[Federal Register Volume 77, Number 188 (Thursday, September 27, 2012)]
[Rules and Regulations]
[Pages 59458-59485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23344]
[[Page 59457]]
Vol. 77
Thursday,
No. 188
September 27, 2012
Part II
Environmental Protection Agency
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40 CFR Part 80
Regulation of Fuels and Fuel Additives: 2013 Biomass-Based Diesel
Renewable Fuel Volume; Final Rule
Federal Register / Vol. 77, No. 188 / Thursday, September 27, 2012 /
Rules and Regulations
[[Page 59458]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-HQ-OAR-2010-0133; FRL-9678-7]
RIN 2060-AR55
Regulation of Fuels and Fuel Additives: 2013 Biomass-Based Diesel
Renewable Fuel Volume
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
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SUMMARY: Under the Clean Air Act Section 211(o), the Environmental
Protection Agency is required to determine the applicable volume of
biomass-based diesel to be used in setting annual percentage standards
under the renewable fuel standard program for years after 2012. We
proposed an applicable volume requirement for 2013 of 1.28 billion
gallons on July 1, 2011. In order to sufficiently evaluate the many
comments on the proposal from stakeholders as well as to gather
additional information to enhance our analysis, we did not finalize
this volume requirement in the January 9, 2012, rulemaking setting the
2012 percentage standards. In this action we are finalizing an
applicable volume of 1.28 billion gallons of biomass-based diesel for
calendar year 2013.
DATES: This final rule is effective on November 26, 2012.
ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-HQ-OAR-2010-0133. All documents in the docket are listed in the
www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in www.regulations.gov or in hard copy at the Air and Radiation Docket
and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution
Ave. NW., Washington, DC. The Public Reading Room is open from 8:30
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The
telephone number for the Public Reading Room is (202) 566-1744, and the
telephone number for the Air Docket is (202) 566-1742.
FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of
Transportation and Air Quality, Assessment and Standards Division,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI
48105; Telephone number: 734-214-4131; Fax number: 734-214-4816; Email
address: [email protected], or the public information line for
the Office of Transportation and Air Quality; telephone number (734)
214-4333; Email address [email protected].
SUPPLEMENTARY INFORMATION:
I. General Information
A. Does this action apply to me?
Entities potentially affected by this rule are those involved with
the production, distribution, and sale of transportation fuels,
including gasoline and diesel fuel or renewable fuels such as ethanol
and biodiesel. Potentially regulated categories include:
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NAICS \1\ Examples of potentially regulated
Category codes SIC \2\ codes entities
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Industry................................... 324110 2911 Petroleum Refineries.
Industry................................... 325193 2869 Ethyl alcohol manufacturing.
Industry................................... 325199 2869 Other basic organic chemical
manufacturing.
Industry................................... 424690 5169 Chemical and allied products
merchant wholesalers.
Industry................................... 424710 5171 Petroleum bulk stations and
terminals.
Industry................................... 424720 5172 Petroleum and petroleum products
merchant wholesalers.
Industry................................... 454319 5989 Other fuel dealers.
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\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.
This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
final action. This table lists the types of entities that EPA is now
aware could potentially be regulated by this final action. Other types
of entities not listed in the table could also be regulated. To
determine whether your activities will be regulated by this final
action, you should carefully examine the applicability criteria in 40
CFR part 80. If you have any questions regarding the applicability of
this final action to a particular entity, consult the person listed in
the preceding section.
Outline of This Preamble
I. Executive Summary
A. Purpose of This Action
B. Summary of Today's Action
C. Impacts of This Action
II. Statutory Requirements
III. Factors Affecting Supply and Consumption
A. Demand for Biomass-Based Diesel
B. Availability of Feedstocks To Produce 1.28 Billion Gallons of
Biodiesel
1. Grease and Rendered Fats
2. Corn Oil
3. Soybean Oil
4. Effects on Food Prices
5. Other Bio-Oils
C. Production Capacity
D. Consumption Capacity
E. Biomass-Based Diesel Distribution Infrastructure
IV. Impacts of 1.28 Billion Gallons of Biomass-Based Diesel
A. Consideration of Statutory Factors
1. Climate Change
2. Energy Security
3. Agricultural Commodities and Food Prices
4. Air Quality
5. Deliverability and Transport Costs of Materials, Goods, and
Products Other Than Renewable Fuel
6. Wetlands, Ecosystems, and Wildlife Habitats
7. Water Quality and Quantity
a. Impacts on Water Quality and Water Quantity Associated With
Soybean Production
b. Impacts on Water Quality and Water Quantity Associated With
Biodiesel Production
8. Job Creation and Rural Economic Development
B. Consideration of Applicable Statutory Economic Factors
1. Monetized Quantifiable Costs
a. Impact on the Cost of Soybean Oil
b. Cost of Displacing Petroleum-Based Diesel With Soybean-Based
Biodiesel
c. Transportation Fuel Costs
2. Monetized Quantifiable Benefits
a. Energy Security
b. Air Quality
3. Quantifiable Benefits and Costs Compared
V. Final 2013 Volume for Biomass-Based Diesel
VI. Public Participation
VII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Unfunded Mandates Reform Act
[[Page 59459]]
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
I. National Technology Transfer Advancement Act
J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
K. Congressional Review Act
VIII. Statutory Authority
I. Executive Summary
The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) which were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), resulting in the
promulgation of revised regulatory requirements on March 26, 2010.\1\
The transition from the RFS1 requirements of EPAct to the RFS2
requirements of EISA generally occurred on July 1, 2010.
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\1\ 75 FR 14670.
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A. Purpose of This Action
While CAA section 211(o)(2)(B) specifies the volumes of biomass-
based diesel to be used in the RFS program through year 2012, it
directs the EPA to establish the applicable volume of biomass-based
diesel for years after 2012 no later than 14 months before the first
year for which the applicable volume will apply. On July 1, 2011, we
proposed that the applicable volume of biomass-based diesel for 2013
would be 1.28 billion gal.\2\
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\2\ 76 FR 38844.
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In a final rulemaking published on January 9, 2012, we specified
the 2012 standards for cellulosic biofuel, biomass-based diesel,
advanced biofuel, and total renewable fuel. Although we had intended to
also finalize the applicable volume of biomass-based diesel for 2013 in
that rulemaking, we did not do so. In that final rule we explained that
we were continuing to evaluate the many comments on the NPRM from
stakeholders as well as fulfilling other analytical requirements. We
indicated that we intended to gather additional information to enhance
our analysis including consideration of costs and benefits. In today's
notice we are finalizing the applicable volume of biomass-based diesel
for 2013. We believe that the volume we are finalizing today is
feasible and consistent with the overall analytic approach to the RFS2
program and also consistent with the overall intent of the Act to
expand the use of renewable fuels through the year 2022.
While we did not finalize the 2013 applicable volume of biomass-
based diesel within 14 months before the first year for which the
applicable volume will apply as required by the statute, we do not
believe that this will create a difficulty in the ability of obligated
parties to meet the applicable volume that we are finalizing today. We
are finalizing the 2013 applicable volume about three months before it
will apply. As described in Section III.B, producers of biodiesel, the
largest contributor to biomass-based diesel, have significantly greater
production capacity than will be required by today's final rule, and in
general it only requires a few months to bring an idled biodiesel
facility back into production. Moreover, many facilities that are
producing volume currently are underutilizing their capacity, and can
ramp up production relatively quickly. Finally, the biodiesel industry
is already producing at a rate consistent with an annual volume of
about 1.3 billion gallons.
B. Summary of Today's Action
In today's action we are finalizing an applicable volume of 1.28
billion gallons for biomass-based diesel for 2013. This is the volume
that was projected for 2013 in the March 26, 2010, RFS2 final
rulemaking, and we are requiring it in 2013 based on consideration of
the factors specified in the statute.
Today's final rule does not specify the percentage standard for
biomass-based diesel in 2013, but only the applicable volume. The
percentage standards for cellulosic biofuel, biomass-based diesel,
advanced biofuel, and total renewable fuel that will be applicable in
2013 are being proposed in a separate Notice of Proposed Rulemaking.
C. Impacts of This Action
The RFS program established by Congress is a long-term program
aimed at replacing fossil fuels used in the transportation sector with
low-GHG renewable fuels over time. In the March 26, 2010 RFS2 final
rule, EPA assessed the costs and benefits of this program as a whole
when the program would be fully mature in 2022. While this is an
appropriate approach to examining the costs and benefits of a long-term
program like the RFS2, for this final rulemaking we have estimated
costs and benefits in 2013 where such estimates can reasonably be made.
Quantified estimates of benefits include $41 million in energy
security benefits and $19-52 million in air quality disbenefits. Other
benefits include GHG emissions reduction benefits and both direct and
indirect employment benefits in rural areas due to increased biodiesel
production. Impacts on water quality, water use, wetlands, ecosystems
and wildlife habitats are expected to be directionally negative but
modest due to both the small impact on crop acres planted necessary to
supply sufficient soy oil feedstock and due to the relatively small
impact on these measures of soybean production compared to other
potential crops.
Biodiesel is produced from a variety of feedstocks, including
recycled cooking oil, agricultural oils such as soybean and canola oil,
and animal fats. Most biodiesel producers can switch from one feedstock
to another depending on price and availability. However, for the
purpose of analyzing the impacts of this action, we have assumed that
all of the 280 million gallon increment above the 2012 standard is met
through increased demand for soy oil. Using this assumption, we
estimate that soybean prices could increase up to 3 cents per pound in
2013 if all of the 280 million gallon increment above the 2012 standard
is met through increased demand for soy oil. Using these assumptions,
we estimate the cost of producing this increment in biomass-based
diesel would range from $253 to $381 million in 2013.\3\ Adding the
estimate of 2013 costs to the total 2013 fuel pool would suggest a
diesel fuel cost increase of less than 1 cent per gallon.
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\3\ Cost estimates do not account for projections in recent
trends in crop yields and grain prices resulting from drought
conditions that are occurring in many areas of the country.
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II. Statutory Requirements
Section 211(o)(2)(B)(i) of the Clean Air Act specifies the
applicable volumes of renewable fuel on which the annual percentage
standards must be based, unless the applicable volumes are waived or
adjusted by EPA in accordance with specific authority and directives
specified in the statute.\4\ Applicable volumes are provided in the
statute for years through 2022 for cellulosic biofuel, advanced
biofuel, and total renewable fuel. For biomass-based diesel, applicable
volumes are provided
[[Page 59460]]
through 2012. For years after those specified in the statute (i.e.,
2013+ for biomass-based diesel and 2023+ for all others), EPA is
required under section 211(o)(2)(B)(ii) to determine the applicable
volume, in coordination with the Secretary of Energy and the Secretary
of Agriculture, based on a review of the implementation of the program
during calendar years for which the statute specifies the applicable
volumes and an analysis of the following:
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\4\ For example, EPA may waive a given standard in whole or in
part following the provisions at section 211(o)(7).
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The impact of the production and use of renewable fuels on
the environment, including on air quality, climate change, conversion
of wetlands, ecosystems, wildlife habitat, water quality, and water
supply;
The impact of renewable fuels on the energy security of
the United States;
The expected annual rate of future commercial production
of renewable fuels, including advanced biofuels in each category
(cellulosic biofuel and biomass-based diesel);
The impact of renewable fuels on the infrastructure of the
United States, including deliverability of materials, goods, and
products other than renewable fuel, and the sufficiency of
infrastructure to deliver and use renewable fuel;
The impact of the use of renewable fuels on the cost to
consumers of transportation fuel and on the cost to transport goods;
and
The impact of the use of renewable fuels on other factors,
including job creation, the price and supply of agricultural
commodities, rural economic development, and food prices.
While EPA is given the authority to determine the appropriate
volume of renewable fuel for those years that are not specified in the
statute based on a review of program implementation and analysis of the
factors listed above, the statute also specifies that the applicable
volume of biomass-based diesel cannot be less than the applicable
volume for calendar year 2012, which is 1.0 billion gallons (see CAA
211(o)(2)(B)(v)).
It is useful to note that the statutory provisions described above
are silent in two important areas. For instance, the statute does not
provide numerical criteria or thresholds that must be attained when EPA
determines the applicable volume of biomass-based diesel for years
after 2012 (other than specifying a minimum volume of 1.0 billion gal),
nor does it describe any overarching goals for EPA to achieve in
setting the applicable volumes for biofuels in years after those
specifically set forth in the statute. Instead, the statute provides a
list of factors we must consider. Due to this ambiguity in the statute,
commenters differed in their perspectives on the intent of Congress in
allowing EPA to determine the appropriate applicable volume for
biomass-based diesel for years after 2012.
Some expressed the belief that Congress intended the required
volumes of biomass-based diesel to increase every year, with EPA's role
being that of determining an achievable size of that increase. Others
expressed their belief that Congress intended for the statutory minimum
volume of 1.0 billion gallons to be used to set the applicable volume
for all years after 2012, with higher volumes being required only if
EPA could demonstrate that those higher volumes were already being
produced. Given that all biomass-based diesel counts towards the
advanced biofuel requirement, and that the statute requires annual
increases in advanced biofuel through 2022, we believe that it is
appropriate that biomass-based diesel play an increasing role in
supplying advanced biofuels to the market between 2012 and 2022.
However, the determination of whether to increase the volume
requirement for biomass-based diesel in any given year is subject to a
consideration of a number of factors in the statute as described above.
We also note that the statute does not provide authority to raise
the applicable volumes of advanced biofuel or total renewable fuel
above those specified in the statute for years up to and including
2022. Thus, any increase in the biomass-based diesel volume requirement
above that specified for 2012 would not have any impact on the advanced
biofuel or total renewable fuel volume requirements. While increasing
the biomass-based diesel volume requirement above the 1.0 billion
gallons minimum value specified in the statute could result in a change
in the makeup of biofuels used to meet the advanced biofuel and the
total renewable fuel standards, doing so would not change the total
required volumes of those fuels (in terms of ethanol-equivalent
gallons).
We received one comment in response to the NPRM requesting that we
prohibit increases in biomass-based diesel above 1.0 billion gallons in
years after 2012. We disagree. As described in this preamble, we
believe it is appropriate to require 1.28 billion gal of biomass-based
diesel in 2013, and that we should consider further increases in the
future by evaluating the factors specified in the statute.
The statute also specifies the timeframe within which these volumes
must be promulgated: the rules establishing the applicable volumes must
be finalized no later than 14 months before the first year for which
such applicable volume will apply. For the biomass-based diesel volume
requirement applicable in 2013, the deadline for promulgation was
November 1, 2011. As described in the January 9, 2012, final rule that
set the applicable percentage standards for 2012, we delayed issuing
this final rule to allow additional time to evaluate the many comments
on the NPRM from stakeholders as well as to fulfill other analytical
requirements. To this end, we did in fact gather additional information
to enhance our analysis of the factors required in the statute, and we
considered costs and benefits. Our assessment is provided in Sections
III and IV. We do not believe that the delay in issuing this final rule
will materially affect the regulated community, however, since we are
setting the final volume requirement several months prior to the date
when it will be applicable.
The statute requires that in evaluating and establishing renewable
fuel volumes in years beyond those for which volumes are specified in
the statute, that EPA must coordinate with the Departments of
Agriculture and Energy. EPA has coordinated with these agencies in
developing this final rule through a series of telephone exchanges and
meetings. Consistent with the statute, EPA will coordinate with these
agencies in future rules in setting fuel volumes.
III. Factors Affecting Supply and Consumption
As described in Section II, we are required to review the
implementation of the RFS program for years prior to 2013 and to use
information from this review in determining the applicable volume of
biomass-based diesel for 2013. In the NPRM we indicated our belief that
this review is of limited value due to the short history of the RFS
program. Not only did the RFS1 program have no volume requirement
specific to biomass-based diesel, but even in 2010 under the RFS2
program several unique factors hindered biodiesel production volumes
from increasing substantially above historical levels. For instance,
RFS1 RINs from both 2008 and 2009 could be carried over to 2010 and
used to meet a combined 2009/2010 volume requirement for biomass-based
diesel.
Since release of the NPRM, however, some information has become
available on the implementation of the RFS program in 2011. The
available data provide some indication as to how the biomass-based
diesel standard for 2011
[[Page 59461]]
is affecting the market for biodiesel. Based on information provided
through the EPA-Moderated Transaction System (EMTS), reported biodiesel
production increased significantly to about 1.07 billion gal in 2011.
This is a significant increase over the 2010 production volume of about
400 mill gal and exceeds the applicable volume requirement of 800 mill
gal for 2011. 2011 biomass-based diesel RINs were available to meet the
higher advanced biofuel volume requirement. Based on these results, we
believe that the RFS program is driving production of biomass-based
diesel, and that higher applicable volume requirements in future years
would likewise drive increases in production volumes.
In the NPRM we indicated that, based on the limited information
available on the current and historical operation of the RFS program,
it would be prudent for 2013 to consider only moderate increases in
biomass-based diesel above the statutory minimum of 1.0 billion
gallons. We cited the annual increments in biomass-based diesel volumes
specified in the statute for years 2009 through 2012 and conveyed our
belief that our proposed applicable volume of 1.28 billion gallons for
2013 was not a dramatic change from the trend in increments in the
statute. In addition, since this biomass-based diesel volume had
already been partially evaluated in the RFS2 rule, we decided to
evaluate the appropriateness of setting an applicable volume of 1.28
billion gallons for 2013 by considering whether 1.28 billion gal of
biomass-based diesel was reasonable given likely market demand,
availability of feedstocks, production capacity, storage, distribution,
and blending capacity, the capability of the existing diesel fleet to
consume this volume of biodiesel, and the impacts of biomass-based
diesel in a variety of areas as required under the statute.
In responding to the NPRM, some commenters took issue with our
characterization of the proposed volume of 1.28 billion gallons as a
``moderate'' increase consistent with the annual increments in biomass-
based diesel volumes specified in the statute for years 2009 through
2012. These comments also suggested that any comparison to volume
requirements in the statute is not appropriate. However, we did not
base our proposed volume of 1.28 billion gallons on this comparison but
referred to past statutory increments to put our proposal in context.
Regardless of the size of these past statutory increments, however, we
find the final 280 mill gal increment to be moderate and achievable, as
described below, especially in light of the substantial increases in
production volume that occurred in 2011 which were approximately twice
the amount of the 280 mill gal increase we are adopting for 2013. Other
commenters agreed with the comparison and agreed that the 0.28 billion
gallons increment can appropriately be characterized as moderate.
In some cases commenters opposed the proposed volume requirement of
1.28 billion gallons, citing concerns that the 2012 applicable volume
of 1.0 billion gallons is not achievable. As noted above, our
evaluation indicates that biodiesel production exceeded 1.0 billion
gallons in 2011, confirming our projection that the 1.0 billion gallon
applicable volume for 2012 is achievable. Therefore, concerns about the
industry's ability to meet the applicable volume in 2012 are not a
reasonable basis for concerns about achieving 1.28 billion gallons in
2013. Other commenters agreed with our assessment of 2012 and agreed
that an increase of 0.28 billion gallons over the statutory minimum for
2013 is moderate given the capabilities of the industry.
Several commenters suggested that 1.28 billion gallons is an
infeasible target for 2013 and requested that we set the biomass-based
diesel standard at the statutory minimum of 1.0 billion gallons.
Commenters taking this view generally did not offer any data or
information to support their belief that 1.28 billion gal is not
achievable in 2013 beyond references to historical biodiesel production
rates. As described in the NPRM, we believe that the use of biodiesel
production data from 2010 and earlier is of limited value, and
production capacity as well as more recent data on actual production
volumes does in fact demonstrate that the industry is capable of
significant increases in production when demand for it exists. As
described more fully in the sections below, we continue to believe that
1.28 billion gallons is achievable based on production capacity,
availability of feedstock, recent trends in production volumes, and
efforts to update infrastructure for storage, transport, and blending.
