[Federal Register Volume 81, Number 238 (Monday, December 12, 2016)]
[Rules and Regulations]
[Pages 89746-89804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28879]



[[Page 89745]]

Vol. 81

Monday,

No. 238

December 12, 2016

Part IV





Environmental Protection Agency





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





40 CFR Part 80





Renewable Fuel Standard Program: Standards for 2017 and Biomass-Based 
Diesel Volume for 2018; Final Rule

  Federal Register / Vol. 81 , No. 238 / Monday, December 12, 2016 / 
Rules and Regulations  

[[Page 89746]]


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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2016-0004; FRL-9955-84-OAR]
RIN 2060-AS72


Renewable Fuel Standard Program: Standards for 2017 and Biomass-
Based Diesel Volume for 2018

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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

SUMMARY: Under section 211 of the Clean Air Act, the Environmental 
Protection Agency (EPA) is required to set renewable fuel percentage 
standards every year. This action establishes the annual percentage 
standards for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel that apply to all motor vehicle 
gasoline and diesel produced or imported in the year 2017. Relying on 
statutory authority that is available when projected cellulosic biofuel 
production volumes are less than the applicable volume specified in the 
statute, the EPA is setting volume requirements for cellulosic biofuel, 
advanced biofuel, and total renewable fuel that are below the statutory 
applicable volumes, but which are nevertheless significantly higher 
than past requirements. The final rule also establishes the four 
percentage standards applicable to obligated parties, namely producers 
and importers of gasoline and diesel, based on the corresponding volume 
requirements. The final standards are expected to continue driving the 
market to overcome constraints in renewable fuel distribution 
infrastructure, which in turn is expected to lead to substantial growth 
over time in the production and use of renewable fuels. In this action, 
we are also establishing the applicable volume of biomass-based diesel 
for 2018.

DATES: This final rule is effective on February 10, 2017.

ADDRESSES: The EPA has established a docket for this action under 
Docket ID No. EPA-HQ-OAR-2016-0004. All documents in the docket are 
listed on the http://www.regulations.gov Web site. 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, is not placed on the 
Internet and will be publicly available only in hard copy form. 
Publicly available docket materials are available electronically 
through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; telephone number: 734-214-4131; email address: 
[email protected].

SUPPLEMENTARY INFORMATION: Entities potentially affected by this final 
rule are those involved with the production, distribution, and sale of 
transportation fuels, including gasoline and diesel fuel or renewable 
fuels such as ethanol, biodiesel, renewable diesel, and biogas. 
Potentially regulated categories include:

----------------------------------------------------------------------------------------------------------------
                                                NAICS \1\                     Examples of potentially regulated
                  Category                        codes       SIC \2\ codes                entities
----------------------------------------------------------------------------------------------------------------
Industry...................................          324110            2911  Petroleum Refineries.
Industry...................................          325193            2869  Ethyl alcohol manufacturing.
Industry...................................          325199            2869  Other basic organic chemical
                                                                              manufacturing.
Industry...................................          424690            5169  Chemical and allied products
                                                                              merchant wholesalers.
Industry...................................          424710            5171  Petroleum bulk stations and
                                                                              terminals.
Industry...................................          424720            5172  Petroleum and petroleum products
                                                                              merchant wholesalers.
Industry...................................          221210            4925  Manufactured gas production and
                                                                              distribution.
Industry...................................          454319            5989  Other fuel dealers.
----------------------------------------------------------------------------------------------------------------
\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) 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 entity would 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 FOR 
FURTHER INFORMATION CONTACT section.

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Approach to Setting Volume Requirements
    2. Cellulosic Biofuel
    3. Advanced Biofuel
    4. Total Renewable Fuel
    5. Biomass-Based Diesel
    6. Annual Percentage Standards
    7. Assessment of Aggregate Compliance
II. Authority and Need for Waiver of Statutory Applicable Volumes
    A. Statutory Authorities for Reducing Volume Targets
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    3. General Comments Related to Waiver Authorities
    B. Treatment of Carryover RINs
    1. Updated Projection of Carryover RIN Volume
    2. EPA's Decision
III. Cellulosic Biofuel Volume for 2017
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Projection From the Energy Information Administration
    D. Cellulosic Biofuel Volume for 2017
IV. Advanced Biofuel Volume for 2017
    A. Volumetric Limitation on Use of the Cellulosic Waiver 
Authority
    B. Determination of Reasonably Attainable and Appropriate 
Volumes
    1. Imported Sugarcane Ethanol
    2. Biodiesel and Renewable Diesel
    3. Other Advanced Biofuel
    4. Total Advanced Biofuel
V. Total Renewable Fuel Volume for 2017
    A. Volumetric Limitation on Use of the Cellulosic Waiver 
Authority
    B. Assessing Adequacy of Supply
    1. Ethanol
    i. E0
    ii. E15
    iii. E85
    iv. Total Ethanol
    2. Biodiesel and Renewable Diesel
    i. Feedstock Availability
    ii. Biodiesel and Renewable Diesel Production Capacity
    iii. Biodiesel and Renewable Diesel Import Capacity
    iv. Biodiesel and Renewable Diesel Distribution Capacity

[[Page 89747]]

    v. Biodiesel and Renewable Diesel Retail Infrastructure Capacity
    vi. Biodiesel and Renewable Diesel Consumption Capacity
    vii. Biodiesel and Renewable Diesel Consumer Response
    viii. Projected Supply of Biodiesel and Renewable Diesel in 2017
    3. Total Renewable Fuel Supply
    C. Market Responses to the Advanced Biofuel and Total Renewable 
Fuel Volume Requirements
    D. Impacts of 2017 Standards on Costs
VI. Biomass-Based Diesel Volume for 2018
    A. Statutory Requirements
    B. Determination of Applicable Volume of Biomass-Based Diesel
    1. BBD Production and Compliance Through 2015
    2. Interaction Between BBD and Advanced Biofuel Standards
    3. BBD Volume for 2018
    C. Consideration of Statutory Factors for 2018
VII. Percentage Standards for 2017
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Final Standards
VIII. Assessment of Aggregate Compliance
    A. Assessment of the Domestic Aggregate Compliance Approach
    B. Assessment of the Canadian Aggregate Compliance Approach
IX. Public Participation
X. 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 (PRA)
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act (UMRA)
    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 and Advancement Act (NTTAA)
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations, and Low-Income 
Populations
    K. Congressional Review Act (CRA)
XI. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to 
the requirements in Clean Air Act (CAA) section 211(o) that were added 
through the Energy Policy Act of 2005 (EPAct). The statutory 
requirements for the RFS program were subsequently modified through the 
Energy Independence and Security Act of 2007 (EISA), resulting in the 
publication of major revisions to the regulatory requirements on March 
26, 2010.\1\ EISA's stated goals include moving the United States 
toward ``greater energy independence and security, to increase the 
production of clean renewable fuels.'' Today, nearly all of the 
approximately 142 billion gallons of gasoline used for transportation 
purposes contains 10 percent ethanol (E10), and a substantial portion 
of diesel fuel contains biodiesel.
---------------------------------------------------------------------------

    \1\ 75 FR 14670, March 26, 2010.
---------------------------------------------------------------------------

    Renewable fuels represent an opportunity for the U.S. to move away 
from fossil fuels towards a set of lower lifecycle GHG transportation 
fuels, and the RFS program provides incentives for these lower 
lifecycle GHG fuels to grow and compete in the market. While renewable 
fuels include non-advanced (conventional) corn starch ethanol, which is 
the predominant renewable fuel in use to date, Congress envisioned the 
majority of growth from 2014 forward to come from advanced biofuels, as 
the conventional volumes remain constant in the statutory volume tables 
starting in 2015 while the advanced volumes continue to grow.\2\
---------------------------------------------------------------------------

    \2\ In this document we follow the common practice of using the 
term ``conventional'' renewable fuel to mean any renewable fuel that 
is not an advanced biofuel.
---------------------------------------------------------------------------

    The statute includes annual volume targets, and requires EPA to 
translate those volume targets (or alternative volume requirements 
established by EPA in accordance with statutory waiver authorities) 
into compliance obligations that refiners and importers must meet every 
year. In this action, we are establishing the annual percentage 
standards for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel that would apply to all gasoline and 
diesel produced or imported in 2017. We are also establishing the 
applicable volume of biomass-based diesel for 2018.
    The standards we are setting are designed to achieve the 
Congressional intent of increasing renewable fuel use over time in 
order to reduce lifecycle GHG emissions of transportation fuels and 
increase energy security, while at the same time accounting for the 
real-world challenges that have slowed progress toward these goals. 
Those challenges have made the volume targets established by Congress 
for 2017 beyond reach for all fuel categories other than biomass-based 
diesel (BBD), for which the statute specifies only a minimum 
requirement of 1.0 billion gallons. In setting these standards for 
2017, we have used the cellulosic waiver authority provision provided 
by Congress to establish volume requirements that will be lower than 
the statutory targets for fuels other than biomass-based diesel, but 
nevertheless represent significant growth from past years.
    The 2017 volume requirements for advanced biofuel and total 
renewable fuel are higher than the levels we proposed in the NPRM, 
reflecting our assessment of updated information and a review of 
comments received. We are also finalizing the proposed volume 
requirement for BBD for 2018. This BBD volume requirement will continue 
to provide support for the BBD industry, and we expect that larger 
volumes of this fuel type are likely to be used to comply with the 
advanced biofuel requirement. The final volume requirements are shown 
in Table I-1 below. These final volumes, when considered together with 
the volumes established over the past several years of the RFS program, 
indicate that the RFS program is working to deliver steady, ambitious 
growth in the total amount of renewable fuel produced and used in the 
United States, consistent with Congressional intent.

                               Table I-1--Proposed and Final Volume Requirements a
----------------------------------------------------------------------------------------------------------------
                                                               2017                            2018
                                                 ---------------------------------------------------------------
                                                     Proposed          Final         Proposed          Final
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel (million gallons)............             312             311             n/a             n/a
Biomass-based diesel (billion gallons)..........         \b\ 2.0         \b\ 2.0             2.1             2.1
Advanced biofuel (billion gallons)..............             4.0            4.28             n/a             n/a
Renewable fuel (billion gallons)................            18.8           19.28             n/a             n/a
----------------------------------------------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.
\b\ The 2017 BBD volume requirement was established in the 2014-2016 final rule (80 FR 77420, December 14,
  2015).


[[Page 89748]]

    Despite significant increases in renewable fuel use in the United 
States, real-world constraints, such as the slower than expected 
development of the cellulosic biofuel industry and constraints in the 
marketplace related to supply of certain biofuels to consumers, have 
made the timeline laid out by Congress for the growth in renewable fuel 
use (other than for BBD) impossible to achieve. These challenges 
continue, and are largely the same for 2017 as they were for 2016. 
However, a careful review of the comments we received in response to 
the May 31, 2016 Notice of Proposed Rulemaking (NPRM) and other 
information that has become available since May has led us to conclude 
that volume reductions for 2017 need not be as great as we had 
proposed. In light of the lower reductions necessary, in this final 
rule we rely exclusively on the cellulosic waiver authority to provide 
reductions in both advanced biofuel and total renewable fuel volumes. 
That is, we have determined that it is not necessary to provide an 
additional increment of volume reduction for total renewable fuels 
through use of the general waiver authority based on a finding of 
inadequate domestic supply, as we had done in the final rule 
establishing annual standards for 2014-2016 (``Renewable Fuel Standard 
Program: Standards for 2014, 2015, and 2016 and Biomass-Based Diesel 
Volume for 2017,'' (hereinafter referred to as the ``2014-2016 final 
rule''),\3\ and as we also proposed to do in establishing standards for 
2017.\4\
---------------------------------------------------------------------------

    \3\ 80 FR 77420, December 14, 2015.
    \4\ 81 FR 34778, May 31, 2016.
---------------------------------------------------------------------------

    We believe that the RFS program can and will drive renewable fuel 
use, and we have considered the ability of the market to respond to the 
standards we set when we assessed the amount of renewable fuel that can 
be reasonably attained in 2017. Therefore, while this final rule 
applies the tools Congress provided to make adjustments to the 
statutory volume targets in recognition of the constraints that exist 
today, we believe the standards we are setting in this action will 
drive growth in renewable fuels, particularly advanced biofuels, which 
achieve substantial lifecycle GHG emissions. In our view, while 
Congress recognized that supply challenges may exist as evidenced by 
the waiver provisions, it did not intend growth in the renewable fuels 
market to be stopped by those challenges, including those associated 
with the ``E10 blendwall.'' \5\ The fact that Congress chose to mandate 
increasing and substantial amounts of renewable fuel clearly signals 
that it intended the RFS program to create incentives to increase 
renewable fuel supplies and overcome constraints in the market. The 
standards we are setting in this action will provide those incentives.
---------------------------------------------------------------------------

    \5\ The ``E10 blendwall'' represents the volume of ethanol that 
can be consumed domestically if all gasoline contains 10% ethanol 
and there are no higher-level ethanol blends consumed such as E15 or 
E85.
---------------------------------------------------------------------------

    The standards we are setting in this final rule are part of a 
collection of actions, in both the government and private sectors, to 
increase the use of renewable fuels. In addition to ongoing efforts to 
evaluate new pathways for RIN generation for advanced biofuels, we have 
recently proposed regulatory provisions that we believe will enhance 
the ability of the market to increase not only the production of 
advanced and cellulosic biofuels, but also the use of higher-level 
ethanol blends such as E15 and E85.\6\ DOE and USDA are continuing to 
provide funds for the development of new technologies and expansion of 
infrastructure for higher ethanol blends, and the ethanol industry has 
also made efforts to expand the use of higher ethanol blends through 
its Prime the Pump program. These actions are expected to continue to 
help clear hurdles to support the ongoing growth in the use of 
renewable fuels in future years.
---------------------------------------------------------------------------

    \6\ See the recently proposed Renewables Enhancement and Growth 
Support (REGS) Rule (81 FR 80828, November 16, 2016). More 
information about this proposed rule can be found at https://www.epa.gov/renewable-fuel-standard-program/proposed-renewables-enhancement-and-growth-support-regs-rule.
---------------------------------------------------------------------------

A. Purpose of This Action

    The national volume targets of renewable fuel that are intended to 
be achieved under the RFS program each year (absent an adjustment or 
waiver by EPA) are specified in CAA section 211(o)(2). The statutory 
volumes for 2017 are shown in Table I.A-1. The cellulosic biofuel and 
BBD categories are nested within the advanced biofuel category, which 
is itself nested within the total renewable fuel category. This means, 
for example, that each gallon of cellulosic biofuel or BBD that is used 
to satisfy the individual volume requirements for those fuel types can 
also be used to satisfy the requirements for advanced biofuel and total 
renewable fuel.

   Table I.A-1--Applicable 2017 Volumes Specified in the Clean Air Act
                           [Billion gallons] a
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel.........................................          5.5
Biomass-based diesel.......................................        >=1.0
Advanced biofuel...........................................          9.0
Renewable fuel.............................................         24.0
------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except
  values for BBD which are given in actual gallons.

    Under the RFS program, EPA is required to determine and publish 
annual percentage standards for each compliance year. The percentage 
standards are calculated to ensure use in transportation fuel of the 
national ``applicable volumes'' of the four types of biofuel 
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel) 
that are set forth in the statute or established by EPA in accordance 
with the Act's requirements. The percentage standards are used by 
obligated parties (generally, producers and importers of gasoline and 
diesel fuel) to calculate their individual compliance obligations. Each 
of the four percentage standards is applied to the volume of non-
renewable gasoline and diesel that each obligated party produces or 
imports during the specified calendar year to determine their 
individual volume obligations with respect to the four renewable fuel 
types. The individual volume obligations determine the number of RINs 
of each renewable fuel type that each obligated party must acquire and 
retire to demonstrate compliance.
    EPA is establishing the annual applicable volume requirements for 
cellulosic biofuel, advanced biofuel, and total renewable fuel for 
2017, and for BBD for 2018.\7\ Table I.A-2 lists the statutory 
provisions and associated criteria relevant to determining the national 
applicable volumes used to set the percentage standards in this final 
rule.
---------------------------------------------------------------------------

    \7\ The 2017 BBD volume requirement was established in the 2014-
2016 final rule.

[[Page 89749]]



                                        Table I.A-2--Statutory Provisions for Determination of Applicable Volumes
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Criteria provided in statute for determination of
              Applicable volumes                              Clean air act reference                                 applicable volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cellulosic biofuel...........................  211(o)(7)(D)(i).....................................  Required volume must be lesser of volume specified
                                                                                                      in CAA 211(o)(2)(B)(i)(III) or EPA's projected
                                                                                                      volume.
                                               211(o)(7)(A)........................................  EPA in consultation with other federal agencies may
                                                                                                      waive the statutory volume in whole or in part if
                                                                                                      implementation would severely harm the economy or
                                                                                                      environment of a State, region, or the United
                                                                                                      States, or if there is an inadequate domestic
                                                                                                      supply.
Biomass-based diesel \8\.....................  211(o)(2)(B)(ii) and (v)............................  Required volume for years after 2012 must be at
                                                                                                      least 1.0 billion gallons, and must be based on a
                                                                                                      review of implementation of the program,
                                                                                                      coordination with other federal agencies, and an
                                                                                                      analysis of specified factors.
                                               211(o)(7)(A)........................................  EPA in consultation with other federal agencies may
                                                                                                      waive the statutory volume in whole or in part if
                                                                                                      implementation would severely harm the economy or
                                                                                                      environment of a State, region, or the United
                                                                                                      States, or if there is an inadequate domestic
                                                                                                      supply.
Advanced biofuel.............................  211(o)(7)(D)(i).....................................  If applicable volume of cellulosic biofuel is
                                                                                                      reduced below the statutory volume to the
                                                                                                      projected volume, EPA may reduce the advanced
                                                                                                      biofuel and total renewable fuel volumes in CAA
                                                                                                      211(o)(2)(B)(i)(I) and (II) by the same or lesser
                                                                                                      volume. No criteria specified.
                                               211(o)(7)(A)........................................  EPA in consultation with other federal agencies may
                                                                                                      waive the statutory volume in whole or in part if
                                                                                                      implementation would severely harm the economy or
                                                                                                      environment of a State, region, or the United
                                                                                                      States, or if there is an inadequate domestic
                                                                                                      supply.
Total renewable fuel.........................  211(o)(7)(D)(i).....................................  If applicable volume of cellulosic biofuel is
                                                                                                      reduced below the statutory volume to the
                                                                                                      projected volume, EPA may reduce the advanced
                                                                                                      biofuel and total renewable fuel volumes in CAA
                                                                                                      211(o)(2)(B)(i)(I) and (II) by the same or lesser
                                                                                                      volume. No criteria specified.
                                               211(o)(7)(A)........................................  EPA in consultation with other federal agencies may
                                                                                                      waive the statutory volume in whole or in part if
                                                                                                      implementation would severely harm the economy or
                                                                                                      environment of a State, region, or the United
                                                                                                      States, or if there is an inadequate domestic
                                                                                                      supply.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown in Table I.A-2, the statutory authorities allowing EPA to 
modify or set the applicable volumes differ for the four categories of 
renewable fuel. Under the statute, EPA must annually determine the 
projected volume of cellulosic biofuel production for the following 
year. If the projected volume of cellulosic biofuel production is less 
than the applicable volume specified in section 211(o)(2)(B)(i)(III) of 
the statute, EPA must lower the applicable volume used to set the 
annual cellulosic biofuel percentage standard to the projected 
production volume. In Section III of this final rule, we present our 
analysis of cellulosic biofuel production and the final applicable 
volume for 2017. This analysis is based on information provided by the 
Department of Energy's Energy Information Administration (EIA), an 
evaluation of producers' production plans and progress to date 
following discussions with cellulosic biofuel producers, and is 
informed by comments we received in response to the NPRM.
---------------------------------------------------------------------------

    \8\ Section 211(o)(7)(E) also authorizes EPA in consultation 
with other federal agencies to issue a temporary waiver of 
applicable volumes of BBD where there is a significant feedstock 
disruption or other market circumstance that would make the price of 
BBD fuel increase significantly.
---------------------------------------------------------------------------

    With regard to BBD, Congress chose to set aside a portion of the 
advanced biofuel standard for BBD, and CAA section 211(o)(2)(B) 
specifies the applicable volumes of BBD to be used in the RFS program 
only through year 2012. For subsequent years the statute sets a minimum 
volume of 1 billion gallons, and directs EPA, in coordination with the 
U.S. Departments of Agriculture (USDA) and Energy (DOE), to determine 
the required volume after review of implementation of the renewable 
fuels program and consideration of a number of factors. The BBD volume 
requirement must be established 14 months before the year in which it 
will apply. In the 2014-2016 final rule we established the BBD volume 
for 2017. In Section VI of this preamble we discuss our assessment of 
statutory and other relevant factors and our final volume requirement 
for BBD for 2018, which has been developed in coordination with USDA 
and DOE. We are increasing the required volume of BBD so as to provide 
continued support to that important contributor to the pool of advanced 
biofuel while at the same time setting the volume requirement in a 
manner anticipated to provide continued incentive for the development 
of other types of advanced biofuel.
    Regarding advanced biofuel and total renewable fuel, Congress 
provided several mechanisms through which those volumes could be 
reduced if necessary. If we reduce the applicable volume of cellulosic 
biofuel below the volume specified in CAA section 211(o)(2)(B)(i)(III), 
we also have the authority to reduce the applicable volumes of advanced 
biofuel and total renewable fuel by the same or a lesser amount. We 
refer to this as the ``cellulosic waiver authority.'' We may also 
reduce the applicable volumes of any of the four renewable fuel types 
using the ``general waiver authority'' provided in CAA section 
211(o)(7)(A) if EPA, in consultation with USDA and DOE, finds that 
implementation of the statutory volumes would severely harm the economy 
or environment of a State, region, or the United States, or if there is 
inadequate domestic supply. Sections II, IV, and V of this final rule 
describe our use of the cellulosic waiver authority alone to reduce 
volumes of advanced biofuel and total renewable fuel, and our 
assessment that the resulting volumes are reasonably attainable. As 
described in the NPRM, and consistent with the views that we expressed 
in the 2014-2016 final rule, we continue to believe that reductions in 
the statutory targets for 2017 are necessary. However, in light of our 
review of updated information and consideration of comments, we are 
making those reductions under the cellulosic waiver authority alone and 
are not finalizing an additional

[[Page 89750]]

increment of reduction for total renewable fuel based on a finding of 
inadequate domestic supply under the general waiver authority as we had 
proposed. Despite the reductions we are finalizing today, we continue 
to be mindful that the primary objective of the statute is to increase 
renewable fuel use over time. While progress has taken longer than 
Congress anticipated, we note that today's rule provides for 15 billion 
gallons of conventional renewable fuel, the implied level envisioned 
under the statute for 2017, while also providing for a substantial 
increase in the required volume of advanced biofuel over past volume 
requirements.

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this final 
rule. We are establishing applicable volume requirements and associated 
percentage standards for cellulosic biofuel, advanced biofuel, and 
total renewable fuel for 2017, as well as the percentage standard for 
BBD for 2017, and the applicable volume requirement for BBD for 2018.
1. Approach to Setting Volume Requirements
    The approach we have taken in this final rule is essentially the 
same as that presented in the NPRM and in the 2014-2016 final rule with 
regard to establishing the cellulosic biofuel volume requirement, and 
the use of the cellulosic waiver authority to reduce advanced biofuel 
and total renewable fuel. However, it differs in that we have not found 
it necessary to also use the general waiver authority to provide an 
additional increment of reduction with respect to total renewable fuel. 
While in the NPRM we proposed to determine the maximum reasonably 
achievable supply of total renewable fuel, consistent with the general 
waiver authority's ``inadequate domestic supply'' criterion, in this 
final rule we have instead identified the total renewable fuel volume 
that results from use of the cellulosic waiver authority, and have 
determined that this volume of total renewable fuel is reasonably 
attainable. In this assessment, we took into account the same 
constraints in the supply of renewable fuel we noted in the NPRM, but 
have come to a different result with respect to necessary volume 
reductions in light of updated information and consideration of 
comments.
    Section II provides a general description of our approach to 
setting volume requirements in today's rule, including a review of the 
statutory waiver authorities and our consideration of carryover RINs. 
Section III provides our assessment of the 2017 cellulosic biofuel 
volume based on a projection of production that reflects a neutral aim 
at accuracy. Sections IV and V describe our assessment of reasonably 
attainable volumes of advanced biofuel and total renewable fuel, 
respectively. Finally, Section VI provides our determination regarding 
the 2018 BBD volume requirement, and reflects an analysis of a set of 
factors stipulated in CAA section 211(o)(2)(B)(ii).
2. Cellulosic Biofuel
    In the past several years the cellulosic biofuel industry has 
continued to make progress towards increased commercial scale 
production. Cellulosic biofuel production reached record levels in 
2015, driven largely by compressed natural gas (CNG) and liquefied 
natural gas (LNG) derived from biogas, and is expected to exceed these 
volumes in 2016. Cellulosic ethanol, while produced in much smaller 
quantities than CNG/LNG derived from biogas, was produced consistently 
on a commercial scale for the first time in 2015. Cellulosic ethanol 
production levels increased from existing facilities in 2016, and 
significant work continues to be done to enable the production of 
cellulosic ethanol at new facilities in 2017 and beyond. Available data 
suggest that the production levels for both cellulosic CNG/LNG and 
cellulosic ethanol in 2016 will exceed by a significant margin the 
levels produced in 2015. In this rule we are establishing a cellulosic 
biofuel volume requirement of 311 million ethanol-equivalent gallons 
for 2017 based on the information we have received regarding individual 
facilities' capacities, production start dates and biofuel production 
plans, information received in public comments, input from other 
government agencies, and EPA's own engineering judgment.
    As part of estimating the volume of cellulosic biofuel that will be 
made available in the U.S. in 2017, we considered all potential 
production sources by company and facility. This included facilities 
still in the commissioning or start-up phases, as well as facilities 
already producing some volume of cellulosic biofuel.\9\ From this 
universe of potential cellulosic biofuel sources, we identified the 
subset that is expected to produce commercial volumes of qualifying 
cellulosic biofuel for use as transportation fuel, heating oil, or jet 
fuel by the end of 2017. To arrive at projected volumes, we collected 
relevant information on each facility. We then developed projected 
production ranges based on factors such as the status of the technology 
being used, progress towards construction and production goals, 
facility registration status, production volumes achieved, and other 
significant factors that could potentially impact fuel production or 
the ability of the produced fuel to qualify for cellulosic biofuel 
Renewable Identification Numbers (RINs). We also used this information 
to group these companies based on production history and to select a 
value within the aggregated projected production ranges that we believe 
best represents the most likely production volume from each group of 
companies in 2017. Further discussion of these factors and the way they 
were used to determine our final cellulosic biofuel projection for 2017 
can be found in Section III.
---------------------------------------------------------------------------

    \9\ Facilities primarily focused on research and development 
(R&D) were not the focus of our assessment, as production from these 
facilities represents very small volumes of cellulosic biofuel, and 
these facilities typically have not generated RINs for the fuel they 
have produced.
---------------------------------------------------------------------------

3. Advanced Biofuel
    The conditions that compelled us to reduce the 2016 volume 
requirement for advanced biofuel below the statutory target remain 
relevant in 2017. As for 2016, we investigated the ability of volumes 
of non-cellulosic advanced biofuels to backfill unavailable volumes of 
cellulosic biofuel in 2017, through domestic production or import. We 
took into account the substantial GHG emissions reduction required of 
advanced biofuels, the various constraints on supply of advanced 
biofuels, the ability of the standards we set to bring about market 
changes in the time available, and the potential impacts associated 
with diverting some feedstocks from current use to the production of 
biofuel. Based on these considerations and review of the comments 
received in response to the NPRM and other information that has become 
available, we have determined that a portion of the shortfall in 
cellulosic biofuel may appropriately be backfilled with advanced 
biofuel. We are exercising our cellulosic waiver authority to reduce 
the statutory applicable volume of advanced biofuel to a final volume 
requirement of 4.28 billion gallons for 2017. This is somewhat higher 
than the proposed level of 4.0 billion gallons. The applicable volume 
for advanced biofuel that we are establishing for 2017 will result in 
significant volume growth over the volume requirement for 2016, and 
will require the use of more non-

[[Page 89751]]

cellulosic advanced biofuel (3.97 billion gallons) than would have been 
required under the statutory targets (3.50 billion gallons).
4. Total Renewable Fuel
    Following our determination of the appropriate volume reduction for 
advanced biofuel for 2017 using the cellulosic waiver authority, we 
applied the same volume reduction to the statutory target for total 
renewable fuel, resulting in a volume requirement of 19.28 billion 
gallons. We then evaluated this total renewable fuel volume to 
determine if it is reasonably attainable given assessments of 
attainable volumes of individual fuel types, including biodiesel, 
renewable diesel, ethanol (in the form of E10 or higher ethanol blends 
such as E15 or E85, taking into account demand for E0), and other 
renewable fuels. Based on comments received in response to the NPRM and 
other information that has become available, we have determined that a 
total renewable fuel volume of 19.28 billion gallons is reasonably 
attainable in 2017. There is, therefore, no need to use the general 
waiver authority to further reduce the total renewable fuel volume 
requirement due to a finding of inadequate domestic supply.\10\
---------------------------------------------------------------------------

    \10\ The general waiver authority can also be used under a 
determination that the RFS volumes would cause ``severe economic or 
environmental harm.'' As described in Section II.A.2 and in more 
detail in the response to comments document accompanying this rule, 
EPA does not believe that the record supports a finding of severe 
economic or environmental harm with respect to the volume 
requirements we are finalizing today.
---------------------------------------------------------------------------

5. Biomass-Based Diesel
    In EISA, Congress specified increasing applicable volumes of BBD 
through 2012. Beyond 2012 Congress stipulated that EPA, in coordination 
with other agencies, was to establish the BBD volume taking into 
consideration implementation of the program to date and various 
specified factors, providing that the required volume for BBD could not 
be less than 1.0 billion gallons. For 2013, EPA established an 
applicable volume of 1.28 billion gallons. For 2014 and 2015 we 
established the BBD volume requirement to reflect the actual volume for 
each of these years of 1.63 and 1.73 billion gallons.\11\ For 2016 and 
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons 
respectively.
---------------------------------------------------------------------------

    \11\ The 2015 BBD standard was based on actual data for the 
first 9 months of 2015 and on projections for the latter part of the 
year for which data on actual use was not available at the time.
---------------------------------------------------------------------------

    Given current and recent market conditions, the advanced biofuel 
volume requirement is driving the use of biodiesel and renewable diesel 
volumes over and above volumes required through the separate BBD 
standard, and we expect this to continue. Nevertheless, we continue to 
believe for 2018 that it is appropriate to set increasing BBD 
applicable volumes to provide a floor to support continued investment 
to enable increased production and use of BBD. In doing so we also 
believe in the importance of maintaining opportunities within the 
advanced biofuel requirement for growth in other types of advanced 
biofuel, such as renewable diesel co-processed with petroleum, 
renewable gasoline blend stocks, and renewable heating oil, as well as 
others that are under development.
    Thus, based on a review of the implementation of the program to 
date and all the factors required under the statute, and in 
coordination with USDA and DOE, we are finalizing an increase in the 
applicable volume of BBD by 100 million gallons, to 2.1 billion gallons 
for 2018. We believe that this increase will support the overall goals 
of the program while also maintaining the incentive for development and 
growth in production of other advanced biofuels. Establishing the 
volumes at this level will encourage BBD producers to manufacture 
higher volumes of fuel that will contribute to the advanced biofuel and 
total renewable fuel requirements, while also leaving considerable 
opportunity within the advanced biofuel mandate for investment in and 
growth in production of other types of advanced biofuel with comparable 
or potentially superior environmental or other attributes.
6. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage 
and are used by each producer and importer of fossil-based gasoline or 
diesel to determine their renewable fuel volume obligations. The 
percentage standards are set so that if each obligated party meets the 
standards, and if EIA projections of gasoline and diesel use for the 
coming year prove to be accurate, then the amount of renewable fuel, 
cellulosic biofuel, BBD, and advanced biofuel actually used will meet 
the volume requirements used to derive the percentage standards, 
required on a nationwide basis.
    Four separate percentage standards are required under the RFS 
program, corresponding to the four separate renewable fuel categories 
shown in Table I.A-1. The specific formulas we use in calculating the 
renewable fuel percentage standards are contained in the regulations at 
40 CFR 80.1405. The percentage standards represent the ratio of 
renewable fuel volume to projected non-renewable gasoline and diesel 
volume. The volume of transportation gasoline and diesel used to 
calculate the final percentage standards was provided by the Energy 
Information Administration (EIA). The final percentage standards for 
2017 are shown in Table I.B.6-1. Detailed calculations can be found in 
Section VII, including the projected gasoline and diesel volumes used.

             Table I.B.6-1--Final 2017 Percentage Standards
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................          0.173%
Biomass-based diesel....................................           1.67%
Advanced biofuel........................................           2.38%
Renewable fuel..........................................          10.70%
------------------------------------------------------------------------

7. Assessment of Aggregate Compliance
    By November 30 of each year we are required to assess the status of 
the aggregate compliance approach to land-use restrictions under the 
definition of renewable biomass for both the U.S. and Canada. In 
today's action we are providing the final announcements for these 
administrative actions.
    As part of the RFS regulations, EPA established an aggregate 
compliance approach for renewable fuel producers who use planted crops 
and crop residue from U.S. agricultural land. This compliance approach 
relieved such producers (and importers of such fuel) of the individual 
recordkeeping and reporting requirements otherwise required of 
producers and importers to verify that such feedstocks used in the 
production of renewable fuel meet the definition of renewable biomass. 
EPA determined that 402 million acres of U.S. agricultural land was 
available in 2007 (the year of EISA enactment) for production of crops 
and crop residue that would meet the definition of renewable biomass, 
and determined that as long as this total number of acres is not 
exceeded, it is unlikely that new land has been devoted to crop 
production based on historical trends and economic considerations. We 
indicated that we would conduct an annual evaluation of total U.S. 
acreage that is cropland, pastureland, or conservation reserve program 
land, and that if the value exceeds 402 million acres, producers using 
domestically grown crops or crop residue to produce renewable fuel 
would be subject to individual recordkeeping and reporting to verify 
that their feedstocks meet the definition of renewable biomass. As 
described in Section VIII.A, based on data provided by the USDA and 
using the methodology in place since 2014,

[[Page 89752]]

we have estimated that U.S. agricultural land totaled approximately 380 
million acres in 2016 and thus did not exceed the 2007 baseline 
acreage. This assessment means that the aggregate compliance provision 
can continue to be used in the U.S. for calendar year 2017.
    On September 29, 2011, EPA approved the use of a similar aggregate 
compliance approach for planted crops and crop residue grown in Canada. 
The Government of Canada utilized several types of land use data to 
demonstrate that the land included in their 124 million acre baseline 
is cropland, pastureland or land equivalent to U.S. Conservation 
Reserve Program land that was cleared or cultivated prior to December 
19, 2007, and was actively managed or fallow and non-forested on that 
date (and is therefore RFS2 qualifying land). As described in Section 
VIII.B, based on data provided by Canada, we have estimated that 
Canadian agricultural land totaled approximately 118.4 million acres in 
2016 and thus did not exceed the 2007 baseline acreage. This assessment 
means that the aggregate compliance provision can continue to be used 
in Canada for calendar year 2017.

II. Authority and Need For Waiver of Statutory Applicable Volumes

    The statute provides the EPA with the authority to reduce volume 
requirements below the applicable volume targets specified in the 
statute under specific circumstances. This section discusses those 
authorities and our use of the cellulosic waiver authority alone to set 
2017 volume requirements for cellulosic biofuel, advanced biofuel, and 
total renewable fuel that are below the statutory volume targets.

A. Statutory Authorities for Reducing Volume Targets

    In CAA section 211(o)(2), Congress specified increasing annual 
volume targets for total renewable fuel, advanced biofuel, and 
cellulosic biofuel for each year through 2022, and for biomass-based 
diesel through 2012, and authorized EPA to set volume requirements for 
subsequent years in coordination with USDA and DOE, and after 
consideration of specified factors. However, Congress also recognized 
that under certain circumstances it would be appropriate for EPA to set 
volume requirements at a lower level than reflected in the statutory 
volume targets, and thus provided waiver provisions in CAA section 
211(o)(7).
1. Cellulosic Waiver Authority
    Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines 
that the projected volume of cellulosic biofuel production for a given 
year is less than the applicable volume specified in the statute, that 
EPA must reduce the applicable volume of cellulosic biofuel required to 
the projected production volume for that calendar year. In making this 
projection, EPA must take a ``neutral aim at accuracy.'' API v. EPA, 
706 F.3d 474 (D.C. Cir. 2013). Pursuant to this provision, EPA has set 
the cellulosic biofuel requirement lower than the statutory volumes for 
each year since 2010. As described in Section III.D, the projected 
volume of cellulosic biofuel production for 2017 is less than the 5.5 
billion gallon volume target in the statute. Therefore, for 2017, we 
are setting the cellulosic biofuel volume requirement at a level lower 
than the statutory applicable volume, in accordance with this 
provision.
    Section 211(o)(7)(D)(i) also provides that ``[f]or any calendar 
year in which the Administrator makes . . . a reduction [in cellulosic 
biofuel volumes], the Administrator may also reduce the applicable 
volume of renewable fuel and advanced biofuels . . . by the same or a 
lesser volume.'' Using this authority, the reductions in total 
renewable fuel and advanced biofuel can be less than or equal to, but 
no more than, the amount of reduction in the cellulosic biofuel volume. 
EPA used this authority to reduce applicable volumes of advanced 
biofuel in 2014-16, and to reduce the total renewable fuel volumes in 
those years by an equal amount. We refer to authority in Section 
211(o)(7)(D)(i) to waive volumes of advanced and total renewable fuel 
as the ``cellulosic waiver authority.''
    The cellulosic waiver authority was discussed by the United States 
Court of Appeals for the District of Columbia Circuit, in the context 
of its consideration of a judicial challenge to the rule establishing 
the 2013 annual RFS standards. As the court explained,

    The Clean Air Act provides that if EPA reduces the cellulosic 
biofuel requirement, as it did here, then it `may also reduce' the 
advanced biofuel and total renewable fuel quotas `by the same or a 
lesser volume.' 42 U.S.C. 7545(o)(7)(D)(i). There is no requirement 
to reduce these latter quotas, nor does the statute prescribe any 
factors that EPA must consider in making its decision. See id. In 
the absence of any express or implied statutory directive to 
consider particular factors, EPA reasonably concluded that it enjoys 
broad discretion regarding whether and in what circumstances to 
reduce the advanced biofuel and total renewable fuel volumes under 
the cellulosic waiver provision. Monroe v. EPA, 750 F.3d 909, 915 
(D.C. Cir. 2014).

