of direct 
replacement of petroleum diesel without modifications in the vast 
majority of transportation applications. The proposed rule specifically 
states that, while accepting that not all biofuel produced under the 
program will be used in transportation, ``the Agency expects the 
majority of advanced biofuels participating in the program will be used 
as transportation fuels to meet the mandates of the Renewable Fuel 
Standard.''
Comments Against
    Comment: Two commenters state that all advanced biofuels should 
receive the same base and incremental payment regardless of 
classification by EPA under the RFS-2. According to the commenters, EPA 
is using unproven

[[Page 7956]]

combinations of models to calculate the GHG reduction for biofuels. 
Further, EPA's delay in qualifying existing and new feedstock and 
process pathways could lead to a situation where a biofuel could 
receive a lower payment under the proposed GHG tiers where it may be 
qualified by EPA at a much later date to the amount of its GHG 
reduction. Would this biorefinery be eligible for a ``post'' payment to 
get the amount it would have been eligible for under a tiered system 
with its new designation?
    There could be instances where a feedstock could be under review 
until 2012 by EPA--the expiration of the current USDA program. 
Dependence by USDA on the RFS-2 definitions and delineations is 
premature. Once the science behind GHG emissions is more fully 
understood and defined, then the Agency may want to look at including 
some tiered system. The commenter suggests that this could be a much 
more appropriate discussion as the 2012 Farm Bill takes shape. 
Currently, EPA has certified very few gallons of advanced biofuels 
production. Development of payment tiers would result in very large 
payments going to very few biorefineries. Payment tiers would also be 
very difficult to establish for non-liquid biofuels since EPA is only 
certifying transportation fuels in regards to GHG reduction. Would non-
liquid biofuels, which are currently eligible for payments at the same 
rate as liquid fuels, be at a different rate under the tiered system? 
Would non-liquid biofuels be responsible for supplying a complete 
lifecycle analysis to determine their GHG reduction?
    Finally, the House of Representatives, in an amendment to the 
Waxman-Markey Climate Change Bill (H.R. 2454), put a moratorium on the 
inclusion of indirect land use calculations in determining the GHG 
reduction benefit of biofuels. If H.R. 2454 became law, how would USDA 
implement the proposed tiers? Would USDA use EPA's determined GHG 
reductions, and then add back the calculated indirect land use? The 
intent of the program is to promote the production and expansion of 
advanced biofuels. A tiered system of payments based on GHG reductions 
would not further the intent of the program, and would only complicate 
administration of the program and its understanding and use by 
biorefineries that can produce advanced biofuels. Complicating the 
program will lead to uncertainty among advanced biofuels producers. 
Uncertainty will not lead to expanded production of advanced biofuels 
in rural America.
    One commenter states that all advanced biofuels under this program 
should be treated similarly. Differentiated payments to certain 
advanced biofuels and not others will create artificial market 
distortions. These distortions are created because the USDA is picking 
winners and losers in the advanced biofuels arena based on arbitrary 
requirements. The market will then reward those who luckily meet the 
requirements or can adjust their production to meet the requirements. 
Some will be disadvantaged because the rules are changing after the 
plant has been built or commenced construction and cannot be changed 
(e.g., location). Advanced biofuel produced in the U.S. and its 
territories is considered biofuel by the marketplace. Therefore, it 
does not depend on the GHG emissions of the biofuel. Separate 
regulations (e.g., RFS-2, CA LCFS, etc.) control the marketplace 
differentiation of biofuels based on their GHG emissions. A support 
differentiation based on the amount of GHG emissions of a particular 
biofuel should not be implemented.

Delay

    Comment: One commenter suggests the decision to offer different 
payment rates based on advanced biofuels' lifecycle GHG emissions be 
delayed until the models utilized for the calculations are proven and 
validated. Currently, there is significant concern about the 
assumptions made in such models. Once the science is better understood 
and accepted, then using this payment approach is premature. In 
addition, there is concern on how gaseous or non-liquid advanced 
biofuels would fit into the payment scheme and how GHG reduction for 
these biofuels would be considered.
    Another commenter states that, for Fiscal Year 2012, the comment 
would support providing a higher payment rate for transportation fuels 
that significantly reduce GHG emissions and meet an applicable ASTM 
fuel specification. RFS-2 provides a specific use requirement for 
advanced biofuels. Specifically, the RFS-2 advanced biofuels schedule 
requires the use of specific volumes of biomass-based diesel, 
cellulosic biofuels, and advanced biofuels. Biomass-based diesel and 
advanced biofuels must reduce GHG emissions by 50 percent compared to 
the conventional fuel it is replacing. Cellulosic biofuels must reduce 
GHG emissions by 60 percent. Under this approach, fuel that qualifies 
as an advanced biofuel under the RFS-2 program and that meets an 
applicable ASTM specification would qualify for a higher single payment 
rate. The per gallon payment would be based on the BTU content of the 
fuel, as is the case in the previous NOCPs and the proposed rule.
    Another commenter supports USDA's proposal in this rulemaking to 
provide funding on a more frequent basis providing biodiesel producers 
a more useful income stream. However, the commenter believes that, at 
this time, it is most important to quickly deliver Fiscal Year 2010 
payments than to ruminate the concept of basing payments relative to 
lifecycle GHG emission reductions. The commenter, therefore, requests 
that the Agency revisit the issue of basing payments on greenhouse gas 
emissions in a separate rulemaking, which will allow more time for 
industry consideration and comments.
    Response: In consideration of the comments received, the Agency has 
determined that it is not appropriate, at this time, to include a 
payment scheme based on GHG emission reduction, primarily because such 
calculations are not available for all types of advanced biofuels 
eligible for payments under this program. The Agency may reconsider 
this as the industry matures and as calculations become available for 
all types of advanced biofuels.
    However, as noted in several previous responses, the Agency has 
revised the rule to award ``bonus'' BTUs to an advanced biofuel meets 
an applicable renewable fuel standard as identified by the EPA. This 
provision should result in a more favorable environmental result based 
on GHG emission reductions.
    Comment: One commenter notes that Section 9005 of the Farm Bill 
grants the Secretary broad discretion to base payments on ``appropriate 
factors.'' The commenter believes that it would be appropriate to 
structure the payments program to promote the best-performing biofuels 
to the maximum extent possible. The commenter strongly supports the 
proposal to base payments on the energy content of the fuel as well as 
the alternate proposal that would also consider lifecycle GHG 
emissions. In addition, the commenter encourages the Agency to link 
payments to the entire performance profile of an advanced biofuel, 
including energy content, lifecycle GHG performance, conventional 
pollutant emissions, compatibility with existing infrastructure and 
engines/equipment, impacts on water quality and quantity, and other 
factors. Some of these factors, including impacts on resource 
conservation, public health, and the environment, are already included 
as scoring criteria in the biorefinery loan guarantee program. The 
commenter recommends that the Agency use these

[[Page 7957]]

same metrics, as well as additional ones, in this program.
    Response: While the Agency acknowledges the commenter's suggestion 
for incorporating additional metrics for environmental quality, there 
are too many variables outside the control of the Agency to establish 
quantitative values applicable to such environmental quality metrics to 
establish payments. Furthermore, calculating payments based on 
environmental quality metrics would add complexity to both the 
establishment of the payment rate and the administration of the 
program.

Subpart B--Advanced Biofuel Payments

Definitions--Sec.  4288.102

Advanced Biofuel
    Comment: One commenter recommends that the definition of ``advanced 
biofuel'' include the requirement that the fuel is produced in the 
United States of America and its territories. According to the 
commenter, the definition of ``Advance Biofuel'' does not embrace the 
contents of other definitions such as biodiesel and ethanol. As such, a 
domestic producer could import commodities that meet the current 
definition and would potentially undermine the intent of the law. 
Therefore, the commenter supports the phrase either similar or exactly 
as used in Sec.  4288.102 of the proposed rule ``* * * manufactured in 
the United States and its territories.''
    Response: The Agency agrees with the comment. The biofuel 
eligibility criteria (Sec.  4288.111) requires the biofuel to be 
produced in a State. The Agency is satisfied that this addresses the 
commenter's concerns.
    Comment: One commenter is opposed to the use of any definition of a 
biofuel, qualification of a biofuel, or payment for a biofuel that is 
not based on the 2008 Farm Bill definition of an ``advanced biofuel.'' 
The commenter points out that all types of sorghum--grain, sweet, and 
high-biomass energy--can play an important part in the production of 
advanced biofuels. However, the commenter is concerned that two of the 
largest processors of grain sorghum into advanced biofuels do not 
qualify for the program. According to the commenter, this has resulted 
in plants being shuttered and rural economies being stymied as jobs 
have been lost in rural America, and the commenter encourages USDA to 
fix this disparity.
    Two commenters note that they worked with the Senate Energy and 
Natural Resources Committee during the creation of the Energy 
Independence and Security Act of 2007 to develop an advanced biofuels 
definition and with the Agriculture Committees during the debate on the 
Food, Conservation and Energy Act of 2008 to clearly define all types 
of sorghum as advanced biofuels feedstock. Making this program work for 
the commenter's industry is a high priority.
    Two commenters note that, currently, over 25 percent of the U.S. 
grain sorghum crop is processed through an ethanol facility. Ethanol 
biorefineries account for 43 percent of domestic grain sorghum usage. 
It is the most important value-added industry in the sorghum belt. This 
type of usage has resulted in increased rural economic growth and job 
creation. A sound advanced biofuels program can continue this 
impressive track record of rural economic activity. Sweet and energy 
sorghum biorefineries are also being planned. These new facilities will 
provide rural economic activity and can be supported by an advanced 
biofuels program.
    Response: Grain sorghum is an eligible feedstock under the Section 
9005 program.
    Comment: One commenter states that the definition of advanced 
biofuels in the Food, Conservation, and Energy Act of 2008 leaves some 
ambiguity in regards to the inclusion of biofuels derived from sugar 
and starch. The commenter points out that the proposed rule states that 
``to be eligible for payments, advanced biofuels must be produced from 
renewable biomass, excluding corn kernel starch, in a biorefinery 
located in the United States.'' The inclusions section of the advanced 
biofuel definition in the legislation specifically includes ``(ii) 
biofuel derived from sugar and starch (other than ethanol derived from 
corn kernel starch) and (vi) butanol or other alcohols produced through 
the conversion of organic matter from renewable biomass.'' The 
commenter, therefore, requests that the Agency clarify in the final 
rule that the only fuel produced from corn kernel starch excluded from 
this program is ethanol, per the legislation and that advanced biofuels 
other than ethanol, for example fuels with a different molecular 
structure such as biobutanol, produced from a corn starch feedstock, 
qualify for this program under the definition of advanced biofuel in 
the Food, Conservation, and Energy Act of 2008.
    Response: The Agency disagrees with the commenter and any advanced 
biofuel produced from corn kernel starch is excluded. The statute 
defines advanced biofuels as ``* * * fuels derived from renewable 
biomass other than corn kernel starch.''
    Comment: One commenter recommends changing the current wording on 
exclusions to: ``The only feedstock specifically excluded from the 
statutory definition of advanced biofuels is corn kernel starch and 
other biomass materials used in food production or consumption,'' 
because the intent of the proposed rule, according to the commenter, is 
to eliminate the use of food products to make fuel.
    Response: The Agency does not agree with commenter's 
recommendation. The Agency is satisfied that the rule language is 
consistent with the statutory language (e.g., the definition of 
advanced biofuel is directly from the statute). Therefore, the Agency 
has not revised the rule as requested by the commenter.
    Comment: One commenter is concerned about the use of food crops 
(i.e., corn) for the production of energy and such crops need to remain 
as food crops. According to the commenter, it takes more energy to turn 
corn into energy than you get out of the conversion process and that 
this is not reasonable. The commenter also believes that programs for 
converting corn to energy profits only big agri-businesses and not the 
small, individual farmer and therefore such programs should not be 
presented as helping the farmer. The commenter believes such programs 
need to be discontinued.
    Response: This program does not allow for corn kernel starch 
biofuel producers. The focus of this program is ``advanced biofuel,'' 
which are produced from non-corn kernel starch so the feedstocks are 
typically not in competition with food products.
    Comment: One commenter is concerned with a reference in the 
preamble that indicates that the Agency has misconstrued congressional 
intent with regard to the definition of ``advanced biofuel.'' The 
Agency states in the preamble that ``The agency understands the 
definition to apply to solid, liquid, or gaseous fuels that are final 
products * * *'' (See proposed rule, April 16, 2010, 75 FR 20093.) The 
Agency made a similar statement regarding solid advanced biofuels in 
its BCAP proposal, where it stated that a biomass conversion facility 
includes a facility that proposes to convert renewable biomass into 
heat, power, biobased products, advanced biodiesel or advanced biofuels 
such as wood pellets, grass pellets, wood chips, or briquettes. (See 
proposed rule, February 8, 2010 75 FR 6267.) As explained below, the 
commenter does not believe that any solid fuel qualifies as an advanced 
biofuel under the 2008 Farm Bill.

[[Page 7958]]

    The definition of advanced biofuel in the Farm Bill closely tracks 
the definition included in the 2007 Energy Independence and Security 
Act (``EISA''), which mandated the production of 36 billion gallons of 
renewable transportation fuels by 2022. When Congress enacted the Farm 
Bill the next year, it is clear that it used the same definitional 
framework that it used in EISA. Like the definition in EISA, the Farm 
Bill Section 9001 definition of advanced biofuel includes seven 
qualifying types of fuel. These fuels are listed in the exact same 
order, except that the Farm Bill definition replaces references to 
``ethanol'' with references to ``biofuel.'' Congress also replaced the 
reference to ``biomass-based diesel'' in EISA to ``diesel equivalent 
fuel.'' These changes did not evidence an intent to broaden the 
definition to include solid fuels, but rather indicated Congress' 
growing understanding that there were numerous kinds of advanced 
biofuels other than ethanol, including cellulosic diesel (e.g. BTL). 
Thus, it is clear that the Farm Bill definition builds upon and 
improves upon the EISA definition, but that in both cases Congress 
intended to include only liquid fuels and biogas.
    According to the commenter, there is no indication that Congress 
ever intended to include products such as wood pellets, grass pellets, 
wood chips, or briquettes within the definition in either EISA or the 
Farm Bill. Rather, under the Farm Bill, these types of products are 
either a ``biobased product'' or simply renewable biomass. The mere act 
of chipping, pelletizing, or compressing renewable biomass does not 
convert it into an advanced biofuel. Therefore, the commenter 
encourages the Agency to clarify that advanced biofuels are liquid 
fuels (and biogas) as defined in the Farm Bill.
    Response: The Agency disagrees with this comment. Advanced biofuel, 
as defined in the authorizing statute, is fuel derived from renewable 
biomass other than corn kernel starch including materials, pre-
commercial thinning, or invasive species from National Forest System 
land or public land that meet certain conditions.