We also believe that this volume is likely to encourage continued
investment and innovation in the biodiesel industry. Our consideration
of other impacts, such as fuel costs and environmental impacts, can be
found in Section IV.
A. Demand for Biomass-Based Diesel
The demand for biomass-based diesel in 2013 will be a function of a
number of factors, including not only the biomass-based diesel
standard, but also the advanced biofuel standard, since the standards
under the RFS2 program are nested. For purposes of the analysis and
discussion in this rule, we have assumed that the applicable volume of
advanced biofuel for 2013 will remain at the 2.75 billion gal level
specified in the Act. While EPA is authorized to reduce the applicable
volume of advanced biofuel pursuant to CAA section 211(o)(7)(D)(i) in
years that it reduces the cellulosic biofuel applicable volume, any
decision to do so will be made in the rule establishing the 2013
renewable fuel standards, and EPA is not currently in a position to
pre-judge the results of that future rulemaking.
In addition to biomass-based diesel, biofuels that are likely to be
available for meeting the advanced biofuel standard would include
cellulosic biofuel, imported sugarcane ethanol, and other domestically
produced advanced biofuels. As described in the January 9, 2012
rulemaking establishing the 2012 standards,\5\ cellulosic biofuels will
be a very small fraction of the 2.0 billion gallon advanced biofuel
requirement in 2012, and we expect the same to be true in 2013 with
respect to the 2.75 billion gal advanced biofuel requirement. Regarding
other domestically produced advanced biofuels, volumes reached about 60
mill gal in 2011, and we have projected for the applicable 2013
standards that they could reach 150 mill gal or more in 2013. As a
result, most of the 2.75 billion gal advanced biofuel requirement will
be met with biodiesel and imported sugarcane ethanol.
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\5\ 77 FR 1320.
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Recent market projections suggest that the volume of sugarcane
ethanol that can be imported into the U.S. from Brazil in 2013 could be
on the order of historical import volumes prior to 2010, with the
potential to reach the historical maximum or more. However, there is
considerable variability in the projections for 2013. For instance, one
source that evaluates trends and issues for U.S. energy markets is the
U.S. Energy Information Administration's (EIA) Annual Energy Outlook
(AEO).\6\ This report projects U.S. net ethanol imports in 2013 to be
306 million gallons. Another source for U.S. and world commodity
projections is the Food and Agricultural Policy Research Institute's
(FAPRI) U.S. and World Agricultural Outlook. The most current version
of the FAPRI 2011 Agricultural Outlook projects for the year 2013 that
the U.S. will have net ethanol imports
[[Page 59462]]
of 768 million gallons.\7\ Based on historical trends, virtually all
imported ethanol is expected to be sugarcane ethanol. As a result,
while there is good reason to believe that there will be increased
volumes of imported sugarcane ethanol in 2013 to help meet the advanced
biofuel standard, there may also be a demand for volumes of biodiesel
in excess of 1.0 billion gallons.
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\6\ U.S. Energy Information Administration (EIA). ``AEO2011,
Table 11'' April 2011. http://www.eia.doe.gov/forecasts/aeo/index.cfm.
\7\ Table ``Ethanol Trade'', Commodity Outlook/Biofuels, FAPRI-
ISU 2011 World Agricultural Outlook. http://www.fapri.iastate.edu/outlook/2011/.
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If we do not set the biomass-based diesel standard above 1.0
billion gallons, biodiesel producers will be less certain of the demand
for their product given the opportunities that are also created by the
advanced biofuel standard for imported sugarcane ethanol. Despite the
fact that monthly production rates in the middle of 2012 are consistent
with an annual production volume of about 1.28 billion gal, the
selection of facilities producing biodiesel at any given time is highly
variable. Without a regulatory requirement for 1.28 billion gal, the
biodiesel industry is less likely to maintain online production
capabilities for this volume. Instead, many producers will wait until
late in 2013 to determine if imported sugarcane ethanol volumes will
fall short of what is needed to meet the advanced biofuel volume
requirement of 2.75 billion gal in 2013. While much of the idled
capacity in the biodiesel industry can be brought back online
relatively quickly, waiting until the end of 2013 to do so may reduce
the time available and could result in the biodiesel industry being
unable to make up the difference between the advanced biofuel
requirement and shortfalls in imported sugarcane ethanol.
Thus in setting the biomass-based diesel volume requirement at 1.28
billion gallons rather than at the statutory minimum of 1.0 billion
gallons, we are creating greater certainty for both producers of
biomass-based diesel and obligated parties and increasing certainty
that the intended GHG emissions reductions and energy security benefits
associated with the use of advanced biofuels will be realized. It is
possible that there may be some additional cost for compliance with the
advanced biofuel requirement of 2.75 billion gallons under a biomass-
based diesel requirement of 1.28 billion gallons, as compared to
setting the biomass-based diesel requirement at the statutory minimum
of 1.0 billion gallons and allowing the market to determine the
relative volumes of each type of advanced biofuel that will be produced
in 2013 to meet the advanced biofuel standard of 2.75 billion gallons.
However, setting the biomass-based diesel applicable volume requirement
at 1.28 billion gallons will provide greater certainty that the 2.75
billion gal advanced biofuel applicable volume requirement can be
achieved. We believe that the potential for somewhat increased costs is
appropriate in light of the additional certainty of GHG reductions and
enhanced energy security provided by the advanced biofuel volume
requirement of 2.75 billion gallons.
Among the parties that submitted comments in response to the NPRM,
none contested our assessment of the volumes of sugarcane ethanol that
might be expected to be imported into the U.S. from Brazil in 2013.
Nevertheless, parties that were opposed to setting the biomass-based
diesel applicable volume at 1.28 billion gallons in 2013 raised doubts
about the projected demand for biomass-based diesel in 2013. In some
cases commenters ignored the fact that much of the advanced biofuel
standard can be met with biomass-based diesel or implicitly assumed
that EPA would waive some portion of the advanced biofuel requirement.
The American Trucking Association (ATA) explicitly requested that we
lower the 2013 advanced biofuel standard in order to ensure that demand
for biomass-based diesel would not exceed 1.0 billion gallons in 2013.
As described in a separate Notice of Proposed Rulemaking,\8\ we are
proposing to not reduce the 2013 advanced biofuel requirement of 2.75
billion gal.
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\8\ This NPRM will propose the applicable 2013 percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel.
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The American Petroleum Institute cited projections from AEO 2011 in
support of their argument that biodiesel volumes will not reach 1.28
billion gallons in 2013. For instance, Table 11 of AEO 2011 projects a
total biodiesel consumption of 1.04 billion gal in 2013. However, we do
not believe that the projections provided in AEO 2011 can be used in
this way, since EIA assumes that the required volume of advanced
biofuel in any given year will be reduced concurrently with reductions
in the required volume of cellulosic biofuel.\9\ As a result, the total
projected volume of biodiesel and imported ethanol in the 2013 EIA
projections falls far short of what would be necessary to meet the
applicable volume of 2.75 billion gal of advanced biofuel set forth in
the statute.
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\9\ Communication between D. Korotney of EPA and W. Brown of
EIA, 8/25/2011.
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Some parties that were opposed to setting the biomass-based diesel
applicable volume at 1.28 billion gallons in 2013 did recognize that
the advanced biofuel requirement of 2.75 billion gal could place
pressure on the industry to produce volumes of biodiesel in excess of
1.0 billion gal but questioned the need to set the biomass-based diesel
standard above the statutory minimum of 1.0 billion gallons. They
argued that the market should be allowed to determine the relative
volumes of biomass-based diesel, imported sugarcane ethanol, and other
advanced biofuels needed to meet the advanced biofuel standard of 2.75
billion gallons. This approach, they argued, could potentially minimize
the overall cost of compliance with the advanced biofuel standard in
2013. However, as noted above, the statute does not provide any
overarching goals for EPA to achieve in setting the applicable volumes
for biofuels in years after those specifically set forth in the
statute. Instead, the statute provides a list of factors we must
consider. While one of those factors is cost, other factors must also
be considered as described in Section II. Additionally, setting the
biomass-based diesel standard at 1.28 billion gallons instead of at the
statutory minimum of 1.0 billion gallons will provide more certainty
that the applicable volume of advanced biofuel set forth in the statute
will not need to be reduced, since it guarantees that an additional 420
million ethanol-equivalent gallons of advanced biofuel will be
available. This, in turn, means that there will be more certainty of
reduced GHG emissions through the use of more advanced biofuels and
increased certainty of energy security benefits in terms of reduced
reliance on fossil fuels. In addition, increasing the biomass-based
diesel volume requirement to 1.28 billion gal in 2013 provides an
incentive for continued investment and innovation in the biodiesel
industry and serves the long term goal of the statute to increase
volumes of renewable fuels over time such that in the longer term they
are more likely to be available to offset the need for crude oil.
B. Availability of Feedstocks To Produce 1.28 Billion Gallons of
Biodiesel
In the NPRM, we provided our assessment of the types and amounts of
feedstock that could be used to produce 1.28 billion gallons of
biomass-based diesel in 2013. This assessment included references both
to the work that had been done in the RFS2 final
[[Page 59463]]
rule as well as a recent report released by IHS Global Insight.\10\ The
feedstock estimates from these two sources are shown in Table III.B-1.
---------------------------------------------------------------------------
\10\ Table 2, ``Biodiesel Production Prospects for the Next
Decade,'' IHS Global Insight, March 11, 2011.
Table III.B-1--Feedstock Sources (in Mill Gallons) That May Contribute
to 2013 Volume of 1.28 Billion Gal
------------------------------------------------------------------------
RFS2 final IHS global
Source rule insight
------------------------------------------------------------------------
Grease and rendered fats...................... 380 272
Corn oil...................................... 300 185
Soybean oil................................... 600 624
Canola oil.................................... 0 68
Palm oil...................................... 0 7
Other......................................... 0 185
-------------------------
Total..................................... 1,280 1,340
------------------------------------------------------------------------
As some comments pointed out, these two sources used fundamentally
different approaches. In the case of the RFS2 final rule, projections
of feedstock volumes were determined first, and then summed to conclude
that 1.28 billion gal is a reasonable volume of biomass-based diesel
that could be achieved in 2013. In contrast, the IHS Global Insight
report began with the aim of reaching 1.3 billion gallons in 2013, and
then conducted modeling to determine the likely mix of feedstock
sources that would support that volume. Nevertheless, we believe that
these sources suggest two similar ways that the market could meet the
demand for feedstock under a required volume of 1.28 billion gallons of
biomass-based diesel. The actual mix of feedstock sources used to
produce 1.28 billion gallons of biomass-based diesel could also differ
substantially from the values shown in Table III.B-1 as the market
adjusts to the new mandate.
One commenter stated that we relied too heavily on these sources
without additional analysis. We did in fact conduct a more up-to-date
analysis of these feedstock sources and, as described below, the
updated analysis confirms our belief that the projections in Table
III.B-1 are reasonable projections for the mix of feedstock sources
that could be used to reach 1.28 billion gallons of biomass-based
diesel. We will continue to coordinate with USDA in the future on RFS
related rulemakings. Other comments agreed with our assessment of
available feedstock and our conclusions that there would be sufficient
volumes to meet a biomass-based diesel volume requirement of 1.28
billion gallons. A summary of our updated assessment of feedstock
sources is included below.
It should be noted that the projections in Table III. B-1 do not
account for recent trends in crop yields and grain prices resulting
from drought conditions that are occurring in many areas of the
country. Given the wide range of feedstocks from which biodiesel can be
produced, the ultimate impact of these drought conditions on the mix of
biodiesel feedstocks in 2013 is difficult to predict at this time.\11\
---------------------------------------------------------------------------
\11\ EPA has received requests for a waiver of RFS volumes under
CAA section 211(o)(7) based on the impact of the drought, and has
invited comment on the requests.
---------------------------------------------------------------------------
1. Grease and Rendered Fats
According to the U.S. Census Bureau, the total volume of yellow
grease and other greases (most likely trap grease) produced in 2010 was
about 340 mill gallons \12\. In the first half of 2011, production of
greases was about 10% higher than for the same period in 2010,
suggesting that total 2011 production could reach 370 mill gallons or
more, similar to the production rates in 2008 and 2009.
---------------------------------------------------------------------------
\12\ Current Industrial Reports, U.S. Census Bureau, M311K--Fats
and Oils: Production, Consumption, and Stocks, Table 2b. Assumes 7.5
lb/gal. http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html. The U.S. Census Bureau terminated collection of
data for this report as of July 2011 so updated data is not
available.
---------------------------------------------------------------------------
With regard to inedible tallow, the volume produced in 2010 was
about 440 mill gallons, and indications from the first half of 2011 are
that a similar volume will be generated in 2011 as well.
Taken together, the total volume of grease and rendered fats
produced annually is over 800 mill gallons. This is significantly more
than was estimated in the RFS final rule and the report from IHS Global
Insight for use in the production of biomass-based diesel in 2013.
Moreover, we have not included in our estimate other potential sources,
such as edible tallow, lard, and poultry fats. While these other
potential feedstocks currently have existing markets, it may become
economical for them to be used in the production of biomass-based
diesel.
In their comments on the NPRM, the America Cleaning Institute
raised concerns about the diversion of animal fats from the
oleochemical industry for the production of biofuels. We do not have
the authority to prevent feedstocks that meet the statutory definition
of renewable biomass from being used in the production of renewable
fuel. The choice of which feedstocks will be used to produce biomass-
based diesel will be determined by the market. We also note that in
responding to comments to the rule establishing the RFS2 program, we
acknowledged that animal fat can be used in other markets such as the
soap industry, but that the diversion of some portion of this feedstock
to the biofuels industry was both not prohibited and would not
significantly impact the GHG assessment of biofuel made from this
feedstock.\13\ However, based on our assessment, it is possible that
the 1.28 billion gall requirement could be met without the use of
animal fats. As noted above, the total volume of grease and rendered
fats is estimated at 800 mill gallons, far above the volumes listed in
Table III.B-1. It is therefore possible that the industry may produce
biodiesel predominately from waste grease instead of animal fats.
Moreover, the volumes of other feedstock sources, such as corn oil and
vegetable oils as described more fully below, may exceed the volumes
needed to produce 1.28 billion gal biodiesel, further reducing the need
to rely on animal fats for biodiesel production. Finally, EPA has
received inquiries from industry regarding the use of additional
sources
[[Page 59464]]
of waste oils often from the food processing industry as biodiesel
feedstock, indicating the sources of feedstock are likely to continue
expanding, improving the availability of alternatives to animal fat as
a biofuel feedstock.
---------------------------------------------------------------------------
\13\ ``Renewable Fuel Standard Program (RFS2) Summary and
Analysis of Comments,'' February 2010, EPA-420-R-003, pages 6-15 and
7-304. Docket number EPA-HQ-OAR-2005-0161.
---------------------------------------------------------------------------
Since the market will determine the specific amount of animal fats
used in the production of biofuels, we cannot project how their
availability for the production of oleochemicals might be affected. We
agree with the American Cleaning Institute that increases in the use of
animal fats to produce biofuel could increase the price of those animal
fats and/or reduce their availability for the production of
oleochemicals. Such circumstances could in turn compel the oleochemical
industry to use a greater fraction of alternative feedstock sources
such as cottonseed oil. However, as discussed in Section IV.A.8, there
could be sufficient sources of other feedstocks to produce 1.28 billion
gallons of biomass-based diesel without using any animal fats.
Moreover, the cost of animal fat is dependent on the general demand for
this material which is only in part impacted by its potential use as a
biofuel feedstock. As a result, and as discussed more fully in Section
IV.A.8, we do not believe oleochemical production facility location
will be significantly impacted by the potential use of rendered fats as
a biofuel feedstock if some portion of the 280 million gallon increase
in the biomass-based diesel standard is produced from rendered fats.
2. Corn Oil
The RFS2 final rule projected that by 2013, 34% of all dry mill
ethanol facilities in the U.S. would extract inedible corn oil from the
by-products of ethanol production using advanced extraction
technologies. This estimated extraction rate led us to conclude that
the volume of corn oil could reach 300 mill gallons in 2013. While
currently available technologies have not been able to reach the oil
extraction rates that we assumed in the RFS2 final rule, these lower
extraction rates have been offset by a higher number of ethanol plants
utilizing some form of extraction technology. For instance, according
to a recent article in Ethanol Producer Magazine, up to 55 percent of
plants may be extracting corn oil by the end of 2012.\14\ Similarly, in
an article in Biodiesel Magazine, Dave Elsenbast, vice president of
supply chain management for REG stated that as of July 2011 about 35%
of U.S. corn ethanol plants had implemented corn oil extraction and
that he expected that number to double within the next couple of
years.\15\ In the NPRM we stated our expectation that the percentage of
dry mill ethanol facilities using some form of corn oil extraction
technology will increase to 60% by 2013. Given the information from
Ethanol Producer Magazine and Biodiesel Magazine, this estimate appears
reasonable.
---------------------------------------------------------------------------
\14\ Joseph Riley, ``Customized Coproducts Needed as Industry
Matures,'' June 6, 2011. Ethanol Producer Magazine.
\15\ Dave Elsenbast quoted in Ron Kotrba, ``Biodiesel from corn
oil: a growing force,'' July 6, 2011. Biodiesel Magazine.
---------------------------------------------------------------------------
If 60% of all dry mill corn ethanol facilities in the U.S. were
extracting inedible corn oil at rates capable with current technology,
the amount of corn oil available for biodiesel production would be
approximately 270 million gallons. However, as described in the RFS2
final rule, we expect that by 2013 technology improvements will
increase corn oil production levels to 300 million gallons. Additional
corn oil could come from ethanol production facilities using corn
fractionation or wet milling technology. This corn oil was not
considered as a biodiesel feedstock in the RFS2 rule, but market
conditions may result in its availability to the biodiesel industry.
The higher adoption rate of corn oil extraction in comparison to our
projections from the RFS final rule, and the promise of ever-increasing
oil extraction yields, indicate that the 300 million gallons of corn
oil extraction projected in the RFS2 rule in 2013 remains a reasonable
projection. Comments from the Renewable Energy Group support this view.
3. Soybean Oil
While a number of parties commented on the use of soybean oil for
the production of biomass-based diesel, none provided data or
information suggesting that there would be insufficient supplies to
meet the need for 1.28 billion gallons of biomass-based diesel as well
as other traditional markets for soybeans. Instead, comments on the use
of soybean oil were focused on costs. We have addressed these comments
separately in Section III.B.3. The rest of this section summarizes our
assessment of soybean oil availability, updated since the NPRM.
Since the RFS2, other oilseeds (e.g., canola oil) have emerged as
potential sources of biodiesel feedstock. However, the U.S. market for
soybean oil biodiesel is significantly more mature than for biodiesel
made from other oilseeds. Because of this, we anticipate that soybeans
will remain the primary source of U.S. biodiesel from oilseeds in 2013.
It is possible that biodiesel production from other oilseeds such as
canola could achieve a significant level of production by 2013. If
other oilseeds with approved pathways are able to contribute to the
biodiesel volumes, achieving the biomass based diesel mandate would be
facilitated. For the purposes of this analysis, EPA is making the
conservative assumption that there will be no biodiesel production from
other oilseeds in 2013.
We examined historical and projected soybean oil supplies and use
to verify that the volumes shown in Table III.B-1 are achievable in
2013. Our analysis concludes that there will be sufficient supplies of
soybean oil to meet the needs of both biodiesel production and other
domestic uses in 2013. Producing 600 million gallons of soybean-based
biodiesel will require 4,530 million pounds of soybean oil.
Table III.B.3-1 below lists U.S. Department of Agriculture (USDA)
historical data and current projections for U.S. supply and use of
soybean oil from the 2006/2007 crop year to the 2013/2014 year. Since
2006/2007, domestic use of soybean oil for non-biodiesel purposes has
ranged from 14,134 million pounds to 15,813 million pounds. USDA
projects non-biodiesel use will stay above 14,000 million lbs through
the 2013/2014 year.