    Some stakeholders have commented that EPA may only exercise the 
cellulosic waiver authority to reduce total and advanced volumes in 
circumstances described in CAA section 211(o)(7)(A) (that is, where 
there is inadequate domestic supply or severe harm to the environment 
or economy), or that it must in using the cellulosic waiver authority 
consider the factors specified in section 211(o)(2)(B)(ii) that are 
required considerations when EPA sets applicable volumes for years in 
which the statute does not do so. Contrary to these comments, the Court 
found in the Monroe case that the statute does not prescribe any 
factors that EPA must consider in making is decision; EPA has broad 
discretion under 211(o)(7)(D)(i) to determine when and under what 
circumstances to reduce the advanced and total renewable fuel volumes 
when it reduces the statutory applicable volume of cellulosic biofuel.
    When using the cellulosic waiver authority, we believe that there 
would be substantial justification to exercise our discretion to lower 
volumes of total and advanced biofuels in circumstances where there are 
questions regarding the sufficiency of production or import of 
potentially qualifying renewable fuels, and where there is evidence of 
constraints that would limit the ability of those biofuels to be used 
for purposes specified in the Act (i.e., in transportation fuel, 
heating oil, or jet fuel). In addition, we believe that it is 
appropriate in exercising the cellulosic waiver authority for EPA to 
consider the Congressional objectives reflected in the volumes tables 
in the statute, and the environmental objectives that generally favor 
the use of advanced biofuels over non-advanced biofuels. For example, 
in light of the larger GHG emissions reductions required for advanced 
biofuels as compared to conventional biofuel, and the Congressional 
objective to dramatically increase their use in the time period between 
2015 and 2022, we believe that it is generally appropriate for 
reasonably attainable volumes of advanced biofuel that are sourced in a 
manner expected to provide significant GHG reduction benefits to 
backfill for shortages in cellulosic biofuel. On the other hand, we do 
not believe it would be appropriate for the gap in the availability of 
cellulosic biofuel in 2017 to be filled or partially filled with non-
advanced biofuel, taking into consideration both the substantially 
lower greenhouse gas emissions reductions required for non-advanced

[[Page 89753]]

biofuel \12\ and the Congressional intent reflected in the statutory 
tables that use of these biofuels in this time period would be 
limited.\13\ These considerations are consistent with EPA's past 
interpretation of the cellulosic waiver authority as envisioning 
equivalent reductions in the applicable volumes of advanced biofuels 
and total renewable fuels.\14\ See 74 FR 24914; 78 FR 49810.
---------------------------------------------------------------------------

    \12\ Non-advanced biofuel must meet the 20% reduction in 
lifecycle GHG emissions described in CAA section 211(o)(2)(A)(i), 
unless they qualify for an exemption under 40 CFR 80.1403.
    \13\ Since the advanced biofuel volume requirement is nested 
within the total renewable fuel volume requirement, the statutory 
implied volume for conventional renewable fuel in the statutory 
tables can be discerned by subtracting the applicable volume of 
advanced biofuel from that of total renewable fuel. Performing this 
calculation with respect to the tables in CAA section 211(o)(2)(B) 
indicates a Congressional expectation that in the time period 2015-
2022, advanced biofuel volumes would grow from 5.5 to 21 billion 
gallons, while the implied volume for conventional renewable fuel 
would remain constant at 15 billion gallons.
    \14\ Our consistent view has been that the provision is best 
interpreted and implemented to provide for equal reductions in 
advanced biofuel and total renewable fuel. We believe that this 
approach is consistent with the statutory language and best 
effectuates the objectives of the statute, in that it allows for EPA 
to determine an appropriate volume of advanced biofuel providing 
meaningful GHG emissions reductions to backfill missing cellulosic 
volumes, while also resulting in an implied volume for conventional 
renewable fuel of no greater than 15 billion gallons as envisioned 
in the statutory time period for 2015-2022.
---------------------------------------------------------------------------

    We believe, as we did in setting the volumes in the past, that the 
circumstances justifying use of our cellulosic waiver authority and 
thus a reduction in statutory volumes are currently present, and we are 
again using our cellulosic waiver authority under 211(o)(7)(D)(i) to 
reduce volume requirements for advanced biofuel and total renewable 
fuel. Congress envisioned that there would be 5.5 billion gallons of 
cellulosic biofuel in 2017, while our production projection, described 
in detail in Section III, is for 311 million gallons. Under 
211(o)(7)(D)(i), EPA must lower the required cellulosic volume to the 
projected production volumes. See also API v. EPA, 706 F.3d 474 (D.C. 
Cir. 2012). Doing so also provides EPA with authority to lower advanced 
and total renewable fuel volumes by the same or a lesser amount.
    We have determined, as described in Section IV, that the applicable 
volume for advanced biofuels specified in the statute for 2017 cannot 
be achieved and, consistent with the principles described above, we are 
exercising our cellulosic waiver authority to lower the applicable 
volume of advanced biofuel to a level that is both reasonably 
attainable and appropriate, and to provide an equivalent reduction in 
the applicable volume of total renewable fuel. In addition, we have 
determined that there is adequate supply to satisfy the total renewable 
fuel volume derived through applying an equal volume reduction as for 
advanced biofuel. Therefore, no further reductions of the total 
renewable fuel volume requirement are necessary to address concerns of 
inadequate supply. The resulting volume requirements provide the 
benefits associated with the use of reasonably attainable and 
appropriate volumes of advanced biofuels to partially backfill for 
missing volumes of cellulosic biofuel in 2017, while also providing for 
an implied volume requirement for conventional biofuel equal to that 
envisioned by Congress for 2017.
2. General Waiver Authority
    Section 211(o)(7)(A) of the CAA provides that EPA, in consultation 
with the Secretary of Agriculture and the Secretary of Energy, may 
waive the applicable volume specified in the Act in whole or in part 
based on petition by one or more States, by any person subject to the 
requirements of the Act, or by the EPA Administrator on her own motion. 
Such a waiver must be based on a determination by the Administrator, 
after public notice and opportunity for comment that (1) implementation 
of the requirement would severely harm the economy or the environment 
of a State, a region or the United States, or (2) there is an 
inadequate domestic supply. Because the general waiver provision 
provides EPA the discretion to waive the statutory applicable volume 
``in whole or in part,'' we interpret this section as granting EPA 
authority to fully or partially waive any of the four applicable volume 
requirements in appropriate circumstances. For the years 2014-2016, EPA 
determined that there was an inadequate domestic supply of total 
renewable fuel, and used the general waiver authority to reduce the 
total renewable fuel volumes further than the reductions obtained using 
the cellulosic waiver authority. In the notice of proposed rulemaking 
for this rule, EPA proposed to use the general wavier authority in a 
similar way, and for the same reason, in establishing the 2017 total 
renewable fuel volume requirement.
    Based on further evaluation of the availability of renewable fuel 
in the market, in the interim between the NPRM and this final rule, and 
review of public comment, EPA has determined that it is not necessary 
to use the general waiver authority. That is, we have determined that 
use of the cellulosic waiver authority alone will be sufficient to 
yield a volume requirement that is consistent with available 
supply.\15\
---------------------------------------------------------------------------

    \15\ Some commenters noted that in addition to the authority to 
reduce applicable volumes under the general waiver authority on the 
basis of an ``inadequate domestic supply'' that EPA possesses the 
ability to use the general waiver authority where it finds that the 
RFS volumes would cause ``severe economic or environmental harm in a 
State, region, or the United States.'' As described in more detail 
in the response to comments document accompanying this rule, EPA 
does not believe that the record supports a finding of severe 
economic or environmental harm with respect to the volume 
requirements we are finalizing today.
---------------------------------------------------------------------------

3. General Comments Related to Waiver Authorities
    Many commenters suggested that EPA should only use the cellulosic 
waiver authority to reduce volumes of total renewable fuel in 2017. 
While we do not believe this would have been possible under the 
circumstances described in the proposal, in light of EPA's re-
evaluation of available supplies, as discussed in Sections IV and V, we 
are today following the approach suggested by these commenters in using 
the cellulosic waiver authority exclusively to reduce volumes of both 
advanced biofuel and total renewable fuel.
    Some commenters said that EPA should not reduce the volume 
requirements for advanced biofuel and total renewable fuel at all and 
should instead set standards for 2017 based on the statutory targets. 
In most cases, these commenters based their positions on the 
availability of carryover RINs and an expectation that ``letting the 
market work'' would be sufficient to overcome all constraints related 
the production and distribution of fuels that can be used to satisfy 
these standards. As described in Section II.B below, we continue to 
believe that, in light of the expected volume of carryover RINs, it 
would be inappropriate for 2017 to intentionally draw down the bank of 
carryover RINs for the purposes of increasing the volume requirements 
above levels that can be satisfied with physical volume. As for 
``letting the market work,'' we believe that this view is dismissive of 
the market constraints discussed in the NPRM, Table II.E. 1-1 of the 
2014-2016 final rule and in Sections IV.B and V.B of this final rule. 
The market is not unlimited in its ability to respond to the standards 
EPA sets. While setting the standards at the statutory targets would 
undoubtedly produce a significant increase in RIN prices, doing so in 
light of the combined actions of all constraints shown in Table II.E.1-
1 of the 2014-2016 final rule and discussed in Sections IV.B. and V.B. 
of this rule would nevertheless create a

[[Page 89754]]

shortfall in supply in 2017 that would likely lead to a complete draw-
down in the bank of carryover RINs, noncompliance, and/or additional 
petitions for a waiver of the standards. As described in Sections IV 
and V, we are authorized to use the cellulosic waiver authority in 2017 
to reduce volumes of advanced and total renewable fuel, and believe it 
is appropriate to do so for the reasons noted in those sections.

B. Treatment of Carryover RINs

    Consistent with our approach in the 2014-2016 final rule, we have 
also considered the availability and role of carryover RINs in our 
decision to exercise our cellulosic waiver authority in setting the 
advanced and total volume requirements for 2017.\16\ Although the 
statute requires a credit program and specifies that the credits shall 
be valid for a 12-month time period, neither the statute nor EPA 
regulations specify how or whether EPA should consider the availability 
of carryover RINs in exercising its cellulosic waiver authority.\17\ As 
noted in the context of the rule establishing the 2014-16 RFS 
standards, we believe that a bank of carryover RINs is extremely 
important in providing obligated parties compliance flexibility in the 
face of substantial uncertainties in the transportation fuel 
marketplace, and in providing a liquid and well-functioning RIN market 
upon which success of the entire program depends.\18\ Carryover RINs 
provide flexibility in the face of a variety of circumstances that 
could limit the availability of RINs, including weather-related damage 
to renewable fuel feedstocks and other circumstances potentially 
affecting the production and distribution of renewable fuel.\19\ On the 
other hand, carryover RINs can be used for compliance purposes, and in 
the context of the 2013 RFS rulemaking we noted that an abundance of 
carryover RINs available in that year, together with possible increases 
in renewable fuel production and import, justified maintaining the 
advanced and total renewable fuel volume requirements for that year at 
the levels specified in the statute.\20\
---------------------------------------------------------------------------

    \16\ The discussion of the role of carryover RINs as they relate 
to the cellulosic volume standard for 2017 can be found in Section 
III.D.
    \17\ CAA section 211(o)(5) requires that EPA establish a credit 
program as part of its RFS regulations, and that the credits be 
valid to show compliance for 12 months as of the date of generation. 
EPA implemented this requirement though the use of RINs, which can 
be used to demonstrate compliance for the year in which they are 
generated or the subsequent compliance year. Obligated parties can 
obtain more RINs than they need in a given compliance year, allowing 
them to ``carry over'' these excess RINs for use in the subsequent 
compliance year, although use of these carryover RINs is limited to 
20% of the obligated party's RVO. For the bank of carryover RINs to 
be preserved from one year to the next, individual carryover RINs 
are used for compliance before they expire and are essentially 
replaced with a newer vintage RIN that is then held for use in the 
next year. For example, if the volume of the RIN bank is unchanged 
from 2016 to 2017, then all of the vintage 2016 carryover RINs must 
be used for compliance in 2017, or they will expire. However, the 
same volume of 2017 RINs can then be ``banked'' for use in the next 
year.
    \18\ See 80 FR 77482-77487 (December 14, 2015).
    \19\ See id., and 72 FR 23900 (May 1, 2007).
    \20\ See 79 FR 49794 (August 15, 2013).
---------------------------------------------------------------------------

    In the 2017 NPRM, EPA estimated that the likely volume of the 
carryover RIN bank for 2017 would be approximately 1.72 billion 
carryover RINs (including all D codes). We proposed that in light of 
this relatively limited volume and the important functions provided by 
the RIN bank, that we would not set the volume requirements for 2017 in 
a manner that would intentionally lead to a drawdown in the bank of 
carryover RINs. In their comments on the 2017 NPRM, parties generally 
expressed two opposing points of view. Commenters representing 
obligated parties supported EPA's proposed decision to not assume a 
drawdown in the bank of carryover RINs in determining the appropriate 
level of volume requirements. These commenters reiterated the 
importance of maintaining the carryover RIN bank in order to provide 
obligated parties with necessary compliance flexibilities, better 
market trading liquidity, and a cushion against future program 
uncertainty. Commenters representing renewable fuel producers, however, 
contended that carryover RINs represent actual supply and should be 
accounted for when establishing the annual volume standards and, in 
particular, in any determination under the general waiver authority 
that there is an ``inadequate domestic supply.'' They expressed concern 
that obligated parties could use carryover RINs as an alternative to 
RINs generated for renewable fuel produced in 2017, leading to less 
demand for their product and inadequate return on investment.\21\
---------------------------------------------------------------------------

    \21\ A full description of comments received, and our detailed 
responses to them, is available in the Response to Comments document 
in the docket.
---------------------------------------------------------------------------

1. Updated Projection of Carryover RIN Volume
    In the NPRM, EPA estimated that the carryover RIN bank available in 
2017 would be approximately 1.72 billion carryover RINs. Since that 
time, obligated parties have submitted their compliance demonstrations 
for the 2014 compliance year and, based on that information, we now 
estimate that there will at most be 1.54 billion carryover RINs 
available for possible use in complying with the standards for 2017, a 
decrease of nearly 200 million RINs from the previous estimate.\22\ 
This is approximately 8 percent of the final 2017 total renewable fuel 
volume standard and less than half of the 20 percent limit permitted by 
the regulations to be carried over for use in complying with the 2017 
standards. However, there remains considerable uncertainty surrounding 
this number since compliance demonstrations still need to be made for 
the 2015 and 2016 RFS standards, and it is unclear at this time whether 
some portion of the 1.54 billion carryover RINs we estimate will be 
available for the 2017 compliance demonstrations will be used for 
compliance prior to 2017. In addition, we note that there have been 
enforcement actions in past years that have resulted in the retirement 
of RINs that were fraudulently generated and were therefore invalid, 
and parties that relied on those invalid RINs for compliance were 
required to acquire valid substitutes to true up their past compliance 
demonstrations. Future enforcement actions could have similar results, 
and require that obligated parties settle past enforcement-related 
obligations in addition to the annual standards, thereby potentially 
creating demand for RINs greater than can be accommodated through 
actual renewable fuel blending in 2017. Collectively, the result of 
satisfying RFS obligations in 2015 and 2016 and settling enforcement-
related accounts could be an effective reduction in the size of the 
collective bank of carryover RINs to a level below 1.54 billion RINs. 
Thus, we believe there is considerable uncertainty that a RIN bank as 
large as 1.54 billion RINs will be available in 2017.
---------------------------------------------------------------------------

    \22\ The calculations performed to estimate the number of 
carryover RINs available in 2017 can be found in the memorandum, 
``2017 Carryover RIN Bank Calculations,'' available in the docket.
---------------------------------------------------------------------------

2. EPA's Decision
    EPA has decided to maintain the proposed approach, and not set the 
volume requirements in the final rule with the intention or expectation 
of drawing down the current bank of carryover RINs. In finalizing this 
approach, we carefully considered the many comments received, including 
on the role of carryover RINs under our waiver authorities and the 
policy implications of our decision. While we have not assumed an 
intentional

[[Page 89755]]

drawdown in the overall bank of carryover RINs owned by obligated 
parties collectively in establishing the volume requirements for 2017, 
we understand that some obligated parties may choose to sell or use all 
or part of their individual banks of carryover RINs. To the extent that 
they do so, other obligated parties would be in a position to bank 
carryover RINs by using available renewable fuel or purchasing RINs 
representing such fuel, with the expected net result being no effective 
change in the size of the overall bank of carryover RINs that is owned 
collectively by obligated parties.
    In response to those parties who argued that carryover RINs must be 
considered part of the ``supply'' when EPA uses the general waiver 
authority on the basis of a finding of ``inadequate domestic supply,'' 
we note that we are not using the general waiver authority in this 
final action, so these arguments are irrelevant. We believe that a 
balanced consideration of the possible role of carryover RINs in 
achieving the statutory volume objectives for advanced and total 
renewable fuels, versus maintaining an adequate bank of carryover RINs 
for important programmatic functions, is appropriate when EPA exercises 
its discretion under the cellulosic waiver authority, and that the 
statute does not specify the extent to which EPA should require a 
drawdown in the bank of carryover RINs when it exercises this 
authority.
    An adequate RIN bank serves to make the RIN market liquid and to 
avoid the possible need for adjustments to the standards. Just as the 
economy as a whole functions best when individuals and businesses 
prudently plan for unforeseen events by maintaining inventories and 
reserve money accounts, we believe that the RFS program functions best 
when sufficient carryover RINs are held in reserve for potential use by 
the RIN holders themselves, or for possible sale to others that may not 
have established their own carryover RIN reserves. Were there to be no 
RINs in reserve, then even minor disruptions causing shortfalls in 
renewable fuel production or distribution, or higher than expected 
transportation fuel demand (requiring greater volumes of renewable fuel 
to comply with the percentage standards that apply to all volumes of 
transportation fuel, including the unexpected volumes) could lead to 
the need for a new waiver of the standards, undermining the market 
certainty so critical to the long term success of the RFS program. 
Furthermore, many obligated parties lack the ability to separate one or 
more types of RINs through blending. With a functioning liquid RIN 
market this is not a problem because we expect that these obligated 
parties will be able to comply by securing these RINs on the open 
market. However, a significant drawdown of the carryover RIN bank 
leading to a scarcity of RINs may stop the market from functioning in 
an efficient manner, even where the market overall could satisfy the 
standards. For all of these reasons, the collective carryover RIN bank 
provides a needed programmatic buffer that both facilitates individual 
compliance and provides for smooth overall functioning of the 
program.\23\ With volume requirements increasing annually, and the size 
of the carryover RIN bank shrinking through use of carryover RINs in 
both 2013 and 2014, we believe it is prudent not to intentionally draw 
down the RIN bank for 2017 that we have determined will not likely be 
larger than 1.54 billion carryover RINs, and which could in fact be 
smaller.
---------------------------------------------------------------------------

    \23\ Here we use the term ``buffer'' as shorthand reference to 
all of the benefits that are provided by a sufficient bank of 
carryover RINs.
---------------------------------------------------------------------------

    For the reasons noted above, and consistent with the approach we 
took in the 2014-2016 final rule, we have determined that under current 
circumstances, an intentional drawdown of the carryover RIN bank should 
not be assumed in establishing the 2017 volume requirements. The 
current bank of carryover RINs will provide an important and necessary 
programmatic buffer that will both facilitate individual compliance and 
provide for smooth overall functioning of the program. Therefore, we 
are not setting renewable fuel volume requirements at levels that would 
envision the drawdown in the bank of carryover RINs. However, we note 
that we may or may not take a similar approach in future years; we will 
assess the situation on a case-by-case basis going forward, and take 
into account the size of the carryover RIN bank in the future and any 
lessons learned from implementing past rules.

III. Cellulosic Biofuel Volume for 2017

    In the past several years the cellulosic biofuel industry has 
continued to make progress towards increased commercial-scale 
production. Cellulosic biofuel production reached record levels in 
2015, driven largely by compressed natural gas (CNG) and liquefied 
natural gas (LNG) derived from biogas.\24\ Cellulosic ethanol, while 
produced in much smaller quantities than CNG/LNG derived from biogas, 
was also produced consistently in 2015. Plans for multiple commercial 
scale facilities capable of producing drop-in hydrocarbon fuels from 
cellulosic biomass were also announced. This section describes our 
assessment of the volume of cellulosic biofuel that we project will be 
produced or imported into the United States in 2017, and some of the 
uncertainties associated with those volumes.
---------------------------------------------------------------------------

    \24\ The majority of the cellulosic RINs generated for CNG/LNG 
are sourced from biogas from landfills, however the biogas may come 
from a variety of sources including municipal wastewater treatment 
facility digesters, agricultural digesters, separated MSW digesters, 
and the cellulosic components of biomass processed in other waste 
digesters.
---------------------------------------------------------------------------

    In order to project the volume of cellulosic biofuel production in 
2017 we considered the Energy Information Administration's projections 
of cellulosic biofuel production \25\ along with data reported to EPA 
through the EPA Moderated Transaction System (EMTS) and information we 
collected regarding individual facilities that have produced or have 
the potential to produce qualifying volumes for consumption as 
transportation fuel, heating oil, or jet fuel in the U.S. in 2017. In 
this final rule we have updated the projected facility start-up dates, 
facility capacities, production volumes, and other relevant information 
with the most recent information available. However, we are using the 
methodology discussed in the proposed rule to project the available 
supply of cellulosic biofuel for 2017. As described in a memorandum to 
the docket, the use of essentially the same methodology to generate the 
applicable standards for 2016 resulted in volumes that the market is 
currently on track to meet, taking into account anticipated seasonal 
variation in cellulosic biofuel supply based on data from previous 
years.\26\
---------------------------------------------------------------------------

    \25\ ``EIA projections of transportation fuel for 2017,'' docket 
EPA-HQ-OAR-2016-0004. We note that EIA projections do not include 
renewable fuel oil, imports of cellulosic biofuel from foreign 
facilities, or CNG/LNG used as transportation fuel in their estimate 
of cellulosic biofuel production.
    \26\ ``Assessment of the Accuracy of Cellulosic Biofuel 
Production Projections in 2015 and 2016'', memorandum from Dallas 
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    New cellulosic biofuel production facilities projected to be 
brought online in the United States over the next few years would 
significantly increase the production capacity of the cellulosic 
industry. Operational experience gained at the first few commercial 
scale cellulosic biofuel production facilities could also lead to 
increasing production of cellulosic biofuel from existing production 
facilities. The following section discusses the companies the EPA 
reviewed in the process of projecting qualifying cellulosic biofuel

[[Page 89756]]

production in the United States in 2017. Information on these companies 
forms the basis for our projection of 311 million ethanol-equivalent 
gallons of cellulosic biofuel produced for use as transportation fuel, 
heating oil, or jet fuel in the United States in 2017.

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS program each 
year (absent an adjustment or waiver by EPA) are specified in CAA 
section 211(o)(2). The volume of cellulosic biofuel specified in the 
statute for 2017 is 5.5 billion gallons. The statute provides that if 
EPA determines, based on EIA's estimate, that the projected volume of 
cellulosic biofuel production in a given year is less than the 
statutory volume, then EPA is to reduce the applicable volume of 
cellulosic biofuel to the projected volume available during that 
calendar year.\27\
---------------------------------------------------------------------------

    \27\ The United States Court of Appeals for the District of 
Columbia Circuit evaluated this requirement in API v. EPA 706 F.3d 
474. 479-480 (D.C. Cir. 2013), in the context of a challenge to the 
2012 cellulosic biofuel standard. The Court stated that in 
projecting potentially available volumes of cellulosic biofuel EPA 
must apply an ``outcome-neutral methodology'' aimed at providing a 
prediction of ``what will actually happen.''
---------------------------------------------------------------------------

    In addition, if EPA reduces the required volume of cellulosic 
biofuel below the level specified in the statute, the Act also 
indicates that we may reduce the applicable volumes of advanced 
biofuels and total renewable fuel by the same or a lesser volume, and 
we are required to make cellulosic waiver credits available. Our 
consideration of the 2017 volume requirements for advanced biofuel and 
total renewable fuel is presented in Sections IV and V of this rule.

B. Cellulosic Biofuel Industry Assessment

    In order to project cellulosic biofuel production for 2017, we have 
tracked the progress of several dozen potential cellulosic biofuel 
production facilities. As we have done in previous years, we have 
focused on facilities with the potential to produce commercial-scale 
volumes of cellulosic biofuel rather than small R&D or pilot-scale 
facilities. Larger commercial-scale facilities are much more likely to 
generate RINs for the fuel they produce and the volumes they produce 
will have a far greater impact on the cellulosic biofuel standards for 
2017. The volume of cellulosic biofuel produced from R&D and pilot-
scale facilities is quite small in relation to that expected from the 
commercial-scale facilities. R&D and demonstration-scale facilities 
have also generally not generated RINs for the fuel they have produced 
in the past. Their focus is on developing and demonstrating the 
technology, not producing commercial volumes. RIN generation from R&D 
and pilot-scale facilities in previous years has not contributed 
significantly to the overall number of cellulosic RINs generated.\28\
---------------------------------------------------------------------------

    \28\ While a few small R&D and pilot scale facilities have 
registered as cellulosic RIN generators, total production from each 
of these facilities from 2010 through September 2016 has been less 
than 50,000 RINs.
---------------------------------------------------------------------------

    From this list of commercial-scale facilities we used information 
from EMTS, publically available information (including press releases 
and news reports), and information provided by representatives of 
potential cellulosic biofuel producers, to make a determination of 
which facilities are most likely to produce cellulosic biofuel and 
generate cellulosic biofuel RINs in 2017. Each of these companies was 
investigated further in order to determine the current status of its 
facilities and its likely cellulosic biofuel production and RIN 
generation volumes for 2017. Both in our discussions with 
representatives of individual companies \29\ and as part of our 
internal evaluation process we gathered and analyzed information 
including, but not limited to, the funding status of these facilities, 
current status of the production technologies, anticipated construction 
and production ramp-up periods, facility registration status, and 
annual fuel production and RIN generation targets.
---------------------------------------------------------------------------

    \29\ In determining appropriate volumes for CNG/LNG producers we 
generally did not contact individual producers but rather relied 
primarily on discussions with industry associations, and information 
on likely production facilities that are already registered under 
the RFS program. In some cases where further information was needed 
we did speak with individual companies.
---------------------------------------------------------------------------

    Our approach for projecting the available volume of cellulosic 
biofuel in 2017 is discussed in more detail in Section III.D below. The 
approach is the same as the approach adopted in establishing the 
required volume of cellulosic biofuel in 2016.\30\ The remainder of 
this Section discusses the companies and facilities EPA expects to be 
in a position to produce commercial-scale volumes of cellulosic biofuel 
by the end of 2017. This information, together with the reported 
cellulosic biofuel RIN generation in previous years in EMTS and EIA's 
projection of liquid cellulosic biofuel production in 2017 forms the 
basis for our volume requirement for cellulosic biofuel for 2017.
---------------------------------------------------------------------------

    \30\ See 80 FR 77420, 77499 (December 14, 2015).
---------------------------------------------------------------------------

1. Potential Domestic Producers
    There are a number of companies and facilities \31\ located in the 
United States that have either already begun producing cellulosic 
biofuel for use as transportation fuel, heating oil, or jet fuel at a 
commercial scale, or are anticipated to be in a position to do so at 
some time during 2017. The financial incentive provided by cellulosic 
biofuel RINs,\32\ combined with the facts that to date nearly all 
cellulosic biofuel produced in the United States has been used 
domestically \33\ and all the domestic facilities we have contacted in 
deriving our projections intend to produce fuel on a commercial scale 
for domestic consumption using approved pathways, gives us a high 
degree of confidence that cellulosic biofuel RINs will be generated for 
any fuel produced by commercial scale facilities. In order to generate 
RINs, each of these facilities must be registered under the RFS program 
and comply with all the regulatory requirements. This includes using an 
approved RIN-generating pathway and verifying that their feedstocks 
meet the definition of renewable biomass. Most of the companies and 
facilities have already successfully completed facility registration, 
and many have successfully generated RINs. A brief description of each 
of the companies (or group of companies for cellulosic CNG/LNG 
producers) that EPA believes may produce commercial-scale volumes of 
RIN generating cellulosic biofuel by the end of 2017 can be found in a 
memorandum to the docket for this final rule.\34\ These descriptions 
are based on a review of publicly available information and in many 
cases on information provided to EPA in conversations with company 
representatives. General information on each of these companies or 
group of companies considered in our projection of the potentially 
available volume of

[[Page 89757]]

cellulosic biofuel in 2017 is summarized in Table III.B.3-1 below.
---------------------------------------------------------------------------

    \31\ The volume projection from CNG/LNG producers does not 
represent production from a single company or facility, but rather a 
group of facilities utilizing the same production technology.
    \32\ According to data from Argus, the price for 2016 cellulosic 
biofuel RINs averaged $1.84 in 2016 (through September 2016). 
Alternatively, obligated parties can obtain a RIN value equivalent 
to a cellulosic biofuel RIN by purchasing an advanced (or biomass-
based diesel) RIN and a cellulosic waiver credit. The price for a 
2016 cellulosic waiver credit is $1.33.
    \33\ The only known exception was a small volume of fuel 
produced at a demonstration scale facility exported to be used for 
promotional purposes.
    \34\ ``Cellulosic Biofuel Producer Company Descriptions (October 
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
---------------------------------------------------------------------------

2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located 
in the United States, there are several foreign cellulosic biofuel 
companies that may produce cellulosic biofuel in 2017. These include 
facilities owned and operated by Beta Renewables, Enerkem, Ensyn, 
GranBio, and Raizen. All of these facilities use fuel production 
pathways that have been approved by EPA for cellulosic RIN generation 
provided eligible sources of renewable feedstock are used and other 
regulatory requirements are satisfied. These companies would therefore 
be eligible to register these facilities under the RFS program and 
generate RINs for any qualifying fuel imported into the United States. 
While these facilities may be able to generate RINs for any volumes of 
cellulosic biofuel they import into the United States, demand for the 
cellulosic biofuels they produce is expected to be high in their own 
local markets.
    EPA is charged with projecting the volume of cellulosic biofuel 
that will be produced or imported into the United States. For the 
purposes of this final rule we have considered all of the registered 
foreign facilities under the RFS program to be potential sources of 
cellulosic biofuel in 2017. We believe that due to the strong demand 
for cellulosic biofuel in local markets, the significant technical 
challenges associated with the operation of cellulosic biofuel 
facilities, and the time necessary for potential foreign cellulosic 
biofuel producers to register under the RFS program and arrange for the 
importation of cellulosic biofuel to the United States, cellulosic 
biofuel imports from facilities not currently registered to generate 
cellulosic biofuel RINs are highly unlikely in 2017. We have therefore, 
for purposes of our 2017 cellulosic biofuel projection evaluated in 
detail only the potential for foreign cellulosic biofuel production 
from facilities that are currently registered. Two foreign facilities 
that have registered as cellulosic biofuel producers have already 
generated cellulosic biofuel RINs for fuel exported to the United 
States; projected volumes from each of these facilities are included in 
our projection of available volumes for 2017. Two additional foreign 
facilities have registered as a cellulosic biofuel producer, but have 
not yet generated any cellulosic RINs. EPA contacted representatives 
from these facilities to inquire about their intentions to export 
cellulosic biofuel to the United States in 2017. In one case, company 
representatives indicated they intended to export cellulosic biofuel to 
the United States, and EPA believes that there is sufficient reason to 
believe imports of cellulosic biofuel from this company are likely. EPA 
has included potential volumes from this facility in our 2017 volume 
production projection (see Table III.B.3-1 below).
3. Summary of Volume Projections for Individual Companies
    The information we have gathered on cellulosic biofuel producers 
forms the basis for our projected volumes of cellulosic biofuel 
production for each facility in 2017. As discussed above, we have 
focused on commercial-scale cellulosic biofuel production facilities. 
Each of these facilities is discussed further in a memorandum to the 
docket.\35\
---------------------------------------------------------------------------

    \35\ ``Cellulosic Biofuel Producer Company Descriptions (October 
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.

                                           Table III.B.3-1--Projected Producers of Cellulosic Biofuel by 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Facility capacity  Construction start   First production
          Company name                 Location            Feedstock             Fuel             (MGY) \36\             date                \37\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \38\..........  Various (US and     Biogas............  CNG/LNG...........  Various...........  N/A...............  August 2014.
                                   Canada).
DuPont..........................  Nevada, IA........  Corn Stover.......  Ethanol...........  30................  November 2012.....  End 2016.
Edeniq..........................  Various...........  Corn Kernel Fiber.  Ethanol...........  Various...........  Various...........  Fall 2016.
Ensyn...........................  Renfrew, ON,        Wood Waste........  Heating Oil.......  3.................  N/A...............  2014.
                                   Canada.
GranBio.........................  S[atilde]o Miguel   Sugarcane bagasse.  Ethanol...........  21................  Mid 2012..........  September 2014.
                                   dos Campos,
                                   Brazil.
Poet............................  Emmetsburg, IA....  Corn Stover.......  Ethanol...........  24................  March 2012........  4Q 2015.
QCCP............................  Galva, IA.........  Corn Kernel Fiber.  Ethanol...........  4.................  Late 2013.........  October 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Projection From the Energy Information Administration

    Section 211(o)(3)(A) of the Clean Air Act requires EIA to ``. . . 
provide to the Administrator of the Environmental Protection Agency an 
estimate, with respect to the following calendar year, of the volumes 
of transportation fuel, biomass-based diesel, and cellulosic biofuel 
projected to be sold or introduced into commerce in the United 
States.'' EIA provided these estimates to EPA on October 19, 2016.\39\ 
With regard to cellulosic biofuel, the EIA estimated that the available 
volume in 2017 would be 10 million gallons.
---------------------------------------------------------------------------

    \36\ The Facility Capacity is generally equal to the nameplate 
capacity provided to EPA by company representatives or found in 
publicly available information. If the facility has completed 
registration and the total permitted capacity is lower than the 
nameplate capacity then this lower volume is used as the facility 
capacity. For companies generating RINs for CNG/LNG derived from 
biogas the Facility Capacity is equal to the lower of the annualized 
rate of production of CNG/LNG from the facility or the sum of the 
volume of contracts in place for the sale of CNG/LNG for use as 
transportation fuel (reported as the actual peak capacity for these 
producers).
    \37\ Where a quarter is listed for the first production date EPA 
has assumed production begins in the middle month of the quarter 
(i.e., August for the 3rd quarter) for the purposes of projecting 
volumes.
    \38\ For more information on these facilities see ``October 2016 
Assessment of Cellulosic Biofuel Production from Biogas (2017)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.
    \39\ ``EIA projections of transportation fuel for 2017,'' docket 
EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    In their letter, EIA did not identify the facilities on which their 
estimate of cellulosic biofuel production was based. EIA did, however, 
indicate in their letter that they did not include estimates for 
cellulosic biofuel produced from biogas from landfills, municipal 
wastewater treatment facilities, separated MSW digesters, or 
agricultural digesters or those producing renewable heating oil, which 
represent approximately 96% of our projected cellulosic biofuel volume 
for 2017. They also did not include projections for facilities located 
outside of the United States that we project will export cellulosic 
biofuel into the United

[[Page 89758]]

States in 2017. When limiting the scope of our projection to the 
companies assessed by EIA, we note that while our volume projections 
are not identical, they are very similar. EPA projects approximately 11 
million gallons of liquid cellulosic biofuel will be produced 
domestically in 2017 (when excluding heating oil, as EIA did in their 
estimate of cellulosic biofuel production). EIA did not provide detail 
on the basis of their projections, so we cannot say precisely why EPA 
and EIA's projections differ. We further note that if we used EIA's 
projections for domestic liquid cellulosic biofuel production without 
modification in place of our own assessment of these facilities the 
impact on the cellulosic biofuel standard overall for 2017 would be 
less than 1%.