Larger Producer

    Comment: One commenter supports the proposed rule's method for 
determining large producers whereby the Agency will determine the 
refining capacity of an advanced biofuel producer based on the 
production at all of the advanced biofuel refineries in which the 
producer has 50 percent or more ownership.
    Response: The Agency agrees with the comment.
    Comment: One commenter is opposed to the statutory requirement that 
caps payments to companies with total yearly capacity exceeding 150 
million gallons at 5 percent of the program's funds for each fiscal 
year. While the commenter understands this language was included in the 
legislation as a way to limit the ability of large renewable diesel co-
processors to claim program funds, the commenter believes that a more 
effective way to limit participation by co-processors could be modeled 
after the current IRS interpretation that forbids ``any fuel made out 
of co-processing biomass with feedstock that is not biomass'' from 
receiving the Federal biodiesel blenders tax credit. The commenter 
contends that biodiesel gallons should not be disadvantaged under this 
program because of the size of the company from which they are 
produced. Every gallon of biodiesel production should be rewarded 
equivalently under this program.
    Response: The statute provides that, for each fiscal year, not more 
than 5 percent of the funds are made available to eligible producers 
for production at facilities with a total advanced biofuel refining 
capacity exceeding 150,000,000 gallons per year (or 15,900,000 MMBTU of 
biogas or solid advanced biofuel). It is the Agency's position that the 
requirement meets the intent of the originating language. The Agency 
does not have the authority to overwrite the original legislation.
    Comment: Two commenters point out that the legislation for this 
program requires that not more than 5 percent of the funds be made 
available to eligible producers for production at facilities with 
capacity exceeding 150 million gallons per year. Both commenters 
believe this legislative provision requires the Agency to specify that 
this capacity calculation does not include a producer's non-advanced 
biofuel capacity, should it have facilities in the U.S. producing 
additional gallons that do not qualify for this program. Thus, the 
commenter recommends that the 150 million gallon limit should only 
include a producer's advanced biofuel capacity. Therefore, the 
commenter requests that the Agency specify in the final rule that the 
capacity calculation does not include a producer's non-advanced biofuel 
capacity, should it have facilities in the U.S. producing additional 
gallons that do not qualify for this program.
    Another commenter supports the proposed rule's method for 
determining large producers, whereby the Agency will determine the 
refining capacity of an advanced biofuel producer based on the 
production at all of the advanced biofuel refineries in which the 
producer has 50 percent or more ownership.
    Another commenter recommends eliminating the 150 million gallon per 
year production per owner cap. The commenter states that the incentives 
in this program will assist the current infrastructure's transformation 
to the next generation of feedstock and next generation of biorefinery 
technology that will exceed reduced green house gas emissions levels. 
Transforming the biodiesel companies of today to the next generation of 
biorefinery production of tomorrow, this program will keep the pace 
moving forward. Removing the 150 million gallon cap will help 
accelerate this progress. Further, as the industry continues to 
consolidate to meet the needs of RFS2 obligated parties, removing the 
maximum production capacity per company will aid in more efficiently 
offering large volumes of biodiesel to these petroleum companies.
    Response: With regard to eliminating the 150 million gallon cap, it 
is the Agency's position that the rule requirement meets the intent of 
the originating language. The Agency does not have the authority to 
overwrite the original legislation. In addition, the Agency agrees with 
the commenter that only the producer's advanced biofuel production 
counts towards the 150 million gallon cap (or the Agency defined 
equivalent of 15,900,000 MMBTU if the advanced biofuel is a biogas or 
solid) and the rule makes this clear.
    Comment: Two commenters state that a per gallon limit for small and 
large producers is only applicable to liquid advanced biofuels 
producers. Because the definition of advanced biofuels in this proposed 
rule applies to solid, liquid, or gaseous fuels, the commenters state 
that the Agency needs to determine how it will define small and large 
producers of gaseous and solid advanced biofuels, should they qualify 
for this program.
    Response: The Agency agrees with the commenter and has made 
provisions in the rule as to how biogas and solids producers are 
considered large or small. The Agency has added clarifying language in 
the definition of the term ``larger producer'' to account for producers 
of biogas and solid advanced biofuels. The definition in the interim 
rule now reads: ``An eligible advanced biofuel producer with a refining 
capacity as determined for the prior fiscal year, based on all of the 
advanced biofuel facilities in which the producer has 50 percent or 
more ownership, exceeding: (1) 150,000,000 gallons of liquid advanced 
biofuel per year; or (2) 15,900,000 MMBTU of biogas and solid

[[Page 7959]]

advanced biofuel per year.'' Also, a parallel change was made to the 
definition of the term ``smaller producer.''

Oversight and Monitoring--Sec.  4288.105

    Comment: One commenter believes that the proposed rule does not do 
enough in checking in on the progress of the biofuel. The commenter 
believes that, if the government is helping to fund the research, it 
should establish deadlines to ensure that progress is being made so 
that research does not become stagnant.
    Response: The Agency disagrees that it does not provide sufficient 
oversight. The program does not provide payment for research and 
development activities.

Applicant Eligibility--Sec.  4288.110

    Comment: One commenter requests that the Agency clearly state that 
advanced biofuels produced at a biorefinery producing multiple 
bioproducts are eligible for the program. According to the commenter, 
the future biorefinery will likely develop much like the typical oil 
refinery of today. In other words, one feedstock will be utilized to 
produce several products at one facility. In a biorefinery's case, 
renewable biomass will be the feedstock and multiple biofuels, biobased 
products and specialty renewable chemicals could be produced at the 
same plant or industrial facility. The commenter believes that the 
Agency should encourage the concept of industrial ecology and 
collocation of diverse product manufacturing units. The final rule for 
the Bioenergy Program should not limit future biorefineries that use 
efficient and cost effective business models. It should be specifically 
stated in the final rule that advanced biofuels produced at a 
biorefinery producing multiple bioproducts should be eligible to 
qualify for the program.
    Response: The Agency does not exclude biofuel facilities that 
produce multiple products. However, payments are made only for the 
eligible advanced biofuel produced.
    Comment: One commenter suggests that the Agency consider limiting 
eligible biorefineries to those with a production capacity that exceeds 
a certain volume. The commenter maintains that including lab scale and 
small pilot scale facilities biorefineries may significantly increase 
administration and not achieve the desired effect of the program.
    Response: The Agency disagrees and does not consider administering 
small volume producers a burden, and considers all eligible advance 
biofuel producers if they provide the certifications as required in the 
rule.
    Comment: One commenter has concerns regarding the proposed Advanced 
Biofuels Payments being applicable for plants only larger than 10 
million gallons of production per year. In our rural communities, often 
times the feedstock that will be utilized may not support a plant that 
large. This does not mean the feedstock cannot make an impact on fuel 
production in the U.S.; rather, it may make more sense economically to 
produce this ethanol close to the fuel source. Smaller plants, with 
their potential to create employment and possibly reduce waste issues 
in small communities from waste paper, whey permeate, and other waste 
sources, can economically produce advanced biofuels. The commenter 
believes it is in the best interest of rural communities, and renewable 
fuel production as a whole, to allow smaller facilities such as 500,000 
gallons per year or more, to qualify for these subsidies.
    With producers of small amounts of waste that can be converted to 
advanced biofuels scattered throughout small communities in the 
Midwest, the Advanced Biofuels Payment can be a strong tool for 
economic growth in rural areas. Small plants, which are less capital 
intensive and require fewer infrastructures, could also be positively 
affected by this decision to allow smaller facilities to receive the 
subsidy.
    Response: The proposed rule does not contain a size requirement for 
participation. The only size requirement pertains to the limitation of 
5 percent of program funds that can be made available to advanced 
biofuel producers that have facilities whose combined total capacity is 
more than 150,000,000 gallons. As such, the proposed rule already 
directs the majority of the program benefits to smaller producers 
(i.e., those with production capacities of less than 150,000,000 
gallons).

Biofuel Eligibility--Sec.  4288.111

    Comment: One commenter agrees that the program should only pay for 
the production of final advanced biofuel product and not to 
intermediary components or products that are used in the production of 
the final advanced biofuel product. This will significantly reduce 
fraudulent schemes that result in double payments for the same volume 
of fuel used by the market.
    Response: The Agency agrees with the commenter. The program makes 
payments for final advanced biofuel. The components used in producing 
advanced biofuel are not eligible for payments.
    Comment: One commenter would like to get clarity on the definition 
of an eligible advanced biofuel. Would an advanced biofuel be eligible 
if it can and is used for several potential applications, not all of 
which are fuel? If so, then is it necessary to demonstrate to the 
Agency that the volume being claimed is used as fuel? Specifically, for 
example, glycerin from a biodiesel facility can be used in many 
different applications; one of which is as fuel to generate energy. 
Would the production of glycerin be eligible if it can be showed that 
the downstream application is as a fuel?
    Response: The Agency disagrees with the comment. The intent of the 
program is to make payments for production of advance biofuel and not 
for uses other than for fuel. For example, a producer produces a 
transportation fuel that also results in production of glycerin. If the 
glycerin is sold directly as a fuel, the producer would receive a 
payment. However, if the glycerin is sold for medical or other non-fuel 
sources, the producer would not receive a payment.

Biofuel Eligibility--Sec.  4288.111

Eligible Advanced Biofuel--Paragraph (a)
    Comment: One commenter believes that, while Federal incentive 
programs should not choose technology winners or losers, the production 
of advanced biofuels for the transportation sector should be supported 
as much as possible to achieve the aggressive goals of the Renewable 
Fuels Standard (RFS). The commenter agrees that fuels eligible for the 
Section 9005 Program can be in the gaseous, liquid, or solid phases, 
but that those fuels should be used as transportation fuels, not for 
electricity production or other end uses. Further, if renewable 
electricity or gas is produced as a transportation fuel those fuels 
should qualify. However, if renewable feedstock is used to produce 
electricity or other non-mobile uses, the commenter believes that other 
Federal programs are in place to support such projects, including the 
Rural Energy for America Program. The commenter believes that advanced 
transportation biofuels should not have to compete against other end 
use products and, therefore, recommends that Advanced Biofuel Payments 
go toward transportation fuels only.
    Response: The Agency disagrees with the commenter's recommendation 
to limit this program to transportation fuels only. The Agency points 
out that the authorizing statute does not limit this program to 
transportation fuels. The purpose of the program is to provide

[[Page 7960]]

payment to eligible advanced biofuels producers producing liquid, 
biogas, or solid fuels, and not to the end use of such advanced 
biofuels. The Agency, therefore, has not revised the rule in response 
to these comments.