Table III.B.3-1--Historical Supplies and Use of Soybean Oil in the U.S.
[In million lbs]
----------------------------------------------------------------------------------------------------------------
Supplies
Domestic use available for Historical
Year starts October 1 Total supplies for non- biofuel Historical biofuel
biodiesel feedstock use exports feedstock use
purposes or export
----------------------------------------------------------------------------------------------------------------
2006/07......................... 23,536 15,813 7,723 1,877 2,762
[[Page 59465]]
2007/08......................... 23,730 15,089 8,641 2,911 3,245
2008/09......................... 21,319 14,196 7,123 2,193 2,069
2009/10......................... 22,578 14,134 8,444 3,359 1,680
2010/11......................... 22,452 14,244 8,208 3,233 2,550
2011/12 \a\..................... 21,215 14,100 7,115 .............. ..............
2012/13 \a\..................... 21,075 14,200 6,875 .............. ..............
2013/14 \a\..................... 21,290 14,400 6,890 .............. ..............
----------------------------------------------------------------------------------------------------------------
\a\ Projected.
Sources: USDA, Agricultural Marketing Service, Oil Crops Outlook, February 10th, 2012. USDA, Economic Research
Service, Agricultural Long-Term Projections, February 2012.
Historical values for exports and biofuel feedstocks in the above
table are provided for context only. The remaining values are related
as follows:
Total Supplies = Domestic Use for Non-Biodiesel Purposes + Supplies
Available for Biofuel Feedstock Use or Export
USDA projects that 6,875 million pounds of soybean oil will be
available for biofuel feedstock use or export in the 2012/2013 crop
year and that 6,890 million pounds will be available in the 2013/2014
year (see Table III.B.3-1). This is considerably more than the
approximately 4,530 million pounds needed to meet the soybean-based
biodiesel portion of the 1.28 billion gallon mandate.\16\
---------------------------------------------------------------------------
\16\ This calculation assumes a vegetable oil to biodiesel
conversion rate of approximately 7.6 pounds of oil per gallon of
biodiesel. Actual conversion rates vary depending on the technology
used and the purity of the virgin oil. As a result, the actual
amount of soybean oil required to produce 600 million gallons of
biodiesel could be slightly higher or lower than the amount we have
estimated in this rulemaking.
---------------------------------------------------------------------------
4. Effects on Food Prices
In order to determine the likelihood of a substantial increase in
food prices, EPA projected the effects of a 1.28 billion gallon mandate
using the CARD stochastic modeling framework discussed in Section
IV.B.1. of this final rule. Assuming that the 280 million gallon
increment is met entirely with soybean oil biodiesel in 2013, we
project that the price of soybean oil will be $0.45 per pound under
this mandate, compared to $0.42 under a 1.0 billion gal volume
requirement. This represents a price increase of 3 cents per pound
(about 7 percent). The increase in demand for soybean oil is also
expected to have a small impact on the price of soybeans. We project
that the price of soybeans will be $10.39 per bushel under this
mandate, compared to $10.21 per bushel under a 1.0 billion gal volume
requirement. This represents a price increase of 18 cents per bushel
(about 1.8 percent). Both of these projections are within the recent
historical range of prices (see Table III.B.4-1).
Table III.B.4-1--Historical and Projected Prices of Soybeans and Soybean Oil
[2010 dollars per lb]
----------------------------------------------------------------------------------------------------------------
Soybean oil Soybeans
----------------------------------------------------------------------------------------------------------------
2006-2011 Low Annual Average Price..... $0.33 per lb....................... $9.70 per bushel.
2006-2011 High Annual Average Price.... $0.54 per lb....................... $12.36 per bushel.
2013 Projected Price................... $0.45 per lb....................... $10.39 per bushel.
----------------------------------------------------------------------------------------------------------------
Sources: USDA, Agricultural Marketing Service, Oil Crops Outlook, February 10th, 2012. USDA, Economic Research
Service, Agricultural Long-Term Projections, February 2012.
The timeframe of this rulemaking did not permit large-scale
modeling of the impacts of this mandate on the agricultural sector. We
therefore cannot predict the exact impact that these increases in
soybean and soybean oil prices will have on food prices in general.
As noted above, these results assume that 600 mill gal of this
mandate is soybean-based. To the extent that this increment is met with
other feedstocks, the overall effect of this mandate on the price of
soybeans and soybean oil would be smaller.
5. Other Bio-Oils
Although the modeling we conducted for the RFS2 final rule assumed
that the only form of bio-oil used to make biomass-based diesel would
be from soybeans, in fact other seed oils may contribute meaningful
volumes to the pool. For instance, on September 28, 2010, we approved a
RIN-generating pathway for biodiesel made from canola oil.\17\ The
volume of biodiesel made from canola oil was 96 mill gallons in
2008.\18\ In addition, we are evaluating other pathways for the
production of biodiesel from oilseeds which could potentially be
approved for RIN generation by 2013. On January 5, 2012 we proposed to
include oil from camelina as an approved feedstock for producing
biodiesel (77 FR 462). Algal oil could also provide additional
feedstocks if promising technologies for production are commercialized.
---------------------------------------------------------------------------
\17\ 75 FR 59622.
\18\ EPA memorandum, ``Summary of Modeling Input Assumptions for
Canola Oil Biodiesel for the Notice of Supplemental Determination
for Renewable Fuels Produced Under the Final RFS2 Program,''
Document EPA-HQ-OAR-2010-0133-0049.
---------------------------------------------------------------------------
Nevertheless, even if none of these other sources of bio-oil were
available, we believe that the total volume of grease, fats, corn oil,
and soybean oil would be sufficient to produce 1.28
[[Page 59466]]
billion gallons of biomass-based diesel in 2013.
C. Production Capacity
Total production capacity of the biodiesel industry has exceeded
1.28 billion gallons for a number of years. As of February 2012, total
production capacity was more than 2.5 billion gallons for 191
companies.\19\ According to the EPA registration database, 216
facilities have registered with the EPA under the RFS2 program as of
March 15, 2012. Plants that are currently not registered under RFS2 are
either producing extremely low volumes that fall under the regulatory
threshold for RIN generation, are producing products other than
biodiesel such as soaps or cosmetics, or have shut down until such time
as the demand for biodiesel rises.
---------------------------------------------------------------------------
\19\ Plant list from National Biodiesel Board, 2/7/2012.
---------------------------------------------------------------------------
While comments generally did not disagree that sufficient
production capacity exists to reach 1.28 billion gallons in 2013, some
questioned how quickly idled plants can be brought back online. We note
that most of the production capacity exists at plants that are already
producing some volume, and that many operating biodiesel plants are
currently producing at less than their full capacity. As a result,
these facilities typically do not need to go through the additional
steps that are associated with starting up an idled plant, such as
securing new financing, establishing contracts with feedstock suppliers
and customers, hiring and retraining employees, and testing and proving
the equipment. Nevertheless, since many new plants can be built and
started within a year or so\20\, we also believe that pre-existing but
idled plants can be restarted in considerably less than a year. Given
the time between release of this action and when the 1.28 billion gal
requirement will become effective, there is no reason to believe that
idled plants cannot be restarted in time to contribute meaningfully to
total volumes in 2013.
---------------------------------------------------------------------------
\20\ Based on construction times for new plants listed in
Biodiesel Magazine from July 2006 through May 2009.
---------------------------------------------------------------------------
D. Consumption Capacity
Biodiesel is registered with the EPA under 40 CFR Part 79 as a
legal fuel for use in highway vehicles. Under this registration, it can
legally be used at any blend level, from 1% (B1) to 100% (B100) in
highway diesel fuel. As there are no equivalent registration
requirements for non-highway fuels, biodiesel can legally be used at
any blend level in nonroad diesel and heating oil. However, other
factors typically limit the concentration of biodiesel in conventional
diesel fuel. To the extent that the consumption of biodiesel occurs
only at lower blend levels, the geographic area where biodiesel must be
marketed would correspondingly be greater, impacting both how much
biodiesel can be consumed in the U.S. as a whole as well as how the
infrastructure may need to change to accommodate 1.28 billion gallons
in 2013. As described below, we believe that there are no impediments
to consuming an additional 280 mill gal of biodiesel.
Most engine manufacturers have explicit statements in their engine
warranties regarding acceptable biodiesel blend levels. Although a few
permit B100 to be used in their engines without any adverse impact on
their warranties, most limit biodiesel blends to B20 or less, and of
those, about half allow no more than B5.\21\ For specific applications
where a party knows which engines will be using biodiesel blends,
higher concentrations of biodiesel may be possible. However, for
general distribution such as at retail facilities, these warranty
conditions create a disincentive to blend or sell biodiesel at higher
concentrations and would tend to drive most blends towards low
concentrations of biodiesel such as B5. Those parties that commented on
this issue agreed with this assessment.
---------------------------------------------------------------------------
\21\ ``Automakers' and Engine Manufacturers' Positions of
Support for Biodiesel Blends,'' Biodiesel.org.
---------------------------------------------------------------------------
Cold weather operability represents another reason for preferential
use of B5 and even B2. The most common measure of cold weather
operability is the fuel cloud point. The cloud point is the temperature
at which gelling begins (as indicated by solid crystals beginning to
form in the fuel), and thus is an indicator of when potential engine
filter plugging issues could arise. The higher the cloud point
temperature of the fuel, the more likely such problems are to be
experienced in cold weather. Biodiesel generally has a higher cloud
point than conventional, petroleum-based diesel fuel, with fat-based
biodiesel such as tallow having a higher cloud point than virgin oil-
based biodiesel such as a fuel made with soybean and canola oil. While
cloud point issues with conventional, petroleum-based diesel are
generally mitigated during the winter months through blending with
lighter grades (i.e., 1 diesel fuel), the cloud point of
biodiesel generally requires more dramatic interventions such as heated
storage tanks, lines, and blending equipment, as well as heating rail
cars and tank trucks. However, some of these biodiesel cloud point
mitigation efforts may be reduced through the use of low biodiesel
blend levels such as B2 or B5, since cloud point is strongly correlated
with biodiesel concentration in the final blend. Insofar as biodiesel
is blended into conventional diesel before being transported to its
final destination for sale, low biodiesel blend levels may reduce the
need for heated equipment at the final destination.
Based on highway and nonroad diesel consumption projections for
2013 from the EIA, a biodiesel volume of 1.28 billion gallons would
represent about 2.9% of all diesel fuel.\22\ If all biodiesel were to
be blended as B5, almost 60% of the diesel fuel consumed nationwide in
2013 would contain biodiesel. However, today some biodiesel is blended
at concentrations higher than B5, and we expect that some blending at
these higher concentrations would continue in the future. One commenter
disagreed that blends higher than B5 will be marketed in any but niche
markets. We agree with this comment. However, since biodiesel prices
have been higher than conventional diesel prices in the recent past,
and yet blends above B5 have in fact been sold, we believe that the
existing markets for blends such as B20 are niche markets that will
continue into the future. The sale of biodiesel blends higher than B5
will reduce the total amount of diesel fuel that will contain some
biodiesel. Directionally, then, this will also reduce the geographical
areas to which biodiesel must be distributed. Based on the number of
retail stations offering different biodiesel blend levels in 2010, we
estimate that about 30% of biodiesel was sold at retail in blends with
biodiesel concentrations as high as 20%. Another 17% of biodiesel was
sold in blends with biodiesel concentrations between 10% and 20%.\23\
If the volumes of biodiesel currently sold as B10 and higher were to
continue to be sold in 2013, such blends would account for about one
quarter of the 1.28 billion gal mandate, and 45% of the diesel fuel
consumed nationwide in 2013 would contain biodiesel.
---------------------------------------------------------------------------
\22\ Assumes total diesel volume consumed in the transportation
sector in 2013 is 44.86 billion gal, per Annual Energy Outlook (AEO)
2012 Early Release, Table A2.
\23\ National Biodiesel Board, Retailing Fueling Sites, as of
February 17, 2011. http://biodiesel.org/buyingbiodiesel/retailfuelingsites/default.shtm.
---------------------------------------------------------------------------
Heating oil represents another opportunity for large volumes of
biodiesel to be consumed. According to EIA's Annual Energy Outlook
2012, residential consumption of distillate fuel oil has been about 4
billion gal. Moreover, some of the practical issues
[[Page 59467]]
leading to warranty limits on engines regarding the use of biodiesel
are less of a concern when burning biodiesel for home heating purposes.
As a result, significant volumes of biodiesel can be consumed as
heating oil and count for compliance purposes under the RFS program.
We believe that distributing and consuming 1.28 billion gallons of
biodiesel in 2013 are achievable. As shown in Table III.D-1, a number
of states already have mandates for the use of biodiesel in 2013,\24\
and efforts are underway by the production and distribution industries
to meet these mandates.
---------------------------------------------------------------------------
\24\ As one commenter pointed out, some of these mandates have
not yet taken effect as in-state production volumes have not yet
reached specified thresholds. Nevertheless, the state mandates
represent incentives within those states to increase production.
Table III.D-1--States With Biodiesel Mandates
------------------------------------------------------------------------
------------------------------------------------------------------------
Minnesota............................. Diesel fuel for use in internal
combustion engines must contain
at least 5% biodiesel.
Beginning May 1, 2012, during
the months of April through
October, diesel fuel must
contain at least 10% biodiesel
(B10).
Oregon................................ Diesel fuel sold in the state
must be blended with at least
5% biodiesel.
Washington............................ At least 2% of all diesel fuel
sold in Washington must be
biodiesel or renewable diesel.
This requirement will increase
to 5% after it is determined
that in-state feedstock sources
and oil-seed crushing capacity
can meet a 3% requirement.
Pennsylvania.......................... All diesel fuel sold in
Pennsylvania must contain at
least 2% biodiesel one year
after in-state production of
biodiesel reaches 40 million
gallons. The mandated biodiesel
blend level will increase to 5%
biodiesel one year after in-
state production of biodiesel
reaches 100 million gallons.
New Mexico............................ After July 1, 2012, all diesel
fuel sold to consumers for use
in on-road motor vehicles must
contain at least 5% biodiesel.
This requirement may be
suspended for up to six months
under certain conditions.
Louisiana............................. Within six months following the
point at which cumulative
monthly production of biodiesel
produced in the state equals or
exceeds 10 million gallons, at
least 2% of the total diesel
volume must be biodiesel.
------------------------------------------------------------------------
Source: U.S. Department of Energy, Alternative Fuels and Advanced
Vehicles Data Center.
Collectively, these states currently account for approximately 13
percent of the nationwide consumption of diesel. Other states that have
implemented other forms of incentives are listed in Table III.D-2.
Table III.D-2--States With Rebates, Refunds, Reduced Tax Rates, or
Credits for Biodiesel Production or Blending
------------------------------------------------------------------------
-------------------------------------------------------------------------
Illinois.
Indiana.
Kansas.
Kentucky.
Maine.
Maryland.
Michigan.
Montana.
North Dakota.
Oklahoma.
Rhode Island.
South Carolina.
South Dakota.
Texas.
Virginia.
Washington.
------------------------------------------------------------------------
Source: U.S. Department of Energy, Alternative Fuels and Advanced
Vehicles Data Center.
* Conditions and exemptions for all incentive programs vary by state.
Collectively, the states listed in Table III.D-2 currently account
for approximately 37% of the nationwide consumption of biodiesel. A
variety of states also have requirements for the use of biodiesel in
state fleets, provisions that allow biodiesel to be used as an
alternative to meeting alternative fuel vehicle mandates, and credits/
rebates for the installation of biodiesel dispensing and blending
equipment. Altogether, therefore, more than half of the states in the
U.S. have mandates and/or incentives that will induce them to address
biodiesel infrastructure issues.
One commenter pointed out that state-specific economic incentives
for the production of biodiesel do not necessarily eliminate cost
differences between biodiesel and conventional diesel. We agree with
this comment. Nevertheless, efforts to incentivize biodiesel production
and use in individual states will directionally help the nation to meet
a 1.28 billion gal biomass-based diesel requirement in 2013.
Based on our review of the ability of diesel engines to use diesel
blended with biodiesel, and the various state requirements and
incentives to use biodiesel, we believe that consumption of 1.28
billion gal of biodiesel will not be problematic.
E. Biomass-Based Diesel Distribution Infrastructure
The National Petroleum Refiners Association (NPRA) stated that an
analysis of the feasibility of meeting increased biodiesel use
requirements should be based on a maximum biodiesel blend ratio of
5%.\25\ We disagree, since there is no reason to expect that existing
consumption patterns involving higher concentrations of biodiesel will
not continue into the future, as described above. However, we have
assessed the additional biodiesel distribution infrastructure that will
be needed under a 1.28 billion gal mandate assuming a blend ratio no
higher than 5%. NPRA commented that the required increase in the use of
biodiesel will necessitate numerous installations of biodiesel storage
tanks (possibly heated) as well as the installation of biodiesel
receiving and blending capacity at the diesel fuel distribution
terminals throughout the U.S. markets. This is also consistent with our
analysis. In the proposal, we noted that some terminals may be able to
avoid or delay the installation of additional biodiesel storage
facilities by storing 50/50 biodiesel/diesel fuel blends that are then
further blended with diesel fuel to produce a finished fuel. However,
we assumed that all biodiesel blending facilities would install
segregated (heated and insulated) biodiesel storage facilities in our
infrastructure analysis. We further noted that some terminals may delay
the installation of biodiesel in-line blending equipment by splash
blending biodiesel.\26\ However, we stated that we expect that this
approach would be temporary due to the heightened concerns over
achieving a correct blend ratio and a fully mixed biodiesel blend that
accompanies splash
[[Page 59468]]
blending. We assumed that terminals would install in-line biodiesel
blending equipment in our infrastructure analysis.
---------------------------------------------------------------------------
\25\ NPRA acknowledged that higher biodiesel blend ratios are
sometimes used but that this would not substantially increase the
capacity of the market to absorb additional biodiesel volume. NPRA
recently changed its name to the American Fuel & Petrochemical
Manufacturers (AFPM).
\26\ In-line blending refers to the process of blending
biodiesel into petroleum-based diesel fuel in the delivery line that
feeds into the tank truck from the terminal storage tanks. Splash
blending refers to the process of first loading petroleum-based
diesel fuel into a tank truck followed by biodiesel so that the
final blend meets the desired blend ratio.
---------------------------------------------------------------------------
We proposed finding that there will be sufficient fuel distribution
infrastructure available to support the use of 1.28 billion gal of
biomass-based diesel in 2013. NPRA stated that the rapid expansion in
B5 blending capability in the marketplace necessary to support the use
of the envisioned volumes of biodiesel is unrealistic and unachievable.
NPRA did not further support this statement. The National Biodiesel
Board (NBB) stated that there will be sufficient biodiesel distribution
infrastructure available to facilitate the use of the envisioned
volumes of biodiesel.\27\ NBB further stated that in most markets,
terminals can treat 5% biodiesel blends as a fungible commodity like
diesel fuel and that they believe that many terminals may be storing B5
blends. To the extent terminals store a finished B5 blend, it would
obviate the need for much of the segregated biodiesel storage and
blending capability that is assumed in our infrastructure analysis. The
Iowa Biodiesel Board stated that claims that industry cannot
accommodate the distribution of the target gallons are baseless and
cited various examples of recent biodiesel blending initiatives at Iowa
terminals.
---------------------------------------------------------------------------
\27\ NBB did not provide an analysis regarding the addition of
new biodiesel distribution facilities.
---------------------------------------------------------------------------
We acknowledge that the required expansion of the fuel distribution
infrastructure necessary to support the use of the 1.28 billion gal of
biomass diesel may pose challenges to industry. However, we continue to
believe that industry can respond effectively to this challenge to
support the use of the envisioned 2013 biodiesel volume. In fact, EIA
data suggests that much of the necessary infrastructure is already in
place. EIA data indicates that annual biodiesel production in 2011 was
nearly 1 billion gallons, and monthly biodiesel production from October
to December 2011, and from March to May 2012 averaged nearly 100
million gallons per month.\28\ These data indicate that significant
progress has already been made in expanding the fuel distribution
infrastructure necessary to support the use of the 1.28 billion gal of
biomass diesel. We anticipate such efforts will continue to be
successful in supporting the required biodiesel volume for 2013.