D. Cellulosic Biofuel Volume for 2017

    For our 2017 cellulosic biofuel projection, we have used the same 
methodology used in the final rule establishing the cellulosic biofuel 
volume standard for 2016.\40\ We believe this methodology produces a 
production projection that is consistent with EPA's charge to project 
volumes with a ``neutral aim at accuracy,'' and that cellulosic RIN 
generation data in 2015 and 2016 demonstrate that the use of this 
methodology has produced reasonable projections in these years.\41\ We 
also received comments on our projection methodology, some of which are 
discussed below, with the remainder discussed in the response to 
comment document. Some commenters objected to the use of the same 
methodology used to establish the cellulosic biofuel volume for 2015 
and 2016, arguing that this methodology has consistently over-estimated 
cellulosic RIN generation.\42\ In this final rule we considered 
modifying several of the individual components of our production 
projection methodology (such as the start-up date, ramp-up period, 
expected production volume with the projected ranges, etc.), but 
ultimately decided to use the same methodology as proposed, as we 
believe this methodology resulted in reasonably accurate projection of 
cellulosic biofuel RIN generation in the final three months of 2015, 
and will likely result in a reasonably accurate projection for 2016 
based on the available data that is currently available.\43\ While this 
methodology overestimated portions of the cellulosic biofuel pool (such 
as the production of liquid cellulosic biofuels from new facilities), 
it also underestimated production for other portions of the cellulosic 
biofuel pool (production of CNG/LNG derived from biogas). Modifying 
individual components of the past methodology may seem justified based 
on a narrow consideration of each factor, but we do not believe that 
there is currently sufficient information to support these changes. 
Adjusting each individual component of the methodology each year based 
on the most recent information would result in an increasingly complex 
and unpredictable methodology, and would not necessarily project 
overall cellulosic biofuel production more accurately. This is 
especially true in an industry at the early stages of 
commercialization. We do not believe it would be reasonable to 
establish a methodology where the success or failure of a small group 
of companies, and in some cases a single company, would have a dramatic 
impact on the methodology used to project volumes from other companies 
the following year, especially where the methodology overall has been 
demonstrably successful. Therefore, for this year we have decided to 
use the same methodology that worked successfully in 2015 and 2016. We 
will continue to evaluate this methodology on an annual basis, and will 
adjust the methodology if it ceases to provide reasonably accurate 
projections in future years.
---------------------------------------------------------------------------

    \40\ See 80 FR 77499 for additional detail.
    \41\ ``Assessment of the Accuracy of Cellulosic Biofuel 
Production Projections in 2015 and 2016'', memorandum from Dallas 
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.
    \42\ As support for these claims, commenters reviewed EPA's 
projections of cellulosic biofuel production going back to 2010. We 
note that we used a substantially different methodology to project 
volumes for 2015 and 2016 than we used in previous years, and we 
therefore do not believe that overestimates of cellulosic biofuel 
production in years prior to 2015 are relevant in assessing the 
reasonableness of the current methodology.
    \43\ ``Assessment of the Accuracy of Cellulosic Biofuel 
Production Projections in 2015 and 2016'', memorandum from Dallas 
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    To project cellulosic biofuel production in 2017 we separated the 
list of potential producers of cellulosic biofuel into four groups 
according to whether they are producing liquid cellulosic biofuel or 
CNG/LNG from biogas, and whether or not the facilities have achieved 
consistent commercial-scale production and cellulosic biofuel RIN 
generation (See Table III.D-1 through Table III.D-3). We next defined a 
range of likely production volumes for each group of potential 
cellulosic biofuel producers. The low end of the range for each group 
of producers reflects actual RIN generation data over the last 12 
months for which data are available (October 2015--September 2016). The 
low end of the range for companies that have not yet begun commercial-
scale production (or in the case of CNG/LNG producers have not yet 
generated RINs for fuel sold as transportation fuel in the United 
States) is zero.
    To calculate the high end of the projected production range for 
each group of companies we considered each company individually. To 
determine the high end of the range of expected production volumes for 
companies producing liquid cellulosic biofuel we considered a variety 
of factors, including the expected start-up date and ramp-up period, 
facility capacity, and fuel off-take agreements. As a starting point, 
EPA calculated a production volume for these facilities using the 
expected start-up date, facility capacity, and a benchmark of a six-
month straight-line ramp-up period representing an optimistic ramp-up 
scenario.\44\ Generally we used this calculated production volume as 
the high end of the potential production range for each company. The 
only exceptions were cases where companies provided us with production 
projections (or projections of the volume of fuel they expected to 
export to the United States in the case of foreign producers) that were 
lower than the volumes we calculated as the high end of the range for 
that particular company. In these cases, the projected production 
volume (or import volume) provided by the company was used as the high 
end of the potential production range rather than the volume calculated 
by EPA. For CNG/LNG producers, the high end of the range was generally 
equal RIN production projections for 2017 provided to EPA by the 
renewable natural gas industry.\45\ The high end of the ranges for all 
of the individual companies within each group were added together to 
calculate the high end of the projected production range for that 
group.
---------------------------------------------------------------------------

    \44\ We did not assume a six-month straight-line ramp-up period 
in determining the high end of the projected production range for 
CNG/LNG producers. This is because these facilities generally have a 
history of CNG/LNG production prior to producing RINs, and therefore 
do not face many of the start-up and scale-up challenges that impact 
new facilities. For further information on the methodology used to 
project cellulosic RIN generation from CNG/LNG producers see 
``October 2016 Assessment of Cellulosic Biofuel Production from 
Biogas (2017)'', memorandum from Dallas Burkholder to EPA Air Docket 
EPA-HQ-OAR-2016-0004.
    \45\ For additional detail on the methods used to project 
cellulosic biofuel production for CNG/LNG producers see ``October 
2016 Assessment of Cellulosic Biofuel Production from Biogas 
(2017)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-
HQ-OAR-2016-0004.

[[Page 89759]]



   Table III.D-1--2017 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
DuPont..................................               0               7
Edeniq..................................               0               6
GranBio.................................               0               2
Poet....................................               0              18
Aggregate Range.........................               0              33
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.


   Table III.D-2--2017 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                            (Million gallons)
------------------------------------------------------------------------
                                          Low end of the    high end of
                                               range       the range \a\
------------------------------------------------------------------------
Ensyn...................................           \b\ X               3
Quad County Corn Processors.............           \b\ X               4
Aggregate Range.........................             3.5               7
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
\b\ The low end of the range for each individual company is based on
  actual production volumes and is therefore withheld to protect
  information claimed to be confidential business information.


 Table III.D-3--2017 Production Ranges for CNG/LNG Produced From Biogas
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
CNG/LNG Producers (New Facilities)......               0             178
CNG/LNG Producers (Currently generating              174             221
 RINs)..................................
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.

    EPA received comments from biofuels producers stating that 
production projections we receive from companies should be used as the 
basis for the mean value of any projected production range. They argue 
that EPA should defer to the technical expertise of the cellulosic 
biofuel manufacturers who provide these projections, and that it is 
inappropriate to use these projections as the high end of a projected 
range, with the low end of the projected range based on previous 
production data. EPA understands that the volume projections provided 
by companies included in our projection are intended to represent the 
companies' expectations for production, rather than the high end of a 
potential production range. We also acknowledge the technical expertise 
of these companies and the significant amount of investment that has 
gone into the development of these biofuel production processes as they 
have progressed from R&D through demonstration and pilot scale in 
preparation for the first commercial scale facilities. While 
acknowledging these facts, we do not believe it would be appropriate to 
ignore the history of the cellulosic biofuel industry. Each year since 
2010, EPA has gathered information, including volume production 
projections, from companies with the potential to produce cellulosic 
biofuel. Each of these companies supported these projections with 
successful pilot and demonstration scale facilities as well as other 
supporting documentation. In the majority of these cases, due to a 
variety of circumstances, the companies were unable to meet their own 
volume projections, and in some cases were unable to produce any RIN-
generating cellulosic biofuel.
    We believe our methodology reasonably projects the range of 
potential production volumes for each company. A brief overview of each 
of the companies we believe will produce cellulosic biofuel and make it 
commercially available in 2017 can be found in a memorandum to the 
docket.\46\ In the case of cellulosic biofuel produced from CNG/LNG we 
have discussed these facilities as a group rather than individually. 
EPA believes it is appropriate to discuss these facilities as a group 
since they are utilizing proven production technologies and the 
uncertainties and challenges they face relate primarily to linking 
their production to ultimate use as transportation fuel that is 
eligible to generate RINs under the RFS program.\47\
---------------------------------------------------------------------------

    \46\ ``Cellulosic Biofuel Producer Company Descriptions (October 
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
    \47\ For individual company information see ``October 2016 
Cellulosic Biofuel Individual Company Projections for 2017 (CBI)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.
---------------------------------------------------------------------------

    After defining likely production ranges for each group of companies 
we projected a likely production volume from each group of companies 
for 2017. We used the same percentile values to project a production 
volume within the established ranges for 2017 as we did in the final 
rule establishing the cellulosic biofuel standards for 2014-2016; the 
50th and 25th percentiles respectively for liquid cellulosic biofuel 
producers with and without a history of consistent cellulosic biofuel 
production and RIN generation, and the 75th and 50th percentiles 
respectively for producers of CNG/LNG from biogas with and without

[[Page 89760]]

a history of consistent commercial-scale production and RIN generation. 
As discussed in the final rule establishing the 2014-2016 cellulosic 
biofuel standards, we believe these percentages appropriately reflect 
the uncertainties associated with each of these groups of 
companies.\48\ We further believe that the progress to date in 2015 and 
2016 supports the use of these percentile values.\49\ We also note that 
these percentile values are used to project a likely production volume 
within the projected range for each group of companies. In most cases, 
especially for companies that have not yet consistently produced 
cellulosic RINs, the high end of these projected ranges are not 
necessarily the nameplate capacities of the facilities, as the 
projected start-up dates and ramp-up periods have been taken into 
consideration in developing the likely production ranges for each 
company. This means that our percentile values are not directly 
comparable to the ``utilization rates'' calculated or projected by some 
commenters, which calculate a percentage using the facility capacity 
rather than the high end of the ranges in the tables below. After 
calculating a likely production volume for each group of companies in 
2017, the volumes from each group are added together to determine the 
total projected production volume of cellulosic biofuel in 2017.
---------------------------------------------------------------------------

    \48\ For a further discussion of the percentile values used to 
projected likely production from each group of companies see 80 FR 
77499.
    \49\ ``Assessment of the Accuracy of Cellulosic Biofuel 
Production Projections in 2015 and 2016'', memorandum from Dallas 
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.

                          Table III.D-4--Projected Volume of Cellulosic Biofuel in 2017
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                     range \a\     the range \a\    Percentile      volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers                 0              33            25th               8
 without Consistent Commercial Scale Production.
Liquid Cellulosic Biofuel Producer; Producers                  4               7            50th               5
 with Consistent Commercial Scale Production....
CNG/LNG Producers; New Facilities...............               0             178            50th              89
CNG/LNG Producers; Consistent Production........             174             221            75th             209
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A             311
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.

    EPA received comments requesting that we assess each potential 
cellulosic biofuel production facility individually, in a way that 
reflects the circumstances of each facility, rather than grouping 
facilities together. We continue to believe that grouping the potential 
cellulosic biofuel producers using the criteria of whether or not they 
have achieved consistent commercial-scale production is appropriate for 
the purposes of projecting a likely production volume. While each of 
these groupings contains a diverse set of companies with their own 
production technologies and challenges, we believe there is sufficient 
commonality in the challenges related to the funding, construction, 
commissioning, and start-up of commercial-scale cellulosic biofuel 
facilities to justify aggregating these company projections into a 
single group for the purposes of projecting the most likely production 
volume of cellulosic biofuel. The challenges new production facilities 
face are also significantly different than those of facilities ramping 
up production volumes to the facility capacity and maintaining 
consistent production. Finally, we believe that the level of 
uncertainty associated with production volumes from any individual 
facility is sufficiently high that assessing facilities individually, 
rather grouping them together as done in this final rule, would not 
necessarily result in more accurate volume projections.
    Several commenters claimed that EPA had underestimated the 
potential production of cellulosic RINs from cellulosic CNG/LNG in 
2017. Some commenters noted the large quantity of biogas that is 
currently produced at landfills, or the development of new digesters 
designed to produce CNG/LNG from biogas to support their claims. Others 
stated that because biogas collection from landfills or production in 
digesters was an established technology EPA should not discount 
projections from these producers, but rather should assume these 
volumes can be produced. While we acknowledge that these factors reduce 
the uncertainty related to cellulosic biofuel production for CNG/LNG 
derived from biogas, they do not eliminate the uncertainties associated 
with these fuels. RINs can only be generated for CNG/LNG derived from 
biogas if the RIN generator can verify (in accordance with the 
regulations) that an equivalent volume of CNG/LNG was used as 
transportation fuel. The limited demand for CNG/LNG as transportation 
fuel is a significant source of uncertainty related to the generation 
of cellulosic RINs for CNG/LNG for biogas. We believe that the 
percentile values used in the proposed rule to project cellulosic RIN 
generation for CNG/LNG from biogas (75th percentile for facilities that 
have previously generated RINs and 50th percentile for new facilities) 
is appropriate, and that this is supported by the RIN generation data 
for cellulosic RINs from CNG/LNG in 2015 and 2016.\50\ We also note 
that in comments on the proposed rule a group of organizations 
representing CNG/LNG producers supported this methodology as doing a 
``reasonable job at projecting production with a neutral aim at 
accuracy.'' \51\
---------------------------------------------------------------------------

    \50\ ``Assessment of the Accuracy of Cellulosic Biofuel 
Production Projections in 2015 and 2016'', memorandum from Dallas 
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.
    \51\ See comments from David Cox, General Counsel, Coalition for 
Renewable Natural Gas et al. EPA-HQ-OAR-2016-0004-1732.
---------------------------------------------------------------------------

    EPA also received comments claiming that the proposed cellulosic 
biofuel volumes were unreasonably high. These commenters generally 
claimed that in light of the inability of cellulosic biofuel companies 
to achieve their projected production volumes, start-up dates, and 
ramp-up schedules in previous years EPA should instead rely solely on 
historical production data to project volumes for future years. They 
suggested that EPA should project future production volumes based on 
available cellulosic RIN generation data

[[Page 89761]]

from previous months. EPA believes this would be inconsistent with our 
charge to project available cellulosic biofuel volume by taking a 
neutral aim at accuracy. Adopting such an approach would effectively 
mean ignoring the potential for facilities that have not generated RINs 
in the past to contribute volumes in the future. It would also ignore 
the potential for facilities that have begun producing RINs to increase 
their fuel production rates. This would be inconsistent with our 
expectations for an industry that has shown substantial growth over the 
last several years, and is anticipated to continue to grow in 2017. 
Most importantly, the significant year-over-year increases in the 
supply of cellulosic biofuel in recent years demonstrates that this 
suggested method is inappropriately conservative.\52\ We recognize that 
in the past we have both overestimated and underestimated cellulosic 
RIN generation but we do not believe that our current methodology is 
fundamentally biased to either an overestimate or an underestimate of 
total cellulosic RIN production.
---------------------------------------------------------------------------

    \52\ Total RIN generation in July-September of 2014 (likely the 
last 3 months for which EPA would have data available to use in a 
rule establishing annual volume for 2015) was 11 million ethanol-
equivalent gallons, indicating an annual standard of 44 million 
ethanol-equivalent gallons for 2015 if this was the only information 
considered in establishing the standard. Actual cellulosic RIN 
supply in 2015 (RINs generated less those retired for reasons other 
than compliance) was 141 million ethanol-equivalent gallons. 
Similarly, total RIN generation in July-September of 2015 was 39.2 
million ethanol-equivalent gallons, indicating an annual standard of 
157 million ethanol-equivalent gallons for 2016 if this was the only 
information considered in establishing the standard. Actual 
cellulosic RIN supply for 2016 (RINs generated less those retired 
for reasons other than compliance) has already surpassed 127 million 
RINs and in the first 9 months of the year and is expected to meet 
the 2016 standard of 230 million ethanol-equivalent gallons.
---------------------------------------------------------------------------

    Some commenters suggested that after projecting the cellulosic 
biofuel production volume for 2017, EPA should add to this number the 
number of available carryover RIN generated in previous years available 
for use in 2017. These commenters argued that these RINs should be 
viewed as part of the available supply of cellulosic biofuel, and that 
a failure to include these RINs in our projection of available volume 
could have negative impacts on the price of cellulosic RINs and 
ultimately the cellulosic biofuel industry. EPA does not believe it 
would be appropriate to add an estimate of carryover RINs available for 
use in 2017 to our projection of cellulosic biofuel production in 2017 
for the purposes of establishing the 2017 cellulosic biofuel standard. 
Because the compliance deadlines for 2015 and 2016 occur after the 
finalization of this rule it is impossible to know precisely the number 
of carryover RINs that will be available for use in 2017. While the 
compliance data for 2014 indicate that there are likely to be 
approximately 12 million cellulosic biofuel carryover RINs from that 
year,\53\ and cellulosic RIN generation in 2015 exceeded the standard 
by 17 million RINs,\54\ it is possible that cellulosic RIN generation 
in 2016 may fall short of the standard, and that many of these RINs may 
be used to off-set that shortfall. While it is uncertain to what extend 
RINs representing past production could lawfully be included in the 
projection of future cellulosic biofuel production required under 
211(o)(7)(D), EPA has not seen any evidence that the existence of RINs 
generated in previous years that may be used towards satisfying 
cellulosic biofuel obligations in future years has had a negative 
impact on cellulosic RIN prices.\55\ This suggests that any cellulosic 
biofuel RINs in excess of the standard are being used by obligated 
parties in much the same way as other types of carryover RINs; aiding 
market liquidity and reducing the price volatility and potential 
impacts of short-term supply disruptions. While we do not believe it 
would be appropriate to add an estimate of available cellulosic 
carryover RINs for use in 2017 to the projected production volume, EPA 
remains committed to the success of the cellulosic biofuels industry 
and will continue to carefully monitor the market for both cellulosic 
biofuels and cellulosic biofuel RINs, and will re-evaluate this issue 
in future years.
---------------------------------------------------------------------------

    \53\ Annual compliance data can be found on EPA's Web site at 
https://www.epa.gov/fuels-registration-reporting-and-compliance-help/annual-compliance-data-obligated-parties-and.
    \54\ According to EPA's EMTS Web site (https://www.epa.gov/fuels-registration-reporting-and-compliance-help/2015-renewable-fuel-standard-data) net cellulosic RIN generation was approximately 
140 million RINs in 2015, while the cellulosic biofuel volume 
requirement for 2015 was 123 million gallons.
    \55\ According to data from Argus, the average 2016 cellulosic 
biofuel RIN price has been $1.84 through September 2016. We believe 
this price is reasonable, as is it is somewhat below the 
``theoretical maximum'' cellulosic RIN price of $2.19 (the 
cellulosic waiver price plus the average price of all non-cellulosic 
advanced RINs) and significantly above the ``theoretical minimum'' 
cellulosic RIN price of $0.86 (the average price of all non-
cellulosic advanced RINs; we consider this the ``theoretical 
minimum'' price for a cellulosic biofuel RINs as excess cellulosic 
biofuel RINs can be used to satisfy an obligated party's advanced 
biofuel obligation).
---------------------------------------------------------------------------

    We believe our range of projected production volumes for each 
company (or group of companies for cellulosic CNG/LNG producers) 
represents the range of potential production volumes for each company, 
and that projecting overall production in 2017 in the manner described 
above results in a neutral estimate (neither biased to produce a 
projection that is unreasonably high or low) of likely cellulosic 
biofuel production in 2017 (311 million gallons). A brief overview of 
individual companies we believe will produce cellulosic biofuel and 
make it commercially available in 2017 can be found in a memorandum to 
the docket.\56\ In the case of cellulosic biofuel produced from CNG/LNG 
we have discussed the production potential from these facilities as a 
group rather than individually.\57\
---------------------------------------------------------------------------

    \56\ ``Cellulosic Biofuel Producer Company Descriptions (October 
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
    \57\ For individual company information see ``October 2016 
Cellulosic Biofuel Individual Company Projections for 2017 (CBI)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.
---------------------------------------------------------------------------

IV. Advanced Biofuel Volume for 2017

    The national volume targets for advanced biofuel to be used under 
the RFS program each year through 2022 are specified in CAA section 
211(o)(2)(B)(i)(II). Congress set annual renewable fuel volume targets 
that envisioned growth at a pace that far exceeded historical growth 
and prioritized that growth as occurring principally in advanced 
biofuels (contrary to historical growth patterns where most growth was 
in conventional renewable fuel, namely corn-ethanol). Congressional 
intent is evident in the fact that the portion of the total renewable 
fuel volume target that is not required to be advanced biofuel is 15 
billion gallons in the statutory volume tables for all years after 
2014, while the advanced volumes continue to grow through 2022 to a 
total of 21 billion gallons, for a total of 36 billion gallons in 2022.
    We have evaluated the capabilities of the market and have concluded 
that the 9.0 billion gallons specified in the statute for advanced 
biofuel cannot be reached in 2017. This is primarily due to the 
expected continued shortfall in cellulosic biofuel; production of this 
fuel type has consistently fallen short of the statutory targets by 95% 
or more, and again in 2017 will fall far short of the statutory target 
of 5.5 billion gallons. In addition, although in earlier years of the 
RFS program we determined that the available supply of non-cellulosic 
advanced biofuel and other considerations justified our retaining the 
statutory advanced biofuel target

[[Page 89762]]

notwithstanding the shortfall in cellulosic biofuel production, several 
factors preclude such a determination for 2017, including:
     The more ambitious statutory target for 2017
     The fact that a greater proportion of that target was 
intended to be satisfied by cellulosic biofuels \58\
---------------------------------------------------------------------------

    \58\ For example, while the statutory tables indicate that 61.1% 
of the 2017 advanced biofuel target would be satisfied by cellulosic 
biofuel, the corresponding value for 2013 was only 36.4%.
---------------------------------------------------------------------------

     The continued slow pace of growth in cellulosic biofuel 
production
     Limited volumes of advanced biofuels that we believe are 
appropriate to backfill for missing volumes of cellulosic biofuel

As a result, we are exercising the authority granted by the statute to 
reduce the applicable volume of advanced biofuel using the cellulosic 
waiver authority. The final volume requirement for advanced biofuel 
recognizes the ability of the market to respond to the standards we set 
while staying within the limits of reasonable feasibility, providing 
for a partial backfilling of missing cellulosic biofuel volumes with 
volumes of advanced biofuel we have determined are appropriate to 
require for this purpose. The net impact of this volume requirement is 
that the required volume of advanced biofuel for 2017 will be 
significantly greater than volumes required or used in the past, but 
below the statutory target.
    To help inform today's action, we investigated whether the market 
is on track to meet the 2016 advanced biofuel volume requirement of 
3.61 billion gallons. As described in a memorandum to the docket, 
supply through the end of September coupled with a review of seasonal 
variations in supply for previous years indicate that the 2016 
standards are indeed attainable.\59\ For comparison, we have also 
reviewed RINs available for compliance in previous years, along with 
the effective volume requirements in those years.\60\
---------------------------------------------------------------------------

    \59\ ``Comparison of 2016 availability of RINs and 2016 
standards,'' memorandum from David Korotney to docket EPA-HQ-OAR-
2016-0004.
    \60\ ``Comparison of availability of RINs and standards for 
previous years,'' memorandum from David Korotney to docket EPA-HQ-
OAR-2016-0004.
---------------------------------------------------------------------------

A. Volumetric Limitation on Use of the Cellulosic Waiver Authority

    As described in Section II.A, when making reductions in advanced 
biofuel and total renewable fuel under the cellulosic waiver authority, 
the statute limits those reductions to no more than the reduction in 
cellulosic biofuel. As described in Section III.D, we are finalizing a 
2017 volume requirement for cellulosic biofuel of 311 million gallons, 
representing a reduction of 5,189 million gallons from the statutory 
target of 5,500 million gallons. As a result, 5,171 million gallons is 
the maximum volume reduction for advanced biofuel and total renewable 
fuel that is permissible using the cellulosic waiver authority.\61\ If 
we were to use the cellulosic waiver authority to this maximum extent, 
the resulting 2017 volumes would be 3.83 and 18.83 billion gallons for 
advanced biofuel and total renewable fuel, respectively.
---------------------------------------------------------------------------

    \61\ If we determined it necessary to provide further reductions 
to address inadequate domestic supply or severe economic or 
environmental harm, such further reductions would be possible using 
the general waiver authority.

   Table IV.A-1--Lowest Permissible Volume Requirements Using Only the
                       Cellulosic Waiver Authority
                            [Million gallons]
------------------------------------------------------------------------
                                             Advanced          Total
                                              biofuel     renewable fuel
------------------------------------------------------------------------
Statutory target........................           9,000          24,000
Maximum reduction permitted under the              5,189           5,189
 cellulosic waiver authority............
Lowest 2017 volume requirement permitted           3,811          18,811
 using only the cellulosic waiver
 authority..............................
------------------------------------------------------------------------

    We are authorized under the cellulosic waiver authority to reduce 
the advanced and total renewable fuel volumes ``by the same or a 
lesser'' amount as the reduction in the cellulosic biofuel volume. 
Thus, we are not required to use the authority to its maximum extent. 
And, as discussed in Section II.A, EPA has broad discretion in using 
the cellulosic waiver authority, since Congress did not specify the 
circumstances under which it may or should be used nor the factors to 
consider in determining appropriate volume reductions. We believe that 
advanced biofuel should be permitted to compensate for a portion of the 
shortfall in cellulosic biofuel, thereby promoting the larger RFS goals 
of reducing GHG emissions and enhancing energy security. To that end, 
we have investigated the volume of advanced biofuel that is reasonably 
attainable and appropriate to require in 2017, and have determined that 
such volumes are higher than the lowest permissible volumes shown in 
the table above.

B. Determination of Reasonably Attainable and Appropriate Volumes

    In the NPRM we proposed to use only the cellulosic waiver authority 
to reduce volumes of advanced biofuel, and to use both the cellulosic 
and general waiver authorities to reduce volumes of total renewable 
fuel. As noted above, and described in more detail in this section and 
in Section V, we have determined that use of the general waiver 
authority is not necessary for any renewable fuel category in 2017. 
However, in response to the NPRM, some commenters misstated our 
obligations under the cellulosic waiver authority and our intent with 
respect to its use in setting the volume requirement for advanced 
biofuel. For instance, some stakeholders expressed concern that EPA had 
not proposed to set the advanced biofuel volume requirement at the 
maximum achievable level, but rather at a level that was 
``reasonable.'' Many of these stakeholders suggested that it would be 
most consistent with the statutory goals if we were to set the volume 
requirement for advanced biofuel equal to the maximum achievable 
volume.
    In the NPRM, as well as in the 2014-2016 final rule, we made a 
clear distinction between our approach in setting volumes under the 
cellulosic waiver authority versus our approach in setting volumes 
under the general waiver authority. The prerequisite for the general 
waiver authority as EPA has exercised it to date is a finding that 
there is an ``inadequate domestic supply'' of renewable fuel. In using 
this authority in the 2014-2016 final rule we noted that our objective 
was to waive volumes to the point where the inadequacy of supply is 
removed.

[[Page 89763]]

Therefore, we set volume requirements at the level we determined to be 
the maximum achievable. When using the cellulosic waiver authority, in 
contrast, we are only required to ensure that any reduction is no 
larger than that provided for cellulosic biofuel. The statute does not 
specify other prerequisites for its use, nor any criteria or factors 
that EPA should consider in determining whether, and to what extent, to 
use the authority. Thus, under the cellulosic waiver authority, 
Congress provided EPA with broad discretion to lower advanced biofuel 
and total renewable fuel applicable volumes in instances where it 
lowers the cellulosic biofuel requirement, as in today's rule. In 
exercising this broad discretion in the context of the 2014-2016 final 
rule, our intent was to require the use of ``reasonably attainable'' 
volumes to partially backfill for missing cellulosic biofuel volumes. 
We explained that we were not required, and did not intend, to 
necessarily require the use of the ``maximum'' volumes of advanced 
biofuel, and that our assessment of ``reasonably attainable'' volumes 
was similar to, but not intended to be as exacting, as our assessment 
of ``maximum achievable'' supplies when using the general waiver 
authority based on a finding of inadequate domestic supply.
    In using the cellulosic waiver authority to set the 2017 advanced 
biofuel volume requirement, we have been mindful of the fact that the 
statute concentrates all of the very substantial growth in the 
statutory targets for renewable fuel on advanced biofuel for years 
after 2014, and that advanced biofuels are required to provide 
significantly greater lifecycle GHG reductions (at least 50%) in 
comparison to non-advanced renewable fuel (20%, or no reduction if 
grandfathered under Sec.  80.1403). In addition, we generally believe 
that greater use of renewable fuel enhances energy security. These 
considerations, taken alone, would support the commenters' suggestion 
that when using the cellulosic waiver authority we should require 
maximum achievable levels of advanced biofuel to backfill to the 
greatest extent possible for missing volumes of cellulosic biofuel. 
However, we note, first, that our assessments contain some uncertainty. 
To the extent we may over-estimate supply in setting the advanced 
biofuel volume requirement, we can create a situation where compliance 
costs dramatically escalate and/or obligated parties are either unable 
to comply or compliance requires a substantial drawdown in the 
collective bank of carryover RINs. While our assessment of ``maximum 
achievable'' volumes for the 2014-2016 final rule reflected our view of 
what is achievable, if proven to be correct such negative implications 
will not materialize. Nevertheless, we believe that it is appropriate 
given the broad discretion afforded under the cellulosic waiver 
authority to allow an additional cushion to ensure that the standards 
can be met, and we describe this less exacting approach as one designed 
to identify ``reasonably attainable'' volumes based on supply 
considerations. In the 2014-2016 final rule we set the advanced biofuel 
volume requirement so as to require all reasonably attainable volumes 
of advanced biofuel, and we proposed a similar approach for 2017.
    However, some commenters suggested that EPA should take into 
consideration the fact that higher advanced biofuel volume requirements 
could create an incentive for switching advanced biofuel feedstocks 
from existing uses to biofuel production, and that in light of such 
market reactions we should set the advanced biofuel volume requirement 
at less than the reasonably attainable level. We agree with these 
commenters that we have the broad discretion when using the cellulosic 
waiver authority to take into consideration such implications. We 
believe that in the short-term, every increment in the advanced biofuel 
standard should not necessarily be expected to result in a 
corresponding incremental increase in the volume of advanced biofuel 
feedstocks produced on a global scale, since increasing demand for such 
feedstocks for advanced biofuel production could potentially be filled 
through diversion of feedstocks from other non-biofuel markets. There 
is significant uncertainty related to the GHG emission benefits 
associated with fuels produced in this way. Moreover, rapidly 
increasing the required volumes of advanced biofuels without giving the 
market adequate time to adjust by increasing supplies could also result 
in diversion of advanced biofuels from foreign countries to the U.S. 
without increasing total global supply, contribute to shortages and/or 
reallocation of raw materials in other sectors, disrupt markets, and/or 
increase prices.\62\ We believe that we are authorized to take these 
factors into account in exercising our discretion under the cellulosic 
waiver authority. Although we are not able to quantify these factors at 
this time, we believe that they would be a likely consequence of 
setting the 2017 volume requirement for advanced biofuel at the highest 
possible level, and that they justify our taking a more measured 
approach in determining the volume of advanced biofuel that should 
backfill for missing cellulosic biofuel volumes in 2017.\63\ These 
considerations are described in more detail in the following section 
describing our assessment of advanced biodiesel and renewable diesel 
volumes. Our final approach results in a volume requirement that 
provides for significant growth in the production and use of advanced 
biofuels above all historic levels, is within the range of what is 
reasonably attainable from a supply perspective and is also 
appropriate, taking other considerations into account.
---------------------------------------------------------------------------

    \62\ For example, see comments from Action Aid USA & The Hunger 
Project (EPA-HQ-OAR-2016-0004-1817), American Cleaning Institute 
(EPA-HQ-OAR-2016-0004-1735) and Union of Concerned Scientists (EPA-
HQ-OAR-2016-0004-1672).
    \63\ We have also considered comments raising additional factors 
that stakeholders deemed relevant in setting the advanced biofuel 
standard, as described in the response to comments document. We 
believe the volume requirement established today reflects an 
appropriate balancing of these often competing considerations.
---------------------------------------------------------------------------

    Having determined the reasonably attainable and appropriate volume 
reduction for advanced biofuel, we used the cellulosic waiver authority 
to provide an equivalent reduction in total renewable fuel. That step 
is described in more detail in Section V.A, together with our 
assessment that no further increment of reduction is required for total 
renewable fuel in 2017 on the basis of supply considerations.
1. Imported Sugarcane Ethanol
    In the NPRM, we noted that the predominant source of advanced 
biofuel other than cellulosic biofuel and BBD was imported sugarcane 
ethanol, and we proposed that the volume of imported sugarcane ethanol 
for purposes of determining the reasonably attainable volume of 
advanced biofuel for 2017 would be 200 million gallons. This is the 
same volume that we used in setting the 2016 standards, and we said 
that the information currently available to us did not suggest that the 
circumstances would be significantly different for 2017 than they are 
for 2016. We also pointed to the high variability in ethanol import 
volumes in the past (including of Brazilian sugarcane ethanol, the 
predominant form of imported ethanol), the fact that imports of 
Brazilian sugarcane ethanol in 2014 and 2015 reached only 64 and 89 
million gallons, respectively, increasing gasoline consumption in 
Brazil, and variability in Brazilian production of sugar.

[[Page 89764]]

    In response to the NPRM, stakeholders representing some refiners 
and conventional ethanol interests said that our estimate of 200 
million gallons was too high given recent import levels. We agree that 
200 million gallons is considerably higher than actual imports of 
Brazilian sugarcane ethanol in 2014 and 2015, of 64 and 89 million 
gallons, respectively, but it is far lower than the historic maximum of 
680 million gallons of Brazilian sugarcane ethanol imports in 2006 or 
the more recent high volume of 486 million gallons imported in 2012.
[GRAPHIC] [TIFF OMITTED] TR12DE16.004

    In proposing to use 200 million gallons in assessing reasonably 
attainable supply of advanced biofuel in 2017, we attempted to balance 
indications of lower potential imports from more recent data with 
indications that higher volumes were possible based on older data, as 
depicted in the figure above.
    Stakeholders who represent advanced biofuel interests generally 
believed that our assumption of 200 million gallons of imported 
sugarcane ethanol for 2017 was too low. Some commenters cited 
projections from other sources that were considerably higher than 200 
million gallons, and even pointed to the historical maximum of 681 
million gallons for sugarcane ethanol imported in 2006 as evidence that 
volumes larger than 200 million gallons are possible. We generally 
believe that this information is of limited probative value in 
determining the volume of sugarcane ethanol that should be assumed in 
the context of determining reasonably attainable volumes of advanced 
biofuel for 2017. Sources providing projections for 2017 and beyond 
have not accurately predicted current and past import levels, 
highlighting the uncertainty in such projections.\64\ As for the 
historical maximum of 681 million gallons in 2006, there is no basis 
for believing that the economic and market circumstances which led to 
that import volume would be repeated in 2017, more than a decade later, 
when more recent years have shown far more modest import levels.
---------------------------------------------------------------------------

    \64\ For instance, the FAPRI-MU report ``U.S. Baseline Briefing 
Book,'' (March 2016) indicates that ethanol imports in 2015 reached 
167 mill gal, nearly double the actual imports of 89 mill gal 
according to data from EMTS. Also, the FAPRI-ISU report ``2012 World 
Agricultural Outlook'' projected that the U.S. would be a net 
ethanol exporter in 2013-2015, when in fact it was a net importer.
---------------------------------------------------------------------------

    The Brazilian Sugarcane Industry Association (UNICA) said that it 
was not appropriate for EPA to use actual import data from 2010-2015 as 
the basis for estimating the potential import volume in 2017. While 
these years reflects the period when the RFS2 program has been in 
place, UNICA argued that the low import volumes in 2014 and 2015 
resulted from the fact that EPA had not established applicable RFS 
percentage standards until the end of 2015. However, UNICA also noted 
that weather, harvests, and world prices also affect ethanol exports 
from Brazil. As discussed in the 2014-2016 final rule, total ethanol 
exports from Brazil in 2014 and 2015 were at their lowest levels since 
2004, suggesting the possibility that unusual factors were at work in 
these two years to minimize exports from Brazil. For instance, Brazil 
increased the ethanol concentration requirement in its gasoline in 
early 2015 and indications from available data suggest that total 
gasoline consumption will continue rising in 2016.65 66 
Given the high variability of ethanol imports in the past and the 
difficulty in precisely identifying the reasons for that variability, 
there is no way to know whether the lack of applicable standards in 
2014 and 2015 was the primary

[[Page 89765]]

reason for low import levels, or a less significant contributing 
factor.
---------------------------------------------------------------------------

    \65\ See discussion at 80 FR 77477.
    \66\ ``Gasoline Demand in Brazil: An empirical analysis,'' 
Tha[iacute]s Machado de Matos Vilela, Pontifical Catholic University 
of Rio de Janeiro, Figure 2.
---------------------------------------------------------------------------

    Since release of the NPRM, some data on imports in 2016 have become 
available. Imports of sugarcane ethanol in 2016 through September have 
reached 34 million gallons, with essentially all of this volume 
occurring since June.\67\ Historically, ethanol imports have been 
higher in the summer and early fall than at other times of the year, so 
it is possible that the monthly average that has occurred in June-
September could continue through the end of the year. If so, then total 
sugarcane ethanol imports for 2016 could reach 76 million gallons, 
similar to the levels imported in 2014 and 2015. Nevertheless, the low 
observed 2016 volume indicates that an increase in the advanced biofuel 
standard does not necessarily result in an increase in imports of 
sugarcane ethanol, and also implies that even California's Low Carbon 
Fuel Standard (LCFS) has not spurred demand for the large volumes of 
advanced ethanol imports that UNICA predicted.\68\
---------------------------------------------------------------------------

    \67\ Data from the International Trade Commission, from which 
EIA derives their reported values of imports of ethanol. See ``2016 
imports of ethanol from Brazil through September,'' docket EPA-HQ-
OAR-2016-0004.
    \68\ For instance, UNICA said that ``. . . sugarcane ethanol 
should continue to be a major renewable fuel source in California.''
---------------------------------------------------------------------------