Certification-Related Comments

    Comment: A number of commenters expressed concern over the 
certification requirement, with several suggesting alternatives.
    One commenter believes a requirement for an independent third party 
certificate of analysis on every load is completely unworkable and 
extremely expensive. According to the commenter, the cost for a full 
ASTM battery of test can exceed $6,000 per sample. The commenter points 
out that biodiesel plants perform a few indicator tests internally 
which suffice for the biodiesel market; to require otherwise would be 
cost prohibitive and unnecessary. The commenter, therefore, supports 
allowing biodiesel producers to provide self-certifications.
    One commenter requests the Agency to clarify Sec.  4288.105(a)(3), 
Certificate of Analysis. While the commenter supports that only 
biodiesel meeting ASTM specifications be allowed payment, the proposed 
rule seems to indicate that each certificate of analysis needs to be 
issued by a qualified, independent third party. According to the 
commenter, this is economically infeasible and unworkable. The 
commenter notes that it issues thousands of Certificate of Analysis 
(one must accompany each load of biodiesel loaded at the plant) and an 
independent third party certificate of analysis costs in the several 
hundred dollar range and takes several working days. The commenter, as 
a BQ-9000 certified plant, does receive independent third party 
analysis of its production on a time frame contained within its BQ-9000 
certification, but is unable practically or financially to provide an 
independent third party certificate of analysis for every gallon of 
biodiesel produced, which this proposed rule seems to indicate will be 
required. Rather, the commenter is supportive of a requirement that a 
biodiesel producer self-certify that a quarterly, independent third 
party certificate of analysis showing ASTM standards being met is 
available for USDA inspection.
    While not objecting to the requirement in the proposed rule that 
producers provide an independent certificate of analysis to verify that 
fuel produced in the facility meets the ASTM D6751 fuel specification, 
several commenters request that the Agency clarify in the final rule 
that an independent certificate of analysis is not required for every 
gallon or batch of fuel produced in a facility, because such a 
requirement would be cost-prohibitive and impractical. The commenters 
would support requiring a biofuel producer to self-certify on a 
quarterly basis or on a once per payment period that an independent 
certificate of analysis verifying that fuel produced in the facility 
meets applicable ASTM standards is available for review by USDA 
personnel consistent with other self-certification requirements 
provided under the program.
    Response: The Agency has clarified the requirements pertaining to 
the independent certificate of analysis. The Certification from a 
blender or a third party is acceptable certification to ensure the 
quality of an advanced biofuel. The requirement of receiving BQ-9000 
Certification was eliminated from the interim rule.
    Comment: One commenter supports requirements that ensure that only 
high quality fuel enters the market and supports requirements that 
participants in this program self-certify compliance with IRS, EPA, 
EISA, the Clean Air Act, and ASTM D6751 quality specifications. This 
commenter notes that these self-certification requirements for 
biodiesel producers are in addition to requirements for third party 
certificate analysis and are more than sufficient to ensure that the 
fuel placed in the market is of sufficiently high quality for use, 
distribution, and sale. The commenter points out that it has strict 
internal testing with its onsite laboratory and the commenter, and its 
customers, require that the fuel meets or exceeds ASTM specifications 
before sale.
    The commenter recommends that the final rule include a similar 
requirement that other biomass-based diesel and fuels meet applicable 
ASTM or equivalent standards to receive payment under the program.
    Response: The Agency agrees with the commenter that appropriate 
certifications, such as ASTM, BQ-9000, and D6751, are beneficial for 
producers, distributors, and consumers. Further, the Agency has 
determined that appropriate certification for pipeline quality for 
biogas is necessary. However, in cases where biogas is not injected 
into a pipeline distribution system, but is used on-site for electric 
generation, it is not eligible for payment under the program.
    Comment: One commenter notes that it has an extensive in-house 
quality program that analyzes and ensures that the biodiesel produced 
meets or exceeds the current ASTM specifications before shipping to its 
customers. The commenter uses round robin laboratory testing between 
biodiesel plants and its research group to ensure the accuracy of its 
lab results that the results fall under normal operating parameters. 
Thus, the commenter believes that its BQ-9000 certification and its 
strict internal quality control make an independent analysis 
unnecessary.
    Response: The Agency disagrees with the comment regarding the 
independent analysis. The purpose of an independent analysis is to 
ensure the integrity of the advanced biofuel. The program no longer 
requires the BQ-9000 certification. The Agency considers certification 
by an independent third party to be the best way to accomplish this. 
The Agency has revised the requirement in the interim rule to allow the 
blender who purchases the advanced biofuel to provide the third-party 
certification quarterly only if the blender is not associated with the 
facility.
    Comment: One commenter states that the requirement for biodiesel 
producers to self-certify compliance with IRS, EPA, EISA, Clean Air Act 
and applicable ASTM standards provides sufficient, overlapping 
enforcement mechanisms to ensure that the biodiesel being produced is 
of sufficient quality for sale and use in the marketplace. Further, the 
commenter does not object to the requirement that producers provide an 
independent certificate of analysis to verify that fuel produced in the 
facility meets the ASTM D6751 fuel specification. However, the 
commenter makes several suggestions.
    First. The commenter recommends that the Agency clarify in the 
final rule that an independent certificate of analysis is not required 
for every gallon or batch of fuel produced in a facility, as this 
requirement would be cost-prohibitive and impractical. The commenter 
indicates that it would support requiring a biofuel producer to self-
certify on a quarterly basis that an independent certificate of 
analysis verifying that fuel produced in the facility meets applicable 
ASTM standards is available for review by USDA personnel consistent 
with other self-certification requirements provided under the program.
    Second. The commenter notes that, in some cases, requiring 
additional certifications from a third party is unnecessary, onerous, 
and costly for biodiesel producers. The additional cost would negate 
some of the benefits that the Bioenergy Program is intended to provide. 
Some biodiesel producers have their own in-house lab that performs 
their analysis for in-process work, as well as finished product and 
shipments.

[[Page 7961]]

These companies generate their own Certificates of Analysis as needed. 
While the commenter states that it appreciates the Agency's desire to 
ensure that advanced biofuels that are eligible for the Bioenergy 
Program are of sufficient quality, the commenter believes that, in most 
cases, this can be accomplished and verified without requiring the 
redundant use of an outside lab.
    Response: The Agency's intent was not to have a certification on 
each gallon sold and the rule has been revised to clarify this. As 
discussed in a previous response, certification is to ensure the 
quality of the advanced biofuel produced is at standards to be used in 
the market. The Agency will accept a certification from the blender who 
purchases the advanced biofuel provided the blender is not associated 
with the facility.
    Comment: One commenter recommends allowing self-certification using 
a combination of IRS, EPA, ASTM, and BQ-9000 documentation. While the 
commenter does not object to the requirement in the proposed rule that 
producers provide a combination of IRS, EPA, and quality certificates 
as documentation to meet program requirements, the commenter recommends 
that producers be able to self-certify their fuel quality 
specifications by offering internally-created Certificates of Analysis. 
The commenter is confident in its network's self-certification because 
the commenter is approved by the National Biodiesel Accreditation 
Committee's BQ-9000 Producer program. The commenter, thus, recommends 
that the Agency include this quality program in the requirements for 
program participation.
    Other commenters state that, in some cases, requiring additional 
certifications from a third party is unnecessary, onerous, and costly 
for biodiesel producers. The additional cost would negate some of the 
benefits that the Bioenergy Program is intended to provide. Some 
biodiesel producers have their own in-house lab that performs their 
analysis for in-process work, as well as finished product and shipments 
and generate their own Certificates of Analysis as needed. While 
appreciating the Agency's desire to ensure that advanced biofuels that 
are eligible for the Bioenergy Program are of sufficient quality, the 
commenters believe in most cases this can be accomplished and verified 
without requiring the redundant use of an outside lab.
    One commenter notes that this section states that the Agency will 
review the producer records to ensure that each certificate of analysis 
has been issued by a qualified independent third party, but later the 
proposed rule, when detailing the certifications that are needed for 
biodiesel and biomass-based diesel producers, suggests that a self-
certification is required. The commenter supports allowing biodiesel 
producers to provide self-certifications.
    One commenter supports efforts to ensure that only fuel of 
appropriate quality is entered into commerce. The commenter, therefore, 
supports requiring participants to self-certify that biodiesel 
receiving payment under the program meets the ASTM D6751 fuel 
specification.
    Another commenter states that the ASTM D6751 standard is an 
appropriate and sufficient means of ensuring that the biodiesel 
production supported by the Bioenergy Program meets the necessary 
quality standards and that biodiesel production supported under the 
Bioenergy Program should be required to meet ASTM D6751.
    In addition, both commenters recommend that other biomass-based 
diesel and liquid hydrocarbons receiving payment under the program be 
similarly required in the final rule to meet an applicable ASTM fuel 
specification to receive payment under the program.
    Response: The Agency disagrees with the comment regarding the 
independent analysis. The purpose of an independent analysis is to 
ensure the integrity of the advanced biofuel. The Agency's intent was 
not to have a certification on each gallon sold. The Agency will accept 
a certification from the blender who purchases the advanced biofuel 
only if the blender is not associated with the facility.
    Comment: Many commenters express concern about the proposed 
requirement for BQ-9000 certification and each recommend that it be 
removed from the rule.
    One commenter notes that BQ-9000 certification is a voluntary 
program and is used like a status symbol. According to the commenter, 
not many belong to this program and it is very expensive. The commenter 
states that, even though they do not participate in the BQ-9000 
program, their biodiesel is as good as those who do participate. The 
commenter points out that they participated in the payment program last 
year, receiving $1,700, but that it would cost the commenter 10's of 
thousands of dollars to belong to BQ-9000 program. Therefore, the 
commenter recommends that the BQ-9000 certification be taken out of the 
rule in order to be fair to all biodiesel producers.
    One commenter makes similar comments, pointing out that the 
proposed rule already requires that ASTM D6751 standards be met. In the 
commenter's situation, the counterparties to our sales require a third 
party analysis of the fuel showing that it meets ASTM standards. 
Therefore, according to the commenter, a BQ-9000 certificate is 
meaningless and would impose additional recordkeeping burdens on the 
commenter's facility. Further, according to the commenter, the BQ-9000 
certification does not guarantee compliance with ASTM standards.
    One commenter notes that participation in the BQ-9000 program, 
which is set up by the National Biodiesel Board, is not required to be 
a biofuel producer. According to the commenter, they have ASTM testing 
that they must pass and that doing so qualifies the commenter as a 
producer. Therefore, the commenter believes that BQ-9000 certification 
should not be a requirement for this program.
    One commenter does not think it necessary to require biodiesel 
producers provide BQ-9000 certification. According to the commenter, 
neither EPA nor the IRS require BQ-9000 for RFS-2 or the blender 
credit, but instead both require ASTM-6751-09, which the commenter 
thinks is appropriate. Because BQ-9000 is a costly requirement for 
small producers, the commenter believes requiring it will not encourage 
innovation. The commenter recommends using the same requirements as IRS 
and EPA as the easiest solution.
    One commenter does not believe it is necessary to require the BQ-
9000 certification for program eligibility under the proposed rule. The 
commenter notes that, while the BQ-9000 program is a valuable and 
effective tool for the biodiesel industry, it is not an appropriate 
enforcement tool and is not conducive to use as a requirement for 
eligibility under the Bioenergy Program.
    One commenter also states that the BQ-9000 certification 
requirement provided for in the proposed rule is unnecessary and 
duplicative, and should not be included in the final rule. Though the 
commenter believes in the value of the BQ-9000 program, it was neither 
designed nor envisioned to serve as a regulatory enforcement tool. The 
commenter points out that the Agency, through the other certifications 
required under the program, has multiple reliable methods to ensure 
that fuel provided under this program meets the required ASTM D6751 
specification.

[[Page 7962]]

    One commenter points out the requirement for BQ-9000 is redundant 
and unnecessary. BQ-9000 is a voluntary and cooperative program for the 
accreditation of producers. Regardless, all biodiesel producers must 
conform to ASTM 6751-08 as amended in order for the fuel to be 
recognized and qualified for transportation use. The Agency has 
multiple reliable methods that are statutorily defined for its use to 
validate the claims of the producers.
    Two commenters note that a biodiesel producer must be operational 
for 6 months before it can receive BQ-9000 certification. The USDA 
Bioenergy Program contemplates providing payments to entities that are 
new. Thus, requiring BQ-9000 certification would prevent any facilities 
that are less than 6 months old from participating. In all likelihood, 
it would make some biodiesel producers ineligible for even longer 
periods, as 6 months is the minimum time required to obtain BQ-9000 
certification.
    One commenter believes that the requirements for biodiesel 
producers to meet the registration requirements with EPA for the RFS, 
meet the quality requirements per ASTM D6751, and provide the RFS 
Renewable Identification Number (RIN) are sufficient to ensure that the 
biodiesel being produced is of sufficient quality for sale and use in 
the marketplace. The commenter is concerned with the inclusion of the 
BQ-9000 certification required for program eligibility under the 
proposed rule. However, while the BQ-9000 program is a valuable and 
effective tool for the biodiesel industry, it is not an appropriate 
enforcement tool and is not conducive to use as a requirement for 
eligibility under the Bioenergy Program.
    The ASTM D6751 standard is a more appropriate and sufficient means 
of ensuring that the biodiesel production supported by the Bioenergy 
Program meets the necessary quality standards. Biodiesel production 
supported under the Bioenergy Program should be required to meet ASTM 
D6751.
    One commenter points out that the BQ-9000 program is only for 
biodiesel production so biomass-based diesel and liquid hydrocarbons 
derived from biomass would not be able to meet this requirement. 
Further, the BQ-9000 is a voluntary program run by an industry-based 
organization; it is inappropriate to regulate this program as a 
requirement for producers. Finally, it discriminates against smaller 
plants who cannot afford to meet the recordkeeping requirements of this 
program.
    One commenter, while a strong supporter of the BQ-9000 program, 
believes the other quality assurance mechanisms contained in this 
rule--mandatory self-certification for compliance with IRS, EPA, EISA, 
CAA and relevant ASTM standards--are more than sufficient to allow only 
ASTM D6751 biodiesel to qualify for payment under this program. 
According to the commenter, maintaining the BQ-9000 certification 
requirement will be much more likely to prevent smaller producers and 
new facilities from participating in this program than to enhance the 
quality of eligible fuel.
    One commenter questions the need for BQ-9000 certification as a 
requirement for program eligibility and believes it unnecessary. While 
acknowledging that BQ-9000 certification is an important and valuable 
tool for the biodiesel industry to consistently produce a high quality 
fuel, according to the commenter, BQ-9000 was set up as a best 
practices industry standard and is not designed for regulatory 
enforcement. The commenter believes that the certification requirements 
listed above make this requirement duplicative, unnecessary and it 
should be removed from the final rule.
    One commenter provides extensive discussion as to why BQ-9000 
certification is unnecessary and duplicative, and should not be 
included in the final rule. The commenter points out that BQ-9000 is a 
cooperative and voluntary program for the accreditation of producers 
and marketers of biodiesel. The program provides a set of best 
practices for biodiesel producers to utilize when monitoring important 
fuel production activities such as sampling, testing, storage, sample 
retention and shipping. Though the commenter believes in the value of 
this program, the BQ-9000 program was neither designed nor envisioned 
to serve as a regulatory enforcement tool. The commenter details the 
various requirements that biodiesel producers must address:
     Register with the Internal Revenue Service (IRS). The 
Internal Revenue Code specifically requires fuel to meet the ASTM D6751 
fuel specification to qualify for the biodiesel tax incentive. 
Biodiesel producers are required to register with the IRS, and the fuel 
of both new applicants for registration as well as existing registrants 
is tested by the IRS at its independent laboratory to ensure that 
registrant produces a fuel meeting the ASTM D6751 fuel specification. 
In addition, IRS excise tax personnel periodically test fuel at various 
stages of the distribution chain to ensure it meets the ASTM D6751 fuel 
specification.
     Meet the Clean Air Act's Section 211 Fuel Registration 
Requirements. In general, fuel entered into commerce in the U.S. must 
be registered with the Environmental Protection Agency (EPA), 
consistent with Section 211 of the Clean Air Act. To comply with these 
registration requirements, a biodiesel producer's fuel must meet the 
ASTM D6751 fuel specification.
     RFS-2 EPA Registration. The Energy Independence and 
Security Act (EISA) significantly expanded the previous Renewable Fuel 
Standard and provides specific volume requirements for advanced 
biofuels, including biomass-based diesel. For fuel to qualify under the 
program and generate RINs, which are ultimately used by obligated 
parties to show compliance under the program, a biofuel producer must 
re-register with the EPA. As part of this registration process, a 
producer must provide, among other things:
    [cir] A description of the types of renewable fuels that the 
producer intends to produce at the facility;
    [cir] A list of all feedstock the facility is capable of utilizing 
to produce fuel;
    [cir] A description of the facility's renewable fuel production 
process;
    [cir] A list of the facility's process energy fuel types and 
location from which the fuel was produced or extracted; and
    [cir] An independent third party engineering review. Biofuel 
producers must also create a Central Data Exchange (CDX) Account that 
allows registrants to update facility and company information as well 
as file quarterly and annual reports required by EPA under the RFS-2 
program.
    In addition, the CDX Account allows a registrant to access the EPA 
Moderated Transaction System (EMTS), the automated system through which 
RIN generation and transactions are recorded. The requirement in the 
proposed rule that biodiesel producers self-certify compliance with 
IRS, EPA, EISA, Clean Air Act and applicable ASTM standards--as well as 
provide periodic independent third party certificate of analysis as 
supported by the commenter--provides redundant enforcement mechanisms 
to ensure that only biodiesel meeting the ASTM D6751 fuel specification 
receives payment under the program.
    Response: The Agency agrees with the comments related to the BQ-
9000 certification and has eliminated this requirement from the interim 
rule. The BQ-9000 certification, while considered a valuable program, 
is not necessary in order to produce quality advanced biofuels. 
Furthermore, this requirement

[[Page 7963]]

adds additional burden to only one industry segment.