---------------------------------------------------------------------------
\28\ http://www.eia.gov/biofuels/biodiesel/production/table1.pdf.
---------------------------------------------------------------------------
The American Trucking Association (ATA) stated that EPA should have
provided a discussion of the costs of the infrastructure changes
contained in the proposed rule. These costs were accounted for in the
discussion of the overall impacts on transportation fuel price
contained in Section IV.B.1.d. Additional discussion of specific ATA
comments is included below.
ATA commented that EPA underestimated the number of tank trucks
needed to distribute the additional amount of biodiesel in 2013
relative to volume used in 2012. ATA stated that the assumed 6 trips
per tank truck per day that EPA used in estimating the number of tank
trucks that would be needed was unrealistically high. ATA stated that
one large ATA member that transports biofuels reports that the average
length of haul (one way) is 141 miles. Based on this, ATA stated that 2
loads per day would be a more accurate estimate considering loading and
unloading times.
ATA assumed a single shift tank truck delivery operation. Our
estimated number of tank trucks was based on a two shift operation. We
continue to believe that a two shift truck delivery model of operation
is appropriate to maximize the utilization of distribution system
resources. Given time for loading and unloading and lunch breaks for 2
shifts, our assumed 6 deliveries per day equates to an average one way
truck shipping distance of 40 miles. We project that a number of
additional biodiesel plants will be brought into production to meet the
2013 biodiesel volume. Biodiesel production plants tend to be
geographically dispersed. Hence, the opening of additional plants will
tend to reduce the average shipping distance from the biodiesel
production plant to the terminal compared to today. We also project
that the production volume will increase at a number of existing
biodiesel plants. This will facilitate the shipment by rail of
biodiesel volumes that previously were shipped by truck long distances.
Thus, we believe that biodiesel trucking distances will be
substantially reduced in the future.
Nevertheless, we acknowledge that uncertainty exists regarding what
biodiesel shipping distances will be in the future. Therefore, we
believe that it is useful to evaluate the potential impacts of longer
shipping distances on the number of additional tank trucks that will be
needed to transport biodiesel. If we were to assume a 141 mile average
truck shipping distance per ATA and a two-shift operation, this would
translate to 4 loads per day per tank truck. At 4 loads per day, 38
additional number of tank trucks would be needed in 2013 relative to
2012 (as opposed to the 25 that we projected). If we were to assume
only 2 deliveries per day as ATA did, an additional 75 trucks would be
needed for the 2013 case. Even under this extreme case, the addition of
75 tank trucks would represent less than 0.3% of the total U.S. fleet
of petroleum products tank trucks (estimated at 27,000).\29\
Consequently, the possibility that biodiesel shipping distances might
be longer than we projected would not materially affect our conclusions
about the ability to accommodate the additional tank trucks and drivers
needed.
---------------------------------------------------------------------------
\29\ Department of Transportation, Hazardous Materials, Safety
Requirements for External Product Piping on Cargo Tanks Transporting
Flammable Liquids, Notice of Proposed Rulemaking, 76 FR 4847,
January 27, 2011. http://www.gpo.gov/fdsys/pkg/FR-2011-01-27/pdf/2011-1695.pdf.
---------------------------------------------------------------------------
In the proposal, we estimated that a total of 5 tank trucks will be
needed to transport 80 mill gallons/yr of renewable diesel that we
projected would be used annually in 2012 and 2013 to the locations
where it is blended with petroleum-based diesel fuel. This is based on
each tank truck carrying 7,800 gallons of renewable diesel fuel making
6 deliveries per day. We estimate that the production facility that
will account for the renewable diesel produced through 2013 will ship
its product 20 miles or less by tank truck to facilities that produce
blends with petroleum-based diesel fuel. Shipment of the projected
renewable diesel volume such short distances could likely be achieved
by making 6 deliveries during one shift without the need for a second
shift. We anticipate that the renewable diesel fuel will be blended
directly into storage tanks containing petroleum-based diesel fuel.
Consequently, we continue to believe that the distribution of renewable
diesel fuel could be accomplished without undue difficulty.
IV. Impacts of 1.28 Billion Gallons of Biomass-Based Diesel
In order to evaluate the impacts of a biomass-based diesel volume
of 1.28 billion gal in the areas required under the statute (see
Section II), we first considered what the appropriate reference would
be. Since the statute requires that the biomass-based diesel volume we
set for 2013 be no lower than 1.0 billion gal, we believe that this is
an appropriate reference point. Therefore, in the discussion that
follows, we have focused on either a volume of 1.28 billion gal
biomass-based diesel or an increment of 0.28 billion gal biomass-based
diesel, depending on the specific
[[Page 59469]]
sources of information and analyses available.
The statute requires that an applicable biomass-based diesel volume
for 2013 and other years be based on an analysis of specified
environmental and other impacts. These analyses can be conducted for
1.28 billion gal biomass-based diesel or an increment of 0.28 billion
gal. Most of the areas we are required to analyze were covered in the
RFS2 final rule in some form, and we believe that we can use this
information in satisfying our statutory obligations to analyze
specified factors in determining the applicable volume of biomass-based
diesel for 2013.
Some of the analyses presented in the RFS2 final rule were for the
specific case of 1.28 billion gallons in 2013. These analyses included
an investigation of the expected annual rate of commercial production
of biomass-based diesel in 2013, impacts on agricultural commodity
supply and price, and the cost to consumers of transportation fuel.
Some of these were discussed in Section III above. Most of the analyses
in the RFS2 final rule, however, were conducted to represent full
implementation of the RFS2 program in 2022. In these analyses, the
biomass-based diesel volume was estimated to be 1.82 billion gallons,
which was compared to a reference case biodiesel volume of 380 mill
gallons. These cases are shown in Table IV-1.
Table IV-1--Primary 2022 Reference and Control Cases From RFS2 Final Rulemaking (billion gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Advanced biofuel Non-
------------------------------------------------------------------------------------------------------------------------------- advanced
Cellulosic biofuel Biomass-based diesel Other advanced biofuel biofuel Total
---------------------------------------------------------------------------------------------- renewable
Other fuel
Cellulosic Cellulosic FAME \a\ NCRD \b\ biodiesel Imported Corn
ethanol diesel biodiesel \c\ ethanol ethanol
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reference.................................... 0.25 0 0.38 0 0 0.64 12.29 13.56
Control...................................... 4.92 6.52 0.85 0.15 0.82 2.24 15.00 30.50
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Fatty acid methyl ester (FAME) biodiesel.
\b\ Non-Co-processed Renewable Diesel (NCRD).
\c\ Other Biodiesel is biodiesel produced in addition to the amount needed to meet the biomass-based diesel standard.
The biomass-based diesel volume of 1.82 billion gallons analyzed
for 2022 in the RFS2 final rule is higher than the 1.28 billion gallons
we are required to evaluate for today's final rule for 2013. More
importantly, the change in biodiesel production in 2022 due to the
statutory mandates for biomass-based diesel plus other diesel
anticipated to meet the advanced biofuel volume (a total increase of
1.44 billion gallons compared to the reference case without the EISA
mandates) is much larger than the change we are evaluating for 2013
(0.28 billion gallons). The RFS2 final rule analysis considers impacts
from the entirety of the renewable fuel mandates, as opposed to impacts
resulting solely from the biodiesel portion of the mandates.
In response to the NPRM, the American Petroleum Institute (API)
commented that comparing the analyses conducted in the RFS2 final rule
for the fully implemented RFS2 program in 2022 to a biodiesel increment
of 0.28 billion gal occurring in 2013 was misleading. They cited the
fact that the 2022 analysis between the control and reference cases
accounts for agricultural and market conditions that develop over
multiple years, while the proposed biomass-based diesel requirement of
1.28 billion gallons in 2013 would require those changes to occur over
a single year. They also cited the fact that the single-year growth
from 2012 to 2013 that would occur under a requirement for 1.28 billion
gallons (0.28 billion gallons in one year) is about twice as high as
the annualized growth rate in the RFS final rule (1.44 billion gal
increase over ten years, or about 0.14 billion gal per year).
As described in Section III, we believe that the industry can
increase production to at least 1.28 billion gallons by 2013, that
sufficient feedstock will be available, and that the infrastructure
will be able to accommodate these higher volumes. Therefore, we do not
believe that API's concern about the different annual production growth
rates in the RFS2 final rule compared to our proposal for 2013 is
warranted.
With regard to concerns about agricultural and market conditions,
we agree that the positive impacts of yield growth and foreign crop
production increases that may be reflected in the 2022 analysis from
the RFS final rule, and which develop over multiple years, may not be
representative of a single-year increase in biomass-based diesel of
0.28 billion gallons in 2013. However, the RFS is a forward-looking
program that focuses on long-term changes in the fuels sector. For this
reason, it is not appropriate to emphasize specific interim year
impacts in cases where these impacts are transient and continually
changing. However, in some cases we have been able to analyze a 2013
impact, which should then be compared to the 2022 impact analyzed for
the RFS2 final rule. In other cases we have used trends used to derive
our 2022 assessments to indicate likely impacts in 2013. Since the
NPRM, EPA has conducted a specific analysis of the effects of the 2013
mandate on the biofuels market. This analysis is detailed in Section
IV.B of this rulemaking. This analysis was conducted in response to
comment about quantifying some of the costs and benefits of this rule.
However, it also addresses API's concerns by providing a year-specific
analysis.
We recognize that uncertainties remain regarding how markets for
soybeans and other crops will react to a mandate of 1.28 billion
gallons for biomass-based diesel. For instance, the volume of soybean
oil required to meet the mandate will likely be higher in 2013 than it
has been in 2011. As a result, there may be upward pressure on soybean
oil prices, which we consider in Section III.B of this rulemaking.
Nevertheless, we expect that RIN prices will adjust in the market to
provide the economic incentive for the mandate to be met. As described
in the rulemaking that established the RFS1 program, the RIN system was
designed with this end in mind.
A. Consideration of Statutory Factors
1. Climate Change
Since biodiesel has a GHG benefit compared to the petroleum-based
diesel it is replacing, an increase in biomass-based diesel of 0.28
billion gal from 2012 to 2013 will lead to a displacement of
conventional diesel fuel, with corresponding GHG emissions reductions.
This increased use of biomass-based diesel will contribute to
[[Page 59470]]
lower climate change impacts in comparison to the petroleum-based
diesel it is replacing. The GHG lifecycle analysis of soybean biodiesel
presented in the final RFS2 rule was based on modeling and analysis
that estimated an annualized emissions stream over a 30-year averaging
period, starting in 2022 (the year when the RFS2 program will be fully
implemented). For the purpose of this annual rulemaking, we have not
quantified the GHG emissions benefits for the 280 mill gallon increase
in biomass-based diesel in 2013. At this time, we do not have a
quantified estimate of the GHG impacts for the single year 2013
standard. We also do not believe it would be appropriate to use the 30-
year average RFS2 estimate starting in 2022 as a surrogate for the
single year impact of the 2013 BBD standard. While we are not
quantifying the GHG emissions impact of this 2013 BBD rule,
qualitatively we believe that it will provide a reduction in GHGs.
One commenter suggested that increased biodiesel use would also
reduce GHG emissions compared to sugarcane ethanol, an alternative
advanced biofuel that would be used to meet the mandate. This statement
is based on the specific GHG reductions associated with a gallon of
biodiesel produced in 2022 that we estimated in our lifecycle analysis
for different biofuels. However, for this rulemaking we are only
considering the GHG impacts of the biomass-based diesel standard.
Therefore, it is outside the scope of this rule to analyze the
potential GHG emission impacts of displacing sugarcane ethanol with
biodiesel.
One commenter also suggested that by requiring 0.28 billion gallons
of biomass-based diesel above the statutory minimum of 1.0 billion
gallons, effectively shifting the biodiesel used for the ``other''
advanced biofuel category to biomass[hyphen]based diesel, EPA would
actually promote increased volumes of renewable fuels (rather than
ethanol[hyphen]equivalent gallons based on the 1.5 equivalence value),
allowing for the greater displacement of fossil fuels. However, this is
not the case. Although the requirement for a physical volume of
biomass-based diesel will be 1.28 billion gallons, the contribution of
this volume to compliance with the advanced biofuel requirement is
based on energy-equivalence with respect to ethanol, not physical
volumes. Thus there will be no additional quantities of other advanced
fuels produced.
2. Energy Security
This final standard will assure an increased use of biomass-based
diesel in the U.S. and help to improve U.S. energy security. Reducing
U.S. petroleum imports and increasing the diversity of U.S. liquid fuel
supplies lowers both the financial and strategic risks caused by
potential sudden disruptions in the supply of imported petroleum to the
U.S. The economic value of reductions in these risks provides a measure
of improved U.S. energy security. This section summarizes EPA's
estimates of U.S. oil import reductions and energy security benefits
from this rule.
In 2010, U.S. petroleum import expenditures represented 14 percent
of total U.S. imports of all goods and services.\30\ These expenditures
rose to 18 percent by April of 2011.\31\ In 2010, the United States
imported 49 percent of the petroleum it consumed,\32\ and the
transportation sector accounted for 71 percent of total U.S. petroleum
consumption. This compares to approximately 37 percent of total U.S.
petroleum supplied by imports and 55 percent of U.S. petroleum
consumption in the transportation sector in 1975. Requiring higher
volumes of renewable fuels to be used in the U.S. is expected to lower
U.S. oil imports.
---------------------------------------------------------------------------
\30\ http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTIMUS2&f=W.
\31\ http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm.
\32\ http://www.eia.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm.
---------------------------------------------------------------------------
This rule will require an additional 280 million gallons of
biodiesel to be produced, which equals about 255 million gallons of
diesel equivalent.\33\ Based on analysis of historical and projected
future variation in U.S. petroleum consumption and imports, we estimate
that approximately 50 percent of the reduction in fuel consumption
resulting from adopting renewable fuels is likely to be reflected in
reduced U.S. imports of refined fuel, while the remaining 50 percent is
expected to be reflected in reduced domestic fuel refining. Of this
latter figure, 90 percent is anticipated to reduce U.S. imports of
crude petroleum for use as a refinery feedstock, while the remaining 10
percent is expected to reduce U.S. domestic production of crude
petroleum. Thus, on balance, each gallon of fuel saved as a consequence
of the renewable fuel standards is anticipated to reduce total U.S.
imports of petroleum by 0.95 gallons.\34\ Therefore, based on these
assumptions, this rule is expected to reduce imports of petroleum by
about 242 million gallons. Table IV.A.2-1 below compares EPA's
estimates of the reduction in imports of U.S. crude oil and petroleum-
based products from this program to projected total U.S. imports for
the year 2013.
---------------------------------------------------------------------------
\33\ RFS2 Final Rulemaking.
\34\ This figure is calculated as 0.50 + 0.50*0.9 = 0.50 + 0.45
= 0.95.
Table IV.A.2-1--Projected Import Reductions From This Rule and Total
U.S. Petroleum-Based Imports in 2013
[Millions of barrels]
------------------------------------------------------------------------
U.S. total
petroleum-based
U.S. petroleum-based import reductions from the rule imports without
(million barrels/yr) the rule
(million
barrels/yr)
------------------------------------------------------------------------
5.8.................................................... 3,391
------------------------------------------------------------------------
In order to understand the energy security implications of reducing
U.S. petroleum imports, EPA worked with Oak Ridge National Laboratory
(ORNL), which has developed approaches for evaluating the economic
costs and energy security implications of oil use. The energy security
estimates provided below are based upon a methodology developed in a
peer-reviewed study entitled, ``The Energy Security Benefits of Reduced
Oil Use, 2006-2015,'' completed in March 2008. This study is included
as part of the docket for this rule.35 36 When conducting
its analysis, ORNL considered the full economic cost of importing
petroleum into the United States.
---------------------------------------------------------------------------
\35\ Leiby, Paul N., ``Estimating the Energy Security Benefits
of Reduced U.S. Oil Imports,'' Oak Ridge National Laboratory, ORNL/
TM-2007/028, Final Report, 2008. (Docket EPA-HQ-OAR-2010-0162).
\36\ The ORNL study ``The Energy Security Benefits of Reduced
Oil Use, 2006-2015,'' completed in March 2008, is an updated version
of the approach used for estimating the energy security benefits of
U.S. oil import reductions developed in an ORNL 1997 Report by
Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee,
entitled ``Oil Imports: An Assessment of Benefits and Costs.''
(Docket EPA-HQ-OAR-2010-0162).
---------------------------------------------------------------------------
The economic cost of importing petroleum into the U.S. is defined
to include two components in addition to the purchase price of
petroleum itself. These are: (1) The higher costs for oil imports
resulting from the effect of increasing U.S. import demand on the world
oil price and on the market power of the Organization of Petroleum
Exporting Countries (i.e., the ``demand'' or ``monopsony'' costs); and
(2) the risk of reductions in U.S. economic output and disruption of
the U.S. economy caused by sudden disruptions in the supply of imported
petroleum to the U.S. (i.e., ``macroeconomic disruption/adjustment
costs'').
An often-identified component of the full economic costs of U.S.
oil imports
[[Page 59471]]
is the cost to U.S. taxpayers of existing U.S. energy security
policies. The two primary components of this cost are likely to be (1)
the expenses associated with maintaining a U.S. military presence--in
part to help secure a stable oil supply--in potentially unstable
regions of the world; and (2) costs for maintaining the U.S. Strategic
Petroleum Reserve (SPR). The SPR is the largest stockpile of
government-owned emergency crude oil in the world.
The EPA recognizes that potential national and energy security
risks exist due to the possibility of tension over oil supplies. Much
of the world's oil and gas supplies are located in countries facing
social, economic, and demographic challenges, thus making them even
more vulnerable to potential local instability. Thus, to the degree to
which this final rule increases the diversity of sources of liquid fuel
for U.S. consumption and/or reduces reliance upon imported energy
supplies that can be deployed by either consumers or the nation's
defense forces, the United States could expect benefits related to
national security and increased energy supply. Although the Agency
recognizes the clear benefit to the United States from reducing
dependence on foreign oil, the Agency has been unable to calculate the
monetary benefit that the United States will receive from the
improvements in national security expected to result from this program.
Also, while the costs of building and maintaining the SPR are
clearly related to U.S. oil use and imports, these costs have not
varied historically in response to U.S. oil import levels. Thus, the
costs of maintaining the SPR are excluded from this analysis. In
addition, given the redistributive nature of this monopsony effect from
a global perspective, it is excluded in the energy security benefits
calculations for this rule. In contrast, the other portion of the
energy security premium, the U.S. macroeconomic disruption and
adjustment cost that arises from U.S. petroleum imports, does not have
offsetting impacts outside of the U.S. and, thus, is included in the
energy security benefits estimated for this rule. To summarize, EPA has
included only the macroeconomic disruption portion of the energy
security benefits to estimate the monetary value of the total energy
security benefits of this program.
The U.S. is projected to be a net exporter of diesel fuel in
2013.\37\ Increased biodiesel production would likely result in less
domestic consumption of diesel fuel in the U.S. The reduced consumption
may be reflected in increased exports of diesel from the U.S. However,
regardless of the incremental effect of this rule on net imports,
increasing the diversification of the U.S. and global diesel fuel pools
would likely confer some reduction in the severity of a future
potential disruption in the world oil market. Our energy security
analysis does not evaluate the energy security benefits of individual
finished petroleum products; rather, our analysis takes into account
the energy security benefits of overall net petroleum product imports.
Although we believe such an approach provides a reasonable estimate of
energy security impacts, in future year evaluations of the biodiesel
volumes, we may consider whether to develop an estimate more specific
to the biodiesel market.