    As they did in response to the 2014-2016 proposed standards, UNICA 
again commented on the proposed 2017 standards that potential ethanol 
exports from Brazil to the U.S. are driven primarily by a combination 
of Brazilian ethanol production capacity and opportunities created by 
the RFS program itself. The RIN value of advanced biofuels is 
undoubtedly a factor in the volume of ethanol that Brazil exports to 
the U.S., and the RIN value is a function of the level of the advanced 
biofuel standard. However, recent data on imports of sugarcane ethanol 
into the U.S. suggest that it would be inappropriate to increase the 
volume used in the determination of the applicable volume requirement 
for advanced biofuel above 200 million gallons.
    UNICA went on to say that sugarcane mills have significant 
flexibility in the amount of sugar versus ethanol that they produce, 
and that the amount of ethanol required to be blended into gasoline is 
likewise flexible based on opportunities for ethanol exports. We 
continue to believe that UNICA has underestimated the uncertainty 
associated with other market factors, including the E10 blendwall in 
the U.S., ongoing growth in gasoline demand in Brazil, and competing 
world demand for sugar, and has overstated the flexibility and speed 
with which Brazil can change the relative production of sugar versus 
ethanol and the required ethanol content of gasoline.
    Based on these facts, we continue to believe that recent low import 
levels and high variability in longer-term historical imports are 
significant and must be taken into account in the context of 
determining reasonably attainable volumes of advanced biofuel for 2017. 
However, we do not agree with commenters who argued for deviating from 
the 200 million gallons of sugarcane ethanol that we proposed using in 
the determination of the 2017 advanced biofuel volume requirement. We 
believe that this level reflects a reasonable intermediate point 
between the lower levels imported recently and the considerably higher 
levels that have been achieved in earlier years. Regardless of this 
assumed level used only in deriving the advanced biofuel volume 
requirement, we note that actual imports of sugarcane ethanol could be 
higher or lower than 200 million gallons as shown in the scenarios for 
how the market could respond in Section V.C below.
    Aside from the specific assessment of sugarcane ethanol imports, 
one stakeholder said that the inclusion of any imported renewable fuels 
in the determination of applicable standards was inconsistent with 
Congressional intent to increase domestic energy security. However, the 
statute does not discriminate between domestically-produced and 
imported biofuels, and an increased diversity of fuels, including those 
imported from a variety of countries, helps contribute to the stability 
of the energy supply.
2. Biodiesel and Renewable Diesel
    With regard to biodiesel and renewable diesel, there are many 
different factors that could potentially constrain the total volume of 
these fuels that can be used as transportation fuel or heating oil in 
the United States. These constraints could include such factors as the 
availability of qualifying biodiesel and renewable diesel feedstocks, 
limitations on the market's ability to distribute biodiesel, and 
limitations related to diesel engine manufacturers recommendations for 
biodiesel use in the engines they produce. Each of these factors, and 
the degree to which they may constrain the total supply of biodiesel 
and renewable diesel in 2017, is discussed in detail in Section V.B.2. 
Of these potential constraints, however, the primary constraint 
considered in our determination of the reasonably attainable and 
appropriate volume of advanced biodiesel and renewable diesel 
considered in the context of deriving the advanced biofuel standard for 
2017 is the availability of advanced biodiesel and renewable diesel 
feedstock.\69\ This is because most registered biodiesel and renewable 
diesel production facilities are capable of producing either advanced 
or non-advanced biofuels depending on a number of economic and 
regulatory factors, and the combined production capacity of the 
registered biodiesel and renewable diesel facilities exceeds the volume 
of these fuels we project can be supplied in 2017.\70\ Since the 
reasonably attainable and appropriate volume of advanced biodiesel and 
renewable diesel for 2017 projected in the context of deriving the 
advanced biofuel standard (determined primarily by an assessment of 
advanced biodiesel and renewable feedstocks) is less than the maximum 
reasonably achievable volume of all biodiesel and renewable diesel in 
2017, other potential constraints (such as limitations on the market's 
ability to distribute and use biodiesel and renewable diesel) are not 
expected to limit the supply of advanced biodiesel and renewable 
diesel. This section will therefore focus on the availability of 
qualifying feedstocks, while other potential constraints related to the 
distribution and use of biodiesel and renewable diesel are discussed in 
Section V.B.2.
---------------------------------------------------------------------------

    \69\ Throughout this section we refer to advanced biodiesel and 
renewable diesel as well as advanced biodiesel and renewable diesel 
feedstocks. In this context, advanced biodiesel and renewable diesel 
refers to any biodiesel or renewable diesel for which RINs can be 
generated that satisfy an obligated party's advanced biofuel 
obligation (i.e., D4 or D5 RINs). An advanced biodiesel or renewable 
feedstock refers to any of the biodiesel, renewable diesel, jet 
fuel, and heating oil feedstocks listed in Table 1 to Sec.  80.1426 
that can be used to produce fuel that qualifies for D4 or D5 RINs. 
These feedstocks include soy bean oil; oil from annual cover crops; 
oil from algae grown photosynthetically; biogenic waste oils/fats/
greases; non-food grade corn oil; camelina sativa oil; and canola/
rapeseed oil (See pathways F, G, and H of Table 1 to Sec.  80.1426).
    \70\ See Section V.B.2.ii for a discussion of the current 
production capacity for biodiesel and renewable diesel. While some 
biodiesel facilities are limited to certain types of feedstocks 
(typically virgin vegetable oils) we note that some virgin vegetable 
oils qualify as advanced biofuels, while others can only be used to 
produce non-advanced renewable fuel (fuel that qualifies to produce 
D6 RINs) when used at facilities that qualify for an exemption from 
the 20% lifecycle greenhouse gas reduction requirements under 40 CFR 
80.1403.
---------------------------------------------------------------------------

    Before considering availability of qualifying feedstocks that could 
be used to produce advanced biodiesel and renewable diesel, it is 
helpful to review the supply of biodiesel and renewable

[[Page 89766]]

diesel to the United States in recent years. While historic supply data 
and trends alone are insufficient to project the volumes of biodiesel 
and renewable diesel that are reasonably attainable and appropriate in 
future years, historic data can serve as a useful frame of reference in 
considering future volumes. Past experience suggests that a high 
percentage of the supply of biodiesel and renewable diesel to the 
United States qualifies as advanced biofuel.\71\ In previous years 
biodiesel and renewable diesel produced in the United States has been 
almost exclusively advanced biofuel.\72\ Imports of advanced biodiesel 
have increased in recent years and will likely continue in 2017, as 
discussed in Section V.B.2.iii. Setting the 2017 advanced biofuel 
volume requirement so as to require that a high percentage of the 
projected total supply of biodiesel and renewable diesel would be 
advanced biofuel would not only be consistent with our experience in 
previous years, but would also be consistent with the goal of seeking 
to increase volumes of fuels with higher potential GHG reductions.
---------------------------------------------------------------------------

    \71\ From 2011 through 2015 over 95% of all biodiesel and 
renewable diesel supplied to the United States (including 
domestically-produced and imported biodiesel and renewable diesel) 
qualified as advanced biodiesel and renewable diesel (6,836 million 
gallons of the 7,159 million gallons) according to EMTS data.
    \72\ From 2011 through 2015 over 99.8% of all the domestically 
produced biodiesel and renewable diesel supplied to the United 
States qualified as advanced biodiesel and renewable diesel (6,538 
million gallons of the 6,545 million gallons) according to EMTS 
data.

                                  Table IV.B.2-1--Advanced (D4 and D5) Biodiesel and Renewable Diesel From 2011 to 2016
                                                                  [million gallons] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2011            2012            2013            2014            2015          2016 \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)......................       967 (N/A)     1,014 (+47)    1,376 (+362)     1,303 (-73)     1,253 (-50)             N/A
Domestic Renewable Diesel (Annual Change)...............        58 (N/A)        11 (-47)        92 (+81)       155 (+63)       175 (+20)             N/A
Imported Biodiesel(Annual Change).......................        44 (N/A)         40 (-4)      156 (+116)       130 (-26)      261 (+131)             N/A
Imported Renewable Diesel \b\ (Annual Change)...........         0 (N/A)        28 (+28)      145 (+117)       129 (-16)        121 (-8)             N/A
Exported Biodiesel \c\ (Annual Change)..................        48 (N/A)       102 (+54)       125 (+23)        134 (+9)        133 (-1)             N/A
                                                         -----------------------------------------------------------------------------------------------
    Total (Annual Change)...............................      1021 (N/A)       991 (-30)    1,644 (+653)     1,583 (-61)     1,677 (+94)    2,100 (+423)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data for 2011-2015 from EMTS. EPA reviewed all advanced biodiesel and renewable diesel RINs retired for reasons other than demonstrating
  compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the
  supply in each year.
\b\ Volumes for 2016 are those determined reasonably attainable in the final rule deriving the 2016 standards. This projection was for all advanced
  biodiesel and renewable diesel and did not differentiate between domestically produced and imported fuels or between biodiesel and renewable diesel.
\c\ In calculating the supply of advanced biodiesel and renewable diesel we have assumed all exported biodiesel must retire 1.5 RINs per gallon
  consistent with 80.1130. No parties reported exports of advanced renewable diesel from 2011-2015.


                              Table IV.B.2--2 Supply of Conventional (D6) Biodiesel and Renewable Diesel From 2011 to 2016
                                                                  [million gallons] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2011            2012            2013            2014            2015          2016 \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)......................         0 (N/A)          0 (+0)          6 (+6)          1 (-5)          0 (+0)             N/A
Domestic Renewable Diesel (Annual Change)...............         0 (N/A)          0 (+0)          0 (+0)          0 (+0)          0 (+0)             N/A
Imported Biodiesel (Annual Change)......................         0 (N/A)          0 (+0)        31 (+31)        52 (+21)        74 (+22)             N/A
Imported Renewable Diesel \b\ (Annual Change)...........         0 (N/A)          0 (+0)        53 (+53)         0 (-53)      106 (+106)             N/A
Exported Biodiesel \c\ (Annual Change)..................         0 (N/A)          0 (+0)          0 (+0)          0 (+0)          0 (+0)             N/A
                                                         -----------------------------------------------------------------------------------------------
    Total (Annual Change)...............................         0 (N/A)          0 (+0)        90 (+90)        53 (-37)      180 (+127)      400 (+220)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data for 2011-2015 from EMTS. EPA reviewed all conventional biodiesel and renewable diesel RINs retired for reasons other than demonstrating
  compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the
  supply in each year.
\b\ Volumes for 2016 are those used in deriving the total renewable fuel standard in the final rule deriving the 2016 standards. This projection was for
  all conventional biodiesel and renewable diesel and did not differentiate between domestically produced and imported fuels or between biodiesel and
  renewable diesel.
\c\ In calculating the supply of conventional biodiesel and renewable diesel we have assumed all exported biodiesel must retire 1.5 RINs per gallon
  consistent with 80.1130. No parties reported exports of renewable diesel from 2011-2015.

    Since 2011 the year-over-year increases in the volume of advanced 
biodiesel and renewable diesel in the United States have varied 
greatly, from a low of negative 61 million gallons from 2011 to 2012 to 
a high of 653 million gallons from 2012 to 2013. These changes in 
supply were likely influenced by a number of factors such as the cost 
of biodiesel feedstocks and petroleum diesel, the status of the 
biodiesel blenders tax credit, growth in marketing of biodiesel at high 
volume truck stops and centrally fueled fleet locations, demand for 
biodiesel and renewable diesel in other countries, and the volumes of 
renewable fuels (particularly advanced biofuels) required by the RFS. 
This historical information does not indicate that the maximum 
previously observed increase of 653 million gallons of advanced 
biodiesel and renewable diesel is reasonably attainable and appropriate 
from 2016 to 2017, nor does it indicate that the low growth rates 
observed in other years represent the limit of

[[Page 89767]]

potential growth in 2017. Rather, these data illustrate both the 
magnitude of the increases in advanced biodiesel and renewable diesel 
in previous years and the significant variability in these increases.
    We also acknowledge that the volume of conventional (D6) biodiesel 
and renewable diesel use in the United States has increased in recent 
years, and that these fuels are likely to continue to contribute to the 
supply of renewable fuel in the United States in 2017.\73\ If there are 
constraints on the total volume of all forms of biodiesel and renewable 
diesel related to the ability of the market to distribute and/or 
consume biodiesel and renewable diesel, as we believe will likely be 
the case in 2017, setting the RFS standards in such a way that the 
projected volume of advanced biodiesel and renewable diesel was equal 
to the projected volume of total biodiesel and renewable diesel 
(including both advanced and conventional fuels) would require all of 
the reasonably attainable volume of biodiesel and renewable diesel to 
qualify as an advanced biofuel (See Section V.B.2 for more detail on 
these constraints). This would assume that the standards we set could 
effectively close the market for conventional biodiesel and renewable 
diesel, as constraints related to the distribution and use of 
additional volumes of biodiesel and renewable diesel would be expected 
to make the use of conventional fuels in addition to the advanced 
volumes unlikely.\74\ If effective, establishing the RFS volumes in 
this way could significantly disrupt the supply chains established to 
supply the United States with conventional biodiesel and renewable 
diesel. However, it is also possible that the conventional forms of 
these fuels would continue to be imported in 2017 despite our action in 
setting the advanced biofuel standard, consistent with past practice 
and established contracts and supply chains, and that the result, due 
to constraints related to distribution and/or consumption of all forms 
of biodiesel and renewable diesel, would be an inability to satisfy the 
advanced biofuel volume requirement through the production and use of 
advanced biofuels (as opposed to use of carryover RINs).
---------------------------------------------------------------------------

    \73\ As shown in Table IV.B.2-2, there was no qualifying 
conventional biodiesel and renewable diesel used in the United 
States in 2011 and 2012, and the volume of these fuels rose to 90 
million gallons, 53 million gallons, and 180 million gallons from 
2013-2015.
    \74\ We also note that the potential constraints related to the 
distribution and use of biodiesel may lead to an increasing demand 
for renewable diesel, which faces fewer potential constraints 
related to distribution and use than biodiesel. Much of the 
renewable diesel produced globally would qualify as conventional, 
rather than advanced biofuel, and we therefore expect that 
conventional renewable diesel will continue to be an important 
source of renewable fuel used in the United States in 2017.
---------------------------------------------------------------------------

    Although there is uncertainty regarding EPA's ability to 
effectively constrain the entry into commerce in the U.S. of 
conventional biodiesel and renewable diesel through setting a higher 
advanced biofuel standard, we believe our decision for 2017 is 
reasonably made on the basis of an analysis of feedstock availability. 
The primary difference between conventional and advanced forms of 
biodiesel and renewable diesel is the type of feedstock used for 
production. EPA received several comments on our proposed rule related 
to the availability of qualifying advanced biodiesel and renewable 
diesel feedstocks. Some of these comments argued that the expected 
increase of qualifying advanced feedstocks was less than the proposed 
increase of 200 million gallons of advanced biodiesel and renewable 
diesel from 2016 to 2017 (from 2.1 billion gallons to 2.3 billion 
gallons). These parties generally argued that because the available 
supply of qualifying advanced feedstocks would not increase in line 
with the proposed volume requirements, the proposed standards would 
likely result in feedstock substitution, with an increased use of 
qualifying advanced feedstocks for biodiesel and renewable diesel 
production, while the parties previously using these feedstocks for 
food, feed, or industrial purposes would turn to alternative 
feedstocks. These commenters generally speculated that as biodiesel and 
renewable diesel producers sought out more qualifying advanced 
feedstocks, other parties would likely turn to greater use of palm oil 
as a substitute. Alternatively, other parties argued that there were 
sufficient qualifying advanced feedstocks to achieve significantly 
higher volumes of advanced biodiesel and renewable diesel than the 
volumes in EPA's proposed rule. They requested that in light of the 
availability of these feedstocks EPA should finalize increases from 
both the proposed advanced biofuel standard for 2017 and the proposed 
biomass-based diesel standard for 2018. Commenters arguing for either 
lower or higher advanced biofuel standards in 2017 on the basis of the 
availability of qualifying advanced feedstocks both included feedstock 
assessments to support their claims. These assessments are discussed 
briefly below. More detail on EPA's evaluation of each of these 
assessments can be found in Section 2.4.5 of the RTC document.
    Commenters claiming that qualifying feedstocks would not increase 
sufficiently to meet the proposed increase in advanced biodiesel and 
renewable diesel from 2016 to 2017 generally relied on a study by 
Nelson and Searle.\75\ This study builds upon a 2015 study by Brorsen 
\76\ of available feedstocks capable of being utilized to produce 
biodiesel. The Nelson and Searle study focused on the production and 
recovery of feedstocks in the United States that can be used to produce 
advanced biodiesel, after accounting for demand from other sectors 
(e.g., food, feed, industrial, etc.). It concluded that feedstocks for 
advanced biofuels (e.g., soy oil, canola oil, yellow grease etc.) were 
expected to increase so that biodiesel fuel could increase by 23 
million gallons in 2017, and increase at an annual average rate of 31.5 
million gallons through 2022.\77\ The study's strength is its 
transparent methodology in accounting for the different types of 
feedstocks that can be utilized to produce advanced biofuels.
---------------------------------------------------------------------------

    \75\ Nelson, B. and Searle, S., ``Projected availability of 
fats, oils, and greases in the U.S.'', 2016, ICCT Working Paper. 
EPA-HQ-OAR-2016-0004-1800.
    \76\ Brorsen, W., ``Projections of U.S. Production of Biodiesel 
Feedstock'', 2015, EPA-HQ-OAR-2015-0111.
    \77\ Producing one gallon of biodiesel or renewable diesel 
requires approximately one gallon of feedstock.
---------------------------------------------------------------------------

    The Nelson and Searle study is a fairly conservative view of the 
increased availability of advanced biodiesel/renewable diesel 
feedstocks from planted crops in the United States in the next few 
years. For the following reasons we believe it likely under-estimates 
the total availability of advanced feedstocks for biodiesel and 
renewable diesel production in 2017. USDA's most recent World 
Agricultural Supply and Demand Estimates (WASDE) has larger increases 
in vegetable oils in the U.S. than the Nelson and Searle study (see 
discussion below).\78\ The Nelson and Searle study did not consider the 
availability of feedstocks for advanced biodiesel and renewable diesel 
production in countries other than the United States. It also assumed 
no significant increases in distillers corn oil or the recovery of 
additional waste oils such as yellow grease or brown grease.\79\
---------------------------------------------------------------------------

    \78\ USDA, World Agricultural Supply and Demand Estimates, 
September 2016, p. 10.
    \79\ The study also did not account for the potential decline in 
soybean oil use in food, as a result of a June 2015 FDA 
determination requiring the elimination by 2018 of all partially 
hydrogenated oil in food use (See the determination on the RFS Web 
site at http://www.fda.gov/Food/IngredientsPackagingLabeling/FoodAdditivesIngredients/ucm449162.htm). To the extent that soy oil 
continues to be phased down for food purposes, this will free up 
some supply of soy oil for biodiesel. Any reduction in soybean oil 
used for food purposes, however, would be expected to lead to an 
increased use of other vegetable oils for food purposes. These 
alternative oils, then, would not be available as potential 
feedstocks for renewable fuel.

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

[[Page 89768]]

    Commenters arguing that there is sufficient available feedstock for 
much higher volumes of advanced biodiesel and renewable diesel 
generally cited studies conducted by LMC International.\80 81\ The 2016 
LMC International study is an update to a previous study that LMC 
International undertook for the previous RFS Annual Rule (2014-2016). 
Both of the LMC International studies sought to quantify the global 
availability of feedstocks for advanced biodiesel and renewable diesel 
production, after accounting for demand for these feedstocks in other 
markets. The most recent LMC International study concluded that the 
global availability of feedstocks for use in advanced biodiesel and 
renewable diesel production is expected to grow from 8.6 billion 
gallons in 2017 to 9.2 billion gallons in 2018 and 9.8 billion gallons 
in 2020. While they do not provide an estimate of feedstock 
availability broken down by qualifying oils and fats in 2016, they do 
state that the global supply of advanced feedstock is expected to 
``rise steadily'' over the forecast period. In part, this is due to an 
upward revision of the projected level of soy oil production worldwide 
since their 2015 study. This would suggest an annual increase in 
advanced feedstock availability of up to 600 million gallons per year. 
The most recent LMC International study does not attempt to determine 
how much of the increase in this feedstock, or the resulting biodiesel 
or renewable diesel, could be expected to be used in the United States 
versus other international markets, however they do note that 
approximately one third of the existing feedstock is produced in North 
America.
---------------------------------------------------------------------------

    \80\ LMC International, ``Current and Future Supply of Biodiesel 
Feedstocks'', 2016, EPA-HQ-OAR-2016-0004-2904 (Attachment 14).
    \81\ LMC International, ``Current and Future Supply of Biodiesel 
Feedstocks'', 2015, EPA-HQ-OAR-2016-0004-2904 (Attachment 14).
---------------------------------------------------------------------------

    Both of the LMC International studies may overestimate feedstock 
availability. For example, when estimating availability, the studies 
consider the theoretical maximum amount of oil that could be extracted 
from an oil seed, or ``oil in seed'', versus the amount of oil actually 
expected to be extracted/produced. Some amount of the soybean supply is 
not crushed, and is fed directly to livestock, and in other instances 
the soybean is crushed, and oil is extracted, but it is added as a 
necessary element to feed and thus doesn't enter the oil market. These 
unaccounted for alternate practices contribute to oil supply estimates 
that are in some cases significantly higher than USDA estimates. For 
example, the most recent LMC International estimate of global soybean 
oil supply is more than 25 percent greater than that projected by USDA-
WASDE in 2016/2017.\82\
---------------------------------------------------------------------------

    \82\ USDA, World Agricultural Supply and Demand Estimates, 
August 2016. http://usda.mannlib.cornell.edu/usda/waob/wasde//2010s/2016/wasde-08-12-2016.pdf
---------------------------------------------------------------------------

    NBB also submitted a study that contained updated results from the 
World Agricultural Economic and Environmental Services model (WAEES 
model).\83\ Rather than project the availability of advanced biodiesel 
and renewable diesel feedstocks in 2017, this study instead looked at 
the likely impacts of meeting a ``market reality'' scenario with an 
advanced biofuel standard of 4.75 billion gallons in 2017 and 2018 and 
biomass-based diesel standards of 2.0 and 2.50 billion gallons in 2017 
and 2018, respectively. In the ``market reality'' scenario, the WAEES 
model projected that approximately 2.3 billion gallons of biodiesel and 
0.6 billion gallons of renewable diesel would be used to satisfy the 
RFS standards for 2017 assumed in this scenario.\84\ The study 
concludes that these higher standards could be met with a rise in 
biodiesel costs from $3.02 in 2016 to $3.34 in 2017 and $3.58 in 2018.
---------------------------------------------------------------------------

    \83\ Kruse, J., ``Implications of Higher Biodiesel Volume 
Obligations for Global Agriculture and Biofuels'', 2016, World 
Agricultural Economic and Environmental Services (WAEES), EPA-HQ-
OAR-2016-0004-2904 (Attachment 13).
    \84\ This study assumes that all of the biodiesel is advanced 
biodiesel, but notes that the volume of renewable diesel includes 
both advanced and conventional renewable diesel.
---------------------------------------------------------------------------

    These WAEES model results, however, are significantly impacted by a 
number of fairly optimistic assumptions. Each individual assumption may 
be justifiable, but when compiled together the results of the study 
imply an outlook for biodiesel/renewable diesel feedstocks that is more 
favorable than is likely. For example, WAEES assumes the U.S. biodiesel 
blenders tax credit is in place for 2017 and 2018; that foreign 
countries do not meet their renewable fuel mandates thus freeing up 
biodiesel supplies for the United States market; \85\ that biodiesel 
consumption in 2015 was higher than the volumes reported in EMTS; and 
that much higher volumes of ethanol are used in higher level ethanol 
blends than EPA believes is possible.\86\ Also, in contrast to the 
Nelson and Searle study, the WAEES model predicts that corn oil 
extraction rates from distillers' grains increase, resulting in an 
increase in the supply of corn oil available for biodiesel production 
in the United States. Using different assumptions, such as higher 
demand for biodiesel in the rest of the world, would result in higher 
cost impacts, and less availability of feedstocks to produce biodiesel 
for meeting the high potential standards evaluated by the WAEES model. 
The combined impact of the key assumptions including the renewal of the 
biodiesel blenders tax credit, higher ethanol than EPA believes is 
possible etc., are significant. This means that achieving these volumes 
is likely to be more difficult than the results from the WAEES model 
indicate.
---------------------------------------------------------------------------

    \85\ Many foreign countries have their own biodiesel mandates. 
Most countries have increasing stringency in their levels of 
required biodiesel, although past performance does not equate to 
future results and some past mandates have not been satisfied. See 
an assessment entitled, ``Biomass-Based Diesel Mandates and Trade 
Trends around the World'' (available at http://www.biofuelsdigest.com/bdigest/2016/08/31/biomass-based-diesel-mandates-and-trade-trends-around-the-world/), for an overview of the 
status of biomass-based diesel mandates outside of the United 
States.
    \86\ The WAEES model projects 621 million gallons of ethanol 
will be used in mid to high level ethanol blends in 2016/2017 and 
600 million gallons of ethanol will be used in mid to high level 
ethanol blends in 2017/2018. These volumes are significantly higher 
than those we project can be consumed in Section V.B.1 of this rule.
---------------------------------------------------------------------------

    In assessing the expected increase in the availability of 
feedstocks that can be used to produce advanced biodiesel and renewable 
diesel from 2016 to 2017, EPA has looked to a number of different 
sources. We believe the most reliable source for projecting the 
expected increase in vegetable oils in the United States is USDA's 
WASDE. The September 2016 WASDE report projects that the production of 
vegetable oils in the United States will increase by 0.33 million 
metric tons from 2016 to 2017.\87\ This quantity of vegetable oils 
could be used to produce approximately 94

[[Page 89769]]

million gallons of advanced biodiesel or renewable diesel.\88\
---------------------------------------------------------------------------

    \87\ The September WASDE was the most recent published WASDE 
report available to EPA at the time the advanced biodiesel and 
renewable diesel feedstock assessment was conducted. It is available 
online at: http://www.usda.gov/oce/commodity/wasde/latest.pdf. The 
WASDE projects the supply of agricultural commodities by 
agricultural marketing year, rather than calendar year. The 
agricultural marketing year runs from October 1 through September 
30. We have therefore used the WASDE projections from 2015/2016 to 
represent available feedstocks in 2016, and the projections from 
2016/2017 to represent available feedstocks in 2017.
    \88\ To calculate this volume we have used a conversion of 7.7 
pounds of feedstock per gallon of biodiesel. This is based on the 
expected conversion of soy oil (http://extension.missouri.edu/p/G1990), which is the largest source of feedstock used to produce 
advanced biodiesel and renewable diesel. We believe that it is also 
a reasonable conversion factor to use for all virgin vegetable oils.
---------------------------------------------------------------------------

    In addition to virgin vegetable oils, we also expect increasing 
volumes of distillers corn oil to be available for use in 2017. In 
assessing the likely increase in the availability of distillers corn 
oil from 2016 to 2017, the authors of the WAEES model considered the 
impacts of an increasing adoption rate of distillers corn oil 
extraction technologies, as well as increased corn oil extraction rates 
enabled by advances in this technology. They project that the 
availability of distillers corn oil will increase by approximately 83 
million gallons from 2016 to 2017.\89\ We believe that this is a 
reasonable projection of the increased production of distillers corn 
oil from 2016 to 2017. While the vast majority of the increase in 
advanced biodiesel and renewable diesel feedstocks produced in the 
United States from 2016 to 2017 is expected to come from virgin 
vegetable oils and distillers corn oil, increases in the supply of 
other sources of advanced biodiesel and renewable diesel feedstocks, 
such as biogenic waste oils, fats, and greases, may also occur. These 
increases, however, are expected to be modest. In total, we expect that 
increases in feedstocks produced in the United States are sufficient to 
produce approximately 200 million more gallons of advanced biodiesel 
and renewable diesel in 2017 relative to 2016. We note that this is 
consistent with the results from the LMC model, mentioned above, which 
projected a global increase of 600 million gallons of advanced 
biodiesel and renewable diesel feedstocks and notes that historically 
approximately one third of the total quantity of these feedstocks has 
been produced in North America.
---------------------------------------------------------------------------

    \89\ Kruse, J., ``Implications of Higher Biodiesel Volume 
Obligations for Global Agriculture and Biofuels'', 2016, World 
Agricultural Economic and Environmental Services (WAEES), EPA-HQ-
OAR-2016-0004-2904 (Attachment 13).
---------------------------------------------------------------------------

    In addition to the expected increase in advanced feedstocks 
produced in the United States, we have also considered the expected 
increase in the imports of advanced biodiesel and renewable diesel 
produced in other countries. We believe this is appropriate in light of 
the significant expected increase in advanced biodiesel and renewable 
diesel feedstocks in countries other than the United States (estimated 
at approximately 400 million gallons using the global results from the 
LMC model together with our estimate of the increase in the domestic 
production of these feedstocks discussed above), and the increasing 
volumes of imported advanced biodiesel and renewable diesel in recent 
years. While there has been significant variation in the volume of 
advanced biodiesel and renewable diesel imports in previous years, the 
general trend has been for increasing volumes of imports. From 2011 
through 2015, the average annual rate of increase in the imported 
volume of advanced biodiesel and renewable diesel has been 
approximately 85 million gallons per year.\90\ From 2012 through 2015 
the average annual rate of increase for these fuels was approximately 
105 million gallons per year.\91\
---------------------------------------------------------------------------

    \90\ This number is calculated using the information in Table 
IV.B.2-1 above. The total imports of advanced biodiesel and 
renewable diesel was 44 million gallons in 2011, rising to 382 
million gallons in 2015.
    \91\ This number is calculated using the information in Table 
IV.B.2-1 above. The total imports of advanced biodiesel and 
renewable diesel was 68 million gallons in 2012, rising to 382 
million gallons in 2015.
---------------------------------------------------------------------------

    We therefore believe it is reasonable to expect the imports of 
advanced biodiesel and renewable diesel to increase by approximately 
100 million gallons from 2016 to 2017. We believe that this volume of 
imported advanced biodiesel and renewable diesel will continue to 
provide the appropriate market demand signal for advanced biodiesel and 
renewable diesel, without resulting in the potential negative impacts 
of large scale feedstock switching discussed above. We note that we do 
not believe that the supply of imported advanced biodiesel and 
renewable diesel necessarily could or should increase by 100 million 
gallons per year for years beyond 2017. There are several factors, such 
as expected slowing growth rates in the production of advanced 
biodiesel and renewable diesel feedstocks and increasing demand for 
advanced biodiesel and renewable diesel in other countries, which 
indicate that this rate of growth in imported volumes of advanced 
biodiesel and renewable diesel will likely slow in futures years. 
Nevertheless, we believe an increase of 100 million gallons of imported 
advanced biodiesel and renewable diesel is reasonable to assume from 
2016 to 2017.
    After a careful consideration of the assessments of available 
feedstocks, along with comments we received on the proposed 2017 volume 
standards and a review of the historic supply of advanced biodiesel and 
renewable diesel to the United States in previous years, EPA has 
determined that 2.4 billion gallons of advanced biodiesel and renewable 
diesel is reasonably attainable and appropriate for use in our 
determination of the advanced biofuel standard for 2017. This volume, 
which is 300 million gallons higher than the volume of advanced 
biodiesel and renewable diesel projected in deriving the advanced 
biofuel standard in 2016, reflects EPA's assessment of the expected 
increase in advanced feedstocks available for the production of 
advanced biodiesel and renewable diesel for the U.S. market from 2016 
to 2017. We believe that in not considering potential increases in the 
volume of distillers corn oil or waste feedstocks that can be 
recovered, and by focusing solely on feedstock availability in the 
United States, the Nelson and Seale study significantly under-estimated 
the likely increase in available feedstocks from 2016 to 2017. 
Conversely, while the LMC model may be a relatively reasonable 
assessment of the growth in global availability (with the exception of 
the optimistic assumptions noted above), it would be unreasonable to 
assume that all of this feedstock can or should be used for biodiesel 
and renewable diesel production for use in the United States.
    While we are projecting that 2.4 billion gallons of advanced 
biodiesel and renewable diesel will be available to the United States 
in 2017 for the purposes of deriving the advanced biofuel standard, we 
do not believe that this is the maximum volume that could be supplied. 
It is possible that if EPA were to set a higher advanced biofuel 
standard that prices for biodiesel and renewable diesel (and the 
associated RINs) would rise to levels that would result in a greater 
supply of advanced biodiesel and renewable diesel to the United States. 
These increases, however, would likely not be the result of additional 
production of advanced biodiesel and renewable diesel production 
enabled by an increase in the production of advanced feedstocks. 
Advanced biodiesel and renewable diesel feedstocks include both waste 
oils, fats and greases and oils from planted crops. In recent years the 
demand for waste oils, fats, and greases for biodiesel production has 
been significant, especially as mandated volumes of renewable fuels in 
the United States and around the world have increased. While we believe 
an increase in supply of waste oils, fats, and greases is possible in 
2017 based in part on the studies cited above, we

[[Page 89770]]

believe this increase is limited as much of these oils, fats, and 
greases are already being recovered and used in biodiesel and renewable 
diesel production or for other purposes. Many of the planted crops that 
supply vegetable oil for advanced biodiesel and renewable diesel 
production are primarily grown as livestock feed with the oil as a co-
product or by-product, rather than specifically as biodiesel and 
renewable diesel feedstocks.\92\ This is true for soy beans and corn, 
which are the two largest sources of feedstock from planted crops used 
for biodiesel production in the United States.\93\ This means that the 
planted acres of these crops are unlikely to respond to additional 
demand for vegetable oils for biodiesel and renewable diesel production 
in the near term, as the oils produced are not the primary source of 
revenue for these crops.
---------------------------------------------------------------------------

    \92\ For example, corn oil is a co-product of corn grown 
primarily for feed or ethanol production, while soy and canola oil 
are primarily grown as livestock feed. For further discussion on 
this issue see the LMC International study, submitted as part of the 
NBB comments (EPA-HQ-OAR-2016-0004-2904, Attachment 14).
    \93\ According to EIA data 4,906 million pounds of soy bean oil 
and 1,044 million pounds of corn oil were used to produce biodiesel 
in the United States in 2015. Other significant sources of feedstock 
were yellow grease (1,232 million pounds), canola oil (745 million 
pounds), white grease (588 million pounds), tallow (429 million 
pounds), and poultry fat (190 million pounds). Numbers from EIA's 
February 2016 Monthly Biodiesel Production Report. Available at 
http://www.eia.gov/biofuels/biodiesel/production/archive/2015/2015_12/biodiesel.pdf.
---------------------------------------------------------------------------

    Given the limited ability of the markets to provide additional 
feedstocks in response to a higher advanced biofuel standard in 2017, 
we believe that the primary impact of setting a standard involving more 
than a 300 million gallon increase over the 2016 standard could be a 
decreased use of advanced biodiesel and renewable diesel in other 
countries (as this supply is shifted to the United States) as well as 
significant feedstock substitution as the food, feed, and industrial 
oil markets switch to non-advanced feedstocks to free up greater 
volumes of advanced feedstocks for advanced biodiesel and renewable 
diesel production.\94\ Increasing the short-term supply of advanced 
biodiesel and renewable diesel to the United States in this manner 
(simply shifting the end use of advanced feedstocks and biodiesel and 
renewable diesel produced from these feedstocks and displacing 
conventional biodiesel and renewable diesel with advanced biodiesel and 
renewable diesel) may not advance the GHG goals of the RFS program. In 
a worst case scenario, higher standards could cause supply disruptions 
to a number of markets as biodiesel and renewable diesel producers seek 
additional supplies of advanced feedstocks and the parties that 
previously used these feedstocks, both within and outside of the fuels 
marketplace, seek out alternative feedstocks. This could result in 
significant cost increases, for both biodiesel and renewable diesel as 
well as other products produced from renewable oils, while failing to 
meaningfully reduce overall GHG emissions or increase U.S. energy 
security. Nevertheless, while the growth in the availability of 
advanced feedstocks may be slowing both in the U.S. and abroad, as 
indicated by some studies,\95\ we believe that a volume of 2.4 billion 
gallons of advanced biodiesel and renewable diesel (300 million gallons 
more than our projection of the available volume of these fuels in 
2016) is both reasonably attainable and appropriate in 2017.
---------------------------------------------------------------------------

    \94\ Given the constraints in the use of total biodiesel and 
renewable diesel in the U.S. described in Section V, increasing the 
use of advanced biodiesel and renewable diesel in the U.S. in 2017 
could be expected to also lead to a decrease in the use of 
conventional biodiesel and renewable diesel. Any energy security 
benefits gained from additional volumes of advanced biodiesel and 
renewable diesel would be expected to be off-set by the 
corresponding lower consumption of conventional biodiesel and 
renewable diesel.
    \95\ See the results of the LMC International study, which 
projects that the availability of advanced feedstocks for biodiesel 
and renewable diesel production will increase by 600 million gallons 
from 2017 to 2018 (8.6 billion gallons to 9.2 billion gallons), but 
these increases will be only 300 million gallons per year from 2018-
2020 (9.2 to 9.8 billion gallons over two years).
---------------------------------------------------------------------------

    The 300 million gallon annual increase we are using for 2017 is a 
little less than the increase in advanced biodiesel and renewable 
diesel we assumed in deriving the 2016 advanced biofuel standard would 
occur from 2015 to 2016 (approximately 370 million gallons). We believe 
that this is reasonable because the circumstances we are facing in this 
action are different from those we were facing in the 2014-2016 final 
rule. The 2016 standards followed two years where standards had not 
been set by the statutory deadlines. Relatively modest increases in the 
supply of advanced biodiesel and renewable diesel occurred in 2014 and 
2015. This meant that there was greater opportunity in 2016 to take 
advantage of market changes that had not been fully utilized in the 
preceding two years.
    EPA also received comments on the equivalence value EPA used to 
convert the volume of advanced biodiesel and renewable diesel into a 
projected number of RINs for the purpose of deriving the proposed 
advanced biofuel standard. Biodiesel has an equivalence value of 1.5, 
while renewable diesel generally has an equivalence value of 1.7.\96\ 
In the proposed rule EPA assumed an equivalence value of 1.5, 
consistent with the past rules, using the simplifying assumption that 
the vast majority of volume was biodiesel. Commenters noted, however, 
that using an equivalence value of 1.5 did not properly account for the 
significant volumes of renewable diesel that is expected to be supplied 
to the United States in 2017. EPA agrees with these comments. In this 
final rule we have used an equivalence value of 1.55 to convert the 
projected volume of advanced biodiesel and renewable diesel to a volume 
of RINs for the purpose of deriving the advanced biofuel standard. We 
have similarly used this higher equivalence value (1.55) to convert the 
projected volume of total biodiesel and renewable diesel (both advanced 
and conventional) to a volume of RINs for the purpose of deriving the 
total renewable fuel standard for 2017. This higher equivalence value 
is generally consistent with the volume weighted average equivalence 
value for the volume of advanced biodiesel and renewable diesel 
supplied to the United States in recent years.\97\ Note that this 
higher equivalence value does not impact the volume of biodiesel and 
renewable diesel, but does increase the number of RINs that is expected 
to be generated for this volume of biodiesel and renewable diesel, 
which impacts both the advanced and total renewable fuel standards.
---------------------------------------------------------------------------

    \96\ This means that biodiesel producers generally generate 1.5 
RINs for every gallon of biodiesel they produce, while renewable 
diesel producers generally generate 1.7 RINs for every gallon of 
renewable diesel they produce.
    \97\ ``Converting volumes to RINs for biodiesel & renewable 
diesel,'' docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    We note that the reasonably attainable and appropriate volume of 
advanced biodiesel and renewable diesel projected for the purpose of 
deriving the advanced biofuel volume requirement cannot itself be 
viewed as a volume requirement. This volume is merely the basis on 
which we have determined the volume requirements for advanced biofuel 
and total renewable fuel. As discussed in more detail in Section V.C 
below, there are many ways that the market could respond to the 
percentage standards we establish, including use of advanced biodiesel 
and renewable diesel volumes higher or lower than those projected in 
this section.