Renewable Identification Number (RIN)

    Comment: Several commenters question the need to supply the RIN.
    One commenter states that the RIN number is not necessary, but that 
only the RIN type is needed, which is the D-Code for generating RINs, 
which are 3 through 7.
    One commenter, pointing out that a RIN is EPA's 38-character number 
that is assigned to each gallon of biofuel, seeks clarification if the 
Agency wants all 30 million gallon RINs that the commenter assigns on a 
yearly basis or exactly what is being requested. The commenter states 
that, if the Agency is asking for proof that it can manufacture 
advanced biofuels, EPA requires all advanced biofuel producers to be 
registered with EPA as an advanced biofuel producer by using an 
independent third party engineering review. The commenter is supportive 
of providing the Agency a copy of this third party engineering review 
or self certifying that it has a third party engineering review of 
being an advanced biofuel producer.
    One commenter does not understand the requirement for a RIN number, 
stating that that the Agency should rely on the IRS and the EPA 
requirements for fuel quality assurance. The RIN is used as a product 
tracking document for purposes of compliance with the RFS and not all 
fuel that meets the requirement for the USDA bioenergy program will 
necessarily have a RIN attached or assigned. USDA audited this program 
for several years and has not required RINs assigned to fuel. The 
commenter maintains that USDA's current audit is sufficient to 
determine if eligible fuel was produced and that no further 
requirements are needed. The commenter further believes that requiring 
participants to match RINs to the USDA program may result in complete 
confusion due to the different fuel eligibilities and the fact that 
some fuel may not have RINs assigned. Should further assurances be 
needed, the commenter believes that BQ-9000 certification is adequate 
for purposes of the program.
    One commenter recommends eliminating the requirement to report the 
``RIN'' because the commenter does not believe the RIN will be an 
accurate method to determine production for the following reasons.
    1. The RIN as a 38-digit number will not exist as defined by RFS-2 
EMTS reporting.
    2. Each Advance Biofuel Producer will have either one or multiple 
RIN generating values. For example a biodiesel producer may also 
produce a renewable diesel. Biodiesel has a RIN generation value of 1.5 
while renewable diesel has a value range of 1.5 to 1.7 depending on 
process. The same scenario would also apply if a biodiesel facility 
were also an ethanol producer or vice versus. The Agency would be 
forced to mathematically prepare for the reverse computation to obtain 
the actual gallons produced. A RIN gallon is not the same as a produced 
gallon in the cases of biomass based diesels.
    3. The commenter believes that access to the report is statutorily 
limited to use by the EPA for compliance purposes.
    The commenter is also uncertain as to the use as proposed in the 
rule. The commenter notes that RINs can be generated as either sold or 
produced and in this case would further confuse attempts by the Agency 
to accurately determine production--a producer may report gallons sold 
versus gallons produced. The commenter still believes the use of 
production records as obtained from the producer similar to the Fiscal 
Year 2009 NOCP is valid and consistent with program goals.
    Response: The Agency continues to believe that the reporting of the 
applicable RIN for each advanced biofuel documents compliance with EPA 
regulations. The Agency has revised the text of proposed Sec.  
4288.120(a)(3)(iii) to clarify the requirement to submit the Renewable 
Identification Number for the advanced biofuel, if a Renewable 
Identification Number has been established for the advanced biofuel. In 
the interim rule the text now reads: ``If a Renewable Identification 
Number has been established, the advanced biofuel producer shall also 
provide documentation of the most recent Renewable Identification 
Number for a typical gallon of each type of advanced biofuel 
produced.'' The Agency requires that, if a RIN is available for an 
advanced biofuel, it is provided in the application. The BQ-9000 is not 
a mandatory certification for the producers of advanced biofuel and, 
therefore, not all biodiesel producers have this certification.

Woody Biomass

    Comment: One commenter states that the intent of the language 
certifying that woody biomass could not be used as a higher value wood 
product is to ensure that wood that could be used for dimensional 
lumber is not used as biomass material for production of alternative 
fuels. However, according to the commenter, even existing forest 
thinning and slash could be used in wood pellets or particle board, 
which would be ``higher value.'' The commenter does not believe the 
intent is to eliminate all woody biomass as a feedstock. Therefore, the 
commenter suggests that the language be clarified as follows:
    ``In addition, for woody biomass feedstock, the applicant must 
submit documentation that the woody biomass feedstock cannot be used as 
higher value dimensional lumber.''
    Another commenter does not believe that the Agency has the 
statutory authority to require that applicants document that their 
woody biomass could not have been used in a higher-value product. 
According to this commenter, the Farm Bill definition makes clear that 
such a restriction could only apply to applicants seeking payment for 
advanced biofuels derived from woody biomass sourced from Federal land. 
The commenter, therefore, urges the Agency not to finalize a provision 
so clearly contrary to express statutory language.
    In support of this position, the commenter reiterates comments it 
made on a similar restriction in the BCAP proposal that was 
inconsistent with the Farm Bill definition of biomass. Under Section 
9001 of the Farm Bill, an advanced biofuel need only be derived from 
``renewable biomass other than corn kernel starch.'' Thus, a fuel is an 
advanced biofuel so long as it is produced from materials meeting the 
definition of renewable biomass. Looking to the definition of renewable 
biomass in the 2008 Farm Bill, the only restriction relating to higher 
value products can be found in Section 9001(12)(A)(ii), relating to 
Federal land. There, Congress included the higher-value product 
limitation with regard to ``materials, pre-commercial thinnings, or 
invasive species from National Forest System land and public lands.'' 
Section 9001(12)(B), governing the definition of renewable biomass as 
it relates to biomass derived from non-Federal land, contains no such 
value-added restriction. Indeed, this section refers to ``any organic 
matter that is available on a renewable or recurring basis from non-
Federal land'' and explicitly includes ``wood waste and wood 
residues.'' However, the definition contains no such restriction as it 
relates to non-Federal land, nor does it leave room for statutory 
interpretation. The failure of Congress to include the higher-value 
product restriction for biomass sourced from non-Federal lands should 
not be construed as Congressional ``silence'' on the issue, as the CCC 
erroneously argued in the BCAP proposal. Where Congress specifically 
speaks to an issue in one

[[Page 7964]]

section of a statute, and omits a similar restriction in a parallel 
section, it is not ``silence,'' but rather an expression of 
Congressional intent through the creation of a clear statutory scheme. 
See, e.g., Duncan v. Walker, 533 U.S. 167 (2001). In this case, the 
statutory scheme provides for considerable restriction of biomass 
sourced from Federal land, while simultaneously not interfering with 
the rights of private landowners to utilize their biomass without 
additional Federal restrictions beyond otherwise applicable law.
    Finally, the commenter states that if the Agency chooses to 
finalize such a scheme, statutory authority aside, the commenter 
suggests that it not categorically exclude biomass that could be used 
in higher-value products. The commenter believes there is some woody 
biomass that, while it could be used as a higher-value wood-based 
product, will not be for numerous reasons, including market access. The 
rule should allow for payments for advanced biofuels using renewable 
biomass that could be used as inputs for higher-value products, but 
that have not been previously utilized on a facility-specific or 
regional basis. Thus, if there is no historical usage of mill wastes 
for higher value products at a particular mill or region, the Agency 
should be willing to offer payments for biofuels derived from an 
underutilized resource.
    Response: The Agency agrees with the comment that the proposed rule 
was inconsistent with the 2008 Farm Bill provision that limited the 
``higher-value products'' requirement to ``materials, pre-commercial 
thinnings, or invasive species from National Forest System land and 
public lands.'' Therefore, the Agency has revised the rule accordingly.
    With regard to the comment requesting that the Agency revise Sec.  
4280.120(a)(3)(v) to reference ``higher value dimensional lumber,'' the 
Agency disagrees with this suggestion. The Agency is satisfied that the 
proposed language (``higher value wood based product'') is consistent 
with the statutory language, which uses the phrase ``higher value 
product.'' Thus, the Agency has not revised the rule in response to 
this suggestion.
    The Agency has also not revised the rule with regard to the 
suggestion not to categorically exclude biomass that could be used in 
higher-value products, but to take into consideration whether the 
renewable biomass had not been previously utilized. While the Agency 
recognizes that the ``higher value'' provision as proposed might lead 
to such an outcome, the revision to the rule limiting the ``higher 
value'' provision to wood sources from Federal Forest System land and 
public lands would likely reduce significantly the commenter's concern. 
For example, the rule would not affect the usage of mill wastes as 
cited in the commenter's example. Further, while the rule, as revised, 
would subject all wood sourced from Federal Forest System land and 
public lands to this ``higher value'' provision, the Agency is 
satisfied that the revised rule is consistent with the authorizing 
statute.

Contract--Sec.  4288.121

    Comment: Three commenters believe that multi-year contracts are 
acceptable and desirable. One commenter points out that multi-year 
contracts result in less paperwork. One commenter suggests a minimum 
contract length of 10 years, pointing out that providing long term 
contracts would help with financing of additional advanced biofuel 
capacity.
    The third commenter requests that the Agency consider allowing for 
five-year contracts with eligible advanced biofuels producers. The 
multi-year contracts should allow for an annual review of the baseline 
of production so that the producer has the opportunity to continue to 
demonstrate its incremental increase in production. The annual review 
of contracts should occur from October 1 through October 31 to stay 
consistent with the Federal fiscal year. The commenter believes that 
allowing multi-year contracts will assist USDA in stabilizing the 
biofuels industry. Advanced biofuels producers that are new to the 
commercialization process will greatly benefit from this as it will 
allow them to offset the ramp up costs associated with bringing a new 
plant online. In addition, this will meet the Federal government's 
goals in the reduction of paperwork.
    Response: The Program is for the term of the 2008 Farm Bill and 
only has funding through 2012. The proposed rule allows for multi-year 
contract until either the producer or the Agency terminates the 
contract. The producer, once eligible for the program, must sign-up 
annually.
    Comment: One commenter recommends that the contract used by the 
Agency, Form RD 4288-2, should not allow for a termination based on the 
Program being discontinued or not funded during a fiscal year. Instead, 
the commenter recommends that the termination due to either of these 
reasons should only be allowed from one fiscal year to the next during 
the application process, not at any time.
    Response: This program is statutorily funded, providing mandatory 
funding through 2012. In the event there are no funds available for the 
program, the contract would be terminated due to lack of appropriated 
funding. The Agency would not terminate the contract during a fiscal 
year due to the program being discontinued or lack of funding.

Payment Applications--Sec.  4288.130

Frequency of Submittal
    Comment: Several commenters express support for submitting payment 
applications and receiving payments on a quarterly basis. One of the 
commenters notes that this will be beneficial to producers and to USDA 
in their administration of the program, including appropriate 
management of the program funds to ensure that all annual mandatory 
funding levels are met. Another commenter supports USDA's policy 
objective of providing payments on a more frequent basis to give 
producers a more reliable and useful income stream.
    One commenter suggests that semi-annual payments be made, which 
allow producers to maintain an adequate cash flow balance throughout 
the entire year versus a once-a-year payment. According to the 
commenter, biodiesel producers historically utilize program payments to 
supplement their working capital. With the six-month lapse of the 
biodiesel blenders tax credit, biodiesel producers have an urgent need 
for working capital; specifically as the tax credit is reinstated and 
raw materials must be purchased before sales may be in place.
    One commenter states that, ideally, payments could be made on a 
monthly basis, thereby providing the Agency a running total of 
obligations incurred as well as having an idea of total likely 
obligations as the year progresses. If adjustments need to be made due 
to under or over payment rates due to volume such adjustments in the 
payment rate can be made as the year unfolds.
    One commenter, in support of quarterly payments, suggests that the 
total funding amounts to be provided during a fiscal year should be 
divided equally among the four quarters. The quarterly payments would 
be determined by dividing the amount of funding available for the 
quarter by the amount of actual production recorded that quarter.
    Response: Requesting monthly payments would increase the paperwork 
burden for the producer and the administrative burden for the Agency. 
The Agency is satisfied that the quarterly payments will meet the 
industry's needs.

[[Page 7965]]

    With regard to the suggestion on how to determine the quarterly 
payments, the Agency has changed the rule to make payments quarterly on 
actual production using the amounts allocated for each quarter.

Payment Provisions--Sec.  4288.131

    Comment: One commenter supports that production switched between 
owned production locations is considered in aggregate.
    Response: The interim rule does not allow for producers to switch 
production from one facility to another and aggregate production for 
the purpose of collecting payments under this program. The Agency 
requires producers to sign-up for each facility that produces an 
advanced biofuel for which they are requesting payment.

Other Payment Provisions

Paragraph (d)(1)
    Comment: One commenter believes that the proposed language on 
renewable energy content could be interpreted to include a reduction 
for all energy used in the production process. According to the 
commenter, the intent of this language is to prevent advanced energy 
payments for the denaturant required by the ATF in ethanol production. 
However, because all production processes use energy in the many forms 
(e.g., electricity, natural gas), the commenter believes the language 
should be modified to specifically exclude energy used in the 
production process. Therefore, the commenter suggests the following 
language: ``The renewable energy content of the final product will be 
adjusted for any blending of nonrenewable additives or products after 
the final production process.''
    Response: The Agency agrees with the comment that the renewable 
energy content of the final product is eligible for payment when the 
producer provides sufficient documentation for the Agency to determine 
the quantity produced from records of sale of the advanced biofuel. The 
current language accurately reflects that only renewable energy content 
of the final product is eligible for payment.