---------------------------------------------------------------------------
\37\ U.S. Energy Information Administration (EIA). ``Short-Term
Energy Outlook'', Table 4a, June 2012. http://205.254.135.7/forecasts/steo/tables/pdf/4atab.pdf .
---------------------------------------------------------------------------
The energy security premiums for the year 2013 are presented in
Table IV.A.2-2 as well as a breakdown of the components of the energy
security premiums for those years. These energy security premiums are
recorded on a dollar per barrel of oil imported reduced from this rule.
On a gallon of biodiesel fuel basis, these translate into an estimated
$0.15/gallon benefit in 2013 for the macroeconomic disruption and
adjustment costs component of the energy security premium (in 2010$).
Table IV.A.2-2--Energy Security Premiums in 2013 (2010$/Barrel) Based on ORNL Methodology
----------------------------------------------------------------------------------------------------------------
Macroeconomic disruption/
Monopsony adjustment costs Total mid-point
----------------------------------------------------------------------------------------------------------------
$11.40...................................................... $7.13 $18.53
($3.83-$19.40).............................................. ($3.41-$10.35) ($10.03-$26.74)
----------------------------------------------------------------------------------------------------------------
Note: Values in parentheses represent a 90% confidence interval around the central value.
Using EPA's fuel consumption analysis in conjunction with ORNL's
energy security premium estimates, the agency has developed estimates
of the total energy security benefits for the year 2013 in Table
IV.A.2-3.
Table IV.A.2-3--Estimated Energy Security Benefits in 2013 (2010$)
------------------------------------------------------------------------
Benefits ($
U.S. oil imports reduced (million barrels/yr) millions)
------------------------------------------------------------------------
5.8..................................................... $41.2
------------------------------------------------------------------------
One commenter suggested that an increase in biodiesel for the
mandate is statistically insignificant. EPA interprets this comment to
mean that the increase in biodiesel production due to this rule is not
a sufficiently large volume that it will add significantly to the
energy security position of the U.S. EPA's analysis of energy security
is conducted on a per gallon basis, and per gallon estimates are
extrapolated upwards to estimate the total energy security benefits
estimate in Table IV.A.2-3. Thus, we assume that each extra gallon of
biodiesel has an equal energy security benefit regardless of the
overall size of the renewable fuels volume requirement. Thus, total
energy security benefits are increasing with this rule.
3. Agricultural Commodities and Food Prices
For the RFS2 final rule, we examined the impacts of increased
renewable fuels production on commodity prices, food prices and trade
in agricultural products which considered the impacts of all the
biofuel feedstock sources anticipated to meet the 2022 biofuel volume
requirements, not just biodiesel. For the RFS2, EPA used two primary
models for its agricultural economic impacts analysis, the Food and
Agriculture Sector Optimization Model (FASOM) and the Food and
Agricultural Policy Research Institute-Center for Agriculture and Rural
Development (FAPRI-CARD) models. The FASOM model is a long-term
economic model of the U.S. forest and agriculture sectors that
maximizes the net present value of the sum of producer and consumer
surplus across the two sectors over time subject to market, technology,
and other constraints. The FAPRI-CARD models are a system of
econometric models covering many agricultural commodities in the U.S.
and internationally. They are
[[Page 59472]]
based on historical data analysis, current academic research, and a
reliance on accepted economic, agronomic, and biological relationships
in agricultural production and markets.\38\
---------------------------------------------------------------------------
\38\ CARD Staff, Technical Report: An Analysis of EPA Renewable
Fuel Scenarios with the FAPRI-CARD International Models, December,
2009. Docket : EPA-HQ-OAR-2005-0161-3177.
---------------------------------------------------------------------------
To meet the RFS2 renewable fuel volumes, a number of price effects
on the agricultural commodities were estimated in the RFS2 final rule
for 2022. For instance, FASOM estimated that an increase in renewable
fuel volumes to meet the RFS2 will result in an increase in the U.S.
soybean prices of $1.02 per bushel (10.3 percent) above the Reference
Case price in 2022. FASOM also projected the price of soybean oil will
increase by $183 per ton (37.9 percent) over the 2022 Reference Case
price (all prices are in 2007$). Most of the additional soybeans needed
for increased biodiesel production are diverted from U.S. exports to
the rest of the world. In FASOM, soybean exports decrease by 135
million bushels (-13.6 percent) in 2022 relative to the AEO2007
Reference Case. This change represents a decrease of $453 million (-4.6
percent) in the total value of U.S. soybean exports in 2022. However,
these price effects are not attributed to the demand for biodiesel
feedstock alone, rather the compounding affect of all changes in
feedstock demand estimated to result from the total biofuel mandate in
2022. Since the impact on soybeans due to biodiesel demand was only a
portion of this total feedstock impact and since the impact in 2013
will be less than considered in 2022 (since the 2013 biodiesel volumes
are less than those considered for 2022), the impact on soybean prices
and exports from an increase to 1.28 billion gall in 2013 should also
be less. See Sections III.B.3 and IV.B.1.a of this rulemaking for
further information on the impact on soybean availability and prices.
A recent report by IHS Global Insight \39\ also discusses potential
agricultural and economic impacts from increasing vegetable oil demand
for biodiesel production. According to this study, existing soybean
yield technologies are expected to be applied increasingly across the
U.S., resulting in roughly a 10% higher growth rate in soybean yields
than USDA's projections from 2010-2016 which were used by EPA in its
RFS2 analyses. Similarly, Global Insight predicts these higher yield
technologies will be implemented in other large soybean-producing
countries, such as Brazil and Argentina. If higher yields than modeled
for RFS2 indeed are realized, then it is likely that the price
increases for soybean oil will be less than estimated for RFS2.
Likewise, other price impacts, such as those on food prices, will still
move in the same direction (i.e., an increase in price resulting from
an increase in demand) but could be smaller than in the RFS2 analysis.
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\39\ ``Biodiesel Production Prospects for the Next Decade,'' IHS
Global Insight, March 11, 2011.
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For the analyses performed for the RFS2 final rule, EPA estimated a
$10 per person per year increase in food costs in the U.S. due to the
total annual impact of the RFS2 program by 2022 compared to a Reference
case that assumed no RFS2 renewable fuel requirements. Again, the
biodiesel impacts will represent only a small portion of these overall
impacts and will likely be even smaller in 2013 due to the smaller
volume of feedstock required. One commenter suggested that EPA should
conduct a more thorough analysis of food price impacts of this rule.
EPA has conducted an analysis projecting the amount of soybean oil that
will be required to meet this mandate and the effect this will have on
the prices of soybeans and soybean oil. The results of this analysis
are discussed in detail in Sections III.B.3 and IV.B.1.a of this rule.
4. Air Quality
As described in the NPRM, we are relying on the analyses of
renewable fuel impacts conducted in support of the RFS2 rule \40\ to
qualitatively discuss the expected air quality impacts of a biomass-
based diesel volume of 1.28 billion gallons. The RFS2 analyses reflect
EPA's most current assumptions regarding biodiesel emission
impacts.\41\
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\40\ 75 FR 14670, March 26, 2010.
\41\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2)
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket
EPA-HQ-OAR-2009-0472-11332. Section 3.1.1.2.4.
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In the RFS2 rule, we analyzed both changes in pollutant emissions
(measured in tons) and changes in ambient air quality associated with
the changes in pollutant emissions. The changes in pollutant emissions
were calculated by comparing the 2022 RFS2 renewable fuel volumes to
volumes if the RFS2 mandate were not in place (the reference
scenario).\42\ The analysis reflected full implementation of the RFS2
program in 2022 and accounted for impacts from multiple types of
renewable fuels, of which biodiesel was only one type. Specifically,
the RFS2 emissions inventory analysis assumed 1.82 billion gal of
biodiesel in the RFS2 scenario compared to 0.38 billion gal of
biodiesel in the reference scenario, reflecting a 1.44 billion gal
increase in biodiesel with the rule in place.
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\42\ In the RFS2 Regulatory Impact Analysis, we analyzed the
mandated 2022 RFS2 renewable fuel volumes relative to volumes
required by two reference scenarios: RFS1 mandate (7.1 billion
gallons of renewable fuels) and AEO 2007 (13.6 billion gallons of
renewable fuels). Both reference scenarios assumed the same volume
of biodiesel, so the emission and air quality impacts described in
this section are the same for both reference scenarios.
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Biodiesel emission impacts from the RFS2 rule emissions inventory
analysis are presented in Table IV.A.4-1. A complete discussion of the
emissions inventory analysis conducted for the RFS2 rule can be found
in Chapter 3 of the RFS2 Regulatory Impact Analysis (RIA).\43\ These
biomass-based diesel emission impacts (which reflect a 1.44 billion gal
increase in biodiesel) are all less than 1% of the total U.S. emissions
inventory for each pollutant.\44\ We expect the impacts of the 1.28
billion gal of biomass-based diesel volume relative to the 1.0 billion
gal statutory minimum volume (which reflect a 0.28 billion gal
increase) to be smaller.
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\43\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2)
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket
EPA-HQ-OAR-2009-0472-11332.
\44\ While the national-level emissions and air quality impacts
may be small, there may still be local and regional impacts that are
larger in percentage terms. Our analysis is unable to capture this
local and regional variability.
[[Page 59473]]
Table IV.A.4-1--Biodiesel Emission Impacts of the RFS2 Renewable Fuel Volumes (1.82 Billion Gal) Relative to the
Reference Case (0.38 Billion Gal)
----------------------------------------------------------------------------------------------------------------
Biodiesel impacts of RFS2 rule emissions
inventory analysis ([Delta] 1.44 billion gal
biodiesel) Percent RFS2
------------------------------------------------ total U.S.
Upstream \a\ Downstream \b\ inventory \c\
(tons) (tons) Total (tons)
----------------------------------------------------------------------------------------------------------------
VOC............................................. -1,049 -2,422 -3,471 -0.03
CO.............................................. 913 -4,104 -3,191 -0.01
NOX............................................. -290 1,346 1,056 0.01
PM10............................................ 4,268 -569 3,699 0.10
PM2.5........................................... 632 -315 317 0.01
SO2............................................. 1,580 0 1,580 0.02
NH3............................................. 4,171 0 4,171 0.10
Benzene......................................... 10 -30 -20 -0.01
Ethanol......................................... 0 0 0 0.00
1,3-Butadiene................................... 0 -16 -17 -0.10
Acetaldehyde.................................... 2 -66 -65 -0.14
Formaldehyde.................................... 1 -182 -181 -0.21
Naphthalene..................................... -1 0 -1 -0.01
Acrolein........................................ 63 -9 54 0.84
----------------------------------------------------------------------------------------------------------------
\a\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10-006. February
2010. Docket EPA-HQ-OAR-2009-0472-11332. Table 3.2-11. Note: units in Table 3.2-11 were mislabeled as tons/
mmBTU. Actual units are tons.
\b\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10-006. February
2010. Docket EPA-HQ-OAR-2009-0472-11332. Table 3.2-9.
\c\ While the national-level emissions and air quality impacts may be small, there may still be local and
regional impacts that are larger in percentage terms. Our analysis is unable to capture this local and
regional variability.
The air quality analysis for the RFS2 rule used photochemical
modeling to characterize primary pollutants that are emitted directly
into the atmosphere and secondary pollutants that are formed as a
result of complex chemical reactions within the atmosphere. Included in
the air quality modeling scenarios for the RFS2 rule were large volumes
of ethanol as well as other renewable fuels, and the nature of these
complex chemical interactions makes it difficult to determine the air
quality impacts of biodiesel alone. Specifically, the RFS2 air quality
analysis reflects a roughly 21 billion gal increase in ethanol, far
outweighing the volume increase in biodiesel (0.43 billion gal). A
complete discussion of the RFS2 air quality analysis and its
limitations can be found in Chapter 3 of the RFS2 Regulatory Impact
Analysis (RIA).\45\
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\45\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2)
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket
EPA-HQ-OAR-2009-0472-11332.
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The RFS2 air quality analysis was completed earlier than the final
emissions inventory analysis because of the length of time needed to
conduct photochemical modeling.46 47 The air quality
analysis assumed 0.81 billion gal of biodiesel in the RFS2 scenario
compared to 0.38 billion gal of biodiesel in the reference scenario,
reflecting a 0.43 billion gal increase in biodiesel use with the rule
in place. We use the 0.43 billion gal increase in biodiesel assumed in
the RFS2 air quality analysis to qualitatively discuss the potential
impacts of a 0.28 billion gal increase in biodiesel from this rule.
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\46\ Emissions serve as inputs to the air quality modeling
analysis. However, the final fuel volume assumptions (upon which the
emission estimates were based) increased between the time that
emissions were estimated to support the air quality modeling
analysis and the time emissions were estimated to reflect the final
rulemaking.
\47\ The RFS2 air quality analysis reflects EPA's most recent
air quality analysis applicable to changes in renewable fuel types
and volumes.
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Given the small emissions impact of a 0.43 billion gal increase in
biodiesel on the total U.S. emissions inventory (the basis for our air
quality modeling scenarios), we expect the portion of air quality
impacts attributable to a move from 1.0 to 1.28 billion gal (a 0.28
billion gal biodiesel increase) to be small enough that on a nationwide
basis the air quality impact will likely not be noticeable.
We note that Clean Air Act section 211(v) requires EPA to analyze
and mitigate, to the greatest extent achievable, adverse air quality
impacts of the renewable fuels required by the RFS2 rule. We intend to
investigate any potential adverse impacts from increased renewable fuel
use through that study and will promulgate appropriate mitigation
measures separate from today's final rule.
5. Deliverability and Transport Costs of Materials, Goods, and Products
Other Than Renewable Fuel
EPA evaluated in the RFS2 final rule the impacts on the U.S.
transportation network from the distribution of the total additional
volume of biofuels that will be used to meet the RFS2 standards. Oak
Ridge National Laboratory (ORNL) conducted an analysis of biofuel
transportation activity from production plants to petroleum terminals
by rail, barge, and tank truck to identify potential distribution
constraints to help support the assessment in the RFS2 final rule.\48\
The ORNL analysis concluded that the increase in biofuel shipments due
to the RFS2 standards will have a minimal impact on U.S. transportation
infrastructure. The majority of biofuel transportation is projected to
be accomplished by rail. Nevertheless, it was estimated that the
biofuels transport will constitute only 0.4% of the total freight
tonnage for all commodities transported by the rail system through
2022.\49\ Given the small increase in freight shipments due to the
transport of biofuels to meet the RFS2 standards, we believe that the
distribution of biofuels
[[Page 59474]]
will not adversely impact the deliverability and transport costs of
materials, goods, and products other than renewable fuels. There were
no comments on the proposed rule to contradict this assessment.
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\48\ ``Analysis of Fuel Ethanol Transportation Activity and
Potential Distribution Constraints'', Oak Ridge National Laboratory,
March 9, 2009. To simplify the ORNL analysis, biomass-based diesel
volumes were assumed to originate at the same points of production
and to be shipped to the same petroleum terminals as the ethanol
projected to be used to meet the RFS2 standards. This may tend to
overstate the potential impact on the transportation system from the
shipment of biomass-based diesel fuels since biomass-based diesel
production plants were projected to be more geographically dispersed
than ethanol production facilities. In any event, the simplifying
assumption was assessed to have little impact on the results from
the analysis given that biomass-based diesel represented only 8% of
the total projected biofuel volumes under the RFS2 final rule.
\49\ See sections 1.6.4 and 1.6.5 of the RFS2 RIA.
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6. Wetlands, Ecosystems, and Wildlife Habitats
As directed by CAA section 211(o)(2)(B)(ii), in setting the 2013
biodiesel volume requirements, EPA is to consider the impacts of
biodiesel production and use on wetlands, ecosystems and wildlife
habitat. No specific public comments on these impacts were received, so
the following updates the largely qualitative analyses provided in the
proposal.
The most complete and up-to-date assessment of these impacts is
contained in the analysis prepared by EPA in response to the
requirements set out in CAA section 204. This report to Congress
considers a range of impacts but the focus of the discussion here is on
wetlands, ecosystems and wildlife habitats as directed by the CAA
amendments. This report does not attempt to quantify the impacts of
biofuel production and use as these impacts are dependent on local or
regional conditions. Nevertheless the analyses contained in the report
provide qualitative assessments and reasonable expectations of trends
which can be used to consider the environmental impacts of increases in
biodiesel production and use. These trends are only summarized here
while the final report provides extensive detail.\50\
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\50\ U.S. EPA (Environmental Protection Agency). February 2012.
``Biofuels and the Environment: First Triennial Report to
Congress.'' Office of Research and Development, Washington, DC. EPA/
600/R-10/183F.
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The assessment focuses on the use of oil from soybeans as the
feedstock for biodiesel production. Other oil seed feedstock sources
represent a very small portion of biofuel production in 2013 so will be
expected to have much less of an impact than soy oil. Corn oil
extracted during the ethanol production process is increasing, adding a
small increment of supply for biofuel production by 2013 that will
offset demands for soy and other oil seed crops, thus reducing
potential agricultural impact of biodiesel production. Corn as a
feedstock for biofuel production is driven primarily by the demand for
corn ethanol, not the demand for the corn ethanol co-product of
extracted, non-food grade corn oil. Therefore the impact of the supply
of extracted corn oil is not considered here. Finally, waste fats, oils
and greases are expected to have negligible environmental impact as a
feedstock since they do not impact agricultural land use and would
otherwise be used for some lower value purpose or simply discarded.
Wetlands can be adversely affected by agricultural production
through runoff that can result in nutrient loading (particularly from
fertilizers) or from sedimentation (from erosion). Soy production tends
to use less fertilizer than corn production (the most likely
alternative crop) and can reduce the amount of fertilizer required for
corn when planted in rotation with corn. However, compared to other
crops, erosion can be higher from fields planted in row crops such as
corn and soy beans. While the impacts of nutrient loading and erosion
tend to be site specific, good farming practices including the optimum
fertilizer use and the set aside of sensitive lands via the
Conservation Reserve Program (CRP) can significantly help control these
adverse affects. Wetlands can also be adversely affected through
diversion of surface and ground water for agricultural irrigation.
Soybean production less frequently relies on irrigation than corn and
some other crops. More discussion on water usage is included below in
the section on water use and water quality impacts.
Ecosystems and wildlife habitat can be adversely affected if CRP
lands are converted to crop production, if row crops such as soybeans
replace grassy crops and in general if new lands with diverse
vegetation are converted to crop production. As explained in the RFS2
final rule, we do not expect the RFS program production to result in an
increase in total acres of agricultural land under production in the
U.S. compared to a reference case without the impact of the RFS2
volumes. The relatively small increase of 0.28 billion gall should not
appreciably affect the amount of land devoted to oil seed production.
Additionally, the USDA commitment to support the CRP program should
minimize the likelihood of any significant change in the amount of CRP
land. Therefore, while some very local changes may result due to
individual farmer's planting decisions, since no new crop land are
expected in the U.S. due to this increase in the biomass-based diesel
standard and sensitive lands will be protected via programs such as
CRP, no measureable impact in aggregate ecosystems or wildlife habitat
due to cropland expansion is expected.
Increased water withdrawals for soy biodiesel production can lead
to more frequent low-flow conditions that reduce the availability for
aquatic habitat. Additionally, waste water from biodiesel production
can adversely affect surface water quality if not properly treated.
7. Water Quality and Quantity
The water quality and quantity impacts of biodiesel are primarily
related to the type of feedstock and the production practices used both
to produce the feedstock and to convert the feedstock into biodiesel.