[[Page 89771]]

3. Other Advanced Biofuel
    In addition to cellulosic biofuel, imported sugarcane ethanol, and 
advanced biodiesel and renewable diesel, there are other advanced 
biofuels that can be counted in the determination of reasonably 
attainable and appropriate volumes of advanced biofuel for 2017. These 
other advanced biofuels include biogas, naphtha, heating oil, butanol, 
and jet fuel. However, the supply of these fuels has been relatively 
low in the last several years.

                          Table IV.B.3-1--Historical Supply of Other Advanced Biofuels
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                     Renewable
                                      Biogas        Heating oil       Naphtha        diesel a          Total
----------------------------------------------------------------------------------------------------------------
2013............................              26               0               3              64              93
2014............................              20               0              18              15              53
2015............................               0               1              24               8              33
----------------------------------------------------------------------------------------------------------------
\a\ Some renewable diesel generates D5 rather than D4 RINs as a result of being produced through coprocessing
  with petroleum or being produced from the non-cellulosic portions of separated food waste or annual cover
  crops.

    The downward trend over time in biogas as advanced biofuel with a D 
code of 5 is due to the re-categorization in 2014 of landfill biogas 
from advanced (D code 5) to cellulosic (D code 3).\98\ The average of 
the remaining sources over all three years is 44 million gallons. Based 
on historical supply and the expectation that growth in the advanced 
biofuel standard will continue to provide incentives for growth in the 
supply of these other advanced biofuels, we proposed using 50 million 
gallons in the context of determining the advanced biofuel volume 
requirement.
---------------------------------------------------------------------------

    \98\ 79 FR 42128, July 18, 2014.
---------------------------------------------------------------------------

    While some stakeholders suggested that volumes higher than 50 
million gallons were possible in 2017, they relied primarily on 
opportunities for other biofuels to qualify as advanced under the 
existing regulations, including jet fuel, liquefied petroleum gas 
(LPG), and liquefied natural gas (as distinct from compressed natural 
gas). We agree that such opportunities exist, and believe that they 
could help the total volume of other advanced biofuels to reach 50 
million gallons in 2017. However, since they have been produced in only 
de minimis amounts in the past, we do not have a basis for projecting 
substantial volumes from these sources in 2017. We have taken into 
consideration that the market supplied 67 million gallons of non-biogas 
advanced biofuel in 2013, demonstrating that it is capable of achieving 
supply of more than 50 million gallons. However, overall supply of 
other advanced biofuel decreased in 2014 and 2015, albeit during years 
when the RFS standards were not in place to drive increased production 
and use. Since it is not possible to discern the precise cause of the 
reduced volumes achieved in 2014 and 2015, we do not believe it would 
be reasonable to ignore these data points. We believe it is most 
reasonable to assume reasonably attainable volumes somewhat lower than 
the historic maximum, but higher than the low volumes seen in 2014 and 
2015 that likely reflect in part the absence of a driving RFS standard. 
In light of these considerations, we believe it is reasonable to assume 
reasonably attainable and appropriate volumes of 50 million gallons of 
other advanced biofuel in 2017.
    Some stakeholders suggested that we should ignore supply from other 
advanced biofuel sources altogether, citing the low volumes supplied in 
the past. We disagree. Some volumes are clearly attainable, and we do 
not believe it would be appropriate to ignore them. Therefore, for the 
purposes of determining the final advanced biofuel volume requirement, 
we have used 50 million gallons of other advanced biofuel.
4. Total Advanced Biofuel
    The combination of all sources of advanced biofuel described in the 
previous sections leads us to believe that 4.28 billion gallons of 
advanced biofuel is reasonably attainable and appropriate to require in 
2017, and that it is not necessary to reduce the advanced biofuel 
statutory target by the full amount permitted under the cellulosic 
waiver authority. This is the advanced biofuel volume requirement that 
we are establishing for 2017.

  Table IV.B.4-1--Volumes Used To Determine the Final Advanced Biofuel
                       Volume Requirement for 2017
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
                                                              311
------------------------------------------------------------------------
Advanced biodiesel and renewable diesel (ethanol-            3,720/2,400
 equivalent volume/physical volume)..................
Imported sugarcane ethanol...........................                200
Other non-ethanol advanced...........................                 50
                                                      ------------------
    Total advanced biofuel...........................              4,281
------------------------------------------------------------------------

    The final volume requirement for advanced biofuel for 2017 is an 
increase of about 300 million gallons from the proposed volume of 4.0 
billion gallons, primarily reflecting our updated assessment of 
biodiesel and renewable diesel.
    The volume of advanced biofuel that we are establishing for 2017 
will require increases from current levels that are substantial yet 
reasonably attainable and appropriate, taking into account the 
constraints on supply discussed previously, our judgment regarding the 
ability of the standards we set to result in marketplace changes, 
feedstock availability, and the various

[[Page 89772]]

uncertainties we have described. Figure IV.B.4-1 shows that the 
advanced biofuel volume requirement for 2017 will be significantly 
higher than the volume requirements for advanced biofuel in previous 
years.
[GRAPHIC] [TIFF OMITTED] TR12DE16.005

    In response to the NPRM, stakeholders were strongly divided on 
whether the proposed 2017 advanced biofuel volume of 4.0 billion 
gallons was too high or too low. Parties representing advanced biofuel 
production, including biodiesel and sugarcane ethanol, expressed 
concern that 4.0 billion gallons would not provide enough incentive for 
the market to grow. However, the final volume of 4.28 billion gallons 
is about 700 million gallons higher than the 2016 volume requirement, 
providing significant opportunities for growth as discussed in more 
detail in Section V.C
    Among commenters who suggested an alternative, higher volume for 
the 2017 advanced biofuel volume requirement, most based it primarily 
on a higher assumed level of BBD of between 2.5 and 2.9 billion 
gallons. As discussed in Section IV.B.2, after consideration of 
stakeholder comments, we do not believe that BBD volumes this high are 
reasonably attainable or appropriate in 2017. One stakeholder also 
believed that the methodology that we developed for determination of 
cellulosic biofuel underestimated potential 2017 volumes, and suggested 
that an additional 100 million gallons of cellulosic biofuel was 
possible. As discussed in Section III.D, we continue to believe that 
our methodology for cellulosic biofuel appropriately accounts for 
uncertainty in projections for that emerging industry, and that while 
an additional 100 million gallons of cellulosic biofuel could be 
considered possible, it is unlikely and thus should not be included in 
volumes used as the basis for the 2017 standards.
    Parties representing the refining industry generally believed that 
the proposed volume of 4.0 billion gallons for advanced biofuel was too 
high. They suggested an alternative 2017 advanced biofuel volume 
requirement of 3.2 billion gallons, considerably below the 2016 volume 
requirement of 3.61 billion gallons. Although there are many problems 
with the assumptions these commenters used to justify their suggestion, 
we note first that, as described in Section I.B.1, available evidence 
indicates that the 2016 standard for advanced biofuel is on track to be 
met. Since available evidence indicates that the 2016 advanced biofuel 
standard is likely to be met, we see no reason to expect that at least 
the same volumes cannot be attained in 2017.
    These stakeholders also assumed that imports of sugarcane ethanol 
and other advanced biofuel would be zero in 2017. Making such an 
assumption would be inconsistent with all past experience and there is 
no basis to assume that imports cannot contribute at least some volume 
in 2017.
    The suggested advanced biofuel volume requirement of 3.2 billion 
gallons also assumes that cellulosic biofuel will only reach 200 
million gallons instead of the 312 million gallons that we proposed. As 
described in Section III.D, we do not believe that using only historic 
cellulosic production volumes is appropriate when making projections 
for the future; the statute directs EPA to set the cellulosic volume at 
the ``projected volume . . . of production,'' rather than on the basis 
of past production alone.
    Finally, these stakeholders' suggestion of 3.2 billion gallons of 
advanced biofuel assumes that the supply of BBD will not exceed the 
applicable BBD standard, which is 2.0 billion gallons for 2017. There 
is no basis for this assumption in setting the advanced biofuel volume 
requirement. The total supply of BBD has consistently exceeded the 
applicable BBD standard in the past, and is expected to do so again in 
2016. Moreover, actual supply of BBD in 2016 is likely to exceed 2.0 
billion gallons as shown in a memorandum to the docket.\99\ As 
described in the NPRM and in the 2014-2016 final rule, the advanced 
biofuel standard creates a significant incentive for supply of BBD at 
levels higher than the BBD standard. Commenters supporting 3.2 billion 
gallons of advanced biofuel for 2017 gave no compelling reason why BBD 
cannot reach levels higher than 2.0 billion gallons.
---------------------------------------------------------------------------

    \99\ ``Comparison of 2016 availability of RINs and 2016 
standards,'' memorandum from David Korotney to docket EPA-HQ-OAR-
2016-0004.
---------------------------------------------------------------------------

    As noted before, the volumes actually used to satisfy the advanced 
biofuel volume requirements may be different than those shown in Table 
IV.B.4-1 above. The volumes of individual types of renewable fuel that 
we have used in this analysis represent our best estimate of volumes 
that are reasonably

[[Page 89773]]

attainable by a market that is responsive to the RFS standards. 
However, given the uncertainty in these estimates, the volumes of 
individual types of advanced biofuel may be higher or lower than those 
shown above.

V. Total Renewable Fuel Volume for 2017

    The national volume targets of total renewable fuel to be used 
under the RFS program each year through 2022 are specified in CAA 
section 211(o)(2)(B)(i)(I). For 2017 the statute stipulates that the 
volume of total renewable fuel should be 24 billion gallons. Since we 
have determined that the statutory volume target for cellulosic biofuel 
must be reduced to reflect the projected production volume of that fuel 
type in 2017, we are authorized under CAA section 211(o)(7)(D)(i) to 
reduce the advanced biofuel and total renewable fuel targets by the 
same or a lesser amount. We also have the authority to reduce any 
volume target under the general waiver authority under specific 
conditions as described in Section II.A.2. Although in the NPRM we had 
proposed to use a combination of the cellulosic waiver authority and 
the general waiver authority to reduce the statutory volume target for 
total renewable fuel for 2017, we have determined, based on comments 
received in response to the NPRM and a review of updated information, 
that 2017 supply is adequate to meet a total renewable fuel volume 
requirement of 19.28 billion gallons resulting from the use of the 
cellulosic waiver authority alone. The use of the general waiver 
authority for 2017 to further reduce the total renewable fuel standard 
is therefore not necessary. As a result, the implied volume for 
conventional (non-advanced) renewable fuel will be 15.0 billion 
gallons.
    Today's standards are significantly higher than have been achieved 
in the past and will drive significant growth in renewable fuel use 
beyond what would occur in the absence of the requirements. The final 
volume requirements for both advanced biofuel and total renewable fuel 
recognize the ability of the market to respond to the standards we set, 
thereby accomplishing the goals of the statute to increase renewable 
fuel use.
    We investigated whether the market is on track to meet the 2016 
total renewable fuel volume requirement of 18.11 billion gallons, which 
EPA projected to be the maximum achievable volume for that year in the 
context of our use of the general waiver authority. As described in a 
memorandum to the docket, supply through the end of September coupled 
with a projection based on consideration of seasonal variations in 
supply for previous years indicate that compliance with the 2016 
standards is indeed within reach.\100\ We believe these results support 
the assessment conducted for purposes of establishing the 2016 total 
renewable fuel standard. For this final rule, we have taken a similar 
approach to assessing the adequacy of supply of total renewable fuel 
that differs in some particulars as described below.
---------------------------------------------------------------------------

    \100\ ``Comparison of 2016 availability of RINs and 2016 
standards,'' memorandum from David Korotney to docket EPA-HQ-OAR-
2016-0004.
---------------------------------------------------------------------------

A. Volumetric Limitation on Use of the Cellulosic Waiver Authority

    In Section IV.B we explained our use of the cellulosic waiver 
authority to reduce the statutory volume target for advanced biofuel to 
a level that we have determined is reasonably attainable and 
appropriate given a consideration of factors related to the likely 
constraints on imports, distribution and use, and global GHG impacts of 
incremental growth in advanced biodiesel and renewable diesel. This did 
not require a reduction as large as the reduction in the statutory 
volume target for cellulosic biofuel, and so this reduction was within 
the authority provided by CAA section 211(o)(7)(D)(i).
    As discussed in Section II.A.1, we believe that the cellulosic 
waiver provision is best interpreted to require equal reductions in 
advanced biofuel and total renewable fuel. We have consistently 
articulated this interpretation.\101\ Having determined that we should 
establish the advanced biofuel volume at a level requiring a reduction 
of 4,719 million gallons from the statutory target, applying an equal 
reduction to the statutory target for total renewable fuel yields the 
results shown below.
---------------------------------------------------------------------------

    \101\ For instance, see discussion in the final rule setting the 
2013 standards: 78 FR 49809-49810, August 15, 2013.

Table V.A-1--Applying Equal Volume Reductions to Total Renewable Fuel as
         for Advanced Biofuel Under Cellulosic Waiver Authority
                            [Million gallons]
------------------------------------------------------------------------
                                             Advanced          Total
                                              biofuel     renewable fuel
------------------------------------------------------------------------
Statutory target........................           9,000          24,000
Reduction under the cellulosic waiver              4,719           4,719
 authority..............................
                                         -------------------------------
    Resulting volume....................           4,281          19,281
------------------------------------------------------------------------

    If we were to determine that there is an inadequate domestic supply 
to satisfy the total renewable fuel volume resulting from use of the 
cellulosic waiver authority alone, we could use the general waiver 
authority, described in Section II.A.2, to provide further reductions. 
Indeed, we proposed such an approach. However, we have re-evaluated the 
situation in light of new data and consideration of comments, and as 
described below we have determined that there will be adequate supply 
to meet a total renewable fuel volume requirement of 19.28 billion 
gallons in 2017.\102\ As a result of this assessment, we have 
determined that further reductions in the total renewable fuel 
applicable volume using the general wavier authority are not necessary.
---------------------------------------------------------------------------

    \102\ Stakeholder comments most directly impacting our 
assessment of the adequacy of supply of total renewable fuel were 
directed at distribution issues associated with biodiesel and 
renewable diesel. See Section V.B.2 for further discussion.
---------------------------------------------------------------------------

B. Assessing Adequacy of Supply

    As noted above, the applicable volume of total renewable fuel was 
derived by applying the same volume reduction to the statutory volume 
target for total renewable fuel as was determined to be appropriate for 
advanced biofuel, using the cellulosic waiver authority. This section 
describes our assessment that there is adequate

[[Page 89774]]

supply to meet an applicable volume requirement of 19.28 billion 
gallons. The objective of our assessment is different than our analysis 
in the NPRM, where we sought to identify the maximum reasonably 
achievable volume of total renewable fuel based on the sum of estimates 
of each type of renewable fuel, such as total ethanol, biodiesel and 
renewable diesel, biogas, and other non-ethanol renewable fuels. In 
this final rule, in contrast, we instead are evaluating those sources 
to determine if in the aggregate it appears that there is adequate 
supply to meet the total renewable fuel volume shown in Table V.A-1. 
Based on our conclusion that there is sufficient supply as discussed 
below, it is unnecessary to address any inadequate domestic supply 
through use of the general waiver authority.
    Despite the different objective, we face much the same challenges 
that we noted in the NPRM: It is a very challenging task to estimate 
the adequacy of supply in light of the myriad complexities of the fuels 
market and how individual aspects of the industry might change in the 
future, and also because we cannot precisely predict how the market 
will respond to the volume-driving provisions of the RFS program. This 
is the type of assessment that is not given to precise measurement and 
necessarily involves considerable exercise of judgment.
    Our investigation into whether there is adequate supply to meet the 
total renewable fuel volume shown in Table V.A-1 was driven primarily 
by a consideration of the total amount of ethanol that can be 
reasonably attained in light of various constraints, and the total 
volume of biodiesel and renewable diesel that can be reasonably 
attained. We also considered smaller contributions from non-ethanol 
cellulosic and other non-ethanol renewable fuels (i.e. naphtha, heating 
oil, butanol, and jet fuel). With regard to the more dominant 
contributors, the information that is available has allowed us to make 
a relatively more precise estimate of total supply of ethanol than of 
biodiesel/renewable diesel. This is due to the fact that the primary 
constraints in the supply of ethanol in 2017 are readily identifiable, 
although still challenging to quantify, while there are many different 
factors that could potentially constrain the supply of biodiesel and 
renewable diesel in 2017. As a result, we did not attempt to derive a 
specific estimate of reasonably attainable supply of total biodiesel 
and renewable diesel. Instead, after estimating what we consider to be 
reasonably attainable supply of ethanol in 2017, and taking into 
account the estimates of non-ethanol cellulosic biofuel supply 
discussed in Section III.D above and estimates of other non-ethanol 
renewable fuel supply discussed in Section IV.B.3, we considered 
whether the supply of total biodiesel and renewable diesel would be 
adequate to satisfy a requirement of 19.28 billion gallons.\103\ The 
following sections provide our assessment of ethanol and biodiesel/
renewable diesel volumes.
---------------------------------------------------------------------------

    \103\ As noted earlier, ``reasonably attainable'' volumes may be 
less than the ``maximum achievable'' volumes we would seek to 
identify when using the general waiver authority based on a finding 
of inadequate domestic supply. It follows that if there are 
sufficient reasonably attainable volumes of renewable fuel to 
satisfy a total renewable fuel requirement of 19.28 billion gallons, 
that there is no basis for a finding of inadequate domestic supply.
---------------------------------------------------------------------------

1. Ethanol
    Ethanol is the most widely produced and consumed biofuel, both 
domestically and globally. Since the beginning of the RFS program, the 
total volume of renewable fuel produced and consumed in the United 
States has grown substantially each year, primarily due to the 
increased production and use of corn ethanol. However, the rate of 
growth in the supply of ethanol to the U.S. market has decreased in 
recent years as the gasoline market has become saturated with E10, and 
efforts to expand the use of higher ethanol blends such as E15 and E85 
have not been sufficient to maintain past growth rates. Although we 
believe ethanol use is growing and can continue to grow, the low number 
of retail stations selling these higher-level ethanol blends, along 
with poor price advantages compared to E10, and a limited number of 
FFVs, among others, represent challenges to the rate of growth of 
ethanol as a transportation fuel in the United States.
    In the 2014-2016 final rule we discussed in detail the factors that 
constrain growth in ethanol supply and the opportunities that exist for 
pushing the market to overcome those constraints.\104\ That discussion 
generally remains relevant for 2017, though we believe that the supply 
of ethanol can be somewhat higher in 2017 than in 2016.
---------------------------------------------------------------------------

    \104\ 80 FR 77456-77465.
---------------------------------------------------------------------------

    Ethanol supply is not currently limited by production and import 
capacity, which is in excess of 15 billion gallons.\105\ Instead, the 
amount of ethanol supplied is constrained by the following:
---------------------------------------------------------------------------

    \105\ ``RFA 2016 Annual Industry Outlook,'' docket EPA-HQ-OAR-
2016-0004.
---------------------------------------------------------------------------

     Overall gasoline demand and the volume of ethanol that can 
be blended into gasoline as E10 (typically referred to as the E10 
blendwall).
     The number of retail stations that offer higher ethanol 
blends such as E15 and E85.
     The number of vehicles that can both legally and 
practically consume E15 and/or E85.
     Relative pricing of E15 and E85 versus E10 and the ability 
of RINs to affect this relative pricing.
     The supply of gasoline without ethanol (E0).
    The applicable standards that we set under the RFS program provide 
incentives for the market to overcome many of these ethanol-related 
constraints.
    While in the short term the RFS program is unlikely to have a 
direct effect on overall gasoline demand or the number of vehicles 
designed to use higher ethanol blends, it can provide incentives for 
changes in some other market factors, such as the number of retail 
stations that offer higher ethanol blends and the relative pricing of 
those higher ethanol blends in comparison to E10. The RFS program 
complements other efforts to increase the use of renewable fuels, such 
as the following:
     USDA's Biofuel Infrastructure Partnership (BIP) program 
which has provided $100 million in grants for the expansion of 
renewable fuel infrastructure in 2016 (supported by additional State 
matching funds)
     USDA's Biorefinery Assistance Program which has provided 
loan guarantees for the development and construction of commercial-
scale biorefineries with a number of the new projects focused on 
producing fuels other than ethanol.
     The ethanol industry's Prime the Pump program, which has 
committed more than $45 million to date for retail refueling 
infrastructure \106\
---------------------------------------------------------------------------

    \106\ ``Email dialogue with Robert White on Prime the Pump,'' 
docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    In response to the NPRM, many stakeholders repeated their views 
from the 2014-2016 rulemaking regarding the existence and nature of the 
E10 blendwall. Ethanol proponents generally regard the blendwall as a 
fictional idea created by refiners, and said or implied that increases 
in ethanol supply beyond the blendwall are only limited by refiners' 
unwillingness to invest in the necessary infrastructure. Some also said 
that EPA's approach to setting standards, in which constraints on the 
supply of ethanol are used as justification for reducing the volume 
requirement below the statutory targets, was a self-fulfilling prophecy 
that guaranteed that the blendwall would

[[Page 89775]]

never be exceeded. Refiners and marketers typically viewed the 
constraints associated with the blendwall as representing a firm 
barrier that could not or should not be crossed, with costs for 
necessary infrastructure changes being prohibitively high and the 
associated opportunities for greater profits at retail being 
inconsequentially low. In their views, higher level ethanol blends such 
as E15 and E85 would be negligible in 2017 and standards that required 
higher ethanol blends to increase dramatically would compel refiners to 
reduce domestic supply of gasoline and diesel or risk non-compliance.
    As stated in the 2014-2016 final rule and in the NPRM, our view of 
the E10 blendwall falls between these two viewpoints. We continue to 
believe that there are real constraints on the ability of the market to 
exceed an average nationwide ethanol content of 10%. However, these 
constraints do not have the same significance at all ethanol 
concentrations above 10%. Instead, for the state of infrastructure that 
can be available in 2017, the constraints represent a continuum of mild 
resistance to growth at the first increments above 10% ethanol and 
evolve to significant obstacles at higher levels of ethanol. In short, 
the E10 blendwall is not the barrier that some stakeholders believe it 
to be, but neither are increases in poolwide ethanol concentrations 
above 10% unlimited in the 2017 timeframe.
    We continue to believe that the constraints associated with the E10 
blendwall do not represent a firm barrier that cannot or should not be 
crossed. Rather, the E10 blendwall marks the transition from relatively 
straightforward and easily achievable increases in ethanol consumption 
as E10 to those increases in ethanol consumption as E15 and E85 that 
are more challenging to achieve. Comments received in response to the 
NPRM provided no compelling evidence that the nationwide average 
ethanol concentration in gasoline cannot exceed 10.0%.
    However, we also recognize that the market is not unlimited in its 
ability to respond to the standards we set. This is true both for 
expanded use of ethanol and for non-ethanol renewable fuels. The fuels 
marketplace in the United States is large, diverse, and complex, made 
up of many different players with different, and often competing, 
interests. Substantial growth in the renewable fuel volumes beyond 
current levels will require action by many different parts of the fuel 
market, and a constraint in any one part of the market can act to limit 
the growth in renewable fuel supply. Whether notable constraints are in 
the technology development and commercialization stages, as has been 
the case with cellulosic biofuels, the development of distribution 
infrastructure as is the case with ethanol, or in the distribution and 
use of biodiesel, the end result is that these constraints limit the 
growth rate in the available supply of renewable fuel as transportation 
fuel, heating oil, or jet fuel. These constraints were discussed in 
detail in the 2014-2016 final rule, and we believe that the same 
constraints will operate to limit supply for 2017 as well.\107\ Other 
factors outside the purview of the RFS program also impact the supply 
of renewable fuel, including the price of crude oil and global supply 
and demand of both renewable fuels and their feedstocks. These factors 
add uncertainty to the task of estimating the adequacy of supply of 
renewable fuel in the future.
---------------------------------------------------------------------------

    \107\ See 80 FR 77450.
---------------------------------------------------------------------------

    While the constraints are real and must be taken into account in 
our evaluation of whether there is adequate supply to meet 19.28 
billion gallons of total renewable fuel, none of those constraints 
represent insurmountable barriers to growth. Rather, they are 
challenges that are in the process of being addressed and will be 
overcome in a responsive marketplace given enough time and with 
appropriate investment. The speed with which the market can overcome 
these constraints is a function of whether and how effectively parties 
involved in the many diverse aspects of renewable fuel supply respond 
to the challenges associated with transitioning from fossil-based fuels 
to renewable fuels, the incentives provided by the RFS program, and 
other programs designed to incentivize renewable fuel use.
i. E0
    We based the proposed total renewable fuel volume requirement in 
the NPRM on the same expectation from the 2014-2016 final rule 
regarding supply of E0: The RFS program would result in all but a tiny 
portion--estimated at 200 million gallons--of gasoline to contain at 
least 10% ethanol. We based this determination on the following two 
considerations:
    1. The RFS program will continue incentivizing the market to 
transition from E0 to E10 and other higher level ethanol blends through 
the RIN mechanism.
    2. Recreational marine engines represent a market segment that we 
believe would be particularly difficult to completely transition from 
E0 since they are used in a water environment where there is a greater 
potential for water contamination of the fuel. Some consumers are 
concerned that there could be a potential for consequent engine damage 
following phase separation of the water and fuel.\108\
---------------------------------------------------------------------------

    \108\ We note that a recent report from the National Renewable 
Energy Laboratory calls into question the significance of water 
contamination for recreational marine engines. See ``Gas becomes 
stale before water uptake becomes a concern,'' Ethanol Producer 
Magazine, September 21, 2016. See also original report ``Water 
Uptake and Weathering of Ethanol-Gasoline Blends in Humid 
Environments,'' by Christensen & McCormick, National Renewable 
Energy Laboratory, September, 2016.
---------------------------------------------------------------------------

    Based on the analysis conducted for the 2014-2016 final rule, it is 
most likely that any recreational marine engines refueled at retail 
service stations (i.e., not at marinas) would use only E10 since E0 is 
not typically offered at retail. Moreover, only a small minority of 
recreational marine engines refuel at marinas where E0 is more likely 
to be available, catering to that particular market. In a memorandum to 
the docket, we evaluated the information that had been supplied to us 
by stakeholders, highlighting the uncertainty in that information and 
concluding that about 200 million gallons of E0 was a reasonable 
estimate of the volume likely to be consumed by recreational marine 
engines.\109\ In the NPRM, we expressed our belief that this analysis 
also reflected reasonable expectations for 2017.
---------------------------------------------------------------------------

    \109\ ``Estimating E0 use in recreational marine engines,'' 
memorandum from David Korotney to docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    In response to the proposal for the 2017 standards, some 
stakeholders said that we had significantly underestimated the volume 
of E0 used by recreational marine engines. However, no new information 
was provided that was not already considered in the 2014-2016 final 
rule and discussed in the aforementioned memorandum and, as before, no 
stakeholders provided any data on actual consumption of E0 by 
recreational marine engines. Moreover, the anecdotal information 
suggesting that most if not all recreational marine engines are fueled 
on E0 does not represent an appropriate basis for increasing our 
estimate since it was not based on any form of data and moreover 
appears highly unlikely given our expectation that only a small 
minority of recreational marine engines refuel at marinas where E0 is 
likely to be more prevalent.
    Other stakeholders said that we had ignored significant demand for 
E0 in our determination of the total volume of

[[Page 89776]]

ethanol that can be supplied. They pointed beyond recreational marine 
engines to other small engines where there is demand for E0, and to Web 
sites like Pure-gas.org, which claim to list more than 11,000 stations 
which offer E0. Several stakeholders pointed to a report from EIA 
suggesting that 5.3 billion gallons of E0 was consumed in 2015.\110\ 
Several refiners reiterated their comments responding to the 2014-2016 
proposal which used EIA data to conclude that there is ongoing demand 
for E0 at a level of at least 3% of the total gasoline pool. This 
estimate of E0 demand was the primary basis for their request that the 
2017 standards be set in such a way that the poolwide gasoline ethanol 
concentration is no higher than 9.7%.
---------------------------------------------------------------------------

    \110\ ``Almost all U.S. gasoline is blended with 10% ethanol,'' 
Energy Information Administration, Today In Energy, May 4, 2016.
---------------------------------------------------------------------------

    Other than references to data and analyses collected by EIA, no 
stakeholder provided any data on actual E0 consumption. With regard to 
data from EIA, in the 2014-2016 final rule we addressed refiners' claim 
that 3% of the gasoline pool has been E0 for several years, concluding 
that those estimates were generated from incomplete EIA gasoline supply 
data which overestimated the potential demand for E0 at retail.\111\ 
Comments from refiners in response to the 2017 proposal did not provide 
any new or different information that would change our conclusions with 
regard to that 3% estimate.
---------------------------------------------------------------------------

    \111\ See discussion at 80 FR 77462.
---------------------------------------------------------------------------

    With regard to EIA's more recent estimate that 5.3 billion gallons 
of E0 was consumed in 2015, we do not believe that this value 
represents consumption of E0 at the retail. EIA's estimate was based on 
survey data from most U.S. terminals, which include information about 
domestic distribution from the terminal level and exports of ethanol-
free gasoline, with the difference representing domestic disposition. 
EIA combines this information with estimates of available ethanol, 
assuming that the ethanol is used in a 10% blend with ethanol-free 
gasoline. As described in a memorandum to the docket, our analysis of 
EIA's estimate of 5.3 billion gallons of E0 concludes that it would 
require E85 volumes significantly higher than the volumes likely to 
have been supplied in 2015.\112\ In our view, the 5.3 billion gallons 
of E0 estimated by EIA must include volumes that are blended with 
ethanol downstream of the terminal prior to dispensing from retail and 
centralized fleet refueling stations where additional ethanol blending 
can and does occur in excess of the blending used in EIA's estimate. 
The calculations are very sensitive to the exact volume of total 
ethanol available for blending, with EIA and EPA estimated volumes of 
total ethanol used differing by about 1 percent. We believe that EMTS 
data provides more accurate information on actual use of ethanol in 
motor fuel than EIA's survey data on ethanol production, blending, 
imports, and exports because it accounts for every gallon of ethanol 
produced but not exported, and is verified by the purchaser in the 
transaction within EMTS. Based on our analysis, we estimate that E0 
consumption at the retail level in 2015 would have been closer to about 
700 million gallons.
---------------------------------------------------------------------------

    \112\ ``Ethanol Consumption in 2015 and Estimates of E0 Use,'' 
memorandum from David Korotney to Docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    Some stakeholders pointed out that it would be difficult for the 
market to transition about 5 billion gallons of E0 to E10 within one 
year. However, since we believe that actual consumption of E0 in 2015 
was much closer to 700 million gallons than 5.3 billion gallons, 
continuing to transition away from E0 since then to 200 million gallons 
of E0 by the end of 2017 is achievable. As a result, we continue to 
believe that 200 million gallons of E0 is a reasonable value to assume 
for purposes of assessing the adequacy of supply of total renewable 
fuel, based on our prior assessment that this volume dedicated to 
recreational marine engine use may not be significantly influenced by 
the standards we set in this time period, and our expectation that the 
RFS program will continue to incentivize all but this small portion of 
the gasoline pool to be blended with ethanol.
    Stakeholders representing boat owners expressed concern that by 
including only 200 million gallons of E0 in the proposed derivation of 
maximum achievable total renewable fuel volumes, EPA anticipated 
effectively limiting the availability of E0 to 200 million gallons. 
This is not the case. The standards that EPA sets are not specific to 
ethanol nor to specific ethanol blends. Once the standards are set, the 
market has the flexibility to choose the mix of fuel types used to meet 
those standards. If, for instance, the demand for E0 in 2017 is higher 
than 200 million gallons, the market can compensate by providing higher 
volumes of E15 and/or E85, or additional non-ethanol renewable fuels.
ii. E15
    In the NPRM, we proposed that a total ethanol volume of 14.4 
billion gallons could be reached in 2017 based on the expectation that 
somewhat larger increases in ethanol supply were possible in 2017 than 
we had estimated for 2016. We did not provide specific estimates of E15 
or E85 use in 2017, but instead said that we generally expected the RFS 
program to influence sales of E0, E15, and E85 in such a way as to 
produce this increase in ethanol volume. For this final rule, we have 
undertaken a more detailed estimate of the volumes of E15 and E85 that 
are possible in 2017, so as to more confidently assess whether there is 
adequate supply to reach a total renewable fuel volume requirement of 
19.28 billion gallons.
    Most comments in response to the NPRM repeated viewpoints they had 
expressed in response to the 2014-2016 proposal. Refiners and their 
associations, as well as parties representing fuel marketers and 
retail, expressed doubt that the number of stations offering E15 could 
increase significantly in 2017 and pointed to vehicle warranties that 
they believed would hinder many owners of 2001+ model year vehicles 
from refueling on E15. They also repeated their concerns about engine 
damage and liability for misfueling. Ethanol proponents generally 
pointed to the large number of in-use vehicles that are legally 
permitted to use E15 and information suggesting that many existing 
retail stations are already compatible with E15, or can be 
inexpensively upgraded. They also pointed to incentives for expanded 
infrastructure provided by programs such as USDA's Biofuels 
Infrastructure Partnership (BIP) program and the ethanol industry's 
Prime the Pump program. A more detailed discussion of our views of 
these comments can be found in the 2014-2016 final rule and in the 
Response to Comments document for this final rule.\113\
---------------------------------------------------------------------------

    \113\ See discussion at 80 FR 77462-77464.
---------------------------------------------------------------------------

    Consistent with our assessment for the 2014-16 final rule, we 
believe that neither the number of vehicles that are legally permitted 
to use E15, nor the number of owners of such vehicles who would choose 
to use it, are the predominant factors in determining the volume of E15 
that is reasonably attainable in 2017. Instead, we believe that it is 
the number of retail stations offering E15 in 2017 that is more likely 
to determine how much E15 is actually consumed. The number of retail 
stations registered to offer E15 has grown to about 400 in the fall of 
2016 based on information collected by the RFG Survey Association, more 
than doubling from the previous year. However, this is

[[Page 89777]]

still a very small fraction of the approximately 150,000 retail 
stations currently operating. Based on comments received from retail 
station owners and their associations, this low number of retail 
stations offering E15 is most likely due to liability concerns and low 
expectations for a return on an investment in new or upgraded 
infrastructure.
    We do not believe, based on past experience, that the core concerns 
retailers have with liability over equipment compatibility and 
misfueling would change if the RFS volume requirements were increased 
significantly. Similarly, while higher RFS volume requirements could 
make it incrementally more attractive for retailers to upgrade 
infrastructure to offer E15, the concerns they expressed in their 
comments about high capital costs and opportunities for return on their 
investment would remain. As a result, setting higher volume 
requirements would be unlikely to result in dramatic increases in the 
number of additional retail stations offering E15 in 2017 beyond those 
that may be upgraded through existing grant programs. As a result, we 
do not believe that E15 infrastructure expansion can occur on the much 
larger scale and faster timeframe that ethanol proponents believe it 
can. However, we do believe that retail infrastructure can and will 
change to offer more E15 in 2017. We have estimated the expansion that 
is possible in 2017 based on information on both the BIP and Prime the 
Pump programs, as well as an expectation that independent efforts to 
expand infrastructure will continue. As described in a memorandum to 
the docket, we believe that the number of stations will increase during 
the course of the year, and that an annual average of about 1,640 
retail stations will be able to offer E15 in 2017.\114\
---------------------------------------------------------------------------

    \114\ ``Projections of retail stations offering E15 and E85 in 
2017,'' memorandum from David Korotney to docket EPA-HQ-OAR-2016-
0004.
---------------------------------------------------------------------------

    Since actual experience with E15 sales is so limited, and 
commenters provided little information on actual E15 sales volumes, we 
have made an estimate of possible E15 use in 2017 using the same 
methodology that was presented in the 2014-2016 final rule, 
supplemented by additional information about E15 that is expected to be 
supplied by terminals.\115\ That estimate was based on the following 
equation, which was also used in the 2014-2016 final rule:
---------------------------------------------------------------------------

    \115\ ``Estimates of E15 and E85 volumes in 2017,'' memorandum 
from David Korotney to docket EPA-HQ-OAR-2016-0004.