Remedies--Sec.  4288.136

    Comment: One commenter believes that the consequences for fraud in 
the proposed rule seem weak. According to the commenter, to simply take 
away funding is not enough because funds have already been spent. The 
commenter recommends including penalties such as repayment to prevent 
fraud.
    Response: The Agency disagrees with the comment that the only 
remedy is taking away funding. Both Sec. Sec.  4288.134 and 4288.135 
contain provisions that provide the Agency additional remedies. To make 
this clearer, the Agency is revising the introductory text to Sec.  
4288.136 to make reference to these two sections.

General--Agree

    Comment: One commenter supports the proposed rule, agreeing with 
the guidelines outline what qualifies as a biofuel and the process for 
maintaining grants is acceptable.
    Response: The Agency acknowledges the commenter's support, but 
notes that this program involves contracts and not grants.

General--Disagree

    Comment: One commenter states that this program should not even be 
in place. The commenter believes that the very fact that a government 
agency has to purchase this fuel indicates that there is no demand for 
it and it is not economically viable and will not be supported by the 
market.
    Response: The Agency disagrees with the comment. The program 
supports production of advance biofuel as mandated by statute.
    Comment: One commenter states that bio-fuels generally have been 
getting tax breaks for years now, which has allowed them to be 
``competitive'' with other fuels and which have resulted in increased 
feedstock and food costs as the `raw materials' for the fuel--corn, 
soybeans, etc.--have gone to fuel manufacture rather than feed for 
livestock and for human consumption. The continuation of these tax 
breaks will only further distort the supply and demand of these 
important agribusinesses.
    Response: Advanced biofuel from corn kernel starch is not eligible 
under this program. Many advanced biofuels are produced from non-feed 
grains (e.g. soybean oil versus soybean meal) and from other waste 
products which are not normally considered as foods. The payments the 
producers received are reported to the IRS and they must claim the 
payment as income resulting in possible payment of taxes.

Timing

    Comment: A number of commenters encourage the Agency to conclude 
the rulemaking process as soon as is possible and make the total $80 
million in mandatory funding provided by statute available in Fiscal 
Year 2010. Commenters make this request because the biodiesel industry 
is currently facing significant economic challenges, including, as 
noted by one commenter, the uncertainty created by the December 31, 
2009 expiration of the $1 Federal biodiesel blending credit. This will 
provide needed financial support to maintain and bolster the domestic 
production of advanced biofuels, consistent with statute and the will 
of Congress. According to one commenter, for the past five and a half 
months, the biodiesel industry has been devastated by the expiration of 
the Federal biodiesel blenders tax credit. As a result of this lapse in 
the tax credit, many biodiesel plants have shut down and biodiesel 
production in the U.S. has been ground nearly to a halt.
    Response: The Agency acknowledges the challenges faced by the 
entire biofuel industry and has expedited the rulemaking process.

Funding

    Comment: Three commenters state that payments of the full Fiscal 
Year 2010 statutorily required funding ($55 million) plus the funding 
rolled over from Fiscal Year 2009 funds ($25 million) should be made to 
all eligible producers, as intended by Congress under the statute, 
under a final rule within Fiscal Year 2010. Similarly, another 
commenter, noting the amount of funds announced as being available in 
the NOFAs issued in Fiscal Year 2009 and Fiscal Year 2010 is only half 
of the funding that should be appropriated to the program via the 
statute, urges the Agency to increase the appropriation for this 
program to $80 million for Fiscal Year 2010.
    Response: The Agency acknowledges the challenges faced by the 
entire biofuel industry. The Agency published a Notice of Contract 
Proposal in the Federal Register of May 6, 2010 (75 FR 24865), and 
received an apportionment of $40 million. With respect to increasing 
the appropriations for this program, that decision would be made by 
Congress.
    Comment: One commenter does not support making further payments 
under the NOFA issued March 12, 2010 (75 FR 11840), or May 6. According 
to this commenter, it would be better to get the final rule completed 
and make payments under such rules than continue to make payments under 
the NOFA.
    One commenter similarly suggests that the Agency terminate the 
Fiscal Year 2010 NOCP and make all Fiscal Year 2010 payments under the 
final version of the proposed rule. In support of this position, the 
commenter refers to the May 6, 2010, NOCP to eligible participants that 
produced advanced

[[Page 7966]]

biofuels in Fiscal Year 2010, which included the United States 
citizenship requirement for which the Agency provided no reasoning for 
incorporating this requirement and in which the Agency provided no 
justification for, in effect, abandoning the rulemaking process which 
it started less than a month before insofar as Fiscal Year 2010 
payments under the program are concerned. According to the commenter, 
the passage of time since the relevant statute was passed in 2008 makes 
it untenable for anyone to argue that the ``good cause'' exception to 
the rulemaking requirements applies to decisions regarding Fiscal Year 
2010 payments.
    Another commenter states that, because money is still available for 
2009 and 2010 production, new facilities and new production should be 
allowed to participate and that the rule prohibiting such production 
and such facilities be reconsidered.
    Response: The Agency acknowledges the challenges faced by the 
entire biofuel industry and has expedited the rulemaking process. The 
Agency has canceled the Notice of Contract Proposal published on May 6, 
2010 in the Federal Register. This interim rule provides producers who 
are foreign-owned or non-rural to apply for payments under this 
program.

IV. Advanced Biofuel Payment Program Fiscal Year 2010 Applications

    In the interim rule for the Advanced Biofuel Payment Program, the 
Agency has revised the eligibility criteria such that non-rural biofuel 
facilities and foreign-owned biofuel facilities are eligible for the 
program. The Notice for Contract Proposal (NOCP) published on May 6, 
2010 (75 FR 24865) excluded non-rural biofuel facilities and foreign-
owned biofuel facilities from the program. To conform that Notice with 
this interim rule, the Agency is incorporating provisions in the 
interim rule for applicants to apply for Fiscal Year 2010 funds and 
these interim rule provisions supersede the provisions specified in the 
May 6, 2010 NOCP. The effect is to cancel the May 6, 2010 NOCP and 
replace it with the provisions found in this preamble and in this 
interim rule.
    As noted under the SUPPLEMENTARY INFORMATION section of this 
preamble, the Agency will be accepting applications for participation 
in this program for Fiscal Year 2010 funding from the date of 
publication through 60 days after the date of publication of the 
interim rule. The Agency notes that this time period is the same as the 
comment period for the interim rule. The Agency is accepting 
applications for Fiscal Year 2010 during the comment period for this 
interim rule in order to expedite the process for awarding Fiscal Year 
2010 funds. While the Agency will be accepting applications during the 
interim's rule comment period, it will not make any decisions on which 
applications will receive Fiscal Year funding until the interim rule is 
effective.
    The Agency notes that it will provide funding information for 
Fiscal Year 2011 and subsequent fiscal years through notices of funding 
availability.

A. Funding Information

    1. Available funds. The Agency is authorizing up to $80 million in 
budget authority for this program in Fiscal Year 2010.
    2. Number of Payments. Under Sec.  4288.190, payments to 
participating advanced biofuel producers will be made for actual 
production produced from October 1, 2009 through September 30, 2010.
    3. Range of Amounts of Each Payment. The amount of each payment 
will depend on the number of eligible advanced biofuel producers 
participating in the program for Fiscal Year 2010, the amount of 
advanced biofuels being produced by such advanced biofuel producers, 
and the amount of funds available.
    4. Contract length. The contract will remain in effect until 
terminated, as provided for in 7 CFR 4280.121.
    5. Type of Instrument. Payment.

B. Eligibility Information

    The eligibility requirements for advanced biofuel producers seeking 
payments under this program for Fiscal Year 2010 are found in 
Sec. Sec.  4288.110 through 4288.113.

C. Application and Submission Information

    1. Address to Request Applications. Contract and Payment 
Application forms are available from the USDA, Rural Development State 
Office, Renewable Energy Coordinator. The list of Renewable Energy 
Coordinators is provided in the SUPPLEMENTARY INFORMATION section of 
this preamble.
    2. Content and Form of Submission. The enrollment provisions, 
including application content and form of submission, are specified in 
Sec. Sec.  4288.120 and 4288.121.
    3. Submission Dates and Times.
    (i) Enrollment. Advanced biofuel producers who had eligible 
production at any time during Fiscal Year 2010 must enroll in the 
program by April 12, 2011. Applications received after this date will 
not be considered by the Agency for Fiscal Year 2010 payments. 
Applicants who submitted an application pursuant to the May 6, 2010 
NOCP must submit a new application under this interim rule to be 
considered for a Fiscal Year 2010 payment.
    (ii) Payment applications. Advanced biofuel producers must submit 
Form RD 4288-3 by 4:30 p.m. local time May 12, 2011. Payment will be 
made for the time period October 1, 2009 through September 30, 2010.
    4. Funding Restrictions. For Fiscal Year 2010, not more than 5 
percent of the funds shall be made available to eligible producers with 
a refining capacity exceeding 150,000,000 gallons of a liquid advanced 
biofuel per year or exceeding 15,900,000 million BTUs of biogas and 
solid advanced biofuel per year. In calculating whether a producer 
meets either of these capacities, production of all advanced biofuel 
facilities owned or operated by the producer will be totaled. In 
addition, not more than 5 percent of the funds shall be made available 
for the production of eligible solid advanced biofuels produced from 
forest biomass.

D. Payment Provisions

    Fiscal Year 2010 payments will be made according to the provisions 
specified in Sec.  4288.190.

E. Environmental Review

    All recipients under this interim rule are subject to the 
requirements of 7 CFR part 1940, subpart G. However, 7 CFR 
1940.310(c)(1) excludes this activity. In accordance with Sec.  
1940.310(c)(1), if a program provides assistance that is not related to 
the development of a specific site, it is excluded from conducting an 
environmental review. Rural Development's compliance with the National 
Environmental Policy Act of 1969 (NEPA) is implemented in its 
regulations at 7 CFR part 1940, subpart G. Applicants whose proposal 
involves additional facility construction should provide Form RD 1940-
20 as part of this application. RD will then determine whether the 
approval falls under Sec.  1940.310(c)(1), which categorically excludes 
the action from NEPA compliance.

List of Subjects in 7 CFR Part 4288

    Administrative practice and procedure, Energy--advanced biofuel, 
Renewable biomass, Reporting and recordkeeping.
    For the reasons set forth in the preamble, title 7, chapter XLII of 
the Code of Federal Regulations, is amended as follows:

[[Page 7967]]

CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILIIES 
SERVICE, DEPARTMENT OF AGRICULTURE

PART 4288--PAYMENT PROGRAMS

0
1. The authority citation for part 4288 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1989.


0
2. Subpart B is added to part 4288 to read as follows:

Subpart B--Advanced Biofuel Payment Program

General Provisions

Sec.
4288.101 Purpose and scope.
4288.102 Definitions.
4288.103 Review or appeal rights.
4288.104 Compliance with other laws and regulations.
4288.105 Oversight and monitoring.
4288.106 Forms, regulations, and instructions.
4288.107 Exception authority.
4288.108-4288.109 [Reserved]

Eligibility Provisions

4288.110 Applicant eligibility.
4288.111 Biofuel eligibility.
4288.112 Eligibility notifications.
4288.113 Payment record requirements.
4288.114-4288.119 [Reserved]

Enrollment Provisions

4288.120 Enrollment.
4288.121 Contract.
4288.122-4288.129 [Reserved]

Payment Provisions

4288.130 Payment applications.
4288.131 Payment provisions.
4288.132 Payment adjustments.
4288.133 Payment liability.
4288.134 Refunds and interest payments.
4288.135 Unauthorized payments and offsets.
4288.136 Remedies.
4288.137 Succession and loss of control of advanced biofuel 
facilities and production.
4288.138-4288.189 [Reserved]

Fiscal Year 2010 Applications

4288.190 Fiscal Year 2010 applications.
4288.191--4288.200 [Reserved]

    Authority: 5 U.S.C. 301.

Subpart B--Advanced Biofuel Payment Program General Provisions


Sec.  4288.101  Purpose and scope.

    (a) Purpose. The purpose of this subpart is to support and ensure 
an expanding production of advanced biofuels by providing payments to 
eligible advanced biofuel producers.
    (b) Scope. This subpart sets forth, subject to the availability of 
funds as provided herein, or as may be limited by law, the terms and 
conditions an advanced biofuel producer must meet to obtain payments 
under this Program from the United States Department of Agriculture for 
eligible advanced biofuel production. Additional terms and conditions 
may be set forth in the Program contract and payment agreement 
prescribed by the Agency.


Sec.  4288.102  Definitions.