Soybeans are the principal feedstock used for biodiesel production and
are predicted to account for 600 million gallons of the 1.28 billion
gallons evaluated for 2013. Non-food grade corn oil extracted during
ethanol production, animal fats and recycled fats account for most of
the remaining biodiesel feedstock. Since these fats and greases are the
byproduct of another use and are not produced specifically for
biodiesel manufacture, their production and primary use is not related
to the level of biodiesel so their indirect impacts are not considered
here. While non-food grade corn oil is extracted for its use as a
feedstock for biodiesel production, it is a by-product of corn ethanol
production. The corn used for biofuel production is primarily grown for
the purpose of producing ethanol, not as a source of extracted non-food
grade oil so the water impacts of corn production are primarily a
concern for ethanol produced from the corn starch, not the by-product
of extracted corn oil. Thus, this analysis will focus on soybeans as a
primary source of vegetable oil used in biodiesel production. No
specific public comments on these impacts were received so the
following discussion updates the analyses provided in the proposal.
From a water quality perspective, the primary pollutants of concern
from soybean production are fertilizers (nitrogen and phosphorus) and
sediment. Additional pollutants such as from pesticides have the
potential to impact water quality to a lesser degree. There are three
major pathways for these potential pollutants to reach water from
agricultural lands: runoff from the land's surface, subsurface tile
drains, or leaching to ground water. Climate, hydrological, and
management factors influence the potential for these contaminants to
reach water from agricultural lands.
a. Impacts on Water Quality and Water Quantity Associated With Soybean
Production
After corn, soybeans are the second largest agricultural crop in
terms of acreage in the U.S. In 2010, American farmers planted 77.7
million acres of
[[Page 59475]]
soybeans and harvested 3.4 billion bushels. As with the production of
any agricultural crop, the impact on water quality depends on a variety
of factors including production practices, use of conservation
practices and crop rotations by farmers, and acreage and intensity of
tile drained lands. Additional factors outside agricultural producers'
control include soil characteristics, climate, and proximity to water
bodies.
Soybeans are typically grown in the same locations as corn since
farmers commonly rotate between the two crops. Nutrients are applied to
fewer soybean acres than corn and at much lower rates because soybean
is a legume.\51\ Legumes have associations in their roots with bacteria
that can acquire atmospheric nitrogen and convert it into bio-available
forms, reducing the need for external addition of nitrogen fertilizer.
However, losses of nitrogen and phosphorus from soybeans can occur at
quantities that can degrade water quality.\52\ In 2006, USDA's NASS
estimated that nitrogen was applied to 18 percent of the 2006 soybean
planted acres in the Program States at an average rate of 16 pounds per
acre per year. Phosphate was applied to 23 percent of the planted
acres, at an average rate of 46 pounds per acre (NASS, 2007).\53\ The
quantity of nitrogen fertilizer applied to soybean fields ranged from 0
to 20 pounds per acre, while the quantity of phosphate ranged from 0 to
80 pounds per acre. As with corn, the conversion of idled acreage to
soybeans is estimated to result in losses of nitrogen and phosphorus
from the soil through cultivation.\54\
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\51\ U.S. EPA (United States Environmental Protection Agency).
Renewable fuel standard program (RFS2) regulatory impact analysis.
EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
\52\ Dinnes, DL; Karlen, DL; Jaynes, DB; Kaspar, TC; Hatfield,
JL; Colvin, TS; Cambardella, CA. 2002. Nitrogen management
strategies to reduce nitrate leaching in tile-drained midwestern
soils. Agronomy Journal 94(1): 153-171.
\53\ NASS (United States Department of Agriculture, National
Agricultural Statistics Service). 2007. Agricultural chemical usage
2006 field crops summary. Ag Ch 1 (07)a. Available at: http://usda.mannlib.cornell.edu/usda/nass/AgriChemUsFC//2000s/2007/AgriChemUsFC-05-16-2007_revision.pdf.
\54\ Simpson, TW; Sharpley, AN; Howarth, RW; Paerl, HW; Mankin,
KR. 2008. The new gold rush: Fueling ethanol production while
protecting water quality. Journal of Environmental Quality 37(2):
318-324.
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Agricultural conservation systems can reduce the impact of soybean
production on the environment. The systems components include (1)
Controlled application of nutrients and pesticides through proper rate,
timing, and method of application, (2) controlling erosion in the field
(i.e., reduced tillage, terraces, or grassed waterways), and (3)
trapping losses of soil and fertilizer runoff at the edge of fields or
in fields through practices such as cover crops, riparian buffers,
controlled drainage for tile drains, and constructed/restored
wetlands.\55\
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\55\ Dinnes, DL; Karlen, DL; Jaynes, DB; Kaspar, TC; Hatfield,
JL; Colvin, TS; Cambardella, CA. 220 2002. Nitrogen management
strategies to reduce nitrate leaching in tile-drained 221 midwestern
soils. Agronomy Journal 94(1): 153-171.
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The effectiveness of conservation practices, however, depends upon
their adoption. The USDA`s Conservation Effects Assessment Project
(CEAP) quantified the effects of conservation practices used on
cultivated cropland in the Upper Mississippi River Basin. It found
that, while erosion control practices are commonly used, there is
considerably less adoption of proper nutrient management to mitigate
nitrogen loss to water bodies.\56\ However, as noted above, the
relatively low amount of fertilizer used for soy bean production tends
to lessen the potential for nitrogen loss to water bodies.
Additionally, soybean production can reduce the amount of biomass left
on the field compared to a corn case where much of the stover is left
to protect the soil and enhance biomass content. In such a case, there
could be more soil erosion with soybean production compared to corn
production and potentially greater nutrient runoff. Proper soil
management can reduce this erosion concern.
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\56\ U.S. Department of Agriculture, National Resources
Conservation Service. 2010. Assessment of the effects of
conservation practices on cultivated cropland in the Upper
Mississippi River Basin. Available at: http://www.nrcs.usda.gov/technical/NRI/ceap/umrb/index.html.
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Water for soybean cultivation predominately comes from rainfall,
although about 11 percent of soybean acres in the U.S. are
irrigated.\57\ Water use for irrigated soybean production in the U.S.
varies from 0.2 acre-feet per acre in Pennsylvania to about 1.4 acre-
feet per acre in Colorado, with a national average of 0.8 acre-feet of
water.\58\ Water used for irrigation is at least temporarily not
available for other uses and if pumped from deep aquifers, may not
return to those aquifers for centuries.
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\57\ U.S. Department of Agriculture. 2010. 2007 Census of
agriculture, Farm and ranch irrigation survey (2008). http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Farm_and_Ranch_Irrigation_Survey/fris08.pdf.
\58\ U.S. Department of Energy. 2006. Energy demands on water
resources: Report to Congress on the interdependency of energy and
water. Available at: http://www.sandia.gov/energy-water/docs/121-RptToCongress-EWwEIAcomments-FINAL.pdf.
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There is some concern that the demand for corn and soybeans as
biofuel feedstocks may lead to high prices of these commodities,
inducing farmers with land currently enrolled in USDA's CRP to return
to intensive agricultural production (e.g., Secchi et al., 2009).\59\
The CRP provides farmers with financial incentives to set aside a
certain portion of their cropland in order to conserve or improve
wildlife habitat, reduce erosion, protect water quality, and support
other environmental goals. Biomass produced from CRP lands is
considered ``renewable biomass'' as defined under the RFS regulations
and is therefore eligible for use in the production of renewable fuel
under the RFS program. The Food, Conservation, and Energy Act of 2008
(known as the Farm Bill) capped CRP acreage at 32 million acres,
reducing enrollment by 7.2 million acres from the 2002 Farm Bill with
the potential for making more acreage available for the production of
row crops. However, even if the aggregate total of CRP protected lands
does not change significantly, individual farmers have the opportunity
to move specific land in and out of CRP such that the specific lands in
the program do not necessarily remain fixed. Historically, land
entering and exiting the CRP program has been more vulnerable to
erosion than other cultivated land, but also less productive.\60\ So
while the conversion of a specific piece of land from CRP to intensive
feedstock production is possible, such a land use conversion is less
likely than land already in crop production given practical economic
and agronomic considerations.
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\59\ Secchi, S; Gassman, PW; Williams, JR; Babcock, BA. 2009.
Corn-based ethanol production and environmental quality: A case of
Iowa and the conservation reserve program. Environmental Management
44(4): 732-744.
\60\ ERS (United States Department of Agriculture, Economic
Research Service). 2008. 2008 farm bill side-by-side. Available at:
http://www.ers.usda.gov/FarmBill/2008/Titles/TitleIIConservation.htm#conservation.
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b. Impacts on Water Quality and Water Quantity Associated With
Biodiesel Production
Biological oxygen demand (BOD), total suspended solids, and
glycerin pose the major water quality concerns in wastewater discharged
from biodiesel facilities. Actual impacts depend on a range of factors,
including the type of feedstock processed, bio-refinery technology,
effluent controls, and water re-use/recycling practices, as well as the
facility location and source and receiving water. Discharge water
quality requirements of local and regional governments can help assure
best
[[Page 59476]]
control practices and reduce water quality concerns.
Despite the existing commercial market for glycerin and the likely
expanded uses for glycerin as mentioned in the RFS2 final rule, the
rapid development of the biodiesel industry has caused a glut of
glycerin production, resulting in many facilities disposing of
glycerin. Glycerin disposal may be regulated under several EPA
programs, depending on the practice. However, there have been instances
of glycerin dumping, including an incident in Missouri that resulted in
a large fish kill.\61\ Some biodiesel facilities discharge their
wastewater to municipal wastewater treatment systems for treatment and
discharge. There have been several cases of municipal wastewater
treatment plant upsets due to high BOD loadings from releases of
glycerin.\62\ BOD can lead to methane emissions during the water
treatment process. To mitigate wastewater issues, some production
systems reclaim glycerin from the wastewater. Closed-loop systems in
which water and solvents can be recycled and reused can reduce the
quantity of water that must be pretreated before discharge. Others
employ anaerobic digesters to mitigate the release of methane to the
atmosphere.
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\61\ U.S. EPA. 2010b. Renewable fuel standard program (RFS2)
regulatory impact analysis. EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
\62\ U.S. EPA. 2010b. Renewable fuel standard program (RFS2)
regulatory impact analysis. EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
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Biodiesel can also impact water bodies as a result of spills.
However, biodiesel degrades approximately four times faster than
petroleum diesel including in aquatic environments.\63\ Results of
aquatic toxicity testing of biodiesel indicate that it is less toxic
than regular diesel.\64\ Biodiesel does have a high oxygen demand in
aquatic environments and can cause fish kills as a result of oxygen
depletion. Water quality impacts associated with spills at biodiesel
facilities generally result from discharge of glycerin, rather than
biodiesel itself.
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\63\ Kimble, J. n.d. Biofuels and emerging issues for emergency
responders. U.S. EPA. Available at: http://www.epa.gov/oem/docs/oil/fss/fss09/kimblebiofuels.pdf.
\64\ Kahn, N; Warith, MA; Luk, G. 2007. A comparison of acute
toxicity of biodiesel, biodiesel blends, and diesel on aquatic
organisms. Journal of the Air and Waste Management Association
57(3): 286-296.
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Biodiesel facilities use much less water than ethanol facilities to
produce biofuel. The primary consumptive water use at biodiesel plants
is associated with washing and evaporative processes. Water use is
variable but is usually less than one gallon of water for each gallon
of biodiesel produced; some facilities recycle wash water, which
reduces overall water consumption.\65\
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\65\ Renewable Fuels Standard Program (RFS2), Regulatory Impact
Analysis (RIA). EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
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8. Job Creation and Rural Economic Development
The Energy Independence and Security Act (EISA) requires analyses
of, among other factors, the impact of renewable fuel use on ``* * *
job creation [and] rural economic development * * *'' to help inform
each annual determination of applicable volumes. In the RFS2 final
rule, we anticipated employment to increase and income to expand in
rural areas and farming communities as a result of the increased use of
renewable fuel. Income expansion in rural areas from renewable fuel
production will contribute to rural economic development. As mentioned
above, industry activities are currently progressing, ramping up
biodiesel production from the approximately 0.38 billion gallons
estimated to have been used in the U.S. in 2010 to over 1.0 billion
gallons that was produced in 2011. This increase in biodiesel
production was in large part due to bringing on line existing capacity
idled due to lack of demand, a trend that we expect will continue into
the near future.
Employment impacts of federal rules are of particular concern in
the current economic climate of sizeable unemployment. The recently
issued Executive Order 13563, ``Improving Regulation and Regulatory
Review'' (January 18, 2011), states, ``Our regulatory system must
protect public health, welfare, safety, and our environment while
promoting economic growth, innovation, competitiveness, and job
creation''. Executive Order 13563 also states that ``[i]n applying
these principles, each agency is directed to use the best available
techniques to quantify anticipated present and future benefits and
costs as accurately as possible'' and that ``* * * each agency may
consider (and discuss qualitatively) values that are difficult or
impossible to quantify * * *'' Consistent with the Executive Order, and
consistent with recent efforts to characterize the employment effects
of economically significant rules, the Agency has provided this
analysis to inform the discussion of labor demand and employment
impacts in rural areas and farming communities. Estimates of this
particular rule's effects on labor markets beyond the biodiesel
production sector are ``difficult or impossible to quantify'' to an
acceptable degree of accuracy using currently available methodologies,
Therefore, the Agency has not quantified the rule's effects on labor in
other sectors, including conventional diesel production and sales, nor
has the agency attempted to estimate the effects induced by changes in
workers' incomes or changes in food and fuel prices.
When the economy is at full employment, an environmental regulation
is unlikely to have much impact on net overall U.S. employment;
instead, labor would primarily be shifted from one sector to another.
These shifts in employment impose an opportunity cost on society,
approximated by the wages of the employees, as regulation diverts
workers from other activities in the economy. In this situation, any
effects on net employment are likely to be transitory as workers change
jobs (e.g., some workers may need to be retrained or require time to
search for new jobs, while shortages in some sectors or regions could
bid up wages to attract workers).
On the other hand, if a regulation comes into effect during a
period of high unemployment, a change in labor demand due to regulation
may affect net overall U.S. employment because the labor market is not
in equilibrium. Schmalansee and Stavins point out that net positive
employment effects are possible in the near term when the economy is at
less than full employment due to the potential hiring of idle labor
resources by the regulated sector to meet new requirements (e.g., to
install new equipment) and new economic activity in sectors related to
the regulated sector.\66\ In the longer run, the net effect on
employment is more difficult to predict and will depend on the way in
which the related industries respond to the regulatory requirements.
For this reason, Schmalensee and Stavins urge caution in reporting and
interpreting partial employment effects since it can ``paint an
inaccurate picture of net employment impacts if not placed in the
broader economic context.''
---------------------------------------------------------------------------
\66\ Schmalensee, Richard, and Robert N. Stavins. ``A Guide to
Economic and Policy Analysis of EPA's Transport Rule.'' White paper
commissioned by Excelon Corporation, March 2011 (Docket EPA-HQ-OAR-
2010-0799).
---------------------------------------------------------------------------
This rule is expected to primarily affect employment in the United
States through the biodiesel plants and distributors, and through
several related sectors, specifically, industries that supply inputs in
the production of biodiesel. To provide a partial picture of
[[Page 59477]]
the employment consequences of this rule, EPA investigated the expected
consequences for rural areas and farming communities. Assuming the
current average of 30 to 40 people to operate a biodiesel plant of 30
million gallons (a typical capacity for a standalone
transesterification plant), an expansion of 280 million gallons is the
equivalent of adding about 4 plants representing the addition of around
350 direct jobs for biodiesel production.\67\ Providing soy oil
feedstock would require an estimated 120 additional truck trips per day
or an addition of 120 delivery drivers per day assuming one trip per
delivery truck per day to account for driving and loading/unloading
time.\68\ Expansions to the fuel distribution infrastructure (i.e.,
more fuel terminals, rail cars, tank trucks, barges etc.) would also be
needed to support the use of an additional 280 million gallon increase
in the 2013 volume requirement for biomass-based diesel. Necessary
support to a functioning biodiesel plant such as the delivery of
methanol to allow processing of vegetable oil into biodiesel as well as
additional handling at biodiesel distribution centers will also add
directly to the employment impacts.
---------------------------------------------------------------------------
\67\ Presentation from National Biodiesel Board, ``Biodiesel
Forecasts, Infrastructure, and Economic Impacts'', February 14,
2012.
\68\ Ibid.
---------------------------------------------------------------------------
Most large biodiesel plants in the U.S. are located in rural
communities near feedstock (soybean oil or corn oil) sources. Urban
biodiesel plants tend to be smaller with more diffuse feedstock
suppliers. In 2011, approximately 71 percent of biodiesel producers
were located in rural areas, defined as towns of less than 50,000. A 30
million gallon per year (MGY) biodiesel plant will spend nearly $140
million on goods and services with feedstocks accounting for more than
80 percent of expenditures.\69\ The size of the economic impact on the
local economy of spending by an individual biodiesel plant will depend
on location (e.g., state) and how much feedstock is sourced locally.
Moreover, our analysis cannot determine the extent to which new capital
invested in biodiesel production displaces investments that otherwise
would have occurred in rural areas.
---------------------------------------------------------------------------
\69\ Ibid.
---------------------------------------------------------------------------
In addition to the employment effects from increased biodiesel
production, this rule would also result in reductions in conventional
diesel fuel use, which could affect employment in the diesel fuel
supply chain. The loss of expenditures to diesel fuel suppliers
throughout the diesel fuel supply chain, from the petroleum refiners to
diesel fuel distributors, is likely to result in some loss in
employment in these sectors. The potential impacts on the diesel
industry and other sectors of the economy are not quantified in this
analysis because available data and methodologies are insufficient to
support reasonably accurate estimates of the incremental employment
effects of this rule.
To summarize, we anticipate that bringing idle biodiesel plants
back online and expanding biodiesel distribution infrastructure in the
U.S. will increase employment and investment in the renewable fuels and
related industries, consistent with the EISA directive to assess impact
on rural economic development. These increases in employment are
similar to what we anticipated when we analyzed the volume requirements
in RFS2 final rule. These employment impacts may be offset to some
degree by decreases in other sectors and/or locations (e.g., from the
reduced production and transport of conventional diesel fuel); however
sufficiently reliable data and a satisfactory methodology supporting
quantitative evaluation of the employment impacts beyond the biodiesel
sectors are not currently available.
One commenter raised the issue of the impacts of the potential
increased use of animal fats to produce biodiesel under a 1.28 billion
gallon requirement on employment within the oleochemical industry.
According to the commenter, with renewable fuel production consuming an
increasingly significant amount of the total supply of animal fats
produced in the U.S., this may limit the availability of animal fats
for oleochemical production. According to the commenter, the price of
animal fats recently exceeded the price of Malaysian palm oil. If the
oleochemical industry switched to palm oil as a feedstock to make its
products and located near palm oil supply, there could be a possible
loss of U.S. employment in this industry.
As the same commenter acknowledged, we cannot prevent any
feedstocks from being used to produce RIN-generating renewable fuel if
they meet the regulatory definition of renewable biomass and are
otherwise valid. Nevertheless, while Table III.B-1 lists grease and
fats as one likely source of feedstocks for the production of biomass-
based diesel, we noted in Section III.B that there could be sufficient
sources of other feedstocks to produce 1.28 billion gallons of biomass-
based diesel without using any animal fats. The comment implies that
feedstock used in the oleochemical industry depends significantly on
relative costs which can vary over time in part due to changes in
demand. The cost of animal fat is dependent on the general demand for
this material which is only in part impacted by its potential use as a
biofuel feedstock. The general supply of animal fat is not expected to
be impacted significantly by its alternative use as a biofuel feedstock
or the range of other uses of this material. Thus the choice of
feedstock(s) used by the oleochemical industry already depends on
market prices of multiple feedstock sources. Since feedstock such as
rendered fats or, as suggested by the commenter, palm oil are readily
marketed and transportable, we do not expect the industry to relocate
production every time feedstock market conditions change. Therefore we
do not believe production facility location will be significantly
impacted by the potential use of rendered fats as a biofuel feedstock
if some portion of the 280 million gallon increase in the biomass-based
diesel standard is produced from rendered fats.