E15 volume = (Total gasoline throughput per station) x (Number of 
stations offering E15) x (Fraction of total gasoline sales which are 
---------------------------------------------------------------------------
E15)

We have updated the values used in this calculation based on comments 
provided by stakeholders and additional information that has become 
available since release of the NPRM. First, we have updated the number 
of retail stations that may offer E15 in 2017, as discussed above. 
Second, some stakeholders said that retail stations being targeted 
under the BIP program had greater total annual gasoline sales than 
average, such that it would be inappropriate to assume that the total 
gasoline throughput per retail service station in the above equation is 
equal to the nationwide average, currently about 0.95 million gallons 
per station per year. Available information on the BIP program does not 
include gasoline throughput, but larger retail stations would be more 
likely to produce the matching funds necessary as a condition of 
receiving BIP grant funds. One stakeholder that is actively and 
directly working with many of the retailers using funds from the BIP 
and Prime the Pump programs indicated that the average total gasoline 
throughput for affected retail stations is 2.8 billion gallons per 
year. Therefore, we have used this value in our determination of E15 
supply for 2017. Further discussion can be found in a memorandum to the 
docket.\116\
---------------------------------------------------------------------------

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

    Finally, in the 2014-2016 final rule we used a value of 50% for the 
fraction of total gasoline sales which are E15 at stations offering 
both E10 and E15 based on the expectation that E10 and E15 could be 
priced equally on a volumetric energy basis. While we continue to 
believe that 50% is possible, a number of refiners pointed out reasons 
that 50% may be too high in the near term, including the fact that 
there are likely to be fewer dispensers at a given retail station 
offering E15 than those offering only E10, and customer familiarity 
with E10. One party indicated that in Iowa in 2015, per-station E15 
sales were 15% of per-station E10 sales, though the data on which this 
conclusion was based did not rely on retail stations selling both E10 
and E15; the per-station estimate for E10 was based on all stations 
offering E10, regardless of whether they also offered E15. Not only are 
the Iowa data not necessarily representative of stations offering both 
E10 and E15, we have no information to indicate whether the experience 
in Iowa is representative of conditions that could exist under the 
increasing RFS standards in 2017. Nevertheless, we agree that the 
fraction of total gasoline sales which is E15 at stations offering both 
E15 and E10 is likely to be considerably less than 50% for the reasons 
described earlier (e.g., number of dispensers offering E15 at a given 
station, consumer unfamiliarity with E15), at least in 2017. Since we 
only have one source of data upon which to base our estimate, we are 
using that 15% value in our assessment.
    Although E15 has historically been produced at retail stations in 
blender pumps, since release of the NPRM we have become aware of new 
activities to produce E15 at terminals.\117\ This E15 could be used in 
retail equipment that has been certified to be compatible with E15, and 
so would expand the use of E15 beyond that available through blender 
pumps, including those targeted by the BIP and Prime the Pump programs. 
Based on currently available information, four out of the approximately 
1,400 terminals in the U.S. would produce E15 in 2017, and we expect 
that E15 production at those four terminals would be small in 
comparison to E10 production. As described in a memorandum to the 
docket, we estimate the E15 produced through terminals would be 41 
million gallons in 2017.\118\
---------------------------------------------------------------------------

    \117\ ``HWRT & RFA Announce First-Ever Offering of Pre-blended 
E15,'' docket EPA-HQ-OAR-2016-0004.
    \118\ ``Estimates of E15 and E85 volumes in 2017,'' memorandum 
from David Korotney to docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    Based on the above discussion, we have estimated that total E15 
supply in 2017 could reach 728 million gallons, resulting in about 38 
million gallons of ethanol more than would be supplied if that portion 
of the gasoline pool were E10. We have included this in our discussion 
of total ethanol volumes in Section V.B.1.iv below.
iii. E85
    As described previously, the NPRM did not provide specific 
estimates of E15 or E85 use in 2017, but instead indicated that we 
generally expected the RFS program to influence sales of E0, E15, and 
E85 in such a way as to produce a total ethanol supply of 14.4 billion 
gallons. Nevertheless, stakeholders provided comments on a variety of 
topics related to the estimation of achievable volumes of E85.\119\ 
Many of these comments

[[Page 89778]]

focused on an analysis of the relationship between E85 sales volumes 
and E85 price discount derived from publically available data from six 
states, which was provided with the 2014-2016 final rule.\120\
---------------------------------------------------------------------------

    \119\ We note that, in the 2014-2016 final rule, the estimation 
of E85 volumes was made in the context of determining the volume 
that constituted inadequate domestic supply under our general waiver 
authority. For this final rule, we are using the cellulosic waiver 
authority alone, and are estimating reasonably attainable volumes of 
E85.
    \120\ ``Correlating E85 consumption volumes with E85 price,'' 
memorandum from David Korotney to docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    As for many other aspects of this rule, stakeholders were strongly 
divided on the volumes of E85 that are achievable in 2017. Refiners 
typically said that E85 volumes are likely to reach little more than 
around 100 million gallons in 2017 based on their own estimates of E85 
in previous years using data collected by EIA from refiners, blenders, 
and ethanol production facilities. For instance, refiners suggested 
that E85 use in 2015 reached only 87 million gallons. However, as 
discussed in the 2014-2016 final rule, the EIA sources on which this 
estimate was based do not capture all E85 that is actually used; not 
all production at terminals, ethanol production facilities, or blenders 
with less than 50,000 barrels of product storage capacity are included, 
nor is E85 captured which is produced using reformulated gasoline or 
natural gasoline as the petroleum based component. Also, reported E85 
production at ethanol production facilities is likely to represent net 
rather than total finished fuel production given the occasional 
negative values reported in the past.\121\ These stakeholders provided 
no new information on historical E85 supply beyond what these EIA 
sources capture. As described in a memorandum to the docket, our own 
estimate of actual E85 use in 2015 based on E85 supply data from six 
states is approximately 186 million gallons.\122\ Moreover, we also do 
not believe it would be appropriate to merely extrapolate 2017 E85 
supply from trends in the past several years as some stakeholders 
suggested. Doing so would ignore the ability of the market to respond 
to the standards that we set.
---------------------------------------------------------------------------

    \121\ Reported values for ethanol production facilities 
represent net finished fuel produced. Insofar as finished fuel 
brought into the facility (i.e., gasoline) exceeds finished fuel 
produced by the facility (i.e., E85), a net negative value will 
result. This would occur if gasoline brought into the facility is 
used as a denaturant only, or as both a denaturant and in the 
production of E85. As a result, the values reported by EIA do not 
capture actual E85 produced and made available by these facilities, 
which would be the relevant value to use in our assessment.
    \122\ ``Final estimate of E85 consumption in 2015,'' memorandum 
from David Korotney to docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    In contrast, ethanol proponents said that E85 volumes could reach 
at least 500 million gallons in 2017, and some provided estimates 
considerably higher. Several pointed to E85 supply projections from 
EIA's Annual Energy Outlook 2016 (AEO2016), which projects 735 million 
gallons for 2017. However, we do not believe that the AEO is an 
appropriate basis for projecting E85 supply in 2017 for the purposes of 
setting the applicable volume requirements under the RFS program. For 
instance, the same modeling that projected 735 million gallons for 2017 
also projected 326 and 508 million gallons, respectively, for 2014 and 
2015. These volumes are far higher than what we believe the actual 
supply was in these years.\123\ And AEO2016 projects that total ethanol 
use in 2017 would be 13.8 billion gallons, far lower than the 14.4 
billion gallons that we proposed as the maximum achievable, and also 
considerably lower than EIA's own projections for 2017 in their Short-
Term Energy Outlook (STEO). As the STEO projections are based on more 
current information and are focused on more near-term outcomes, and the 
STEO also forms the basis for the gasoline and diesel demand 
projections that EIA has indicated should be used for determining the 
applicable percentage standards, we do not believe that AEO is an 
appropriate basis for estimating the E85 supply in 2017 that is 
reasonably attainable, nor, as another commenter suggested, total 
gasoline energy demand for 2016. We have used the STEO for the 
projection of 2017 total gasoline demand, combined with our own 
projections of total ethanol supply based on our estimates of 
reasonably attainable volumes of E15 and E85, along with a small amount 
of E0.
---------------------------------------------------------------------------

    \123\ For instance, as described in the 2014-2016 final rule (80 
FR 77460), we estimate that E85 use in 2014 was about 150 mill gal.
---------------------------------------------------------------------------

    For those stakeholders who provided detailed comments on how E85 
supply might best be projected for 2017, those comments typically 
focused on three areas:
     The number of flex-fueled vehicles (FFVs) in the 2017 
fleet that can use E85
     The retail infrastructure that can be made available in 
2017 to supply E85 to FFVs
     The degree to which E85 sales can be influenced by the E85 
price discount relative to E10
    We continue to believe that the number of FFVs in the fleet is not 
the controlling constraint on the use of E85. According to AEO2016, the 
number of FFVs in the fleet in 2017 is expected to be about 21 
million.\124\ These vehicles could use up to 13 billion gallons of E85 
if all of them had access to retail stations offering it and all FFV 
owners chose to refuel on E85 instead of E10. We acknowledge that a 
larger percentage of FFVs in the fleet could increase the volume of E85 
consumed, but in the short term we believe that it is the relatively 
very small number of retail stations offering E85 that is operating as 
the primary constraint on the volumes of E85 sold, and to a lesser 
extent the relative price of E85 and E10.
---------------------------------------------------------------------------

    \124\ Table 40, ``Light-Duty Vehicle Stock by Technology Type.''
---------------------------------------------------------------------------

    Many stakeholders provided comments on how the number of retail 
stations offering E85 could grow through the end of 2017. Most pointed 
to a combination of USDA's Biofuels Infrastructure Partnership (BIP) 
program, the ethanol industry's Prime the Pump program, and ongoing 
efforts independent of these two programs. Parties representing 
gasoline marketing and retail, in contrast, generally repeated the 
concerns that they raised in the 2014-2016 final rule about costs for 
new infrastructure and low expected profit margins in support of their 
view that the number of retail stations offering E85 would grow slowly. 
Several stakeholders pointed to specific examples of retail stations 
that had stopped offering E85 due to poor sales.
    Based on the information provided by stakeholders and other 
information that became available following release of the NPRM, we 
believe that the BIP and Prime the Pump programs will drive nearly all 
growth in E85 stations through the end of 2017, with far less growth 
occurring through independent efforts. As described in a memorandum to 
the docket, we believe that an annual average of about 4,300 retail 
stations can offer E85 in 2017.\125\ This is a significant increase in 
comparison to the 3,200 that we projected would offer E85 in 2016 in 
the 2014-2016 final rule, but still a relatively small number of 
stations compared to the estimated 150,000 retail stations nationwide.
---------------------------------------------------------------------------

    \125\ ``Projections of retail stations offering E15 and E85 in 
2017,'' memorandum from David Korotney to docket EPA-HQ-OAR-2016-
0004.
---------------------------------------------------------------------------

    In order to estimate reasonably attainable sales volumes of E85 in 
2017, it is also necessary to estimate the volume of E85 likely to be 
sold at each retail station that offers it. Recognizing this, 
stakeholders provided comments on the aforementioned analysis of the 
relationship between E85 sales volumes at retail and E85 price discount 
derived from publically available data from six states. Refiners 
generally dismissed the value of the data used in this analysis, saying 
that the uncertainty within the data and questions about its

[[Page 89779]]

representativeness for the nation as a whole made it an improper basis 
for future projections. They instead suggested that E85 use in 2017 
should be based only on an extrapolation of E85 supply trends from the 
previous few years. We disagree. The data used for the analysis 
demonstrated statistically significant correlations between E85 sales 
volumes and E85 price discounts, and represented between 21% and 31% of 
all stations in the U.S. which offered E85.\126\ Moreover, their 
suggested extrapolation from historical data would insufficiently 
account for the influence of both the RFS program itself and programs 
such as BIP and Prime the Pump, and would also be based on historical 
estimates of E85 supply using EIA data that, as described above, we 
believe are likely to be inaccurate.
---------------------------------------------------------------------------

    \126\ Range depends on the month and year.
---------------------------------------------------------------------------

    Ethanol proponents recognized the value of the available data in 
developing correlations between E85 sales at retail and E85 price 
discounts. However, they provided critiques of the analyses we had 
conducted for the 2014-2016 final rule, and they also had alternative 
views on the application of the resulting correlations. Comments 
provided by these stakeholders generally fell into broad areas:
     The data should be represented by nonlinear rather than 
linear correlations
     Estimates of E85 use derived from the correlations should 
be based on substantial extrapolations beyond the limits of the data, 
i.e. using much higher E85 price discounts than have occurred in the 
past
    Some stakeholders conducted their own analyses of the data wherein 
they employed additional statistical techniques to attempt to more 
precisely determine the nature of the relationship between E85 sales 
volumes and E85 price discounts. These included such things as adding 
seasonal and annual categorical variables into the correlations and an 
investigation into different nonlinear functional forms.
    In light of the comments provided by these stakeholders, we 
determined that the analyses conducted for the 2014-2016 final rule 
should be updated. Not only is additional data now available for the 
six states included in the analyses, but more rigorous statistical 
methods can be employed to more precisely determine the relationship 
between E85 sales volumes and E85 price discount, including whether a 
nonlinear correlation is appropriate. As described in a memorandum to 
the docket, our revised analyses indicate that a weak nonlinear 
relationship can be discerned in the data, and that it does provide a 
small increase in the explanatory power of the curve fit.\127\
---------------------------------------------------------------------------

    \127\ ``Updated correlation of E85 sales volumes with E85 price 
discount,'' memorandum from David Korotney to docket EPA-HQ-OAR-
2016-0004.
---------------------------------------------------------------------------

    In addition to an estimate of the number of retail stations that 
may offer E85 in 2017, the use of a correlation between E85 sales 
volumes and E85 price discount to estimate reasonably attainable 
volumes of E85 for 2017 requires that we estimate an E85 price discount 
that would be reasonable for 2017. Again, stakeholders were strongly 
divided on what E85 price discount may be attainable in 2017. Refiners 
typically said that an E85 price discount beyond energy parity (about 
22% below the price of E10) was not supportable based on historical 
data and pointed to EPA's analyses showing that a sizable portion of 
the RIN value is not passed on to retail customers, diluting the impact 
of RIN prices on E85 prices. Ethanol proponents instead said that 
historical E85 price discounts should not be used as a gauge of what 
future E85 price discounts could be under the influence of higher RFS 
program standards. They discounted the limitations associated with the 
pass-through of RIN values to retail customers, arguing that if EPA set 
the standards high enough, the resulting higher RIN prices would result 
in significantly discounted retail pricing for E85 at the retail level. 
Some commenters presented examples of individual stations or regions 
where it appeared the RIN value was being passed-through to a greater 
degree to support their statements, however EPA does not believe these 
examples are representative of retailer behavior across the 
country.\128\
---------------------------------------------------------------------------

    \128\ For a further discussion of these comments, see Section 
2.3.8.2 of the Response to Comment document.
---------------------------------------------------------------------------

    There is no straightforward mechanism for precisely identifying an 
E85 price discount for use in assessing 2017 ethanol supply. While some 
stakeholders provided examples of E85 price discounts that could be 
reached under specific assumed RIN prices and assumed RIN value pass-
through to retail customers, such examples were purely speculative and 
provided no method for determining the E85 price discount that is 
likely to be reasonably attainable in 2017 given the E85 retail prices 
we have observed to date and the history of the fuels market.
    In order to identify an E85 price discount that could be reasonably 
be assumed for the nation as a whole in 2017, we continue to believe 
that an investigation of E85 price discounts reached in the past is 
both less speculative than the suggestions made by ethanol proponents 
in their comments and more consistent with commonly accepted approaches 
to data analysis. However, we also do not believe that the average 
levels achieved in the past are sufficiently representative of what 
could be expected to occur in the future under the influence of the RFS 
program. As described in a memorandum to the docket that we published 
with the NPRM, the monthly average E85 price discount has rarely 
exceeded energy parity (about 22%), and the highest 12-month average 
retail E85 price discount has been significantly lower.\129\
---------------------------------------------------------------------------

    \129\ ``Estimating achievable volumes of E85,'' memorandum from 
David Korotney to docket EPA-HQ-OAR-2016-0004. Note that this 
memorandum was published with the NPRM on May 31, 2016, and with the 
exception of the discussion of historical E85 price reductions is 
largely supplanted by memoranda published with this final rule. See 
in particular ``Estimates of E15 and E85 volumes in 2017,'' 
memorandum from David Korotney to docket EPA-HQ-OAR-2016-0004.

                       Table V.B.1.iii-1--E85 Price Discounts Between 2012 and Early 2016
----------------------------------------------------------------------------------------------------------------
                                           Fuels Institute           E85prices.com                 AAA
----------------------------------------------------------------------------------------------------------------
Highest E85 price discount in a        21.1% (May 2015).......  23.7% (Oct 2014).......  24.1% (Apr 2015).
 single month.
Highest 12-month average E85 price     16.0% (Sep 2014-Aug      19.6% (Sep 2014-Aug      18.7% (Oct 2014-Sep
 discount.                              2015).                   2015).                   2015).
----------------------------------------------------------------------------------------------------------------

    In that memorandum we indicated our belief that achieving energy 
parity for a full year would be unprecedented, but appears to be within 
the capabilities of the market given the historical values shown above. 
E85 price discounts higher than energy parity that were suggested by 
some stakeholders in their comments have not been achieved in

[[Page 89780]]

the past for any notable length of time, and thus, we believe, are not 
likely for all of 2017. They may, however, occur in future years as the 
number of retail stations offering E85 increases and competition 
between them drives E85 prices down. For the purposes of this final 
rule, we have used an E85 price discount of 22% in estimating the 
supply of E85 in 2017.
    Some stakeholders pointed to a statement in the NPRM which said ``. 
. . an increase in the nationwide average E85 price reduction to 30% 
would be unprecedented,'' and then argued that EPA had not provided any 
justification for expecting this level to be sustainable for a full 
year.\130\ We note that E85 price discounts have reached 30% in the 
past, albeit locally and for short time periods. However, we did not 
propose using an E85 price discount of 30% in the determination of the 
proposed 2017 volume requirement for total renewable fuel, but only 
provided it as one of several examples for how the market might 
respond.
---------------------------------------------------------------------------

    \130\ See discussion at 81 FR 34790.
---------------------------------------------------------------------------

    Combining the updated correlation between E85 sales volumes and E85 
price discounts with estimates for the number of retail stations that 
can offer E85 in 2017 and a reasonably attainable E85 price discount of 
22%, we have determined that supply of about 275 million gallons of E85 
is reasonably attainable in 2017, resulting in about 182 million 
gallons of ethanol more than would be supplied if that portion of the 
gasoline pool were E10. This level of E85 supply is an increase of 
almost 40% in just one year from the 200 million gallons that we 
believed could be reached in 2016, primarily reflecting the significant 
increase in the number of stations projected to offer E85 in 2017 as a 
result of USDA's BIP program and the ethanol industry's Prime the Pump 
program.
iv. Total Ethanol
    The total supply of ethanol in 2017 is a function of the respective 
volumes of E10, E15, and E85, while accounting for some E0. Assuming 
that the total demand for gasoline energy is independent of the amounts 
of each of these types of fuel, estimating the supply of E0, E15, and 
E85 that are attainable can be used to derive the supply of E10.
    Several stakeholders commented that we should use a more recent 
version of EIA's Short-Term Energy Outlook (STEO) than the April, 2016 
version we used in the NPRM to estimate gasoline demand in 2017. We 
agree that we should use updated EIA data. For this final rule we have 
used the October, 2016 version, which projects a total gasoline energy 
demand of 17.29 Quadrillion Btu.\131\ Based on estimates of E0, E15, 
and E85 supply for 2017 as discussed in previous sections, the E10 
volume and resulting total ethanol supply can be calculated.
---------------------------------------------------------------------------

    \131\ Derived from Table 4a of the STEO, converting consumed 
gasoline and ethanol projected volumes into energy using conversion 
factors supplied by EIA. http://www.eia.gov/forecasts/steo/archives/oct16.pdf.
    Excludes gasoline consumption in Alaska. For further details, 
see ``Calculation of final % standards for 2017'' in docket EPA-HQ-
OAR-2016-0004.

        Table V.B.1.iv-1--Gasoline Volumes Use To Determine Reasonably Attainably Ethanol Supply in 2017
----------------------------------------------------------------------------------------------------------------
                                                                    Fuel volume   Ethanol volume   Energy (Quad
                                                                    (mill gal)      (mill gal)         Btu)
----------------------------------------------------------------------------------------------------------------
E0..............................................................             200               0           0.025
E10.............................................................         142,480          14,248          17.151
E15.............................................................             728             109           0.086
E85 \a\.........................................................             275             204           0.026
                                                                 -----------------------------------------------
    Total.......................................................         143,683          14,561          17.288
----------------------------------------------------------------------------------------------------------------
\a\ Assumed to contain 74% ethanol.

    Based on this assessment, we estimate an ethanol supply for 2017 of 
14.56 billion gallons. While the market will ultimately determine the 
extent to which compliance with the annual standards is achieved 
through the use of greater volumes of ethanol versus other, non-ethanol 
renewable fuels, we nevertheless believe that this ethanol volume 
represents a reasonably attainable level that takes into account the 
ability of the market to respond to the standards we set and the 
constraints to fuel supply that we have noted.
    One stakeholder said that EIA's projections of future gasoline 
demand as provided in the STEO have been too low in previous years, and 
that EPA should account for this underestimate when making projections 
of the volume of ethanol that can be achieved in 2017. We investigated 
this issue and determined that while EIA projections of future gasoline 
demand do contain uncertainty, they are not consistently above or below 
actual gasoline demand.\132\
---------------------------------------------------------------------------

    \132\ ``Accuracy of STEO gasoline demand projections,'' 
memorandum from David Korotney to docket EPA-HQ-OAR-2016.
---------------------------------------------------------------------------

    In response to the NPRM, some stakeholders reiterated their 
concerns from the 2014-2016 final rule that EPA's methodology rewarded 
obligated parties for their recalcitrance in not investing in the 
infrastructure needed to substantially increase ethanol use above the 
E10 blendwall. In taking these positions, stakeholders cited both the 
statutory requirement that obligations be placed on ``refineries, 
blenders, and importers, as appropriate'' and EPA's regulations which 
(with limited exceptions) further narrow the applicability of the 
obligations to producers and importers of gasoline and diesel. As 
described in the 2014-2016 final rule, we agree that the statutory 
language, in combination with the regulatory structure, generally 
places the responsibility on producers and importers of gasoline and 
diesel to ensure that transportation fuel sold or introduced into 
commerce contains the required volumes of renewable fuel. Obligated 
parties have a variety of options available to them, both to increase 
volumes in the near term and the longer term. The standards that we are 
establishing today reflect both the responsibility placed on obligated 
parties as well as the short-term activities available to them, and we 
expect obligated parties to be taking actions now that will help to 
increase renewable fuel volumes in future years. However, as pointed 
out by some refiners in response to the NPRM, this general 
responsibility does not require

[[Page 89781]]

obligated parties to take actions specific to E15 and/or E85 
infrastructure, as the RFS program does not require any volumes of 
ethanol specifically. We continue to believe that as obligated parties 
procure and blend renewable fuels into transportation fuel, or purchase 
RINs from those who do so, the demand for RINs will drive demand for 
renewable fuel, thereby stimulating every participant in the fuels 
industry, including obligated parties themselves, to increase their 
activities to supply it.\133\ Moreover, the reductions in statutory 
volumes reflected in this action are largely the result of the 
inability to date of renewable fuel producers to commercialize the 
volumes of cellulosic biofuel envisioned in the statute. This fact 
cannot reasonably be attributed to actions or inactions of obligated 
parties.
---------------------------------------------------------------------------

    \133\ The EPA Administrator signed the Proposed Denial of 
Petitions for Rulemaking to Change the RFS Point of Obligation on 
November 10, 2016. More information can be found at https://www.epa.gov/renewable-fuel-standard-program/response-petitions-reconsideration-rfs2-rule-change-point-obligation.
---------------------------------------------------------------------------

    One stakeholder said that the EPA should target a poolwide gasoline 
ethanol content of less than 10% in part because blenders need a buffer 
to account for uncertainty associated with ethanol content testing and 
downstream mixing in the fungible distribution system. This stakeholder 
suggested that blenders have historically aimed to blend at less than 
10% ethanol, and that as a result EPA should set standards consistent 
with this practice. We investigated this issue using survey data 
collected by the Alliance of Automobile Manufacturers for 2011-2015 and 
determined that the average ethanol content of all gasoline that 
contained more than de minimis levels of ethanol was 9.80%.\134\ This 
estimate is based on the use of ASTM test method D-5599, which measures 
only the alcohol portion of the gasoline, not any denaturant that would 
have been included with the ethanol before it was blended into 
gasoline. Since the denaturant portion of ethanol is typically about 
2%, ethanol that is blended into gasoline contains about 98% 
ethanol.\135\ When blended into gasoline, therefore, the E98 would 
result in a gasoline-ethanol blend containing about 9.8% pure ethanol, 
or 10.0% denatured ethanol. Based on this investigation, we have 
determined that it is appropriate to continue assuming that the 
denatured ethanol content of E10 is 10%.
---------------------------------------------------------------------------

    \134\ Under the rounding method required under 40 CFR 80.9, 
ethanol concentrations of between 8.6% and 10.5% inclusive would 
qualify for the 1psi waiver.
    \135\ See definition of ``renewable fuel'' at 40 CFR 80.1401.
---------------------------------------------------------------------------

2. Biodiesel and Renewable Diesel
    While the market constraints on ethanol supply are readily 
identifiable, it is more difficult to identify and assess the market 
components that may limit potential growth in the use of all qualifying 
forms of biodiesel and renewable diesel in 2017. Therefore, as 
discussed in the introduction to Section V.B, after estimating the 
supply of ethanol in 2017, and taking into account the estimates of 
non-ethanol cellulosic biofuel supply discussed in Section III.D above 
and estimates of other non-ethanol renewable fuel supply discussed in 
Section IV.B.3, we considered whether the supply of total biodiesel and 
renewable diesel would be adequate to satisfy a requirement of 19.28 
billion gallons.
    In Section V.A we described how use of the cellulosic waiver 
authority to provide a volume reduction for total renewable fuel that 
equals that provided for advanced biofuels yields a volume of 19.28 
billion gallons. In addition to the ethanol volume discussed in Section 
V.B.1.iv above, cellulosic biogas can also contribute to this total 
volume of renewable fuel, as described more fully in Section III.D. 
While other renewable fuels such as naphtha, heating oil, butanol, and 
jet fuel can be expected to continue growing over the next year, 
collectively, we expect them to contribute considerably less than 
ethanol to the total volume of renewable fuel that can be supplied in 
2017. These were discussed in Section IV.B.3. Based on these estimates 
of supply, about 2.9 billion gallons of biodiesel and renewable diesel 
would be needed in order to meet a total renewable fuel volume 
requirement of 19.28 billion gallons.

Table V.B.3-1--Determination of Volume of Biodiesel and Renewable Diesel
 Needed in 2017 To Achieve 19.28 Billion Gallons of Total Renewable Fuel
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total renewable fuel volume..........................             19,280
Ethanol..............................................             14,561
Non-ethanol cellulosic biofuel.......................                299
Other non-ethanol renewable fuels \a\................                 50
Biodiesel and renewable diesel needed (ethanol-              4,370/2,819
 equivalent volume/physical volume)..................
------------------------------------------------------------------------
\a\ Includes naphtha, heating oil, butanol, and jet fuel. See further
  discussion in Section IV.B.3.

    As discussed in the final rule establishing the RFS standards for 
2014-2016, there are several factors that may, to varying degrees and 
at different times, limit the growth of biodiesel and renewable diesel, 
including local feedstock availability, production and import capacity, 
and the ability to distribute, sell, and use increasing volumes of 
biodiesel and renewable diesel. We continue to believe that the supply 
of biodiesel and renewable diesel as transportation fuel in the United 
States, while growing, is not without limit.
    In the proposed rule we discussed the current status of each of a 
number of the factors that impact the supply of biodiesel and renewable 
diesel used as transportation fuel in the United States. We received a 
number of comments on our assessment of these factors. Some of these 
comments supported the proposed findings in the NPRM and agreed that 
EPA had sufficiently accounted for the factors that may constrain the 
growth of biodiesel and renewable diesel in 2017, while others argued 
that EPA had overstated these constraints and the degree to which they 
would limit the supply of biodiesel and renewable diesel in 2017. As 
stated in our proposed rule, we expect that the growth in the supply of 
biodiesel and renewable diesel will largely be driven by incremental 
developments across the marketplace to steadily increase volumes. 
However, after a careful review of the information submitted as 
comments on our proposed rule, we believe that the reasonably 
attainable supply of biodiesel and renewable diesel in 2017 is higher 
than we had proposed.

[[Page 89782]]

    Based on our assessment of the various factors which affect the 
supply of biodiesel and renewable diesel, we have determined that 2.9 
billion gallons of biodiesel and renewable diesel (including both 
advanced and conventional biofuel) can be reasonably attained in 2017, 
up from the 2.5 billion gallons that was projected for 2016. This 
volume is significantly higher than the previously established BBD 
standard of 2.0 billion gallons for 2017, as we believe additional 
volumes of both conventional and advanced biodiesel and renewable 
diesel can be supplied to the United States in 2017 (see Section VI for 
further discussion of the BBD standard). The following sections discuss 
our expectations for developments in key areas affecting the supply of 
biodiesel and renewable diesel in 2017.
i. Feedstock Availability
    In previous years, the primary feedstocks used to produce biodiesel 
and renewable diesel in the United States have been vegetable oils 
(primarily soy, corn, and canola oils) and waste fats, oils, and 
greases. We anticipate that these feedstocks will continue to be the 
primary feedstocks used to produce biodiesel and renewable diesel in 
2017. Global supplies of these oils are significant, however they are 
expected to increase relatively slowly over time, as vegetable oil 
production increases primarily with increases in crop yields and the 
remaining untapped supply of recoverable waste oils diminishes. 
Additional supplies of feedstocks could be produced by increasing the 
planted acres of oilseed crops (soy, canola, etc.), but with the 
exception of palm oil most vegetable oils are produced as a co-product 
of the production of animal feed and increased demand for vegetable oil 
is unlikely to result in a significant increase in oilseed crop 
planting absent growing demand for the animal feed. While some have 
suggested that industries that compete with the biodiesel and renewable 
diesel industry for renewable oil feedstocks will turn to alternative 
feedstock sources, resulting in greater feedstock availability for 
biodiesel and renewable diesel producers, such a shift in renewable oil 
feedstock use would not result in an increase in the total available 
supply of renewable oil feedstocks as those volumes will have to be 
backfilled. As a result, this would not alter the fundamental feedstock 
supply dynamics for biodiesel and renewable diesel production.
    We anticipate that there will be a modest increase in the available 
supply of feedstocks that can be used to produce biodiesel and 
renewable diesel in 2017. Oil crop yield increases over the next few 
years are expected to be relatively modest, and significant increases 
in the planted acres of oil crops are expected to be limited by 
competition for arable land from other higher value crops and demand 
for the animal feed co-products produced by most oilseed crops.\136\ 
The recovery of corn oil from distillers grains and the recovery of 
waste oils are already widespread practices, limiting the potential for 
growth from these sectors compared to what has been able to occur over 
recent years as these new markets were being tapped. In light of this, 
we do not believe that the availability of biodiesel and renewable 
diesel feedstocks is without limit. It is also possible that biodiesel 
production at some individual facilities, especially those built to 
take advantage of low-cost, locally available feedstocks, may be 
limited by their access to affordable feedstocks in 2017, rather than 
their facility capacity, even if the global supply of feedstocks is 
sufficient to enable additional production.
---------------------------------------------------------------------------

    \136\ Because most oilseed crops are grown primarily to provide 
livestock feed, the planted acres of these crops are expected to 
increase in response to demand for livestock feed rather than demand 
for renewable vegetable oils.
---------------------------------------------------------------------------

    As discussed in further detail in Section IV.B.2, the availability 
of qualifying advanced biodiesel and renewable diesel feedstocks may 
also be limited (even if the total supply of feedstocks is sufficient), 
and large increases in advanced biodiesel and renewable diesel demand 
could lead to significant feedstock substitution rather than increased 
production of advanced feedstocks. Unreasonably high demand for 
biodiesel and renewable diesel could also cause undesirable market 
disruptions. Large increases in the available supply of biodiesel and 
renewable diesel in future years will likely depend on the development 
and use of new, high-yielding feedstocks, such as algal oils or 
alternative oilseed crops. Based on currently available information, we 
believe that the availability of feedstocks (including both feedstocks 
that can be used to produce advanced and conventional biodiesel and 
renewable diesel) is unlikely to significantly limit the supply of 
total biodiesel and renewable diesel used for transportation fuel in 
the United States in 2017, when considering the standards we are 
establishing in this rule. This is largely the case because we believe 
that other constraints, discussed below, will likely constrain the 
distribution and use of biodiesel and renewable diesel before the 
feedstock limits have been reached.
ii. Biodiesel and Renewable Diesel Production Capacity
    The capacity for all registered domestic biodiesel production 
facilities is approximately 3.5 billion gallons.\137\ The capacity for 
all registered domestic renewable diesel production facilities is 
approximately 0.7 billion gallons.\138\ Active production capacity is 
lower, however, as a number of registered facilities were idle in 2015 
and 2016. The capacity for all domestic biodiesel and renewable diesel 
production facilities that generated RINs in 2015 or 2016 is 
approximately 3.1 billion gallons.\139\ While idled production 
facilities may be brought online, doing so would likely require 
sufficient time to re-staff the production facilities, make any 
necessary repairs or upgrades to the facility, and source the required 
feedstocks. Additionally, there are many factors that may limit 
biodiesel or renewable diesel production at any given facility to a 
volume lower than the facility capacity.\140\ As with feedstock 
availability, we do not expect that production capacity at registered 
facilities will limit the supply of biodiesel/renewable diesel for use 
as transportation fuel in the United States in 2017. Foreign registered 
biodiesel and renewable diesel facilities represent a significant 
volume of additional potential production that could be made available 
to markets in the United States. While the total registered production 
capacity of foreign biodiesel and renewable diesel is significant, 
supply of biodiesel and renewable diesel from these facilities in 2017 
may be impacted by the capacity to import these fuels, discussed in the 
following section.
---------------------------------------------------------------------------

    \137\ ``Biodiesel and Renewable Diesel Registered Capacity 
(October 2016)'', Memorandum from Dallas Burkholder to EPA Docket 
EPA-HQ-OAR-2016-0004.
    \138\ Ibid.
    \139\ Ibid.
    \140\ Due to the relatively low capital cost of biodiesel 
production facilities, many facilities were built with excess 
production capacity that has never been used.
---------------------------------------------------------------------------

iii. Biodiesel and Renewable Diesel Import Capacity
    Another important market component in assessing biodiesel and 
renewable diesel supply is the potential for imported volumes and the 
diversion of domestically produced biodiesel and renewable diesel 
exports to domestic uses. In addition to the approximately 560 million 
gallons imported into the

[[Page 89783]]

U.S. in 2015, there were about 90 million gallons exported from the 
United States to overseas markets. One commenter used biodiesel import 
data from January 2012 through April 2016 to estimate that, based on 
the highest annual volume of biodiesel imports in the 55 cities that 
reported biodiesel imports during this time period, the United States 
current import capacity for biodiesel at these cities is approximately 
659 million gallons.\141\ Actual import capacity is likely to exceed 
this volume, as this estimate relied solely on historic import volumes, 
rather than an assessment of the capacity of the infrastructure that 
could be used to import biodiesel at these 55 cities. It is also likely 
that under the right circumstances there are additional locations 
through which biodiesel could be imported.
---------------------------------------------------------------------------

    \141\ See comments from Renewable Energy Group, Inc. (EPA-HQ-
OAR-2016-0004-3477). REG used data from the Energy Information 
Agency in their assessment, and therefore did not capture renewable 
diesel imports. The total import capacity of biodiesel and renewable 
diesel therefore likely exceeds the volumes estimated here.
---------------------------------------------------------------------------

    Given the right incentives, it may be possible to increase net 
biodiesel and renewable diesel imports, either by redirecting a portion 
of the biodiesel currently consumed in foreign countries to be exported 
to the U.S. and/or by reducing the volume of biodiesel exported from 
the United States. However, the amount of biodiesel and renewable 
diesel that can be imported into the United States is difficult to 
predict, as the incentives to import biodiesel and renewable diesel to 
the U.S. are a function not only of the RFS and other U.S. policies and 
economic drivers, but also those in the other countries around the 
world. These policies and economic drivers are not fixed, and change on 
a continuing basis. Over the years there has been significant variation 
in both the imports and exports of biodiesel and renewable diesel as a 
result of varying policies and relative economic conditions (See Figure 
V.B.2.iii-1 below). Increasing biodiesel and renewable diesel imports 
significantly beyond the 659 million gallons estimated above would 
require a clear signal to the parties involved that increasing imports 
will be economically advantageous and the potential re-negotiations of 
existing contracts. It may also require upgrades and expansions at U.S. 
import terminals. It is possible, but uncertain, whether higher RFS 
standards could provide such a signal. Also, to the degree that higher 
volumes of imported biodiesel or renewable diesel to the United States 
come at the expense of consumption in the rest of the world, the 
environmental benefits of this increased volume are expected to be 
modest.\142\ In this final rule we have not projected biodiesel and 
renewable diesel imports separately from domestically produced 
biodiesel and renewable diesel, since these fuels are subject to the 
same potential limitations (e.g., feedstock availability, distribution 
and use constraints, etc.).\143\ We do believe, however that the 
standards in this final rule will result in an increase in biodiesel 
and renewable diesel imports consistent with the general trend observed 
in previous years, and our projection of the supply of these fuels in 
2017 includes this expected increase.
---------------------------------------------------------------------------

    \142\ See Section IV.B.2 for a further discussion of this issue.
    \143\ As discussed in Section IV.B.2, we expect an increase of 
approximately 100 million gallons of advanced biodiesel, advanced 
renewable diesel, and/or feedstocks that can be used to produce 
these fuels. We are also projecting an increase of 100 million 
gallons of conventional biodiesel and renewable diesel. Historically 
the majority of this fuel has been imported (see Table IV.B.2-2), 
and we expect this will again be the case in 2017.
[GRAPHIC] [TIFF OMITTED] TR12DE16.006