    The definitions set forth in this section are applicable for all 
purposes of program administration under this subpart.
    Advanced biofuel. A fuel that is derived from renewable biomass, 
other than corn kernel starch, to include:
    (1) Biofuel derived from cellulose, hemicellulose, or lignin;
    (2) Biofuel derived from sugar and starch (other than ethanol 
derived from corn kernel starch);
    (3) Biofuel derived from waste material, including crop residue, 
other vegetative waste material, animal waste, food waste, and yard 
waste;
    (4) Diesel-equivalent fuel derived from renewable biomass, 
including vegetable oil and animal fat;
    (5) Biogas (including landfill gas and sewage waste treatment gas) 
produced through the conversion of organic matter from renewable 
biomass;
    (6) Butanol or other alcohols produced through the conversion of 
organic matter from renewable biomass; or
    (7) Other fuel derived from cellulosic biomass.
    Advanced biofuel producer. An individual, corporation, company, 
foundation, association, labor organization, firm, partnership, 
society, joint stock company, group of organizations, or non-profit 
entity that produces and sells an advanced biofuel. An entity that 
blends or otherwise combines advanced biofuels into a blended biofuel 
is not considered an advanced biofuel producer under this Program.
    Agency. The USDA Rural Development, Rural Business-Cooperative 
Service or its successor organization.
    Alcohol. Anhydrous ethyl alcohol manufactured in the United States 
and its territories and sold either:
    (1) For fuel use, rendered unfit for beverage use, produced at a 
biofuel facility and in a manner approved by the Bureau of Alcohol, 
Tobacco, Firearms, and Explosives for the production of alcohol for 
fuel; or
    (2) As denatured alcohol used by blenders and refiners and rendered 
unfit for beverage use.
    Alcohol producer. An advanced biofuel producer authorized by ATF to 
produce alcohol.
    ATF. The Bureau of Alcohol, Tobacco, Firearms, and Explosives of 
the United States Department of Justice.
    Biodiesel. A mono alkyl ester, manufactured in the United States 
and its territories, that meets the requirements of the appropriate 
ASTM International standard.
    Biofuel. Fuel derived from renewable biomass.
    Biofuel facility. A facility (including equipment and processes) 
that converts renewable biomass into biofuels and biobased products and 
may produce electricity.
    Blender. A blender is a processor of fuels who combines two or more 
fuels, one of which must be an advanced biofuel, for distribution and 
sale. Producers who blend one or more of their own fuels are not 
blenders under this definition.
    Certificate of analysis. A document approved by the Agency that 
certifies the quality and purity of the advanced biofuel being 
produced. The document must be from a qualified, independent third 
party.
    Contract. Form RD 4288-2, ``Advanced Biofuel Payment Program 
Contract,'' signed by the eligible advanced biofuel producer and the 
Agency, that defines the terms and conditions for participating in and 
receiving payment under this Program.
    Eligible advanced biofuel producer. A producer of advanced biofuels 
that meets all requirements of Sec.  4288.110 of this subpart.
    Eligible renewable biomass. Renewable biomass, as defined in this 
section, excluding corn kernel starch.
    Eligible renewable energy content. That portion of an advanced 
biofuel's energy content derived from eligible renewable biomass 
feedstock. The energy content from any portion of the biofuel, whether 
from, for example, blending with another fuel or a denaturant, that is 
derived from a non-eligible renewable biomass feedstock (e.g., corn 
kernel starch) is not eligible for payment under this Program.
    Enrollment application. Form RD 4288-1, ``Advanced Biofuel Payment 
Program Annual Application,'' which is submitted by advanced biofuel 
producers for participation in this Program.
    Ethanol. Anhydrous ethyl alcohol manufactured in the United States 
and its territories and sold either:
    (1) For fuel use, and which has been rendered unfit for beverage 
use and produced at an advanced biofuel facility approved by the ATF 
for the production of ethanol for fuel, or

[[Page 7968]]

    (2) As denatured ethanol used by blenders and energy refiners, 
which has been rendered unfit for beverage use.
    Ethanol producer. An advanced biofuel producer authorized by ATF to 
produce ethanol.
    Fiscal Year. A 12-month period beginning each October 1 and ending 
September 30 of the following calendar year.
    Flared gas. The burning of unwanted gas through a pipe (also called 
a flare). Flaring is a means of disposal used when the operator cannot 
transport the gas to market or convert to electricity and cannot use 
the gas for any other purpose.
    Forest biomass. Any plant or tree material produced by forest 
growth, such as trees, wood, brush, thinning, chips, and slash.
    Incremental production. The quantity of eligible advanced biofuel 
produced at an advanced biofuel biorefinery in the fiscal year for 
which payment is sought that exceeds the quantity of advanced biofuel 
produced at the biorefinery over the prior fiscal year.
    Larger producer. An eligible advanced biofuel producer with a 
refining capacity as determined for the prior fiscal year, based on all 
of the advanced biofuel facilities in which the producer has 50 percent 
or more ownership, exceeding:
    (1) 150,000,000 gallons of liquid advanced biofuel per year; or
    (2) 15,900,000 MMBTU of biogas and solid advanced biofuel per year.
    Payment application. Form RD 4288-3, ``Advanced Biofuel Payment 
Program--Payment Request,'' which is submitted by an eligible advance 
producer to the Agency in order to receive payment under this Program.
    Quarter. The Federal fiscal time period for any fiscal year as 
follows:
    (1) 1st Quarter: October 1 through December 31;
    (2) 2nd Quarter: January 1 through March 31;
    (3) 3rd Quarter: April 1 through June 30; and
    (4) 4th Quarter: July 1 through September 30.
    Renewable biomass.
    (1) Materials, pre-commercial thinnings, or invasive species from 
National Forest System land and public lands (as defined in section 103 
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) 
that:
    (i) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (e)(2), (e)(3), and 
(e)(4) and large-tree retention of paragraph (f) of section 102 of the 
Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512); or
    (2) Any organic matter that is available on a renewable or 
recurring basis from non-Federal land or land belonging to an Indian or 
Indian Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Sign-up period. The time period during which the Agency will accept 
enrollment applications.
    Smaller producer. An eligible advanced biofuel producer with a 
refining capacity as determined for the prior fiscal year, based on all 
of the advanced biofuel facilities in which the producer has 50 percent 
or more ownership, equal to or less than:
    (1) 150,000,000 gallons of liquid advanced biofuel per year; or
    (2) 15,900,000 MMBTU of biogas and solid advanced biofuel per year.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, 
the Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    USDA. The United States Department of Agriculture.


Sec.  4288.103  Review or appeal rights.

    A person may seek a review of an Agency decision or appeal to the 
National Appeals Division in accordance with 7 CFR part 11 of this 
title.


Sec.  4288.104  Compliance with other laws and regulations.

    (a) Advanced biofuel producers must comply with other applicable 
Federal, State, and local laws, including, but not limited to, the 
Equal Employment Opportunity Act, Title VI of the Civil Rights Act of 
1964, Section 504 of the Rehabilitation Act of 1973, The Age 
Discrimination Act of 1975, the Americans with Disabilities Act of 
1990, and 7 CFR part 1901, subpart E. This includes collection and 
maintenance of race, sex, and national origin data of the recipient's 
employee.
    (b) Producers must comply with equal opportunity and 
nondiscriminatory requirements in accordance with 7 CFR 15d. Rural 
Development will not discriminate against an applicant on the bases of 
race, color, religion, national origin, sex, sexual orientation, 
marital status, familial status, disability, or age (provided that the 
applicant has the capacity to contract); to the fact that all or part 
of the applicant's income derives from public assistance program; or to 
the fact that the applicant has in good faith exercised any right under 
the Consumer Credit Protection Act.


Sec.  4288.105  Oversight and monitoring.

    (a) Verification. The Agency reserves the right to verify all 
payment applications and subsequent payments made under this subpart, 
as frequently as necessary, to ensure the integrity of the Program. The 
Agency will conduct site visits as necessary.
    (1) Production and feedstock verification. The Agency will review 
producer records to verify the type and amount of biofuel produced and 
the type and amount of feedstocks used.
    (2) Blending verification. The Agency will review the producer's 
certificates of analysis and feedstock records to verify the portion of 
the advanced biofuel eligible for payment.
    (3) Certificate of Analysis. The Agency will review the producer 
records for quarterly payments to ensure that each certificate of 
analysis has been issued by a qualified, independent third party, which 
may include the blender only if the blender is not associated with the 
facility.
    (b) Records. For the purpose of verifying compliance with the 
requirements of this subpart, each eligible advanced biofuel producer 
shall make available at one place at a reasonable time for examination 
by representatives of USDA, all books, papers, records, contracts, 
scale tickets, settlement sheets, invoices, written price quotations, 
and other documents related to the Program that is within the control 
of such advanced biofuel producer for not less than 3 years from each 
Program payment date.


Sec.  4288.106  Forms, regulations, and instructions.

    Copies of all forms, regulations, instructions, and other materials 
related to this Program may be obtained from the USDA Rural Development 
State

[[Page 7969]]

Office, Rural Energy Coordinator and the USDA Rural Development Web 
site at http://www.rurdev.usda.gov.


Sec.  4288.107  Exception authority.

    The Administrator of the Agency (``Administrator'') may, with the 
concurrence of the Secretary of Agriculture, make an exception, on a 
case-by-case basis, to any requirement or provision of this subpart 
that is not inconsistent with any authorizing statute or applicable 
law, if the Administrator determines that application of the 
requirement or provision would adversely affect the Federal 
government's interest.


Sec. Sec.  4288.108-4288.109  [Reserved]

Eligibility Provisions


Sec.  4288.110  Applicant eligibility.

    Sections 4288.110 through 4288.119 present the requirements 
associated with advanced biofuel producer eligibility, biofuel 
eligibility, eligibility notifications, and payment record 
requirements. To be eligible for this Program, the applicant must meet 
the requirements specified in paragraph (a) of this section and must 
provide additional information as may be requested by the Agency under 
paragraph (b) of this section. Public bodies and educational 
institutions are not eligible for this Program.
    (a) Eligible producer. The applicant must be an advanced biofuel 
producer, as defined in this subpart.
    (b) Eligibility determination. The Agency will determine an 
applicant's eligibility for participation in this Program. If an 
applicant's original submittal is not sufficient to verify an 
applicant's eligibility, the Agency will notify the applicant, in 
writing, as soon as practicable after receipt of the application. This 
notification will identify, at a minimum, the additional information 
being requested to enable the Agency to determine the applicant's 
eligibility and a timeframe in which to supply the information.
    (1) If the applicant provides the requested information to the 
Agency within the specified timeframe, the Agency will determine the 
applicant's eligibility for the upcoming fiscal year.
    (2) If the applicant does not provide the requested information to 
the Agency within the specified timeframe, the Agency will not consider 
the applicant any further for participation in the upcoming fiscal 
year. Such applicants may elect to enroll during the next sign-up 
period.
    (c) Ineligibility determination. An otherwise eligible producer 
will be determined to be ineligible if the producer:
    (1) Refuses to allow the Agency to verify any information provided 
by the advanced biofuel producer under this subpart, including 
information for determining applicant eligibility, advanced biofuel 
eligibility, and application payments;
    (2) Fails to meet any of the conditions set out in this subpart, in 
the contract, or in other Program documents; or
    (3) Fails to comply with all applicable Federal, State, or local 
laws.


Sec.  4288.111  Biofuel eligibility.

    To be eligible for this Program, a biofuel must meet the 
requirements specified in paragraph (a) of this section and the 
biofuel's producer must provide additional information as may be 
requested by the Agency under paragraph (b) of this section. 
Notwithstanding the provisions of paragraph (a) of this section, for 
the purposes of this subpart, flared gases are not eligible.
    (a) Eligible advanced biofuel. For an advanced biofuel to be 
eligible, each of the following conditions must be met, as applicable:
    (1) The advanced biofuel must meet the definition of advanced 
biofuel and be produced in a State;
    (2) The advanced biofuel must be a solid, liquid, or gaseous 
advanced biofuel;
    (3) The advanced biofuel must be a final product; and
    (4) The advanced biofuel must be sold as an advanced biofuel 
through an arm's length transaction to a third party.
    (b) Eligibility determination. The Agency will determine a 
biofuel's eligibility for payment under this Program. If an applicant's 
original submittal is not sufficient to verify a biofuel's eligibility, 
the Agency will notify the applicant, in writing, as soon as 
practicable after receipt of the application. This notification will 
identify, at a minimum, the additional information being requested to 
enable the Agency to determine the biofuel's eligibility and a 
timeframe in which to supply the information.
    (1) If the applicant provides the requested information to the 
Agency within the specified timeframe, the Agency will determine the 
biofuel's eligibility for the upcoming fiscal year.
    (2) If the applicant does not provide the requested information to 
the Agency within the specified timeframe, the biofuel will not be 
eligible for payment under this Program in the upcoming fiscal year. 
Applicants may elect to include such biofuels in the application form 
submitted during the next sign-up period.


Sec.  4288.112  Eligibility notifications.

    (a) Applicant eligibility. If an applicant is determined by the 
Agency to be eligible for participation, the Agency will notify the 
applicant, in writing, as soon as practicable after receipt of the 
application and will assign the applicant a contract number.
    (b) Ineligibility notifications. If an applicant or a biofuel is 
determined by the Agency to be ineligible, the Agency will notify the 
applicant, in writing, as soon as practicable after receipt of the 
application, as to the reason(s) the applicant or biofuel was 
determined to be ineligible. Such applicant will have appeal rights as 
specified in this subpart.
    (c) Subsequent ineligibility determinations. If at any time a 
producer or an advanced biofuel is determined to be ineligible, the 
Agency will notify the producer in writing of its determination.


Sec.  4288.113  Payment record requirements.

    To be eligible for Program payments, an advanced biofuel producer 
must maintain records for all relevant fiscal years and fiscal year 
quarters for each advanced biofuel facility indicating:
    (a) The type of eligible renewable biomass used in the production 
of advanced biofuel;
    (b) The quantity of advanced biofuel produced from eligible 
renewable biomass at each advanced biofuel facility;
    (c) The quantity of eligible renewable biomass used at each 
advanced biofuel facility to produce the advanced biofuel; and
    (d) All other records required to establish Program eligibility and 
compliance.


Sec.  4288.114-4288.119  [Reserved]

Enrollment Provisions


Sec.  4288.120  Enrollment.