B. Consideration of Applicable Statutory Economic Factors
The RFS program established by Congress is primarily a long-term
program aimed at replacing substantial volumes of fossil-based
transportation fuels with low GHG renewable fuels over time. Congress
established a list of factors to be considered in setting the annual
biomass-diesel mandate, and these factors include consideration of some
aspects of economic costs and some aspects of economic benefits (among
other impacts and factors). In the final rulemaking for the RFS2, EPA
assessed the costs and benefits of this program as a whole when the
program was fully mature, which we continue to believe is the
appropriate approach to examining the costs and benefits of a long term
program like the RFS2. However, the annual standard-setting process is
part of the program. The annual standard-setting process encourages
consideration of the program on a piecemeal (i.e., year to year) basis,
which may not reflect the long-term economic effects of the program.
EPA received comments requesting that we consider costs and
benefits for the 1.28 billion gallon biomass-based diesel mandate in
2013. This mandate is an interim step within the larger RFS program, so
any examination of short-term impacts separate from that larger effort
must be kept in context. Further, many of the impacts of this rule are
difficult to fully quantify, which makes any comprehensive
consideration of
[[Page 59478]]
costs and benefits difficult to undertake in the limited timeframe of
the RFS annual rule. In spite of these limitations, EPA has analyzed
some of the costs and has estimated the monetary value of some of the
benefits of the 2013 biomass-based diesel mandate to provide more
information on this rulemaking.
1. Monetized Quantifiable Costs
Our analysis of costs focuses on the sector most likely to be
impacted by an increase in biomass-based diesel volumes--the
agricultural commodity market. To assess some of the impacts of the
1.28 billion gallon biodiesel mandate, EPA used a stochastic economic
model developed by the Center for Agricultural and Rural Development
(CARD) at Iowa State University to conduct this analysis. The CARD
stochastic model approximates U.S. and Brazilian biofuel production,
consumption, and trade. Using a relatively small set of input
assumptions about petroleum prices, commodity yields, and ethanol
production, the CARD model examines what the U.S. and Brazilian
biofuels markets may look like under different combinations of
parameters (e.g., low petroleum prices, low soybean yields, and high
Brazilian ethanol production).
The model shows the probability of different outcomes by running
500 different potential scenarios. This modeling approach provides a
range of estimates which helps to bound uncertainty about possible
impacts on the biofuels sector. Analysis of this range can indicate
which outcomes are more likely than others and also provide a sense of
the possible high and low estimates that should be considered for a
given variable. The CARD model projects ranges for commodity yields and
prices, fuel volumes and prices, and several other variables. For the
biomass-based diesel standard, EPA analyzed the cost of mandating an
additional 280 million gallons for biodiesel in 2013, going from 1.0
billion gallons of biomass-based biodiesel to 1.28 billion gallons. For
purposes of this analysis, EPA assumed that the additional 280 million
gallons of biodiesel we are mandating for 2013 will be entirely
soybean-based and would not otherwise be produced. As we outline in
Section III.B of this rulemaking, most of the additional 280 million
gallons is likely to be soybean-based, but other sources are possible.
Because soybean oil feedstock is more expensive than corn oil or waste
feedstock, the cost impact of the extended volume requirement would
decrease if biodiesel production from these other sources expands. We
therefore consider the cost projections presented below to be
potentially high estimates.
a. Impact on the Cost of Soybean Oil
One commenter suggested that the biodiesel mandate for 2013 will
result in an increase of soybean oil prices. In response to this
comment and other related comments, EPA modeled the change in soybean
oil prices in 2013 using the CARD stochastic model. Assuming that the
280 million gallon increment is met entirely with soybean oil biodiesel
in 2013, EPA estimates that the price of soybean oil will be $0.45 per
pound (in 2010$) under this mandate, compared to approximately $0.42
under a 1.0 billion gallon mandate (see Section III.B of this rule for
further discussion of feedstock availability and prices). The mandate
is estimated to increase feedstock costs of soybean-based biodiesel by
about $0.22 per gallon of biodiesel. The effect of this increase on the
cost of the additional 280 million gallons is incorporated into the
estimates in section IV.B.1.b.
b. Cost of Displacing Petroleum-Based Diesel With Soybean-Based
Biodiesel
Producing an additional 280 million gallons of biodiesel will
displace approximately 255 million gallons of petroleum-based diesel.
Since biodiesel costs more to produce in the U.S. than diesel, this
displacement has associated costs. In this analysis, we compare the
cost of biodiesel and petrodiesel at the wholesale stage, since that is
when the two are blended together. Therefore, this analysis does not
consider taxes, retail margins, and any other costs and transfers that
occur at or after the point of blending.
On this basis, EPA estimated the cost of producing and transporting
a gallon of biodiesel to the blender. For soybean-based biodiesel,
soybean oil feedstock costs generally represent the majority of the
overall cost, usually somewhere between 70 and 90 percent. The soybean
oil price estimates discussed in Section IV.B.1.a of this rule
therefore had a strong impact on EPA's cost estimates, though estimates
of distribution and other production costs were also important.
Estimating the cost to produce biodiesel and transport it to the
blender presents considerable uncertainties, even in the near term.
Unforeseen fluctuations in the prices of oil, for example, could have a
very significant effect.
After estimating the cost of biodiesel at the wholesale stage, EPA
compared that to what it would cost to consume an equivalent amount of
petroleum-based diesel instead. The Department of Energy's Energy
Information Administration (EIA) publishes two regular reports that
make estimates of wholesale diesel prices in 2013. In 2013, costs are
on the low-end of the range if we use the wholesale diesel estimate
from DOE's most recent Short-Term Energy Outlook (STEO).\70\ The high-
end estimate utilizes DOE's AEO12 ER wholesale diesel estimate.\71\
Both estimates are relevant for an analysis of fuel prices in 2013. On
this basis, we estimate the increase in the cost of fuel for 280
million gallons of biodiesel will be between $0.91 and $1.36 per gallon
in 2013. This translates into total cost estimates of $253 million to
$381 million from increased fuel cost in 2013.
---------------------------------------------------------------------------
\70\ U.S. Department of Energy, Energy Information
Administration. 2012. Short Term Energy Outlook, March 2012.
Available at: http://www.eia.gov/forecasts/steo/index.cfm.
\71\ U.S. Department of Energy, Energy Information
Administration. 2012. Annual Energy Outlook 2012 (Early Release).
Available at: http://www.eia.gov/forecasts/aeo/er/.
Table IV.B.1.b-1--Estimated Increase in Wholesale Cost of Biodiesel in
Comparison to Petrodiesel in 2013
[In 2010 dollars]
------------------------------------------------------------------------
AEO 2012 early
Petroleum assumption STEO March 2012 release
------------------------------------------------------------------------
Difference in biodiesel $0.91............... $1.36.
production cost (per
gallon).
Cost of 280 million gallons. 253 million......... 381 million.
------------------------------------------------------------------------
[[Page 59479]]
Consistent with our previous work in this area, EPA's quantifiable
cost methodology is a ``bottom-up'' engineering cost analysis that
estimates the cost to produce a gallon of soybean-based biodiesel and
then compares that cost to the production cost of an energy-equivalent
gallon of petroleum-based diesel. In certain situations, it may also be
useful to use a ``top down'' analyses to estimate the potential cost of
a program to society. In the case of the biomass-based diesel standard,
one suggestion was to look at the RIN price as a proxy for the societal
cost of the program.
RIN prices reflect the incremental private marginal cost of
blending BBD into the diesel fuel pool. As noted by Professor Bruce
Babcock, of Iowa State University:
``The market for RINs is an effective and efficient way to enforce
the mandates. Motor fuel producers who find that biofuel is too
difficult to access or to blend buy RINs instead. Fuel producers who
have ready access to biofuels and find it profitable to blend
biofuels sell their excess RINs. By making RINs tradable, the
mandates are met at the lowest possible cost.'' \72\
---------------------------------------------------------------------------
\72\ Babcock, B, Mandates, Tax Credits, and Tariffs: Does the
U.S. Biofuels Industry Need Them All? Iowa State University, Center
for Agricultural and Rural Development, Policy Brief 10-PB-1, March
2010. p. 4-5.
We have received comments suggesting that we use RIN prices to
estimate the costs to society of the biomass-based diesel RFS2
requirement. RIN prices may be more representative of marginal costs.
However, the use of historical RIN price trends may have limitations
since RIN price may reflect other policy changes such as changes in
U.S. tax policy, import tariff policies, and other effects in RIN
markets.\73\ We finally note that other factors, such as the existence
of multiple RIN vintages in any given year and the effects of other
policies can create incentives for potential speculation in the RIN
markets. In their 2011 report on RINs, USDA observed that this
speculation results in RIN prices that are somewhat higher than the
cost of biodiesel, though the exact amount of this increment is
extremely difficult to quantify.\74\
---------------------------------------------------------------------------
\74\ McPhail, L, P Westcott, and H Lutman, The Renewable
Identification Number System and U.S. Biofuel Mandates, United
States Department of Agriculture, November 2011.
---------------------------------------------------------------------------
c. Transportation Fuel Costs
In the NPRM, we cited cost estimates that we had developed in the
RFS2 final rule. In response to comment, we have revised our
methodology for examining the effect of this mandate on the cost of
transportation fuel. The estimates described in Section IV.B.1 above
represent the quantifiable costs to society as a whole stemming from
our increase in the biomass-based diesel volume requirement from 1.0
billion gal to 1.28 billion gal. These estimates do not include certain
transfers, such as those between buyers and sellers of diesel fuel. For
this reason, the increase in the cost of transportation fuel from a
societal perspective is different from the increase from the
perspective of individual buyers and sellers of fuel. However, these
costs do impact the retail price of diesel and associated economic
impacts for fuel consumers.
To estimate the increase in the cost of transportation fuel
associated with today's mandate for 1.28 billion gal in 2013, we took
our projections for the quantifiable program costs reported in Section
IV.B.1.b and compared that to projected fuel consumption. The AEO
projects that the U.S. will consume 44.9 billion gal of blended diesel
in 2013.\75\ Averaged over this diesel pool, the quantifiable costs of
the 1.28 billion gal mandate translate into a per gallon cost of
between $0.006 and $0.008 in 2013.\76\
---------------------------------------------------------------------------
\75\ U.S. Department of Energy, Energy Information
Administration. 2012. Annual Energy Outlook 2012 (Early Release).
Available at: http://www.eia.gov/forecasts/aeo/er/.
\76\ If current RIN prices were used to gauge social cost in
lieu of the bottom-up engineering cost approach applied herein, the
estimate of transportation fuel costs would be higher.
---------------------------------------------------------------------------
Several parties commented that the analysis of the cost impacts of
1.28 billion gallons of biomass-based diesel must take into account the
biodiesel tax subsidy, which expired at the end of 2011. Fuel taxes and
tax subsidies function to change the manner in which society pays for
transportation fuel through redistribution of costs, but they do not
change the total cost to society. For this reason we generally do not
quantify the impact of taxes or tax subsidies on price, but instead
focus on the costs to produce and distribute transportation fuel.
Moreover, the impact of the biodiesel tax subsidy on the retail price
of biodiesel is a complex relationship that can be difficult to assess.
For instance, Figure IV.B.1.c-2 shows the retail price of biodiesel
over the period January 2008 through April 2012. While the biodiesel
tax credit was not effective during 2010 or 2012, the price of
biodiesel was not substantially higher during these years than it was
at other times. Moreover, after the tax credit was reinstated for 2011,
including retroactive credits for biodiesel produced in 2010, the price
of biodiesel in 2011 did not decrease substantially in 2011 compared to
2010. These results illustrate the difficulty in correlating biodiesel
price with tax policies, and thus represents an additional reason that
we have not made an effort to project biodiesel prices in the future
under different tax policy scenarios.
[[Page 59480]]
[GRAPHIC] [TIFF OMITTED] TR27SE12.000
In their comments on the 2012 Renewable Fuel Standards, the
American Trucking Association (ATA) suggested that production of
biomass-based biodiesel from yellow grease and other rendered fats may
not be economically practical due to the diffuse nature of the
feedstock supply chain. Specifically, ATA argued that the cost of
collection of often small quantities of this feedstock dispersed over a
wide geographic area and their transport to biofuel producers may be
cost-prohibitive.
We agree with the commenter that the transportation costs
associated with the collection of yellow grease and other rendered fats
may be greater than the cost of collection for biomass-based biodiesel
feedstock such as soybean oil. However, the actual delivered cost of
feedstock for use in producing biodiesel consists of two components:
the cost of production and the cost of transportation. For soybean oil,
the cost of production (e.g., planting, fertilizing, harvesting,
expelling) is relatively large compared to the cost of transportation
to centralized biofuel producers. However, the cost of production for
yellow grease and other rendered fats is zero, as they are considered
wastes or byproducts. When combining both cost components (i.e.,
production and transportation) for each respective feedstock from
USDA's National Weekly Agricultural Energy Round-Up,\77\ the total
delivered costs for yellow grease and other rendered fats is
consistently less that the total delivered costs for soybean oil. For
instance, for the week of March 30, 2012, crude soybean oil was selling
for about 53 [cent]/lb, while yellow grease was selling for about 41
[cent]/lb. As such, we believe that the ATA concerns regarding the
feedstock supply chain are not warranted.
---------------------------------------------------------------------------
\77\ USDA Livestock & Grain Market News for October 14, 2011.
http://www.ams.usda.gov/mnreports/lswagenergy.pdf.
---------------------------------------------------------------------------
2. Monetized Quantifiable Benefits
Many of the benefits and impacts that Congress asked EPA to examine
when evaluating whether to increase the volume requirement for biomass-
based biodiesel are difficult to fully quantify. In this section, we
present a selection of quantifiable benefits from increased biodiesel
production, including increased energy security and reduced greenhouse
gas emissions.
a. Energy Security
Quantified energy security benefits are taken from the estimates
reported in Section IV.A.2 of this final rule. As noted there, EPA
considers only the macroeconomic disruption and adjustment effect in
its estimates of energy security benefits. Based on application of the
ORNL methodology, we estimate that the energy security benefits of the
additional 280 mill gal increment of biodiesel are $0.15 per gallon in
2013. This translates to a total program benefit of about $41 million.
b. Air Quality
We discuss air quality impacts qualitatively in Section IV.A.4 of
this final rule and expect an additional 280 mill gal of biodiesel will
have a relatively small impact on ambient air quality. That said, we do
expect the production and combustion of biodiesel to have a slightly
different emissions impact relative to petroleum-based diesel. As
presented in Table IV.A.4-1, we estimated that the increased production
of biodiesel related to the RFS2 mandate would impact both downstream
and upstream emissions,
[[Page 59481]]
with increases in some pollutants and decreases in others.
Ideally, the monetized impacts of changes in air quality related to
the final rule would be estimated based on changes in ambient pollution
concentrations and population exposure, as determined by complete air
quality and exposure modeling. However, conducting such detailed
modeling was not possible within the timeframe for this analysis.
Instead, our analysis of PM2.5-related health impacts
associated with 280 million additional gallons of biodiesel uses a
``dollar-per-ton'' method to estimate selected PM2.5-related
health impacts. These PM2.5-related dollar-per-ton estimates
provide the total monetized human health impacts (the sum of premature
mortality and premature morbidity) of reducing one ton of directly
emitted PM2.5, or one ton of a pollutant that contributes to
secondarily-formed PM2.5 (such as NOx, and SOx) from a
specified source.\78\ The dollar-per-ton technique has been used in
previous analyses, including the 2012-2016 Light-Duty Greenhouse Gas
Rule,\79\ the Ozone National Ambient Air Quality Standards (NAAQS)
RIA,\80\ the Portland Cement National Emissions Standards for Hazardous
Air Pollutants (NESHAP) RIA,\81\ and the final NO2
NAAQS.\82\
---------------------------------------------------------------------------
\78\ Due to analytical limitations, the estimated dollar-per-ton
values do not include comparable impacts related to reductions in
other ambient concentrations of criteria pollutants (such as ozone,
NO2 or SO2) or toxic air pollutants, nor do they monetize
all of the potential health and welfare effects associated with
PM2.5 or the other criteria pollutants.
\79\ U.S. Environmental Protection Agency (U.S. EPA), 2010.
Regulatory Impact Analysis, Final Rulemaking to Establish Light-Duty
Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel
Economy Standards. Office of Transportation and Air Quality. April.
Available at http://www.epa.gov/otaq/climate/regulations/420r10009.pdf. EPA-420-R-10-009.
\80\ U.S. Environmental Protection Agency (U.S. EPA). 2008.
Regulatory Impact Analysis, 2008 National Ambient Air Quality
Standards for Ground-level Ozone, Chapter 6. Office of Air Quality
Planning and Standards, Research Triangle Park, NC. March. Available
at http://www.epa.gov/ttn/ecas/regdata/RIAs/6-ozoneriachapter6.pdf. EPA-HQ-OAR-2009-0472-0238.
\81\ U.S. Environmental Protection Agency (U.S. EPA). 2010.
Regulatory Impact Analysis: National Emission Standards for
Hazardous Air Pollutants from the Portland Cement Manufacturing
Industry. Office of Air Quality Planning and Standards, Research
Triangle Park, NC. August. Available on the Internet at <http://www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementfinalria.pdf>. EPA-
HQ-OAR-2009-0472-0241.
\82\ U.S. Environmental Protection Agency (U.S. EPA). 2010.
Final NO2 NAAQS Regulatory Impact Analysis (RIA). Office of Air
Quality Planning and Standards, Research Triangle Park, NC. April.
Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/FinalNO2RIAfulldocument.pdf. Accessed March 15, 2010. EPA-HQ-
OAR-2009-0472-0237.
---------------------------------------------------------------------------
The analysis of the final 2013 fuel mandate did not estimate the
direct emissions impacts to which we could apply the ``dollar-per-ton''
estimates. Instead, we converted ``dollars-per-ton'' to ``dollars-per-
gallon'' by transferring the biodiesel tons-to-emissions relationship
observed in the RFS2 final rule analysis to the current analysis
(dividing emissions in Table IV.A.4-1 by 1.44 billion gallons of
biodiesel) and multiplying that by each pollutant-specific dollar-per-
ton estimate.
The dollar-per-ton estimates used to monetize the emissions impacts
from each gallon of biodiesel are provided in Table IV.B.2.b-1.
Table IV.B.2.b-1--PM2.5-related Dollar-per-ton Values (2010$) a
----------------------------------------------------------------------------------------------------------------
All sources Upstream (non-EGU) Mobile sources
\c\ sources \d\ -------------------------
Year ---------------------------------------
Direct NOX Direct
SO2 NOX PM2.5 PM2.5
----------------------------------------------------------------------------------------------------------------
Dollar-per-ton Derived from American Cancer Society Analysis (Pope et al., 2002) Using a 3 Percent Discount Rate
\b\
----------------------------------------------------------------------------------------------------------------
2015........................................... $30,000 $4,900 $230,000 $5,100 $280,000
2020........................................... 33,000 5,400 250,000 5,600 310,000
----------------------------------------------------------------------------------------------------------------
Dollar-per-ton Derived from American Cancer Society Analysis (Pope et al., 2002) Estimated Using a 7 Percent
Discount Rate \b\
----------------------------------------------------------------------------------------------------------------
2015........................................... 27,000 4,500 210,000 4,600 250,000
2020........................................... 30,000 4,900 230,000 5,100 280,000
----------------------------------------------------------------------------------------------------------------
Dollar-per-ton Derived from Six Cities Analysis (Laden et al., 2006) Estimated Using a 3 Percent Discount Rate
\b\
----------------------------------------------------------------------------------------------------------------
2015........................................... 73,000 12,000 560,000 12,000 680,000
2020........................................... 80,000 13,000 620,000 14,000 750,000
----------------------------------------------------------------------------------------------------------------
Dollar-per-ton Derived from Six Cities Analysis (Laden et al., 2006) Estimated Using a 7 Percent Discount Rate
\b\
----------------------------------------------------------------------------------------------------------------
2015........................................... 66,000 11,000 510,000 11,000 620,000
2020........................................... 72,000 12,000 560,000 12,000 680,000
----------------------------------------------------------------------------------------------------------------
\a\ Total dollar-per-ton estimates include monetized PM2.5-related premature mortality and morbidity endpoints.