[[Page 89784]]


iv. Biodiesel and Renewable Diesel Distribution Capacity
    While biodiesel and renewable diesel are similar in that they are 
both diesel fuel replacements produced from the same types of 
feedstocks, there are significant differences in their fuel properties 
that result in differences in the way the two fuels are distributed and 
consumed. Renewable diesel is a pure hydrocarbon fuel that is nearly 
indistinguishable from petroleum-based diesel. As a result, it can 
generally use the existing distribution infrastructure for petroleum 
diesel and there are no significant constraints on its growth with 
respect to distribution capacity. Biodiesel, in contrast, is an 
oxygenated fuel rather than a pure hydrocarbon. It historically has not 
been distributed through most pipelines due to contamination concerns 
with jet fuel, and may require specialized storage facilities, 
additives, or blending with petroleum diesel to prevent the fuel from 
gelling in cold temperatures. In the past few years, however, a limited 
number of pipelines that do not carry jet fuel have begun shipping 
biodiesel blends.\144\ Recent changes to the ASTM jet fuel 
specifications allowing up to 50 ppm biodiesel,\145\ as well as 
experience gained in isolating jet fuel from biodiesel in pipelines may 
open new opportunities for distributing biodiesel blends by pipeline in 
future years. A number of studies have investigated the impacts of cold 
temperatures on storage, blending, distribution, and use of biodiesel, 
along with potential mitigation strategies.146 147 148 
Information provided by the National Biodiesel Board, as well as 
comments on our proposed rule, indicate that some retailers offer 
biodiesel blend levels that differ in the summer and winter to account 
for these cold temperature impacts.149 150 While cold 
temperatures can cause problems with the distribution and use of 
biodiesel, the experiences of states such as Minnesota and Illinois, 
where biodiesel is used year-round despite cold winter weather, 
demonstrates that these challenges can be overcome with the proper 
handling of biodiesel.151 152
---------------------------------------------------------------------------

    \144\ See NBB comments on the Proposed Rule (EPA-HQ-OAR-2016-
0004-2904).
    \145\ While the ASTM specification generally limits biodiesel 
contamination in jet fuel to 50 ppm, up to 100 ppm biodiesel may be 
allowed on an ``emergency basis.'' Subcommittee J intends to 
consider a ballot to increase the limit of biodiesel in jet fuel to 
100 ppm (See ASTM D1655).
    \146\ ``Biodiesel Cloud Point and Cold Weather Issues,'' NC 
State University & A&T State University Cooperative Extension, 
December 9, 2010.
    \147\ ``Biodiesel Cold Weather Blending Study,'' Cold Flow 
Blending Consortium.
    \148\ ``Petroleum Diesel Fuel and Biodiesel Technical Cold 
Weather Issues,'' Minnesota Department of Agriculture, Report to 
Legislature, February 15, 2009.
    \149\ http://biodiesel.org/using-biodiesel/finding-biodiesel/retail-locations/biodiesel-retailer-listings.
    \150\ See comment from CountryMark on the proposed rule (EPA-HQ-
OAR-2016-0004-1826).
    \151\ Biodiesel is used year-round in Minnesota and Illinois in 
large part due to state mandates and tax credits respectively, in 
addition to the incentives provided by the RFS program.
    \152\ ``Report to the Legislature Annual Report on Biodiesel,'' 
Kevin Hennessy, Minnesota Department of Agriculture. January 15, 
2016. Available online <https://www.leg.state.mn.us/docs/2016/mandated/160162.pdf>.
---------------------------------------------------------------------------

    The infrastructure needed to store and distribute biodiesel has 
generally been built in response to the local demand for biodiesel. In 
some cases, the infrastructure must be expanded to bring biodiesel to 
new markets and additional infrastructure may also be needed to 
increase the supply of biodiesel in markets where it is already being 
sold. In other cases, sufficient infrastructure exists to increase the 
local supply of biodiesel and biodiesel blends using existing 
infrastructure.
    Another factor potentially constraining the supply of biodiesel is 
the number of terminals and bulk plants that currently distribute 
biodiesel. A study conducted on behalf of the NBB used OPIS data to 
calculate that biodiesel is currently offered at fuel terminals in 369 
of the 563 cities (approximately 66%) that have terminals providing 
gasoline, diesel and/or biodiesel.\153\ In addition to these terminals, 
biodiesel is often distributed from bulk plants or directly from 
biodiesel production facilities. At present, the Web site Biodiesel.org 
lists over 600 distribution facilities reported as selling biodiesel 
either in pure form or blended form, the majority of which are bulk 
plants.154 155 Biodiesel production facilities also serve as 
important distribution centers for biodiesel. According to a survey 
conducted by NBB, 30% of the biodiesel produced at facilities that 
responded to the survey is sold directly to retailers.\156\ Direct 
sales to retail stations provide a significant opportunity for 
biodiesel producers to access local markets without first transporting 
biodiesel to a terminal or bulk plant for further distribution.
---------------------------------------------------------------------------

    \153\ See Attachment 6 of the comments submitted by the National 
Biodiesel Board (EPA-HQ-OAR-2016-0004-2904). The report lists 453 
cities with terminals that offer gasoline and diesel, 369 that offer 
biodiesel or biodiesel blends, and 259 that offer both petroleum 
diesel and biodiesel.
    \154\ List of biodiesel distributers from Biodiesel.org Web site 
(http://biodiesel.org/using-biodiesel/finding-biodiesel/locate-distributors-in-the-us/distributors-map). Accessed 10/8/15. This 
list does not include terminals that distribute biodiesel or 
biodiesel blends.
    \155\ Bulk plants are much smaller than major gasoline and 
diesel distribution terminals, and generally receive diesel and 
biodiesel shipped by trucks from major terminals.
    \156\ See Attachment 6 of the comments submitted by the National 
Biodiesel Board (EPA-HQ-OAR-2016-0004-2904).
---------------------------------------------------------------------------

    While there are a large number of biodiesel distribution points in 
the United States, including terminals, bulk plants, and biodiesel 
production facilities, the majority of these distribution points appear 
to be concentrated in the Midwest and most of the population centers of 
the country. These same areas consume the majority of the diesel fuel 
in the United States, and thus have the greatest potential markets for 
biodiesel. For the biodiesel market to continue to expand, it must 
either increase the volume of biodiesel sold in markets where it is 
already being sold, or expand into markets that currently do not have 
access to biodiesel. Either of these methods for expanding the 
biodiesel market will likely require additional infrastructure. 
Transportation of the biodiesel from production facilities to retail 
fuel stations, whether directly or through terminals and bulk plants, 
will also need to be expanded for volumes to continue to grow. This 
will likely require additional trucks and/or rail cars,\157\ as 
biodiesel and biodiesel blends are currently generally not transported 
in common carrier pipelines. If recent changes to the ASTM 
specifications for jet fuel (discussed above) allow for greater volumes 
of biodiesel blends to be shipped by pipeline this would be a 
potentially significant change, as it would likely allow for biodiesel 
distribution at terminals that currently do not have access to 
biodiesel blends and could significantly reduce the cost of 
distributing biodiesel. Distributing biodiesel via truck or rail 
results in high fuel transportation costs (relative to petroleum 
derived diesel, which is generally delivered to terminals via 
pipelines), which may impact the viability of adding biodiesel 
distribution capacity at a number of existing terminals or bulk plants. 
It is likely that until and unless significant volumes of biodiesel 
blends are transported by pipeline, increasing the biodiesel market 
will require greater investment per volume of biodiesel supplied than 
in the past, as the new biodiesel distribution facilities will 
generally

[[Page 89785]]

have access to smaller markets than the existing facilities, or will 
face competition as they seek to expand into areas already supplied by 
existing distribution facilities.
---------------------------------------------------------------------------

    \157\ Biodiesel can also be transported by barge, however we 
expect that a limited number of biodiesel production facilities have 
access to barge or ocean transportation. Survey data collected by 
NBB indicates that only 7% of biodiesel is currently transported by 
barge (see NBB comments on the proposed rule, attachment 6; EPA-HQ-
OAR-2016-0004-2904).
---------------------------------------------------------------------------

    The net result is that the expansion of the distribution 
infrastructure required to transport biodiesel to distribution points 
and retail stations and store it at these locations will be necessary, 
whether biodiesel consumption is increased through additional 
consumption in existing markets, expansion to new markets, or some 
combination of the two. While this is not an insurmountable challenge, 
it will require time and investment, and may limit the potential for 
the rapid expansion of the biodiesel supply. In previous years the 
expansion of biodiesel distribution and storage has largely been 
enabled by high volume diesel retailers, such as truck stops and travel 
centers. We believe this is likely to be the case in the near future as 
well, however the rate of increase of biodiesel and renewable diesel at 
these locations may slow as many are already supplying significant 
volumes of biodiesel and renewable diesel.
    The distribution of biodiesel and biodiesel blends is an area in 
which the biodiesel industry has made steady progress over time, and we 
anticipate that this progress can and will continue into the future, 
particularly with the ongoing incentive for biodiesel growth provided 
by the RFS standards. This is especially true to the degree that excess 
biodiesel transportation infrastructure (trucks, rail cars, barges, 
etc.) and storage capacity currently exist. Low oil prices, however, 
may present a challenge to the expansion of biodiesel distribution 
infrastructure, since the profitability of such projects in current 
market conditions is largely dependent on government support such as 
the biodiesel blenders tax credit and RFS RIN value.\158\ Since some 
investors view such government supports as inherently uncertain they 
may be hesitant to invest in new infrastructure to enable additional 
biodiesel distribution at a time when diesel prices are low. As with 
many of these potential supply constraints, increasing biodiesel 
storage and distribution capacity will require time and investment, 
potentially limiting the potential growth in 2017 and future years.
---------------------------------------------------------------------------

    \158\ See comments from NATSO (EPA-HQ-OAR-2016-0004-1830).
---------------------------------------------------------------------------

v. Biodiesel and Renewable Diesel Retail Infrastructure Capacity
    For renewable diesel, we do not expect that refueling 
infrastructure (e.g., refueling stations selling renewable diesel 
blends) will be a significant limiting factor in 2017 due to its 
similarity to petroleum-based diesel and the relatively small volumes 
expected to be supplied in the United States. The situation is 
different, however, for biodiesel. Biodiesel is typically distributed 
to retail stations in blended form with diesel fuel as blends varying 
from B2 up to B20, and in some narrow cases at levels exceeding B20. 
Biodiesel blends up to and including B20 can be sold using existing 
retail infrastructure, and generally do not require any upgrades or 
modifications at the retail level. Small retailers of diesel fuel, 
however, generally have only a single storage tank for diesel fuel, and 
can therefore generally only offer a single biodiesel blend. We expect 
that many of the retailers in this situation will be hesitant to offer 
biodiesel blends above B5, as doing so would mean only selling a fuel 
that is not recommended for use by some vehicle and engine 
manufacturers (see following section for a further discussion of 
potential engine warranty issues).
    Large diesel fuel retailers, such as truck stops and travel centers 
may have sufficient tankage to offer multiple blends of diesel fuel 
and/or biodiesel, should they choose to do so. Some of these large 
retailers have biodiesel blending infrastructure at their retail 
facilities, allowing them greater control over the blends of biodiesel 
sold at their stations. This is significant, as EIA estimates that 80% 
of all diesel fuel sold in the United States is sold through large and 
mid-sized truck stops, with 25% of the diesel fuel being sold through 
stations owned by the four largest on-highway diesel sellers.\159\ As 
some of the highest volume truck stops have begun selling increasing 
volumes of biodiesel blends in recent years, it has allowed biodiesel 
volumes to grow quickly. These large truck stops and travel sellers 
sell significant volumes of biodiesel, and in many cases offer 
biodiesel blends higher than B5.\160\ Further they have expressed an 
intention to expand their sales of biodiesel in future years.\161\ We 
expect that in future years these large truck stops and travel centers 
will continue to be a primary location for biodiesel sales, and will 
likely look to expand biodiesel sales in the future where it is 
profitable to do so. In addition, many centrally fueled fleets that 
often consume large volumes of diesel fuel have increased their use of 
biodiesel blends.\162\
---------------------------------------------------------------------------

    \159\ Estimates of diesel fuel sales through various retailers 
from EIA Web site: http://www.eia.gov/petroleum/gasdiesel/diesel_proc-methods.cfm.
    \160\ See information submitted by NBB in comments on the 
proposed rule (EPA-HQ-OAR-2016-0004-2904), pages 29-30.
    \161\ June 9, 2016 hearing statements from Musket Corporation, 
``Transcript for room Chicago,'' docket EPA-HQ-OAR-2016-0004.
    \162\ ``Biodiesel Ranks First Among Fleets for Alt Fuel Use,'' 
Biodiesel.org, March 23, 2016. Available online <http://biodiesel.org/news/news-display/2016/03/23/biodiesel-ranks-first-among-fleets-for-alt-fuel-use>.
---------------------------------------------------------------------------

    As discussed in the next section, biodiesel blends up to 5% may be 
legally sold as diesel fuel without the need for special labeling, and 
are approved for use in virtually all diesel engines. Because biodiesel 
blends up to B5 can be used in virtually all diesel engines and require 
no specialized infrastructure at refueling stations, and many large 
diesel retailers have demonstrated a willingness to offer biodiesel 
blends higher than B5, expanding the number of refueling stations 
offering biodiesel blends is therefore expected to be constrained less 
by resistance from the retail facilities themselves, and more by the 
presence of nearby wholesale distribution networks that can provide the 
biodiesel blends to retail at attractive prices. As discussed in the 
previous section, we expect this expansion will continue at a steady 
pace in 2017.
vi. Biodiesel and Renewable Diesel Consumption Capacity
    Virtually all diesel vehicles and engines now in the in-use fleet 
have been warranted for the use of B5 blends. Both the Federal Trade 
Commission (FTC) and ASTM International (ASTM) specifications for 
diesel fuel (16 CFR part 306 and ASTM D975 respectively) allow for 
biodiesel concentrations of up to five volume percent (B5) to be sold 
as diesel fuel, with no separate labeling required at the pump. 
Biodiesel blends of up to 5% are therefore often indistinguishable from 
diesel fuel that is not blended with biodiesel.
    In recent years an increasing number of vehicle and engine 
manufacturers have approved the use of biodiesel blends up to B20.\163\ 
According to information submitted to EPA by NBB, over 30% of all 
diesel vehicles registered in the United States are approved to use 
biodiesel blends up to B20 by the vehicle and engine 
manufacturers.\164\ The percentage of vehicles and engines approved by 
the manufacturers to use biodiesel blends up to B20 rises to over 50% 
for class 8 trucks, which use the majority of the

[[Page 89786]]

diesel fuel in the United States.\165\ This information indicates that 
while the potential consumption of biodiesel in blends that exceed B5 
in vehicles and engines that are approved for the use of this fuel is 
significant, such approval is not universal. For the nearly 70% of 
vehicles and engines that are not approved to use biodiesel blends 
greater than B5, using higher level blends could potentially void the 
warranties of the engines if the damage to the engine damage is 
attributable to the fuel that was used. While many of the vehicles that 
are not approved to use biodiesel blends greater than B5 are likely no 
longer covered by the manufacturer's warranty, the owners of these 
vehicles may still be hesitant to use a fuel that was not approved for 
use in their vehicle.
---------------------------------------------------------------------------

    \163\ See, for example, Paccar announcement approving all 
engines to use B20 blends.
    \164\ Information on the number of vehicles approved to use B20 
from a presentation by NBB to EPA staff on July 28, 2016.
    \165\ Ibid.
---------------------------------------------------------------------------

    In light of the ability of effectively all diesel engines to use 
biodiesel blends at the B5 level, the increasing number of diesel 
engines approved to use biodiesel blends up to B20, and the 
compatibility of renewable diesel with in-use diesel engines, we 
believe the market will be capable of consuming 2.9 billion gallons of 
biodiesel and renewable diesel in 2017. However, to achieve this level 
of consumption we believe it will become increasingly necessary to sell 
higher-level biodiesel blends, greater quantities of renewable diesel, 
and/or additional volumes of biodiesel in qualifying nonroad 
applications. Even if every gallon of diesel sold in the United States 
in 2017 contained 5% biodiesel, the total volume of biodiesel consumed 
would only reach approximately 2.8 billion gallons.\166\ When 
considering the potential availability of renewable diesel together 
with the use of biodiesel in non-road applications and higher level 
biodiesel blends, there are several scenarios that would enable the 
consumption of 2.9 billion gallons of biodiesel and renewable diesel. 
If we assume the availability of approximately 500 million gallons of 
renewable diesel in 2017 (approximately a 100 million gallon increase 
from 2015) and the use of 100 million gallons of biodiesel in 
qualifying nonroad (such as agricultural and mining equipment) and 
heating oil applications, approximately 84% of the highway diesel pool 
in 2017 would have to be sold as a B5 blend to supply 2.9 billion 
gallons of biodiesel and renewable diesel in 2017.\167\ If we further 
assume that 20% of all diesel fuel in the United States is sold at 
higher biodiesel blend levels averaging B10 (to account for the sales 
of higher blends at travel centers and in states with biodiesel blend 
mandates), only 54% of the remaining diesel pool would have to be 
blended with 5% biodiesel to enable the consumption of 2.9 billion 
gallons of biodiesel and renewable diesel. We believe these scenarios, 
along with the possibility for even greater volumes of biodiesel to be 
used in qualifying non-road applications and higher level biodiesel 
blends, demonstrate that 2.9 billion gallons of biodiesel and renewable 
diesel is reasonably attainable in the United States in 2017. EPA will 
continue to monitor the compatibility of the in-use vehicle fleet to 
use of biodiesel in future years as we assess potential constraints on 
increased volumes.
---------------------------------------------------------------------------

    \166\ This estimate assumes 55.5 billion gallons of diesel fuel 
are used in the United States in 2016 (from the EIA's August Short 
Term Energy Outlook). It also assumes no biodiesel is used in blends 
greater than B5.
    \167\ This estimate again assumes 55.5 billion gallons of diesel 
fuel are used in the United States in 2016 (from the EIA's August 
Short Term Energy Outlook) and no biodiesel is used in blends 
greater than B5.
---------------------------------------------------------------------------

vii. Biodiesel and Renewable Diesel Consumer Response
    Consumer response to the availability of renewable diesel and low-
level biodiesel blends (B5 or less) has been generally positive, and 
this does not appear to be a significant impediment to growth in 
biodiesel and renewable diesel use. Because of its similarity to 
petroleum diesel, consumers who purchase renewable diesel are unlikely 
to notice any difference between renewable diesel and petroleum-derived 
diesel fuel. Similarly, biodiesel blends up to B5 are unlikely to be 
noticed by consumers, especially since, as mentioned above, they may be 
sold without specific labeling. Consumer response to biodiesel blends 
is also likely aided by the fact that despite biodiesel having roughly 
10 percent less energy content than diesel fuel, when blended at 5 
percent the fuel economy impact of B5 relative to petroleum-derived 
diesel is a decrease of only 0.5%, an imperceptible difference. 
Consumer response has been further aided by the lower prices that many 
wholesalers and retailers have been willing to provide to the consumers 
for the use of biodiesel blends. The economic incentives provided by 
the biodiesel blenders tax credit and the RIN have made it possible for 
retailers to offer these blends at a lower price per gallon than diesel 
fuel that has not beenblended with biodiesel despite the higher cost of 
production for biodiesel relative to petroleum based diesel, and the 
competition among diesel fuel retailers has generally led to these 
incentives being reflected in the retail price of biodiesel blends. The 
ability for retailers to offer biodiesel blends at competitive prices 
relative to diesel that does not contain biodiesel, even at times when 
oil prices are low, is a key factor in the growth in the supply of 
biodiesel and renewable diesel to date.
viii. Projected Supply of Biodiesel and Renewable Diesel in 2017
    Due to the large number of market segments where actions and 
investments may be needed to support the continued growth of biodiesel 
blends, it is difficult to isolate the specific constraint or group of 
constraints that would be the limiting factor or factors to the supply 
of biodiesel and renewable diesel in the United States in 2017. Not 
only are many of the potential constraints inter-related, but they are 
likely to vary over time. The challenges in identifying a single factor 
limiting the growth in the supply of biodiesel and renewable diesel in 
2017 does not mean, however, that there are no constraints to the 
growth in supply.
    A starting point in developing a projection of the available supply 
of biodiesel and renewable diesel in 2017 is a review of the volumes of 
these fuels supplied for RFS compliance in previous years. In examining 
the data, both the absolute volumes of the supply of biodiesel and 
renewable diesel in previous years, as well as the rates of growth 
between years are relevant considerations. The volumes of biodiesel and 
renewable diesel (including both D4 and D6 biodiesel and renewable 
diesel) supplied each year from 2011 through 2015 are shown below.

[[Page 89787]]

[GRAPHIC] [TIFF OMITTED] TR12DE16.007

    To use the historical data (shown in the figure above) to project 
the available supply of biodiesel and renewable diesel in 2017, we 
started with the volume expected to be supplied in 2016 (2.5 billion 
gallons), and then assessed how much the supply could be expected to 
increase in 2017 in light of the constraints discussed above. Using 
historic data is appropriate to the extent that growth in the year or 
years leading up to 2016 reflects the rate at which biodiesel and 
renewable diesel constraints can reasonably be expected to be addressed 
and alleviated in the future. In assessing the potential growth of 
biodiesel and renewable diesel in 2017 we believe this to be the case. 
There are many potential ways the historical data could be used to 
project the supply of biodiesel and renewable diesel in future years. 
Two relatively straightforward methods would be to use either the 
largest observed annual supply increase (743 million gallons from 2012 
to 2013) or the average supply increase (209 million gallons from 2011 
to 2015) to project how much biodiesel and renewable diesel volumes 
could increase over 2016 levels in 2017. We recognize that there are 
limitations in the probative value of past growth rates to assess what 
can be done in the future, however we believe there is significant 
value in considering historical data, especially in cases where the 
future growth rate is expected to be largely determined by the same 
variety of complex and inter-dependent factors that have factored into 
historical growth.
    In projecting the available supply of biodiesel and renewable 
diesel in 2016 for the final rule establishing the 2014-2016 standards, 
we estimated that the supply of biodiesel and renewable diesel could 
increase from the level supplied in 2015 in line with the largest 
observed annual supply increase from the historic record. While the 
availability of RIN generation data for 2016 is limited, we believe the 
data available to date confirm that this high year-over-year increase 
is possible.\168\ We believe this is the case in part due to the 
relatively small growth in the supply of biodiesel and renewable diesel 
in 2014 and 2015, during which no annual RFS standards were in place to 
promote growth in the supply of biodiesel and renewable diesel and 
during which time the biodiesel blenders tax credit was only reinstated 
retroactively. During these years (2014-2015), while growth in the 
supply of biodiesel and renewable diesel was limited, significant 
progress continued to be made in a number of areas (upgrades at 
biodiesel production facilities, increasing number of vehicles approved 
to use blends greater than B5, increasing biodiesel distribution 
infrastructure, etc.) to expand the potential supply of biodiesel and 
renewable diesel used as transportation fuel in the United States. We 
believe that despite this progress, the absence of RFS standards for 
most of this time period (along with other economic factors such as the 
lapses in the biodiesel blenders tax credit and the fluctuating prices 
of petroleum diesel and biodiesel and renewable diesel feedstocks) 
resulted in limited increases to the supply of biodiesel and renewable 
diesel in these years. We therefore believe that the significant 
increase in the projected supply of biodiesel and renewable diesel from 
2015 to 2016 was significantly enabled by the relatively slow growth in 
supply in 2014 and 2015.
---------------------------------------------------------------------------

    \168\ ``Comparison of 2016 availability of RINs and 2016 
standards,'' memorandum from David Korotney to docket EPA-HQ-OAR-
2016-0004.
---------------------------------------------------------------------------

    Commenters also noted a similarly large increase in the supply of 
biodiesel and renewable diesel from 2010 to 2011 to support claims that 
large annual increases in the supply of biodiesel and renewable diesel 
to the United States could be achieved in successive years.\169\ While 
this increase is yet another example of the rapid increase in the 
supply that can be achieved under certain market conditions, we once 
again note that in the years prior to 2010 the biodiesel and renewable 
diesel supply had been declining. It is not

[[Page 89788]]

clear from the historical data whether such large increases are 
sustainable year-over-year. Increases of this magnitude require a 
number of factors, including feedstock supply, production capacity, 
distribution capacity, retail offerings, and biodiesel consumption, to 
be addressed. In previous years a significant excess of feedstocks, in 
combination with newly established state and federal incentives and a 
group of large, interested retail partners have enabled significant 
rapid growth in the supply of biodiesel and renewable diesel. We 
believe that these market conditions are unlikely to be repeated in 
future years, but that there still exist opportunities for growth in 
the supply of biodiesel and renewable diesel. After reviewing the 
available information and the comments received on the proposed rule, 
we believe that increases in the supply of biodiesel and renewable 
diesel greater than those we have proposed are possible, but we do not 
believe that these increases are without limit, as some commenters have 
suggested.
---------------------------------------------------------------------------

    \169\ See NBB comments on the proposed rule (EPA-HQ-OAR-2016-
0004-2904), page 5.
---------------------------------------------------------------------------

    We recognize that the growth rates achieved in the past (such as 
the average annual growth rate or the largest annual supply increase) 
do not necessarily indicate the growth rate that can be achieved in the 
future. In the past, biodiesel was available in fewer markets, allowing 
new investments to be targeted to have a maximum impact on volume. 
However, as the market becomes more saturated and biodiesel becomes 
available in an increasing number of markets, additional investments 
may tend to have less of an impact on volume, potentially limiting the 
increases in supply year over year. Additionally, much of the increase 
in the volume of biodiesel and renewable diesel supplied from 2012 to 
2013 was renewable diesel, which is faced with far fewer distribution 
and consumption challenges than biodiesel for blends above B5. Such an 
increase in the available supply of renewable diesel in 2017 is 
unlikely as we are currently unaware of any renewable diesel facilities 
under construction, either in the United States or abroad, that are 
likely to supply significant volumes of fuel to the United States in 
2017, and the capital costs and construction timelines associated with 
constructing new renewable diesel facilities are significant. It will 
likely require greater investment to achieve the same levels of growth 
in the supply of biodiesel and renewable diesel in 2017 as compared to 
the higher rates from previous years.
    However, we must also consider the extent to which historic growth 
rates can be seen as representing what is possible with the RFS 
standards and other incentives in place. The year with the historic 
maximum rate of growth was 2013--a year in which both tax incentives 
and RFS incentives were in place to incentivize growth through the 
entire year. There were also fewer potential constraints to the growth 
of biodiesel and renewable diesel related to the distribution and use 
of biodiesel in 2013 than there are currently due to the significantly 
lower volume of these fuels supplied in 2012. We believe it is 
reasonable to assume the incentives provided by the standards in 2017 
will be sufficient to enable supply increases despite these challenges 
discussed above, but do not believe it would be reasonable to assume 
that the RFS and other incentives could drive a rate of growth in 2017 
that is equal to that seen in 2013. Comments received from the National 
Biodiesel Board, as well as from the National Association of Truck Stop 
Owners (which represents parties with significant experience and 
investment in the distribution and sales of biodiesel) suggest that 
parties have already begun making the necessary investments to 
distribute and sell volumes of biodiesel that exceed the volumes 
projected in our proposed rule in anticipation of ongoing support for 
biodiesel from both the blenders tax credit and the RFS program. At the 
public hearing for the proposed 2017 RFS standards, Michael Whitney of 
Musket Corporation testified that his company, which is the supply and 
trading arm of Love's Travel Stops, anticipated increasing biodiesel 
supply by 100 million gallons in 2017.\170\ He further estimated that 
as they accounted for approximately 20-25% of all biodiesel blended in 
the United States, that total supply could be increased by 500 million 
gallons in 2016.\171\ While we believe these numbers are somewhat 
speculative, we also believe they provide support for an expectation of 
considerable growth in 2017. We also note, however, that while the 
National Association of Truck Stop Owners (NATSO) generally supported 
``ambitious'' standards with respect to biodiesel and renewable diesel, 
they also supported EPA's consideration of ``market realities'' to 
prevent the RFS standards from being set at unreasonably high 
levels.\172\ Failure to do so, they stated, could result in RFS 
standards that are significantly beyond the market's ability to supply 
renewable fuels, ultimately resulting in higher prices for diesel fuel, 
negatively impacting both NATSO members and the entire U.S. 
economy.\173\
---------------------------------------------------------------------------

    \170\ See testimony of Michael Whitney, Musket Corporation, June 
9, 2016 (Chicago Room).
    \171\ Ibid.
    \172\ See comments from NATSO (EPA-HQ-OAR-2016-0004-1830).
    \173\ Ibid. If RFS standards are significantly beyond the 
market's ability to supply renewable fuels, the price of biofuels 
and separated RINs could rise to extreme levels as obligated parties 
seek to obtain the RINs necessary to satisfy their obligations. This 
would be expected to cause an increase in gasoline and diesel prices 
as obligated parties sought to recover their RFS compliance costs 
through the prices of the petroleum fuels they sell.
---------------------------------------------------------------------------

    In the NPRM we projected that the available supply of biodiesel and 
renewable diesel in 2017 would be approximately 2.7 billion gallons. We 
discussed the many different factors that could potentially constrain 
the production and use of biodiesel and renewable diesel in 2017, and 
placed particular emphasis on the potential limitations associated with 
the ability to distribute increasing volumes of biodiesel from 
production facilities to retail locations. In response to our proposed 
rule, several parties, including NBB and REG, provided significant new 
information to EPA related to the ability of the market to distribute 
biodiesel from production facilities to retail locations.\174\ This 
information included data on the significant volume of biodiesel that 
is sold and transported to retail stations and/or other end users 
directly from biodiesel production facilities, bypassing the 
traditional fuel distribution points such as fuel terminals or bulk 
plants. These data were supported by statements from diesel retailers, 
such as the testimony of Michael Whitney cited above. While we continue 
to believe that the potential to produce, distribute, and consume 
biodiesel and renewable diesel in the United States is not without 
limit, we believe the information we received in comments in our 
proposed rule provides a sufficient basis for concluding that a volume 
of 2.9 billion gallons of biodiesel and renewable diesel can be 
produced, distributed, and consumed in the United States in 2017. When 
taken together with our projection of 2.4 billion gallons of advanced 
biodiesel and renewable diesel, this assessment assumes 500 million 
gallons of conventional biodiesel and renewable diesel to be used 
towards satisfying the total renewable fuel standard.\175\ However the 
market could choose to fill

[[Page 89789]]

these volumes with advanced biodiesel or with other forms of renewable 
fuel.
---------------------------------------------------------------------------

    \174\ See comments from NBB (EPA-HQ-OAR-2016-0004-2904) and REG 
(EPA-HQ-OAR-2016-0004-3477).
    \175\ Lesser volumes of conventional biodiesel and renewable 
diesel may be used to satisfy the standards if additional volumes of 
advanced biodiesel and renewable diesel are supplied to the market, 
or if the volume of ethanol supplied to the market exceeds EPA's 
projections in the previous section.
---------------------------------------------------------------------------

    The present constraints do not represent insurmountable barriers, 
but they will take time to overcome. The market has been making efforts 
to overcome these constraints in recent years, as demonstrated by 
discussion above and the fact that biodiesel and renewable diesel 
supply in the U.S. has been steadily increasing. We believe that 
opportunity for ongoing growth exists, but that the constraints listed 
above will continue to be a factor in the rate of growth in future 
years and that year-on-year growth may slow as the opportunities for 
large increases diminish. Taking all of the above into consideration, 
we believe that it would be reasonable to assume that growth in 2017 
can exceed the 226 million gallon historic annual average increase from 
the 2011-2015 time period, but will be unlikely to reach the maximum 
659 million gallon annual increase seen in 2013. Considering the 
multiplicity of factors potentially influencing supply, we do not 
believe that a projection can be made pursuant to any particular 
formula, but requires considerable exercise of judgment. We believe 
that it is reasonable to project a 400 million gallon increase in 
supply in 2017, which would result in a total supply of 2.9 billion 
gallons in 2017.
    Throughout this section we have focused on determining if the 
market can reasonably attain the 2.9 billion gallons of biodiesel and 
renewable diesel needed, together with reasonably attainable volumes of 
ethanol and other renewable fuels, to satisfy the 19.28 billion gallon 
total renewable fuel volume derived through use of the cellulosic 
waiver authority alone. Based on the data available to EPA at this 
time, including data submitted in comments on the NPRM, we believe that 
the market is capable of producing, distributing, and using 2.9 billion 
gallons of biodiesel and renewable diesel in 2017. We note, however, 
that the 400 million gallon increase is significantly higher than the 
annual average increase in the supply of biodiesel and renewable diesel 
from 2011-2015, and when combined with the projected increase of 
approximately 600 million gallons from 2015 to 2016 would result in an 
increase in the supply of biodiesel and renewable diesel of over one 
billion gallons in just two years. While our analysis has not focused 
on determining the maximum reasonably achievable volume of biodiesel 
and renewable diesel in 2017, we believe that the ambitious growth in 
the supply of biodiesel projected from 2015 to 2017 indicate that the 
maximum reasonably achievable volume of these fuels in 2017 is likely 
near the 2.9 billion gallons assessed in this rule.
    We recognize that the market may not necessarily respond to the 
final total renewable standard by supplying exactly 2.9 billion gallons 
of biodiesel and renewable diesel to the transportation fuels market in 
the United States in 2017, but that the market may instead supply a 
lower or higher volume of biodiesel and renewable diesel with 
corresponding changes in the supply of other types of renewable fuel. 
As a result, we believe there is less uncertainty with respect to the 
attainability of the total volume requirement of 19.28 billion gallons 
than there is concerning the projected 2.9 billion gallons of biodiesel 
and renewable diesel that we have used in determining the adequacy of 
supply of total renewable fuel for 2017.
3. Total Renewable Fuel Supply
    In Section V.A we described how use of the cellulosic waiver 
authority to provide a volume reduction for total renewable fuel that 
equals that provided for advanced biofuels yields a volume of 19.28 
billion gallons. Based on our assessment of supply of ethanol and 
biodiesel/renewable diesel, along with smaller amounts of non-ethanol 
cellulosic biofuel and other non-ethanol renewable fuels, we have 
determined that there will be adequate supply to meet a volume 
requirement of 19.28 billion gallons for total renewable fuel. As a 
result, there is no need for further reductions on the basis of an 
``inadequate domestic supply'' determination using the general waiver 
authority.\176\ Therefore, we are establishing the total renewable fuel 
volume requirement at 19.28 billion gallons.
---------------------------------------------------------------------------

    \176\ As discussed in the response to comments document, we also 
do not believe that the record indicates either severe economic or 
environmental harm that would justify further reductions using the 
general waiver authority.
---------------------------------------------------------------------------

    Our use of the cellulosic waiver authority alone to set the 
advanced biofuel and total renewable fuel volume requirements results 
in an implied volume for non-advanced (i.e. conventional) renewable 
fuel of 15.0 billion gallons. This is an increase over the proposed 
level of 14.8 billion gallons, and a significant increase in comparison 
to the 2016 implied volume of 14.5 billion gallons. We recognize that 
some stakeholders are primarily concerned about this implied 
conventional renewable fuel volume. For these stakeholders, it may be 
helpful to compare the implied volume for conventional renewable fuel 
to the E10 blendwall, despite the fact that a portion of the 15.0 
billion gallon implied volume is likely to be met with conventional 
biodiesel and renewable diesel. As shown below, 15.0 billion gallons 
continues a year-by-year trend of exceeding the E10 blendwall (the 
volume of ethanol that could be consumed if all gasoline was E10 and 
there was no E0, E15, or E85) by ever increasing amounts.

[[Page 89790]]

[GRAPHIC] [TIFF OMITTED] TR12DE16.008

    As discussed in Section V.B.2.viii above, we believe that there 
will be adequate supply of biodiesel and renewable diesel such that the 
total renewable fuel volume requirement of 19.28 billion gallons can be 
satisfied, based in part on our determination that 2.9 billion gallons 
of biodiesel and renewable diesel is reasonably attainable in 2017. 
While our analysis has not focused on determining the maximum 
reasonably achievable volume of renewable fuel in 2017, we believe that 
the ambitious growth in the supply of each of the various types of 
renewable fuel (discussed in further detail in the preceding Sections) 
indicates that the maximum reasonably achievable volume of these fuels 
in 2017 is likely near the 19.28 billion gallons assessed in this rule.
    We note that the contributions from individual sources shown in 
Table V.B.3-1 were developed only for the purpose of determining the 
adequacy of supply of total renewable fuel; they do not represent EPA's 
projection of precisely how the market will respond. As we said in the 
2014-2016 final rule, any supply estimate we make for particular fuel 
types may be uncertain, but there is greater certainty that the overall 
volume requirements can be met given the flexibility in the market that 
is inherent in the RFS program.

C. Market Responses to the Advanced Biofuel and Total Renewable Fuel 
Volume Requirements

    To meet the final volume requirements, the market will need to 
respond by some combination of increasing domestic production and/or 
imports of those biofuels that have fewer marketplace constraints, by 
expanding the infrastructure for distributing and consuming renewable 
fuel, and/or by improving the relative pricing of renewable fuels and 
conventional transportation fuels at the retail level to ensure that 
they are attractive to consumers. However, because the transportation 
fuel market is dynamic and complex, and the RFS program is only one of 
many factors that determine the relative types and amounts of renewable 
fuel that will be used, we cannot precisely predict the mix of 
different fuel types that will result. In this section we delineate a 
range of possible outcomes, and doing so provides a means of 
demonstrating that the volume requirements can reasonably be satisfied 
through multiple possible paths.
    We evaluated a number of scenarios with varying levels of E0, E15, 
E85, imported sugarcane ethanol, advanced biodiesel and renewable 
diesel, and conventional biodiesel and renewable diesel. In doing so we 
sought to capture the range of possibilities for each individual 
source, based both on levels achieved in the past and how the market 
might respond to the applicable standards. Each of the rows in Table 
V.C-1 represents a scenario in which the total renewable fuel and 
advanced biofuel volume requirements would be satisfied.