    In order to participate in the Program, a producer of advanced 
biofuels must be approved by the Agency and enter into a contract with 
the Agency. The process for enrolling in the Program is presented in 
this section. Advanced biofuel producers who expect to produce eligible 
advanced biofuels at any time during a fiscal year must enroll in the 
Program as described in this section.
    (a) Enrollment. To enroll in the Program, an advanced biofuel 
producer must submit to the Agency a completed enrollment application 
during the applicable sign-up period, as specified in paragraph (b) of 
this section. An

[[Page 7970]]

original, signed hard copy of the enrollment application must be 
submitted as specified in the annual Federal Register notice for this 
program. All applicants, except those that are individuals, are 
required to have a Dun and Bradstreet Universal Numbering System (DUNS) 
number, which can be obtained online at http://fedgov.dnb.com/webform.
    (1) Eligible advanced biofuel producers must submit enrollment 
applications during each sign-up period in order to continue 
participating in this Program. If a participating producer fails to 
submit the enrollment application during a fiscal year's applicable 
sign-up period, the producer's contract will be terminated and the 
producer will be ineligible to receive payments for that fiscal year. 
Such a producer must reapply, and sign a new contract, to participate 
in the Program for future fiscal years.
    (2) Eligible advanced biofuel producers may submit an enrollment 
application during a fiscal year's sign-up period even if the advanced 
biofuel facility is not currently producing, but is scheduled to start 
producing advanced biofuel in that fiscal year.
    (3) The producer must furnish the Agency all required 
certifications before acceptance into the Program, and furnish access 
to the advanced biofuel producer's records required by the Agency to 
verify compliance with Program provisions. The required certifications 
depend on the type of biofuel produced. Certifications specified in 
paragraphs (a)(3)(i) through (a)(3)(iv) of this section are to be 
completed and provided by an accredited independent third party.
    (i) Alcohol. For alcohol producers with authority from ATF to 
produce alcohol, copies of either
    (A) The Alcohol Fuel Producers Permit (TTB F 5110.74) or
    (B) The registration of Distilled Spirits Plant (TTB F 5110.41) and 
Operating Permit (TTB F 5110.25).
    (ii) Hydrous ethanol. For hydrous ethanol that is upgraded by 
another distiller to anhydrous ethyl alcohol, the increased ethanol 
production is eligible for payment one time only. If the advanced 
biofuel producer entering into this agreement is:
    (A) The hydrous ethanol producer, then the advanced biofuel 
producer shall include with the contract an affidavit, acceptable to 
the Agency, from the distiller stating that the:
    (1) Applicable hydrous ethanol produced is distilled and denatured 
for fuel use according to ATF requirements, and
    (2) Distiller will not include the applicable ethanol in any 
payment requests that the distiller may make under this Program.
    (B) The distiller that upgrades hydrous ethanol to anhydrous ethyl 
alcohol, then the advanced biofuel producer shall include with the 
contract an affidavit, acceptable to the Agency, from the hydrous 
ethanol producer stating that the hydrous ethanol producer will not 
include the applicable ethanol in any payment requests that may be made 
under this Program.
    (iii) Biodiesel, biomass-based diesel, and liquid hydrocarbons 
derived from biomass. For these fuels, the advanced biofuel producer 
shall certify that the producer, the advanced biofuel facility, and the 
biofuel meet the definitions of these terms as defined in Sec.  
4288.102, the applicable registration requirements under the Energy 
Independence and Security Act and the Clean Air Act and under the 
applicable regulations of the U.S. Environmental Protection Agency and 
Internal Revenue Service, and the quality requirements per applicable 
ASTM International standards (e.g., ASTM D6751) and commercially 
acceptable quality standards of the local market. If a Renewable 
Identification Number has been established, the advanced biofuel 
producer shall also provide documentation of the most recent Renewable 
Identification Number for a typical gallon of each type of advanced 
biofuel produced.
    (iv) Gaseous advanced biofuel. For gaseous advanced biofuel 
producers, certification that the biofuel meets commercially acceptable 
pipeline quality standards of the local market; that the flow meters 
used to determine the quantity of advanced biofuel produced are 
industry standard and properly calibrated by a third-party 
professional; and that the readings have been taken by a qualified 
individual.
    (v) Woody biomass feedstock. If the feedstock is from National 
Forest system land or public lands, documentation must be provided that 
it cannot be used as a higher value wood-based product.
    (4) Supporting documentation. Each advanced biofuel producer 
participating in this program for the first time must submit 
documentation to support the actual production and capacity reported in 
the enrollment application.
    (5) Additional forms. Applicants must submit the forms specified in 
this paragraph with the enrollment application when applying for 
participation under this subpart and as needed when re-enrolling in the 
program.
    (i) RD Instruction 1940-Q, Exhibit A-1, ``Certification for 
Contracts, Grants and Loans.''
    (ii) SF-LLL, ``Disclosure of Lobbying Activities.''
    (iii) Form RD 400-4, ``Assurance Agreement.''
    (b) Sign-up period. The sign-up period is October 1 to October 31 
of the fiscal year for which payment is sought, unless otherwise 
announced by the Agency in a Federal Register notice.


Sec.  4288.121  Contract.

    Advanced biofuel producers determined to be eligible to receive 
payments must then enter into a contract with the Agency in order to 
participate in this Program.
    (a) Contract. The Agency will forward the contract to the advanced 
biofuel producer. The advanced biofuel producer must agree to the terms 
and conditions of the contract, sign, date, and return it to the Agency 
within the time provided by the Agency.
    (b) Length of contract. Once signed, a contract will remain in 
effect until terminated as specified in paragraph (d) of this section.
    (c) Contract review. All contracts will be reviewed at least 
annually to ensure compliance with the contract and ensure the 
integrity of the program.
    (d) Contract termination. Contracts under this Program will be 
terminated in writing by the Agency. Contracts may be terminated under 
any one of the following conditions:
    (1) At the mutual agreement of the parties;
    (2) In accordance with applicable Program notices and regulations;
    (3) The advanced biofuel producer withdraws from the Program and so 
notifies the Agency, in writing;
    (4) The advanced biofuel producer fails to submit the enrollment 
application during a sign-up period;
    (5) The Program is discontinued or not funded;
    (6) All of a participating advanced biofuel producer's advanced 
biofuel facilities no longer exist or no longer produce any eligible 
advanced biofuel; or
    (7) The Agency determines that the advanced biofuel producer is 
ineligible for participation.


Sec. Sec.  4288.122-4288.129  [Reserved]

Payment Provisions


Sec.  4288.130  Payment applications.

    Sections 4288.130 through 4288.189 identify the process and 
procedures the Agency will use to make payments to eligible advanced 
biofuel producers. In order to receive payments under this

[[Page 7971]]

Program, eligible advanced biofuel producers with valid contracts must 
submit a payment application, as required under paragraph (a) of this 
section. The Agency will review the payment application and, if 
necessary, may request additional information, as specified under 
paragraph (b) of this section.
    (a) Applying for payment. To apply for payments under this subpart 
for a fiscal year, an eligible advanced biofuel producer must:
    (1) After a quarter has been completed, submit a payment 
application covering the quarter;
    (2) Certify that the request is accurate;
    (3) Furnish the Agency such certification, and access to such 
records, as the Agency considers necessary to verify compliance with 
Program provisions; and
    (4) Provide documentation as requested by the Agency of the net 
production of advanced biofuel at all advanced biofuel facilities 
during the relevant quarter.
    (b) Review of payment applications. The Agency will review each 
payment application it receives to determine if it is eligible for 
payment.
    (1) Review factors. Factors that the Agency will consider in 
reviewing payments applications include, but are not necessarily 
limited to:
    (i) Contract validity. Whether the entity submitting the payment 
application has a valid contract with the Agency under this Program;
    (ii) Biofuel eligibility. Whether the biofuel for which payment is 
sought is an eligible advanced biofuel; and
    (iii) Calculations. Whether the calculations for determining the 
requested payment are complete and accurate.
    (2) Additional documentation. If the Agency determines additional 
information is required for the Agency to complete its review of a 
payment application, eligible advanced biofuel producers shall submit 
such additional supporting documentation as requested by the Agency. If 
the producer does not provide the requested information within the 
required time period, the Agency will not make payment.
    (c) Payment application eligibility. The Agency will notify the 
advanced biofuel producer, in writing, as soon as practicable after the 
payment application, whenever the Agency determines that a payment 
application, or any portion thereof, is ineligible for payment and the 
basis for the Agency's determination of ineligibility.
    (d) Submittal information. Eligible advanced biofuel producers must 
submit payment applications as specified in the annual Federal Register 
notice for this program no later than 4:30 p.m. local time on the last 
day of the calendar month following the quarter for which payment is 
being requested. Neither complete nor incomplete payment applications 
received after this date and time will be considered, regardless of the 
postmark on the application.
    (1) Any payment application form that is received by the Agency 
after October 31 of the calendar year for the preceding fiscal year is 
ineligible for payment.
    (2) If the actual deadline falls on a weekend or a Federally-
observed holiday, the deadline is the next Federal business day.


Sec.  4288.131  Payment provisions.

    Payments to advanced biofuel producers for eligible advanced 
biofuel production will be determined in accordance with the provisions 
of this section.
    (a) Types of payments. The Agency will make available each fiscal 
year an actual production payment and an incremental production payment 
to participating producers, as specified in paragraphs (a)(1) and 
(a)(2), respectively, of this section. As provided in paragraph (a)(2) 
of this section, not all participating producers will receive an 
incremental production payment.
    (1) Actual production. Participating producers will be paid on a 
quarterly basis for the actual quantity of eligible advanced biofuel 
produced during the quarter. Payment for actual production will be 
determined according to paragraph (c) of this section.
    (2) Incremental production. For each participating advanced biofuel 
facility, the Agency will make an end-of-the-year payment for that 
facility's incremental production, if any, during the fiscal year 
provided the advanced biofuel facility has fewer than 20 days 
(excluding weekends) of non-production of eligible advanced biofuels 
during the previous fiscal year. Payment for incremental production 
will be determined according to paragraph (d) of this section.
    (b) Amount of payment funds available. Based on the amount of funds 
made available to this program each fiscal year, the Agency will 
allocate available program funds according to paragraphs (b)(1) and 
(b)(2) of this section.
    (1) Actual versus incremental production. The Agency will determine 
the amount of funds for actual production payments and for incremental 
production payment as follows:
    (i) For fiscal year 2010, 80 percent of the funds will be allocated 
for actual production payments and 20 percent of the funds will be 
allocated for incremental production payments.
    (ii) For fiscal year 2011, 70 percent of the funds will be 
allocated for actual production payments and 30 percent of the funds 
will be allocated for incremental production payments.
    (iii) For fiscal year 2012, 60 percent of the funds will be 
allocated for actual production payments and 40 percent of the funds 
will be allocated for incremental production payments.
    (iv) For fiscal year 2013 and beyond, 50 percent of the funds will 
be allocated for actual production payments and 50 percent of the funds 
will be allocated for incremental production payments.
    (2) Quarterly allocations. For each fiscal year, the Agency will 
allocate in each quarter one-fourth of the funds allocated to actual 
production for the entire fiscal year.
    (c) Determination of payment for actual production. Each quarter, 
the Agency will establish an actual production payment rate using the 
procedures specified in paragraphs (c)(1) through (c)(5) of this 
section. This rate will be applied to the actual quantity of eligible 
advanced biofuel produced to determine payments to eligible advanced 
biofuel producers, as described in paragraph (c)(6) of this section.
    (1) Based on the information provided in each payment application, 
the Agency will determine the eligible advanced biofuel production. If 
the Agency determines that the amount of advanced biofuel production 
reported in a payment application is not supported by the documentation 
submitted with the payment application, the Agency may reduce the 
production reported in the payment application.
    (2) For each producer, the Agency will convert the production 
determined to be eligible under paragraph (c)(1) of this section into 
British Thermal Unit (BTU) equivalent using factors published by the 
Energy Information Administration (or successor organization). If the 
Energy Information Administration does not publish such conversion 
factor for a specific type of advanced biofuel, the Agency will use a 
conversion factor developed by another appropriate entity. If no such 
conversion factor exists, the Agency will, in consultation with other 
Federal agencies, establish and use a conversion formula as 
appropriate, that it publishes in the Federal Register, until such time 
as the Energy Information

[[Page 7972]]