Range of estimates are a function of the estimate of PM2.5-related premature mortality derived from either the
ACS study (Pope et al., 2002) or the Six-Cities study (Laden et al., 2006).
\b\ The dollar-per-ton estimates presented in this table assume either a 3 percent or 7 percent discount rate in
the valuation of premature mortality to account for a twenty-year segmented cessation lag.
\c\ Note that the dollar-per-ton value for SO2 is based on the value for Stationary (Non-EGU) sources; no SO2
value was estimated for mobile sources.
\d\ Non-EGU denotes stationary sources of emissions other than electric generating units (EGUs).
For certain PM2.5-related pollutants (such as direct
PM2.5 and NOx), EPA estimates different per-ton values for
reducing mobile source emissions than for reductions in emissions of
the same pollutant from stationary sources such as fuel refineries and
storage facilities. These reflect differences in the typical geographic
distributions of emissions of each pollutant by different sources,
their contributions to ambient levels of PM2.5, and
resulting changes in population exposure. We apply these separate
values to estimates of changes in emissions from vehicle use and from
[[Page 59482]]
fuel production and distribution to determine the net change in total
economic impacts from emissions of those pollutants. Monetized
PM2.5-related health impacts associated with the final rule
can be found in Table IV.B.2.b-2 and per gallon impacts can be found in
Table IV.B.2.b-3.
Table VI.B.2.b-2--Total Ambient PM2.5-related Monetized Health Impacts
(Millions 2010$) a
------------------------------------------------------------------------
2013 Monetized impacts (7%
discount rate-3% discount rate)
------------------------------------------------------------------------
Using Dollar-per-ton Derived from American Cancer Society Analysis (Pope
et al., 2002)
------------------------------------------------------------------------
Downstream............................. $14 to $16.
Upstream............................... -$34 to -$37.
Net Impacts............................ -$19 to -$21.
------------------------------------------------------------------------
Using Dollar-per-ton Derived from Six Cities Analysis (Laden et al.,
2006)
------------------------------------------------------------------------
Downstream............................. $35 to $39.
Upstream............................... -$82 to -$91.
Net Impacts............................ -$47 to -$52.
------------------------------------------------------------------------
\a\ Note: Negative values indicate disbenefits associated with
decrements in ambient air quality.
Table VI.B.2.b-3--Per Gallon Ambient PM2.5-related Monetized Health
Impacts (2010$ Per gallon) a
------------------------------------------------------------------------
2013 Monetized impacts (7%
discount rate-3% discount rate)
------------------------------------------------------------------------
Using Dollar-per-ton Derived from American Cancer Society Analysis (Pope
et al., 2002)
------------------------------------------------------------------------
Downstream........................... $0.05 to $0.06.
Upstream............................. -$0.12 to -$0.13.
Net Impacts.......................... -$0.07 to -$0.08.
------------------------------------------------------------------------
Using Dollar-per-ton Derived from Six Cities Analysis (Laden et al.,
2006)
------------------------------------------------------------------------
Downstream........................... $0.12 to $0.14.
Upstream............................. -$0.29 to -$0.33.
Net Impacts.......................... -$0.17 to -$0.19.
------------------------------------------------------------------------
\a\ Note: Negative values indicate disbenefits associated with
decrements in ambient air quality.
The method used in this analysis to estimate the monetized
PM2.5-related impacts of an increase in biodiesel production
is subject to a number of assumptions and uncertainties.
The method does not reflect local variability in
population density, meteorology, exposure, baseline health incidence
rates, or other local factors that might lead to an overestimate or
underestimate of the actual benefits of controlling fine particulates
in specific locations. This is particularly a problem for the
monetization of upstream emissions since those have a very specific
geographic profile different to that associated with mobile source
emissions.
Transferring the biodiesel tons-to-emissions relationship
derived from the RFS2 mandate in 2022 to the current analysis assumes
that the incremental production of biodiesel associated with the 2013
mandate (of 280 million gallons) will yield the same relative emissions
impacts, which we cannot say with certainty.
This analysis assumes that all fine particles, regardless
of their chemical composition, are equally potent in causing premature
mortality. PM2.5 produced via transported precursors emitted
from stationary sources may differ significantly from direct
PM2.5 released from engines and other industrial sources. At
the present time, however, no clear scientific grounds exist for
supporting differential effects estimates by particle type.
This analysis assumes that the health impact function for
fine particles is linear within the range of ambient concentrations
under consideration. Thus, the estimates include health benefits from
reducing fine particles in areas with varied initial concentrations of
PM2.5, including both regions that are in attainment with
fine particle standard and those that do not meet the standard, down to
the lowest modeled concentrations. This is an appropriate assumption
because the scientific literature provides no evidence of a threshold
below which health effects associated with exposure to fine particles--
including premature death--would not occur.
There are several health benefits categories that we are
unable to quantify due to limitations associated with using dollars-
per-ton estimates, several of which could be substantial. Because
NOX and VOC emissions are also precursors to ozone, changes
in NOX and VOC would also impact ozone formation and the
health effects associated with ozone exposure. Dollars-per-ton
estimates for ozone do not exist due to issues associated with the
complexity of the atmospheric air chemistry and nonlinearities
associated with ozone formation. The PM-related benefits-per-ton
estimates also do not include any human welfare or ecological benefits.
3. Quantifiable Benefits and Costs Compared
As we have observed above, the cost and benefit categories
discussed in this section are not comprehensive. EPA has included
estimates for those impacts that we are able to quantify at the present
time, but this is not meant to suggest that EPA considers these to be
the total costs and benefits of the 2013 biomass-based diesel mandate.
However, for illustrative purposes, we are providing a range of
quantifiable combined cost and benefit estimates for the impact of a
1.28 billion gallon mandate in 2013, based on those impacts that we
were able to monetize.
EPA's estimates of quantifiable costs and benefits vary
significantly in 2013 due to uncertainty about the price of diesel as
well as uncertainty about the value of air quality impacts. Table
IV.B.3-1 presents the range of estimates for the combined quantifiable
costs and benefits of an additional 280 million gallons of biodiesel
produced in 2013, which varies from -$425 million to -$263 million.
Table IV.B.3-1--Estimates of Combined Costs and Benefits of the 1.28
Billion Gallon Biodiesel Mandate in 2013
[In 2010 dollars]
------------------------------------------------------------------------
AEO 2012 early release (million) STEO March 2012 (million)
------------------------------------------------------------------------
-$425 to -$391............................ -$297 to -$263
------------------------------------------------------------------------
In this final rulemaking, we have only provided quantified cost and
benefit estimates for the year 2013. However, as observed above, these
estimates should not be considered in isolation. Rather, they should be
treated as a snapshot within the larger trends of quantified costs and
benefits laid out in the RFS2 final rule. The statute is forward-
looking in that it created a program whose energy and environmental
benefits are intended to grow over time. To evaluate the program on the
basis of only one early year's impacts, as part of near-term
implementation, would be to paint an unbalanced and incomplete picture.
For example, as we examine the costs of the program through time, we
see that these costs fall steadily. This is due to changes in the cost
of key fuel inputs. For instance, the cost of petroleum, the basic raw
material of diesel fuel, is expected to rise through time. Meanwhile,
the principal cost of soybean-based biodiesel, the soybean oil
feedstock, tends to fall though time due to rising crop yields. As a
result, the
[[Page 59483]]
relative cost difference between diesel and biodiesel fuel would be
expected to narrow through time as the program reaches maturity. Thus,
while quantified costs from the wider use of biomass-based biodiesel
can be greater than quantified benefits in the near term, through time
we expect that benefits will tend to increase and outweigh costs. The
estimates of quantified costs and benefits presented in this rulemaking
should be considered within this context.
Further, as noted at the beginning of this section, this analysis
is not intended to serve as a comprehensive quantification of the costs
and benefits of this mandate. Rather, it illustrates those costs and
benefits that are quantifiable in response to comments received on the
proposed rule. To develop a comprehensive estimate of costs and
benefits, one would need to qualitatively balance these estimates
against the impacts discussed earlier in this section.
V. Final 2013 Volume for Biomass-Based Diesel
Through the RFS program, Congress established a schedule of
renewable fuel volumes that gradually increases over time. While the
schedule in the statute for biomass-based diesel ends in 2012, the
schedule of increasing volumes for advanced biofuels continues through
2022. For the years between 2012 and 2022, the statute indicates that
biomass-based diesel volumes can increase above the 2012 applicable
volume of 1.0 billion gal, but they cannot ever be lower than 1.0
billion gal. Subject to a consideration of a number of factors as
described in Section II, we believe that it is appropriate to consider
biomass-based diesel as playing an increasing role in supplying
advanced biofuels to the market between 2012 and 2022.
As described in Section IV.A.9, increases in the required volume of
biomass-based diesel above 1.0 billion gal will help to support rural
economic growth and job creation, will increase energy security, and
reduce emissions of GHGs. Our estimates of the quantifiable benefits of
an increase of 280 mill gal do not exceed the costs in 2013. However,
as laid out above, we expect benefits to generally exceed costs over
time based on the analysis performed for the RFS2 final rule. Thus by
establishing an applicable volume for biomass-based diesel in 2013 that
exceeds the minimum of 1.0 billion gal, we are helping to establish the
industry as a substantial contributor to the required volumes of
advanced biofuel anticipated after full implementation of the RFS
program.
Therefore, based on our review of the factors required in the
statute, we are finalizing an applicable volume of 1.28 billion gal
biomass-based diesel for 2013, consistent with our proposal. We
received comments both in support of and opposed to an increase above
the statutory minimum of 1.0 billion gallons. We have determined that
1.28 billion gallons is achievable in 2013 and is a reasonable exercise
of our authority under CAA 211(o)(2)(B)(ii) to bring about the long-
term benefits of the RFS program.
We did not propose biomass-based diesel standards for 2014 and
beyond in the NPRM since we believe we will be in a better position in
the future to evaluate all of the factors related to establishing an
applicable volume for 2014 and later years. In response to the NPRM,
two parties commented that EPA should set the required volumes of
biomass-based diesel through at least the year 2017. We agree that
specifying the required volumes of biomass-based diesel for more than
one compliance year would provide greater certainty for both biofuel
producers and obligated parties, stability for future investments and
contracts, and could potentially reduce the need to waive a portion of
the advanced biofuel requirement in future years. However, one of the
factors that we are required to consider when determining the
appropriate biomass-based diesel volume for years after 2012 is a
review of the implementation of the program during prior years. By
determining the applicable volume requirement for biomass-based diesel
only one year in advance, we are able to use the most up-to-date
information on the implementation of the program in making our
determination. This is particularly important in the early years of the
program.
VI. Public Participation
Many interested parties participated in the rulemaking process that
culminates with this final rule. This process provided opportunity for
submitting written public comments following the proposal that we
published on July 1, 2011 (76 FR 38844), and we considered these
comments in developing the final rule. Public comments and EPA
responses are discussed throughout this preamble, and all comments
received are available in EPA docket number EPA-HQ-OAR-2010-0133.
VII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and Executive
Order 13563: Improving Regulation and Regulatory Review
Under Executive Order 12866 (58 FR 51735, October 4, 1993), this
action is an ``economically significant regulatory action'' because it
has an annual effect on the economy of $100 million or more.
Accordingly, EPA submitted this action to the Office of Management and
Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR
3821, January 21, 2011) and any changes made in response to OMB
recommendations have been documented in the docket for this action.
The economic impacts of the RFS2 program on regulated parties,
including the impacts of the required volumes of renewable fuel, were
already addressed in the RFS2 final rule promulgated on March 26, 2010
(75 FR 14670). This action finalizes the applicable volume of biomass-
based diesel for 2013. We have been able to quantify some of the
economic impacts of this rule in 2013.
We estimate that soybean prices could increase up to 3 cents per
pound in 2013 if the 2013 biodiesel standard is met solely as a result
of increased demand for soy bean oil. Potential use of other less
expansive feedstocks would reduce this impact on soy beans. Again
assuming the 280 million gallon increase in required biomass-based
diesel is met through increased demand for soy oil, we estimate the
cost of producing this biomass-based diesel would range from $253 to
$381 million in 2013. Adding these estimates of 2013 costs to the fuel
pool would result in a diesel fuel cost increase of less than 1 cent
per gallon. These estimates do not account for recent trends in crop
yields and grain prices resulting from drought conditions that are
occurring in many areas of the country. Given the wide range of
feedstocks from which biodiesel can be produced, the ultimate impact of
these drought conditions on the mix of biodiesel feedstocks in 2013 is
difficult to predict at this time.
Quantified estimates of benefits and disbenefits include energy
security benefits of $0.15 per gallon in 2013 and air quality
disbenefits of $0.07 per gallon in 2013. Other benefits include GHG
emission reduction benefits and both direct and indirect employment
benefits in rural areas due to increased biodiesel production. Impacts
on water quality, water use, wetlands, ecosystems and wildlife habitats
are expected to be modest due to both the small impact on
[[Page 59484]]
crops planted and due to the relatively small impact of soy bean
production.
B. Paperwork Reduction Act
This action does not impose any new information collection burden
since it only specifies the required volume of biomass-based diesel
under the RFS program for 2013. However, the Office of Management and
Budget (OMB) has previously approved the information collection
requirements contained in the existing regulations at 40 CFR part 80,
subpart M under the provisions of the Paperwork Reduction Act, 44
U.S.C. 3501 et seq. This would include the following approved
information collections (with OMB control numbers and expiration dates
listed in parenthesis): ``Renewable Fuels Standard Program: Petition
and Registration'' (OMB Control Number 2060-0637, expires March 31,
2013); ``Renewable Fuels Standard (RFS2)'' (OMB Control Number 2060-
0640, expires July 31, 2013); ``Regulations of Fuels and Fuel
Additives: 2011 Renewable Fuels Standard--Petition for International
Aggregate Compliance Approach'' OMB Control Number 2060-0655, expires
February 28, 2014). The OMB control numbers for EPA's regulations in 40
CFR are listed in 40 CFR part 9. Detailed and searchable information
about these and other approved collections may be viewed on the Office
of Management and Budget (OMB) Paperwork Reduction Act Web site, which
is accessible at http://www.reginfo.gov/public/do/PRAMain.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (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 a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
For purposes of assessing the impacts of today's rule on small
entities, small entity is defined as: (1) A small business as defined
by the Small Business Administration's (SBA) regulations at 13 CFR
121.201; (2) a small governmental jurisdiction that is a government of
a city, county, town, school district or special district with a
population of less than 50,000; and (3) a small organization that is
any not-for-profit enterprise which is independently owned and operated
and is not dominant in its field.
After considering the economic impacts of today's final rule on
small entities, I certify that this action will not have a significant
economic impact on a substantial number of small entities. The impacts
of the RFS2 program on small entities that are directly regulated under
the RFS2 program were already addressed in the RFS2 final rule
promulgated on March 26, 2010 (75 FR 14670). This rule simply
establishes the applicable volume for biomass-based diesel for 2013 at
a level that is consistent with the analyses in the RFS2 final rule.
Therefore, this action will not impose any additional requirements on
small entities beyond those which have already been evaluated.
We received a comment suggesting that impacts on truckers of the
applicable volume of biomass-based diesel for 2013 established in this
rule should be evaluated as part of our standard small business impact
analysis. In response, we note that such analyses are only required
under the Regulatory Flexibility Act for parties directly regulated by
a rule and that, in general, truckers are not directly regulated by
today's action nor under the regulatory requirements established in the
RFS2 final rule.
D. Unfunded Mandates Reform Act
This rule does not contain a Federal mandate that may result in
expenditures of $100 million or more for State, local, and tribal
governments, in the aggregate, or the private sector in any one year.
This rule simply establishes the applicable volume for biomass-based
diesel for 2013 at a level that is consistent with the analyses in the
RFS2 final rule. Thus, this action is not subject to the requirements
of sections 202 or 205 of UMRA.
This action is also not subject to the requirements of section 203
of UMRA because it contains no regulatory requirements that might
significantly or uniquely affect small governments.
E. Executive Order 13132: Federalism
This action does not have federalism implications. It will not have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government, as
specified in Executive Order 13132. This action only applies to
gasoline, diesel, and renewable fuel producers, importers, distributors
and marketers and makes relatively minor corrections and modifications
to the RFS2 regulations. A summary of the concerns raised, and EPA's
response to those concerns, is provided in this preamble.
F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
This action does not have tribal implications, as specified in
Executive Order 13175 (65 FR 67249, November 9, 2000). This rule will
be implemented at the Federal level and impose compliance costs only on
transportation fuel refiners, blenders, marketers, distributors,
importers, exporters, and renewable fuel producers and importers.
Tribal governments would be affected only to the extent they purchase
and use regulated fuels. Thus, Executive Order 13175 does not apply to
this action.
G. Executive Order 13045: Protection of Children From Environmental
Health Risks and Safety Risks
EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying
only to those regulatory actions that concern health or safety risks,
such that the analysis required under section 5-501 of the EO has the
potential to influence the regulation. This action is not subject to EO
13045 because it does not establish an environmental standard intended
to mitigate health or safety risks and because it implements specific
standards established by Congress in statutes.
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
This rule is not a ``significant energy action'' as defined in
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355
(May 22, 2001)) because it is not likely to have a significant adverse
effect on the supply, distribution, or use of energy. This action
simply finalizes the annual standards for cellulosic biofuels for 2012
and biomass-based diesel for 2013, provisions for new RIN-generating
pathways, and clarifying changes and minor technical amendments to the
regulations.
I. National Technology Transfer Advancement Act
Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note)
directs EPA to use voluntary consensus standards in its regulatory
activities unless to do so would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g.,
[[Page 59485]]
materials specifications, test methods, sampling procedures, and
business practices) that are developed or adopted by voluntary
consensus standards bodies. NTTAA directs EPA to provide Congress,
through OMB, explanations when the Agency decides not to use available
and applicable voluntary consensus standards.
This action does not involve technical standards. Therefore, EPA
did not consider the use of any voluntary consensus standards.
J. Executive Order 12898: Federal Actions To Address Environmental
Justice in Minority Populations and Low-Income Populations
Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes
federal executive policy on environmental justice. Its main provision
directs federal agencies, to the greatest extent practicable and
permitted by law, to make environmental justice part of their mission
by identifying and addressing, as appropriate, disproportionately high
and adverse human health or environmental effects of their programs,
policies, and activities on minority populations and low-income
populations in the United States.
EPA has determined that this final rule will not have
disproportionately high and adverse human health or environmental
effects on minority or low-income populations because it does not
affect the level of protection provided to human health or the
environment. This action does not relax the ambient emission control
measures on sources impacted by the RFS2 regulations. While we have
estimated that some emissions may increase as the result of the
incremental volume of 280 mill gal required through this final rule,
ambient emission control measures remain unaffected.
K. Congressional Review Act
The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this rule and other
required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is a ``major rule'' as defined by 5 U.S.C.
804(2). This rule will be effective 60 days from the date of
publication.
VIII. Statutory Authority
Statutory authority for the rule finalized today can be found in
section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support
for the procedural and compliance related aspects of today's rule,
including the recordkeeping requirements, come from sections 114, 208,
and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a).
List of Subjects in 40 CFR Part 80
Environmental protection, Administrative practice and procedure,
Air pollution control, Confidential Business Information, Diesel fuel,
Fuel additives, Gasoline, Imports, Labeling, Motor vehicle pollution,
Penalties, Petroleum, Reporting and recordkeeping requirements.
Dated: September 14, 2012.
Lisa P. Jackson,
Administrator.
[FR Doc. 2012-23344 Filed 9-26-12; 8:45 am]
BILLING CODE 6560-50-P