Administration or other appropriate entity publishes a conversion 
factor for said advanced biofuel. The Agency will then calculate the 
total eligible BTUs across all eligible applications.
    (i) If the advanced biofuel is a liquid or gaseous advanced biofuel 
produced from forest biomass, the BTUs will be discounted 10 percent.
    (ii) If the advanced biofuel is a solid advanced biofuel produced 
from forest biomass, the BTUs will be discounted 85 percent.
    (iii) If the advanced biofuel meets an applicable renewable fuel 
standard, the BTUs will be increased by 10 percent.
    (3) For each quarter, the Agency will determine the actual 
production payment rate ($/BTU) based on paragraphs (b) and (c)(2) of 
this section. The rate will be calculated such that all of the 
quarterly funds for actual production will be distributed.
    (4) Using the actual production payment rate determined above and 
the actual production for each type of advanced biofuel produced at an 
advanced biofuel facility, the Agency will calculate each quarter a 
payment for each eligible advanced biofuel producer for that quarter.
    (d) Determination of payment for incremental production. At the end 
of each fiscal year, the Agency will establish incremental production 
payment rate using the procedures specified in paragraphs (d)(1) 
through (d)(6) of this section. This rate will be applied to the 
quantity of eligible incremental advanced biofuel produced to determine 
payments to eligible advanced biofuel producers, as described in 
paragraph (d)(7) of this section.
    (1) For each participating advanced biofuel facility that produced 
eligible advanced biofuels during the fiscal year prior to the fiscal 
year for which payment is sought provided the advanced biofuel facility 
has fewer than 20 days (excluding weekends) of non-production of 
eligible advanced biofuels during that previous fiscal year, the Agency 
will determine the quantity of eligible advanced biofuel produced in 
that prior fiscal year based on information provided by the producer.
    (2) Using the information in the payment applications submitted for 
the fiscal year for which payment is sought, the Agency will determine 
the actual amount of eligible advanced biofuel produced in the fiscal 
year for which payment is sought.
    (3) Using the results from paragraphs (d)(1) and (d)(2) of this 
section, the Agency will determine the quantity of advanced biofuel 
produced in excess of the previous year's advanced biofuel production.
    (4) For each advanced biofuel facility that shows incremental 
production under paragraph (d)(3) of this section, the Agency will 
convert the production into British Thermal Unit (BTU) equivalent using 
factors published by the Energy Information Administration (or 
successor organization). If the Energy Information Administration does 
not publish such conversion factor for a specific type of advanced 
biofuel, the Agency will use a conversion factor developed by another 
appropriate entity. If no such conversion factor exists, the Agency 
will establish and use a conversion formula as appropriate, that it 
publishes in the Federal Register, until such time as the Energy 
Information Administration or other appropriate entity publishes a 
conversion factor for said advanced biofuel. The Agency will then 
calculate the total eligible BTUs across all eligible applications.
    (i) If the advanced biofuel is a liquid or gaseous advanced biofuel 
produced from forest biomass, the BTUs will be discounted 10 percent.
    (ii) If the advanced biofuel is a solid advanced biofuel produced 
from forest biomass, the BTUs will be discounted 85 percent.
    (iii) If the advanced biofuel meets an applicable renewable fuel 
standard, the BTUs will be increased by 10 percent.
    (5) The Agency will sum all of the BTUs determined under paragraph 
(d)(4) of this section.
    (6) Using the results from paragraph (d)(5) of this section and the 
amount of incremental funds available, the Agency will determine the 
incremental production payment rate ($/BTU). The rate will be 
calculated such that all of the incremental production funds will be 
distributed.
    (7) Using the incremental production payment rate determined above 
and the incremental production for each advanced biofuel facility 
eligible for an incremental production payment, the Agency will 
calculate an incremental production payment for each eligible advanced 
biofuel producer.
    (e) Other payment provisions. The following provisions apply.
    (1) Notwithstanding any other provision, the Agency will provide 
payments to larger producers of not more than 5 percent of available 
program funds in any fiscal year. At any time during the year, if the 
limit on payments to larger producers would be reached, the Agency will 
pro-rate payments to larger producers based on the BTU content of their 
eligible advanced biofuel production so as not to exceed the limit.
    (2) Notwithstanding any other provision, the Agency will provide 
payments to solid eligible advanced biofuels produced from forest 
biomass of not more than 5 percent of available program funds in any 
fiscal year. At any time during the year, if the limit on payments to 
such advanced biofuels would be reached, the Agency will pro-rate 
payments for such advanced biofuels based on the BTU content of the 
quantity of such advanced biofuels produced so as not to exceed the 
limit.
    (3) Advanced biofuel producers will be paid on the basis of the 
amount of eligible renewable energy content of the advanced biofuels 
only if the producer provides documentation sufficient, including a 
Certificate of Analysis, for the Agency to determine the eligible 
renewable energy content for which payment is being requested, and 
quantity produced through such documentation as, but not limited to, 
records of sale and calibrated flow meter records.
    (4) Payment will be made to only one eligible advanced biofuel 
producer per advanced biofuel facility.
    (5) Subject to other provisions of this section, advanced biofuel 
producers shall be paid any sum due subject to the requirements and 
refund provisions of this subpart.
    (6) Advanced biofuels produced under the situations identified in 
paragraphs (e)(6)(i) through (e)(6)(iii) of this section are ineligible 
for incremental production payment, but are still eligible for actual 
production payment.
    (i) Advanced biofuels produced at an advanced biofuel facility that 
did not produce any eligible advanced biofuel in year prior to the 
fiscal year in which payment is sought (e.g., a new advanced biofuel 
facility).
    (ii) Advanced biofuels produced at an advanced biofuel facility 
that had 20 or more days (excluding weekends) of non-production of 
eligible advanced biofuels during the fiscal year immediately prior to 
the fiscal year in which payment is sought.
    (iii) Advanced biofuels produced from forest biomass.
    (iv) For larger producers only, when all of the funds available to 
larger producers have been distributed based on actual production.
    (7) If an advanced biofuel producer transfers any production 
capacity for one advanced biofuel facility to another, such transferred 
production capacity shall be considered production for the advanced 
biofuel facility to which the production was transferred.

[[Page 7973]]

    (8) A producer will only be paid for the advanced biofuels 
identified in the enrollment application submitted during the sign-up 
period and which are actually produced during the fiscal year. If the 
producer starts producing a new advanced biofuel or changes the type of 
advanced biofuel during the fiscal year, the producer will not receive 
any payments for those new advanced biofuels. However, during each 
sign-up period, a producer can identify new advanced biofuels and 
production levels compared to the previous year.
    (9) When determining the quantity of eligible advanced biofuel, if 
an applicant is blending its advanced biofuel using ineligible 
feedstocks (e.g., fossil gasoline or methanol, corn kernel starch), 
only the quantity of advanced biofuel being produced from eligible 
feedstocks will be used in determining the payment rates and for which 
payments will be made.


Sec.  4288.132  Payment adjustments.

    The Agency will adjust the payments otherwise payable to the 
advanced biofuel producer if there is a difference between the amount 
actually produced and the amount determined by the Agency to be 
eligible for payment.


Sec.  4288.133  Payment liability.

    Any payment, or portion thereof, made under this subpart shall be 
made without regard to questions of title under State law and without 
regard to any claim or lien against the advanced biofuel, or proceeds 
thereof, in favor of the owner or any other creditor except agencies of 
the U.S. Government.


Sec.  4288.134   Refunds and interest payments.

    An eligible advanced biofuel producer who receives payments under 
this subpart may be required to refund such payments as specified in 
this section. If the Agency suspects fraudulent representation through 
its site visits and records inspections under Sec.  4288.105(b), it 
will be referred to the Office of Inspector General for appropriate 
action.
    (a) An eligible advanced biofuel producer receiving payments under 
this subpart shall become ineligible if the Agency determines the 
advanced biofuel producer has:
    (1) Made any fraudulent representation; or
    (2) Misrepresented any material fact affecting a Program 
determination.
    (b) If an Agency determination that a producer is not eligible for 
participation under this subpart is appealed and overturned, the Agency 
will make appropriate and applicable payments to the producer from 
Program funds, to the extent such funds are available, that remain from 
the fiscal year in which the original adverse Agency decision was made.
    (c) All payments made to an entity determined by the Agency to be 
ineligible shall be refunded to the Agency with interest and other such 
sums as may become due, including, but not limited to, any interest, 
penalties, and administrative costs as determined appropriate under 31 
CFR 901.9.
    (d) When a refund is due, it shall be paid promptly. If a refund is 
not made promptly, the Agency may use all remedies available to it, 
including Treasury offset under the Debt Collection Improvement Act of 
1996, financial judgment against the producer, and referral to the 
Department of Justice.
    (e) Late payment interest shall be assessed on each refund in 
accordance with the provisions and rates as established by the United 
States Treasury.
    (1) Interest charged by the Agency under this subpart shall be 
established by the United States Treasury. Such interest shall accrue 
from the date such payments were made by the Agency to the date of 
repayment by the producer.
    (2) The Agency may waive the accrual of interest or damages if the 
Agency determines that the cause of the erroneous payment was not due 
to any action of the advanced biofuel producer.
    (f) Any advanced biofuel producer or person engaged in an act 
prohibited by this section and any advanced biofuel producer or person 
receiving payment under this subpart shall be jointly and severally 
liable for any refund due under this subpart and for related charges.


Sec.  4288.135  Unauthorized payments and offsets.

    When unauthorized assistance has been made to an advanced biofuel 
producer under this Program, the Agency reserves the right to collect 
from the recipient the sum that is determined to be unauthorized. If 
the recipient fails to pay the Agency the unauthorized assistance plus 
other sums due under this section, the Agency reserves the right to 
offset that amount against Program payments.
    (a) Unauthorized assistance. The Agency will seek to collect from 
recipients all unauthorized assistance made under this Program using 
the procedures specified in paragraphs (a)(1) through (a)(4) of this 
section.
    (1) Notification to the producer. Upon determination that 
unauthorized assistance has been made to an advanced biofuel producer 
under this Program, the Agency will send a demand letter to the 
producer. Unless the Agency modifies the original demand, it will 
remain in full force and effect. The demand letter will:
    (i) Specify the amount of unauthorized assistance, including any 
accrued interest to be repaid, and the standards for imposing accrued 
interest;
    (ii) State the amount of penalties and administrative costs to be 
paid, the standards for imposing them and the date on which they will 
begin to accrue;
    (iii) Provide detailed reason(s) why the assistance was determined 
to be unauthorized;
    (iv) State the amount is immediately due and payable to the Agency;
    (v) Describe the rights the producer has for seeking review or 
appeal of the Agency's determination pursuant to 7 CFR part 11;
    (vi) Describe the Agency's available remedies regarding enforced 
collection, including referral of debt delinquent after due process for 
Federal salary, benefit and tax offset under the Department of Treasury 
Offset Program; and
    (vii) Provide an opportunity for the producer to meet with the 
Agency and to provide to the Agency facts, figures, written records, or 
other information that might refute the Agency's determination.
    (A) If the producer meets with the Agency, the producer will be 
given an opportunity to provide information to refute the Agency's 
findings.
    (B) When requested by the producer, the Agency may grant additional 
time for the producer to assemble documentation. Such extension of time 
for payment will be valid only if the Agency documents the extension in 
writing and specifies the period in days during which period the 
payment obligation created by the demand letter (but not the ongoing 
accrual of interest) will be suspended. Interest and other charges will 
continue to accrue pursuant to the initial demand letter during any 
extension period unless the terms of the demand letter are modified in 
writing by the Agency.
    (2) Payment in full. If the producer agrees with the Agency's 
determination or will pay the amount in question, the Agency may allow 
a reasonable period of time (usually not to exceed 90 days) for the 
producer to arrange for repayment. The amount due will be the 
unauthorized payments made plus interest accrued beginning on the date 
of the demand letter at the interest rate stipulated until the date 
paid unless otherwise agreed, in writing, by the Agency.
    (3) Promissory note. If the producer agrees with the Agency's 
determination

[[Page 7974]]

or is willing to pay the amount in question, but cannot repay the 
unauthorized assistance within a reasonable period of time, the Agency 
will convert the unauthorized assistance amount to a loan provided all 
of the conditions specified in paragraphs (a)(3)(i) through (a)(3)(iii) 
of this section are met. Loans established under this paragraph will be 
at the Treasury interest rate in effect on the date the financial 
assistance was provided and that is consistent with the term length of 
the promissory note. In all cases, the receivable will be amortized per 
a repayment schedule satisfactory to the Agency that has the producer 
pay the unauthorized assistance as quickly as possible, but in no event 
will the amortization period exceed fifteen (15) years. The producer 
will be required to execute a debt instrument to evidence this 
receivable, and the best security position practicable in a manner that 
will adequately protect the Agency's interest during the repayment 
period will be taken as security.
    (i) The producer did not provide false information;
    (ii) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance; and
    (iii) Failure to collect the unauthorized assistance immediately 
will not adversely affect the Agency's interests.
    (4) Appeals. Appeals resulting from the demand letter prescribed in 
paragraph (a)(1) of this section will be handled according to the 
provisions of Sec.  4288.103. All appeal provisions will be concluded 
before proceeding with further actions.
    (b) Offsets. Failure to make payment as determined under paragraph 
(a) of this section will be treated by the Agency as a debt that can be 
collected by an Administrative offset, unless written agreements to 
repay such debt as an alternative to administrative offset is agreed to 
between the Agency and the producer.
    (1) Any debtor who wishes to reach a written agreement to repay the 
debt as an alternative to administrative offset must submit a written 
proposal for repayment of the debt, which must be received by the 
Agency within 20 calendar days of the date the notice was delivered to 
the debtor. In response, the Agency will notify the debtor in writing 
whether the proposed agreement is acceptable. In exercising its 
discretion, the Agency will balance the Government's interest in 
collecting the debt against fairness to the debtor.
    (2) When the Agency receives a debtor's proposal for a repayment 
agreement, the offset is stayed until the debtor is notified as to 
whether the initial agreement is acceptable. If a Government payment 
will be made before the end of the fiscal year and the review is not 
yet completed, payment will be deferred pending resolution of the 
review.


Sec.  4288.136  Remedies.

    In addition to the steps available under the provisions of 
Sec. Sec.  4288.134 and 4288.135, if the Agency has determined that a 
producer has misrepresented the information or defrauded the 
Government, the Agency will take one of the following steps in 
accordance to 7 CFR part 3017, Government-wide Debarment and 
Suspension:
    (a) Suspend payments on the Contract until the violation has been 
reconciled;
    (b) Terminate the Contract; or
    (c) Debarment to participate in any Federal Government program.


Sec.  4288.137  Succession and loss of control of advanced biofuel 
facilities and production.

    (a) Contract succession. An entity who becomes the eligible 
advanced biofuel producer for an advanced biofuel facility that is 
under contract under this subpart must request permission from the 
Agency to succeed to the Program contract and the Agency may grant such 
request if it is determined that the entity is an eligible producer and 
permitting such succession would serve the purposes of the Program. If 
appropriate, the Agency may require the consent of the previous 
eligible advanced biofuel producer to such succession.
    (b) Loss of control. Payments will be made only for eligible 
advanced biofuels produced at an advanced biofuel facility owned or 
controlled by an eligible advanced biofuel producer with a valid 
contract. If payments are made to an advanced biofuel producer for 
production at an advanced biofuel facility no longer owned or 
controlled by said producer or to an otherwise ineligible advanced 
biofuel producer, the Agency will demand full refund of all such 
payments.


Sec. Sec.  4288.138-4288.189  [Reserved]

Fiscal Year 2010 Applications


Sec.  4288.190  Fiscal Year 2010 applications.

    (a) General. This section provides the requirements associated with 
applying for funds under this subpart for Fiscal Year 2010.
    (b) Applicability. The provisions specified in Sec. Sec.  4288.101 
through 4288.137 are applicable to applicants, applications, and awards 
made for Fiscal Year 2010, except as follows:
    (1) Applications for participation in this program must be received 
by April 12, 2011. Applications received after this date will not be 
considered by the Agency for Fiscal Year 2010 funding.
    (2) Payment applications for Fiscal Year 2010 funding are due by 
4:30 p.m. local time May 12, 2011. Any application received after this 
date and time is ineligible for payment.
    (3) Payment applications for Fiscal Year 2010 funding must contain 
actual production for October 1, 2009 through September 30, 2010.
    (4) If an applicant has submitted an application for participation 
or payment in this program for Fiscal Year 2010 funding prior to March 
14, 2011, the applicant must submit new applications in accordance with 
this subpart for Fiscal Year 2010 funding.


Sec. Sec.  4288.191-4288.200  [Reserved]

    Dated: January 31, 2011.
Dallas Tonsager,
Under Secretary, Rural Development.
[FR Doc. 2011-2476 Filed 2-10-11; 8:45 am]
BILLING CODE 3410-XY-P