                            Table V.C-1--Volume Scenarios Illustrating Possible Compliance With the 2017 Volume Requirements
                                                                  [million gallons] a b
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                          Minimum volume
                                                                                                                               Total        of advanced
                           E85                                  E15             E0         Total ethanol     Sugarcane     biodiesel and   biodiesel and
                                                                                                \c\           ethanol        renewable       renewable
                                                                                                                            diesel \d\      diesel \d\
--------------------------------------------------------------------------------------------------------------------------------------------------------
200.....................................................             600             200          14,504               0           2,856           2,528
200.....................................................             600             500          14,474               0           2,876           2,528
200.....................................................             600             500          14,474             200           2,876           2,399
200.....................................................             600             500          14,474             500           2,876           2,206

[[Page 89791]]

 
200.....................................................             600             500          14,474             800           2,876           2,012
200.....................................................           1,200             200          14,535             500           2,836           2,206
330.....................................................             600             500          14,559             800           2,820           2,012
330.....................................................           1,200             200          14,621               0           2,780           2,528
330.....................................................           1,200             200          14,621             200           2,780           2,399
330.....................................................           1,200             200          14,621             500           2,780           2,206
330.....................................................           1,200             200          14,621             800           2,780           2,012
330.....................................................           1,200             500          14,590             200           2,800           2,399
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Assumes for the purposes of these scenarios that supply of other advanced biofuel other than ethanol, BBD and renewable diesel (e.g., heating oil,
  naphtha, etc.) is 50 mill gal, and that the cellulosic biofuel final volume requirement is 311 mill gal, of which 12 mill gal is ethanol and the
  remainder is primarily biogas.
\b\ Biodiesel + renewable diesel is given in physical gallons, and can be converted into ethanol-equivalent gallons by multiplying by 1.55 (see
  discussion of this conversion factor in Section IV.B.2). Other categories are given as ethanol-equivalent volumes.
\c\ For the range of total ethanol shown in this table, the poolwide average ethanol content would range from 10.08% to 10.17%.
\d\ Includes supply from both domestic producers as well as imports.

    The scenarios in the tables above are not the only ways that the 
market could choose to meet the total renewable fuel and advanced 
biofuel volume requirements that we are establishing in this action. 
Indeed, other combinations are possible, with volumes higher than the 
highest levels we have shown above or, in some cases, lower than the 
lowest levels we have shown. The scenarios above cannot be treated as 
EPA's views on the only, or even most likely, ways that the market may 
respond to the 2017 volume requirements. Instead, the scenarios are 
merely illustrative of the various ways that it could play out. Our 
purpose in generating the list of scenarios above is only to illustrate 
a range of possibilities which demonstrate that the standards we are 
establishing in this action can reasonably be met.
    We provided a similar table of volume scenarios in the NPRM, and 
stakeholders were strongly divided on whether those scenarios were 
achievable and whether they captured the most likely outcomes. Refiners 
generally said that most if not all of the scenarios were not 
achievable in 2017, expressing concern that the chosen volumes of E0 
were lower than actual market demand and that the chosen volumes of 
other ethanol blends and renewable fuel sources were considerably 
higher than historical levels. Proponents of renewable fuels generally 
said that the provided scenarios were not demonstrative of the much 
higher renewable fuel volumes that were possible. Comments on 
reasonably attainable levels of specific ethanol blends and non-ethanol 
renewable fuel types are addressed in Section V.B above and in Sections 
2.3 through 2.5 of the RTC document.
    Several proponents of the ethanol industry said that the proposed 
standards would provide no incentive for greater volumes of E15 and/or 
E85 in 2017 compared to 2016, and no incentive for increased investment 
in the infrastructure that supports these higher ethanol blends. We 
disagree. The proposed volume requirement for total renewable fuel, and 
the implied volume for non-advanced renewable fuel, were both higher 
than the corresponding final volume requirements for 2016. While none 
of the applicable RFS program standards are specific to ethanol, the 
higher proposed volume requirements would have created greater 
incentives for growth in E15 and/or E85 in 2017 than existed in 2016. 
Moreover, we have increased the final volume requirement for total 
renewable fuel and the implied volume for non-advanced renewable fuel 
in this final rule, in comparison to the NPRM, providing additional 
incentives for expansion of E15 and/or E85.
    One stakeholder representing conventional ethanol interests said 
that the volume scenarios in the NPRM demonstrated that 15 billion 
gallons of non-advanced renewable fuel were possible in 2017. To do 
this, the stakeholder pointed to the highest volumes in each category 
to construct a new scenario higher than the proposed volume 
requirements. While we are in fact finalizing standards for 2017 that 
include an implied volume of 15 billion gallons of non-advanced 
renewable fuel, we continue to believe, as we stated in the NPRM, that 
it would be inappropriate to construct a new scenario (as this 
commenter attempted) based on the highest volumes in each category that 
are shown in the tables above in order to argue for higher volume 
requirements. Doing so would result in summing of values that we have 
determined are higher than the reasonably attainable volumes of the 
different fuel categories, resulting in a total volume that we believe 
would be extremely unlikely to be reasonably attainable or appropriate. 
We have more confidence in the ability of the market to attain the 
volume requirements for advanced biofuel and total renewable fuel than 
we have in the ability of the market to achieve a specific level of, 
say, biodiesel, or E85. The probability that the upper limits of all 
sources shown in the tables above could be reasonably attained 
simultaneously is very small. For instance, if all volume levels in 
Table V.C-1 were equally likely, then there would be a less than 1% 
likelihood that the maximum levels could be attained 
simultaneously.\177\
---------------------------------------------------------------------------

    \177\ For illustrative purposes only. We have not determined the 
relative likelihood of the different volume levels shown in Table 
V.C-1.
---------------------------------------------------------------------------

    We recognize that in some scenarios described in the NPRM and 
above, the volume of a particular category of renewable fuel exceeds 
the historical maximum or previously demonstrated production level. 
Stakeholders who believed that the proposed volume requirements were 
too high pointed to this fact as evidence that many, if not all, volume 
levels in the scenarios were not achievable. However, as stated in the 
NPRM, the fact that the scenarios

[[Page 89792]]

included volumes higher than historical levels cannot be treated as a 
reason for concluding that such levels are not achievable. The RFS 
program is intended to result in supply in any given year that is 
higher than in all previous years, and it is our determination that for 
2017 this is reasonably attainable.
    With regard to E85, under highly favorable conditions related to 
growth in the number of E85 retail stations, retail pricing, and 
consumer response to that pricing, it is possible that E85 volumes as 
high as 330 million gallons could be reached. For instance, growth in 
the number of retail stations offering E85 may increase more rapidly 
than we have estimated under USDA's Biofuels Infrastructure Partnership 
(BIP) grant program and the ethanol industry's Prime the Pump program. 
If so, the total number of retail stations offering E85 could perhaps 
increase from about 3,100 today to 4,800 in 2017 (average for the 
year), rather than the 4,300 we assumed above in Section V.B.1.iii. 
Also, it is possible that increases in the price of D6 RINs since the 
release of the 2014-2016 final rule can help to increase the E85 price 
discount relative to E10 if producers and marketers of E85 pass the 
value of the RIN to the prices offered to customers at retail, 
providing greater incentive to FFV owners to refuel with E85 instead of 
E15. Under such circumstances, an E85 price discount as high as 30% is 
possible. Indeed, E85 price discounts this high have been reached in 
the past in some locales.\178\ Efforts to increase the visibility of 
E85, including expanded marketing and education, can also help to 
increase E85 sales. Sales volumes of E85 higher than 330 million 
gallons are very unlikely, but are possible if pump installations 
increase significantly and the market can overcome constraints 
associated with E85 pricing at retail and consumer responses to those 
prices.
---------------------------------------------------------------------------

    \178\ For instance, data from the Fuels Institute indicates that 
3% of E85 price discounts were above 30% at surveyed retail stations 
in 2015.
---------------------------------------------------------------------------

    Similarly, we believe that under favorable conditions, it is 
possible that E15 volumes as high as 1,200 million gallons could be 
reached in 2017. Again, the BIP program and Prime the Pump program 
could result in a higher growth rate for retail stations offering E15 
than we have estimated, potentially reaching as high as 2,000 in 2017 
(average for the year). Although for the purposes of estimating 
reasonably attainable E15 in 2017 we have estimated that sales of E15 
would be 15% of all gasoline sales at stations selling both E10 and 
E15, it is possible that sales of E15 could be as high as 50% under 
favorable pricing conditions as described in Section V.B.1.ii. Also, 
additional terminals could produce E15 in 2017 beyond the four that we 
included in our estimate of reasonably attainable volumes of E15 in 
2017.\179\
---------------------------------------------------------------------------

    \179\ HWRT Oil Company intends to eventually offer E15 from 17 
additional terminals in addition to the four announced on July 19, 
2016. ``HWRT & RFA Announce First-Ever Offering of Pre-blended 
E15,'' docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    As the table above illustrates, the volume requirements could 
result in the consumption of 2.88 billion gallons of biodiesel and 
renewable diesel in 2017. This level is less than our estimate of the 
production capacity for all registered domestic biodiesel and renewable 
diesel production facilities, and approximately the same as the 2.9 
billion gallons that we used in the context of determining whether 
there is adequate supply to meet the total renewable fuel volume 
requirement of 19.28 billion gallons in 2017. Given the necessarily 
imprecise nature of our estimate of supply of biodiesel and renewable 
diesel in the context of determining whether there will be adequate 
supply to meet the total renewable fuel volume requirement of 19.28 
billion gallons in 2017, volumes as high as 2.88 billion gallons and 
potentially higher are possible.
    Finally, out of the maximum of about 2.9 billion gallons of 
biodiesel and renewable diesel shown in Table V.C-1, more than 2.5 
billion gallons could be advanced biodiesel. While this is slightly 
higher than the 2.4 billion gallons that we used in determining the 
advanced biofuel volume requirement, it could be supplied from current 
biodiesel domestic production capacity which is about 3 billion 
gallons, though this would possibly involve additional feedstock 
switching as discussed in Section IV.

D. Impacts of 2017 Standards on Costs

    In this section we provide illustrative cost estimates for the 2017 
standards. By ``illustrative costs,'' EPA means the cost estimates 
provided are not meant to be precise measures, nor do they attempt to 
capture the full impacts of this final rule. These estimates are 
provided solely for the purpose of showing how the cost to produce a 
gallon of a ``representative'' renewable fuel compares to the cost of 
petroleum fuel. There are a significant number of caveats that must be 
considered when interpreting these cost estimates. First, there are a 
number of different feedstocks that could be used to produce ethanol 
and biodiesel, and there is a significant amount of heterogeneity in 
the costs associated with these different feedstocks and fuels. Some 
fuels may be cost competitive with the petroleum fuel they replace; 
however, we do not have cost data on every type of feedstock and every 
type of fuel. Therefore, we do not attempt to capture this range of 
potential costs in our illustrative estimates.
    Second, the costs and benefits of the RFS program as a whole are 
best assessed when the program is fully mature in 2022 and beyond.\180\ 
We continue to believe that this is the case, as 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. Thus, EPA did not quantitatively 
assess other direct and indirect costs or benefits of increased 
renewable fuel volumes such as infrastructure costs, investment, GHG 
emissions and air quality impacts, or energy security benefits, which 
all are to some degree affected by this final rule. While some of these 
impacts were analyzed in the 2010 final rulemaking which established 
the current RFS program, we have not fully analyzed these impacts for 
the 2017 volume requirements. We have framed the analyses we have 
performed for this final rule as ``illustrative'' so as not to give the 
impression of comprehensive estimates.
---------------------------------------------------------------------------

    \180\ 77 FR 59477.
---------------------------------------------------------------------------

    Third, at least two different scenarios could be considered the 
``baseline'' for the assessment of the costs of this rule. One scenario 
would be the statutory volumes (e.g., the volumes in the Clean Air Act 
211(o)(2) for 2016) in which case this final rule would be reducing 
volumes, reducing costs as well as decreasing expected GHG benefits. 
For the purposes of showing illustrative overall costs of this 
rulemaking, we use the preceding year's standard as the baseline (e.g., 
the baseline for the 2017 advanced standard is the 2016 advanced 
standard), an approach consistent with past practices in previous 
annual RFS rules.
    EPA is providing cost estimates for three illustrative scenarios:
    1. If the entire change in the advanced standards is met with 
soybean oil BBD
    2. If the entire change in the advanced standards is met with 
sugarcane ethanol from Brazil
    3. If the entire change in the total renewable fuel volume 
standards that can be satisfied with conventional (i.e., non-advanced) 
renewable fuel is met with corn ethanol.

[[Page 89793]]

    While a variety of biofuels could help fulfill the advanced 
standard beyond soybean oil BBD and sugarcane ethanol from Brazil, 
these two biofuels have been most widely used in the past. The same is 
true for corn ethanol vis-a-vis the non-advanced component of the total 
renewable fuel standard. We believe these scenarios provide 
illustrative costs of meeting the applicable 2017 standards.
    For this analysis, we estimate the per gallon costs of producing 
biodiesel, sugarcane ethanol, and corn ethanol relative to the 
petroleum fuel they replace at the wholesale level, then multiply these 
per gallon costs by the difference in the volumes between the relevant 
2017 standard and the previous 2016 standard for the advanced (for 
biodiesel and sugarcane ethanol) and non-advanced component of the 
total renewable fuel (for corn ethanol) categories. More background 
information on this section, including details of the data sources used 
and assumptions made for each of the scenarios, can be found in a 
Memorandum submitted to the docket.\181\
---------------------------------------------------------------------------

    \181\ ``Illustrative Costs Impact of the Final Annual RFS2 
Standards, 2017'', Memorandum from Michael Shelby and Aaron Sobel to 
EPA Docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    Because we are focusing on the wholesale level in each of the three 
scenarios, these comparisons do not consider taxes, retail margins, and 
any other costs or transfers that occur at or after the point of 
blending (i.e., transfers are payments within society and are not 
additional costs). Further, as mentioned above we do not attempt to 
estimate potential costs related to infrastructure expansion with 
increased renewable fuel volumes (e.g., the costs of providing pumps 
and storage tanks associated with higher level ethanol blends). In 
addition, because more ethanol gallons must be consumed to go the same 
distance as gasoline and more biomass-based diesel must be consumed to 
go the same distance as petroleum diesel due to each of the biofuels' 
lesser energy content, we consider the costs of ethanol and biomass-
based diesel on an energy equivalent basis to their petroleum 
replacements (i.e., per energy equivalent gallon).
    For our first illustrative cost scenario, we estimate the costs of 
soybean-based biodiesel to meet the entire change in the advanced 
biofuel standard for 2017.\182\ Table V.D-1 below presents the annual 
change in volumes being established by this rule, a range of 
illustrative cost differences between biomass-based diesel and 
petroleum-based diesel by individual gallon on a diesel gallon 
equivalent (DGE) basis, and multiplies those per gallon cost estimates 
by the volume of fuel displaced by the advanced standard on an energy 
equivalent basis to obtain an overall cost estimate of meeting the 
standard.
---------------------------------------------------------------------------

    \182\ Soybean biodiesel could meet the pre-established 2017 
biomass-based diesel volume, which itself is a nested volume within 
the 2017 advanced biofuel RFS volume. Illustrative costs represent 
meeting all of the costs of the annual increase of the 2017 advanced 
standard using entirely soybean-based biodiesel as one scenario.
    \183\ EPA used a value of 1.5 when calculating the RIN 
equivalencies of soybean-based biodiesel for the purpose of this 
illustrative costs example. See section IV.B-2 for a more detailed 
explanation of the biodiesel and renewable diesel equivalence value 
used for the purpose of deriving the renewable fuel standard under 
the 2017 RFS rule.
    \184\ Due to the difference in energy content between biodiesel 
and diesel, one gallon of biodiesel is energy-equivalent to 
approximately 91% of a gallon of diesel; 447 million gallons of 
biodiesel is energy-equivalent to approximately 408 million gallons 
of diesel.
    \185\ Overall costs may not match per gallon costs times volumes 
due to rounding.

Table V.D-1--Illustrative Costs of Soybean Biodiesel To Meet Increase in
                   Advanced Biofuel Standards in 2017
------------------------------------------------------------------------
                                               2016            2017
------------------------------------------------------------------------
Advanced Volume Required (Million                  3,610           4,280
 Gallons)...............................
Advanced Volume Required (Million                  2,407     \183\ 2,853
 Gallons as Biodiesel)..................
Annual Change in Volume Required          ..............             447
 (Million Gallons as Biodiesel).........
    (DGE) \184\.........................  ..............           (408)
Cost Difference Between Soybean           ..............     $1.98-$2.95
 Biodiesel and Petroleum Diesel Per
 Gallon ($/DGE).........................
Annual Increase in Overall Costs          ..............     \185\ $807-
 (Million $)............................                          $1,203
------------------------------------------------------------------------

    For our second illustrative cost scenario, we estimate the costs of 
Brazilian sugarcane ethanol to meet the entire change in the advanced 
biofuel standard for 2017. Table V.D-2 below presents the annual change 
in volumes established by this final rule, a range of illustrative cost 
differences between Brazilian sugarcane ethanol and wholesale gasoline 
on a per gasoline gallon equivalent (GGE) basis, and multiplies those 
per gallon cost estimates by the volume of fuel displaced by the 
advanced standard on an energy equivalent basis to obtain an overall 
cost estimate of meeting the standard.
---------------------------------------------------------------------------

    \186\ Due to the difference in energy content between ethanol 
and gasoline, one gallon of ethanol is energy-equivalent to 
approximately 67% of a gallon of gasoline; 670 million gallons of 
ethanol is energy-equivalent to approximately 447 million gallons of 
gasoline.
    \187\ Overall costs may not match per gallon costs times volumes 
due to rounding.

 Table V.D-2--Illustrative Costs of Brazilian Sugarcane Ethanol To Meet
             Increase in Advanced Biofuel Standards in 2017
------------------------------------------------------------------------
                                               2016            2017
------------------------------------------------------------------------
Advanced Volume Required (Million                  3,610           4,280
 Gallons)...............................
Annual Change in Volume Required          ..............             670
 (Million Gallons)......................
    (GGE) \186\.........................  ..............           (447)
Cost Difference Between Sugarcane         ..............     $1.00-$2.16
 Ethanol and Gasoline Per Gallon ($/GGE)
Annual Increase in Overall Costs          ..............     \187\ $446-
 (Million $)............................                            $966
------------------------------------------------------------------------


[[Page 89794]]

    For our third illustrative cost scenario, we assess the difference 
in cost associated with a change in the implied volumes available for 
conventional (i.e., non-advanced) biofuels for 2017. We provide 
estimates of what the potential costs might be if corn ethanol is used 
to meet the entire change in implied conventional renewable fuel 
volumes. Table V.D-3 below presents the annual change in volumes 
established by this final rule, a range of illustrative cost 
differences between corn ethanol and the wholesale gasoline on a per 
gasoline gallon equivalent (GGE) basis, and multiplies those per gallon 
cost estimates by the volume of petroleum displaced on an energy 
equivalent basis by the change in implied conventional fuel volumes for 
an estimated overall cost in 2017.
---------------------------------------------------------------------------

    \188\ 500 million gallons of ethanol is energy-equivalent to 
approximately 333 million gallons of gasoline.
    \189\ Overall costs may not match per gallon costs times volumes 
due to rounding.

 Table V.D-3--Illustrative Costs of Corn Ethanol To Meet Increase in the
  Conventional (i.e., Non-Advanced) Portion of the Total Renewable Fuel
                            Standards in 2017
------------------------------------------------------------------------
                                               2016            2017
------------------------------------------------------------------------
Implied Conventional Volume (Million              14,500          15,000
 Gallons)...............................
Annual Change in Implied Conventional     ..............             500
 Volume (Million Gallons)...............
    (GGE) \188\.........................  ..............           (333)
Cost Difference Between Corn Ethanol and  ..............     $0.72-$1.04
 Gasoline Per Gallon ($/GGE)............
Annual Increase in Overall Costs          ..............     \189\ $240-
 (Million $)............................                            $347
------------------------------------------------------------------------

    These illustrative cost estimates are not meant to be precise 
measures, nor do they attempt to capture the full impacts of the rule. 
These estimates are provided solely for the purpose of illustrating how 
the cost to produce renewable fuels could compare to the costs of 
producing petroleum fuels. There are several important caveats that 
must be considered when interpreting these costs estimates. First, 
there is a significant amount of heterogeneity in the costs associated 
with different feedstocks and fuels that could be used to produce 
renewable fuels; however, EPA did not attempt to capture this range of 
potential costs in these illustrative estimates. Second, EPA did not 
quantify other impacts such as infrastructure costs, job impacts, or 
investment impacts. If the illustrative costs from the Tables above, 
representing the range for combined advanced and non-advanced fuel 
volumes, were summed together they would range from $686-$1,550 million 
in 2017. It is important to note that these costs do not represent net 
benefits of the program.
    For the purpose of this annual rulemaking, we have not quantified 
benefits for the 2017 standards. We do not have a quantified estimate 
of the GHG impacts for a single year (e.g., 2017), and there are a 
number of benefits that are difficult to quantify, such as rural 
economic development, employment impacts, and national security 
benefits from more diversified fuel sources. When the RFS program is 
fully phased in, the program will result in considerable volumes of 
renewable fuels that will reduce GHG emissions in comparison to the 
fossil fuels which they replace. EPA estimated GHG, energy security, 
and air quality impacts and benefits in the 2010 RFS2 final rule 
assuming full implementation of the statutory volumes in 2022.\190\
---------------------------------------------------------------------------

    \190\ 75 FR 14670.
---------------------------------------------------------------------------

VI. Biomass-Based Diesel Volume for 2018

    In this section we discuss the final biomass-based diesel (BBD) 
applicable volume for 2018. We are establishing this volume in advance 
of those for other renewable fuel categories in light of the statutory 
requirement in CAA section 211(o)(2)(B)(ii) to establish the applicable 
volume of BBD for years after 2012 no later than 14 months before the 
applicable volume will apply. We are not at this time establishing the 
BBD percentage standards that would apply to obligated parties in 2018 
but intend to do so in the Fall of 2017, after receiving EIA's estimate 
of gasoline and diesel consumption for 2018. Although the BBD 
applicable volume sets a floor for required BBD use, because the BBD 
volume requirement is nested within both the advanced biofuel and the 
total renewable fuel volume requirements, any ``excess'' BBD produced 
beyond the mandated 2018 BBD volume can be used to satisfy both of 
these other applicable volume requirements. Therefore, these other 
standards can also influence BBD production and use.

A. Statutory Requirements

    The statute establishes applicable volume targets for years through 
2022 for cellulosic biofuel, advanced biofuel, and total renewable 
fuel. For BBD, applicable volume targets are specified in the statute 
only through 2012. For years after those for which volumes are 
specified in the statute, EPA is required under CAA section 
211(o)(2)(B)(ii) to determine the applicable volume of BBD, in 
coordination with the Secretary of Energy and the Secretary of 
Agriculture, based on a review of the implementation of the program 
during calendar years for which the statute specifies the volumes and 
an analysis of the following factors:
    1. The impact of the production and use of renewable fuels on the 
environment, including on air quality, climate change, conversion of 
wetlands, ecosystems, wildlife habitat, water quality, and water 
supply;
    2. The impact of renewable fuels on the energy security of the 
United States;
    3. The expected annual rate of future commercial production of 
renewable fuels, including advanced biofuels in each category 
(cellulosic biofuel and BBD);
    4. The impact of renewable fuels on the infrastructure of the 
United States, including deliverability of materials, goods, and 
products other than renewable fuel, and the sufficiency of 
infrastructure to deliver and use renewable fuel;
    5. The impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
    6. The impact of the use of renewable fuels on other factors, 
including job creation, the price and supply of agricultural 
commodities, rural economic development, and food prices.
    The statute also specifies that the volume requirement for BBD 
cannot be less than the applicable volume for calendar year 2012, which 
is 1.0 billion gallons. The statute does not, however, establish any 
other numeric criteria, or provide any guidance on how the EPA should 
weigh the importance of the often competing factors, and the 
overarching goals of the statute when

[[Page 89795]]

the EPA sets the applicable volumes of BBD in years after those for 
which the statute specifies such volumes. In the period 2013-2022, the 
statute specifies increasing applicable volumes of cellulosic biofuel, 
advanced biofuel, and total renewable fuel, but provides no guidance, 
beyond the 1.0 billion gallon minimum, on the level at which BBD 
volumes should be set.

B. Determination of Applicable Volume of Biomass-Based Diesel

1. BBD Production and Compliance Through 2015
    One of the primary considerations in determining the biomass-based 
diesel volume for 2018 is a review of the implementation of the program 
to date, as it affects biomass-based diesel. This review is required by 
the CAA, and also provides insight into the capabilities of the 
industry to produce, import, export, and distribute BBD. It also helps 
us to understand what factors, beyond the BBD standard, may incentivize 
the production and import of BBD. The number of BBD RINs generated, 
along with the number of RINs retired due to export or for reasons 
other than compliance with the annual BBD standards from 2011-2015 are 
shown below.

                                      Table VI.B.1-1--Biomass-Based (D4) RIN Generation and Standards in 2013-2017
                                                                 [Million gallons] \191\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             BBD RINs
                                                             BBD RINs      Exported BBD    retired, non-   Available BBD   BBD standard    BBD standard
                                                             generated        (RINs)        compliance       RINs \a\        (gallons)        (RINs)
                                                                                              reasons
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................................           1,692             110              98           1,483             800           1,200
2012....................................................           1,737             183              90           1,465           1,000           1,500
2013....................................................           2,739             298             101           2,341           1,280           1,920
2014....................................................           2,710             126              92           2,492           1,630       \b\ 2,490
2015....................................................           2,796             133              32           2,631           1,730       \b\ 2,655
2016....................................................             N/A             N/A             N/A             N/A           1,900           2,850
2017....................................................             N/A             N/A             N/A             N/A           2,000           3,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Available BBD RINs may not be exactly equal to BBD RINs Generated minus Exported RINs and BBD RINs Retired, Non-Compliance Reasons due to rounding.
\b\ Each gallon of biodiesel qualifies for 1.5 RINs due to its higher energy content per gallon than ethanol. Renewable diesel qualifies for between 1.5
  and 1.7 RINs per gallon. In 2014 and 2015 the number of RINs in the BBD Standard column is not exactly equal to 1.5 times the BBD volume standard as
  these standards were established based on actual RIN generation data for 2014 and a combination of actual data and a projection of RIN generation for
  the last three months of the year for 2015. Some of the volume used to meet the biomass-based diesel standard was renewable diesel, which generally
  has an equivalence value of 1.7.

    In reviewing historical BBD RIN generation and use, we see that the 
number of RINs available for compliance purposes exceeded the volume 
required to meet the BBD standard in 2011 and 2013. Additional 
production and use of biodiesel was likely driven by a number of 
factors, including demand to satisfy the advanced biofuel and total 
renewable fuels standards, the biodiesel tax credit, and favorable 
blending economics. In 2012 the available BBD RINs were slightly less 
than the BBD standard. There are many reasons this may have been the 
case, including the temporary lapse of the biodiesel tax credit at the 
end of 2011.\192\ The number of RINs available in 2014 and 2015 was 
approximately equal to the number required for compliance in those 
years. This is because the standards for these years were finalized at 
the end of November 2015 when RIN generation data were available for 
all of 2014 and much of 2015, and we exercised our authority to 
establish the required BBD volumes for these time periods to be 
approximately equal to the number of BBD RINs that were available (for 
past time periods) or were expected to be available (for the months of 
2015 for which EPA did not yet have reliable data) in the absence of 
the influence of the RFS standards. While we do not yet have final 
compliance data for 2016, BBD RIN generation is currently on track to 
exceed the volume required by the BBD standard by a significant 
margin.\193\ This strongly suggests that there is demand for these RINs 
to satisfy the advanced biofuel and/or total renewable fuel 
requirements.
---------------------------------------------------------------------------

    \191\ Net BBD RINs Generated and BBD RINs Retired for Non-
Compliance Reasons information from EMTS. Biodiesel Export 
information from EIA. http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_a.htm.
    \192\ The biodiesel tax credit was reauthorized in January 2013. 
It applied retroactively for 2012 and for the remainder of 2013. It 
was once again extended in December 2014 and applied retroactively 
to all of 2014 as well as to the remaining weeks of 2014. In 
December 2015 the biodiesel tax credit was once authorized and 
applied retro-actively for all of 2015 as well as through the end of 
2016.
    \193\ ``Comparison of 2016 availability of RINs and 2016 
standards,'' memorandum from David Korotney to docket EPA-HQ-OAR-
2016-0004.
---------------------------------------------------------------------------

2. Interaction Between BBD and Advanced Biofuel Standards
    The BBD standard is nested within the advanced biofuel and total 
renewable fuel standards. This means that when an obligated party 
retires a BBD RIN (D4) to satisfy their BBD obligation, this RIN also 
counts towards meeting their advanced biofuel and total renewable fuel 
obligations. It also means that obligated parties may use BBD RINs in 
excess of their BBD obligations to satisfy their advanced biofuel and 
total renewable fuel obligations. Higher advanced biofuel and total 
renewable fuel standards, therefore, create demand for BBD, especially 
if there is an insufficient supply of other advanced or conventional 
renewable fuels to satisfy the standards, or if BBD RINs can be 
acquired at or below the price of other advanced or conventional 
biofuel RINs.\194\
---------------------------------------------------------------------------

    \194\ The biodiesel blenders tax credit effectively reduced the 
cost of BBD, allowing it to be priced lower than many other advanced 
biofuels.
---------------------------------------------------------------------------

    In reviewing the implementation of the RFS program to date, it is 
apparent that the advanced biofuel and/or total renewable fuel volume 
requirements were in fact helping grow the market for volumes of 
biodiesel above the BBD standard. In 2013 the number of advanced RINs 
generated from fuels other than BBD and cellulosic biofuel was not 
large enough to satisfy the implied standard for ``other advanced'' 
biofuel (advanced biofuel needed to satisfy the advanced biofuel 
standard after the BBD and cellulosic biofuel standards are met), and 
additional volumes of BBD filled the gap (see Table

[[Page 89796]]

VI.B.2-1 below). In fact, the amount by which the available BBD RINs 
exceeded the 1.28 billion gallon BBD volume requirement (421 million 
RINs) was larger than the amount of such excess BBD needed, together 
with other types of advanced biofuels, to satisfy the advanced biofuel 
standard (278 million RINs; the number of advanced biofuel RINs 
required after subtracting the number of RINs generated to meet the BBD 
standard and the number of RINs generated for non-BBD advanced 
biofuels), suggesting that the additional increment was incentivized by 
the total renewable fuel standard. Preliminary data for 2016 similarly 
reveal the ability for the advanced and total renewable fuel standards 
to incentivize increased BBD production. The current RIN generation 
data suggest that BBD production is on track to exceed the BBD standard 
for 2016 by a significant margin, and that these excess BBD RINs will 
be needed to enable compliance with the advanced biofuel and total 
renewable fuel standards given the limited production of other advanced 
biofuels.\195\ As discussed above, the 2014 and 2015 BBD standards were 
intended to reflect the full number of available BBD RINs in these 
years and were set in late 2015, at which point the number of available 
RINs in these years was largely known. We can therefore draw no 
conclusions about the ability for the advanced and total renewable fuel 
standards to incentivize BBD production from these years. While the 
available BBD RINs in 2012 were slightly less than the BBD standard 
despite the opportunity to contribute towards meeting the advanced and 
total renewable fuel standards, there are several factors beyond the 
RFS standards (2012 drought, expiration of the biodiesel tax credit, 
opportunities for increased ethanol blending as E10) that likely 
impacted BBD production in 2012. We continue to believe that the 
advanced biofuel and total renewable fuel standards can provide a 
strong incentive for increased BBD volume in the United States in 
excess of that required to satisfy the BBD standard (for further 
discussion on this issue see 80 FR 77492).
---------------------------------------------------------------------------

    \195\ ``Comparison of 2016 availability of RINs and 2016 
standards,'' memorandum from David Korotney to docket EPA-HQ-OAR-
2016-0004.

             Table VI.B.2-1--Biomass-Based Diesel and Advanced Biofuel RIN Generation and Standards
                                                 [Million RINs]
----------------------------------------------------------------------------------------------------------------
                                                                                                    Opportunity
                                                   Available BBD   BBD standard    Available D5     for ``Other
                                                      (RINs)          (RINs)      RINs (advanced    Advanced''
                                                                                   biofuels) \a\   biofuels \b\
----------------------------------------------------------------------------------------------------------------
2011............................................           1,483           1,200             225             150
2012............................................           1,465           1,500             597             500
2013............................................           2,341           1,920             552             830
2014............................................           2,492           2,490             143             147
2015............................................           2,631           2,655             147             102
----------------------------------------------------------------------------------------------------------------
\a\ Does not include BBD or cellulosic biofuel RINs, which may also be used towards an obligated party's
  advanced biofuel obligation.
\b\ Advanced biofuel that does not qualify as BBD or cellulosic biofuel; calculated by subtracting the number of
  required BBD RINs (BBD required volume x 1.5) and the number of required cellulosic biofuel RINs from the
  advanced biofuel volume requirement.

    The prices paid for advanced biofuel and BBD RINs beginning in 
early 2013 through mid-2016 also support the conclusion that advanced 
biofuel and/or total renewable fuel standards provide a sufficient 
incentive for additional biodiesel volume beyond what is required by 
the BBD standard. Because the BBD standard is nested within the 
advanced biofuel and total renewable fuel standards, and therefore can 
help to satisfy three RVOs, we would expect the price of BBD RINs to 
exceed that of advanced and conventional renewable RINs.\196\ If, 
however, BBD RINs are being used by obligated parties to satisfy their 
advanced biofuel and/or total renewable fuel obligations, above and 
beyond the BBD standard, we would expect the prices of conventional 
renewable fuel, advanced biofuel, and BBD RINs to converge to the price 
of the BBD RIN.\197\ When examining RIN prices data from 2013 through 
mid-2016, shown in Figure VI.B.2-1 below, we see that throughout this 
entire time period the advanced RIN price and biomass-based diesel RIN 
prices were approximately equal. Similarly, throughout most of this 
time period the conventional renewable fuel and biomass-based diesel 
RIN prices were approximately equal. This suggests that the advanced 
biofuel standard and/or total renewable fuel standard was capable of 
incentivizing increased BBD volumes beyond the BBD standard in these 
years.\198\ While final standards were not in place throughout 2014 and 
most of 2015, EPA had issued proposed rules for both of these years. In 
each year, the market response was to supply volumes of BBD that 
exceeded the proposed BBD standard in order to satisfy the advanced 
biofuel standard. Additionally, the RIN prices in these years strongly 
suggests that obligated parties and other market participants 
anticipated the need for BBD RINs to meet their advanced biofuel 
obligations, and responded by purchasing advanced biofuel and BBD RINs 
at approximately equal prices.
---------------------------------------------------------------------------

    \196\ This is because when an obligated party retires a BBD RIN 
to help satisfy their BBD obligation, the nested nature of the BBD 
standard means that this RIN also counts towards satisfying their 
advanced and total renewable fuel obligations. Advanced RINs count 
towards both the advanced and total renewable fuel obligations, 
while conventional RINs (D6) count towards only the total renewable 
fuel obligation.
    \197\ We would still expect D4 RINs to be valued at a slight 
premium to D5 and D6 RINs in this case (and D5 RINs at a slight 
premium to D6 RINs) to reflect the greater flexibility of the D4 
RINs to be used towards the BBD, advanced biofuel, and total 
renewable fuel standard. This pricing has been observed over the 
past several years.
    \198\ Although we did not issue a rule establishing the final 
2013 standards until August of 2013, we believe that the market 
anticipated the final standards, based on EPA's July 2011 proposal 
and the volume targets for advanced and total renewable fuel 
established in the statute (76 FR 38844, 38843).

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

[[Page 89797]]

[GRAPHIC] [TIFF OMITTED] TR12DE16.009

    In establishing the BBD and cellulosic standards as nested within 
the advanced biofuel standard, Congress clearly intended to support 
development of BBD and cellulosic biofuels, while also providing an 
incentive for the growth of other non-specified types of advanced 
biofuels. That is, the advanced biofuel standard provides an 
opportunity for other advanced biofuels (advanced biofuels that do not 
qualify as cellulosic biofuel or BBD) to be used to satisfy the 
advanced biofuel standard after the cellulosic biofuel and BBD 
standards have been met. Indeed, since Congress specifically directed 
growth in BBD only through 2012, leaving development of volume targets 
for BBD to EPA for later years while also specifying substantial growth 
in the cellulosic biofuel and advanced biofuel categories, we believe 
that Congress clearly intended for EPA to evaluate in setting BBD 
volume requirements after 2012 the appropriate rate of participation of 
BBD within the advanced biofuel standard.
    When viewed in a long-term perspective, BBD can be seen as 
competing for research and development dollars with other types of 
advanced biofuels for participation as advanced biofuels in the RFS 
program. We believe that preserving space within the advanced biofuel 
standard for advanced biofuels that do not qualify as BBD or cellulosic 
biofuel provides the appropriate incentives for the continued 
development of these types of fuels. In addition to the long-term 
impact of our action in establishing the BBD volume requirements, there 
is also the potential for short-term impacts during the compliance 
years in question. By establishing BBD volume requirements at levels 
lower than the advanced biofuel volume requirements (and lower than the 
expected production of BBD to satisfy the advanced biofuel 
requirement), we are creating the potential for some competition 
between BBD and other advanced biofuels to satisfy the advanced biofuel 
volume standard. We continue to believe that preserving space under the 
advanced biofuel standard for non-BBD advanced biofuels, as well as BBD 
volumes in excess of the BBD standard, will help to encourage the 
development and production of a variety of advanced biofuels over the 
long term without reducing the incentive for additional volumes of BBD 
beyond the BBD standard in 2018. A variety of different types of 
advanced biofuels, rather than a single type such as BBD, would 
positively impact energy security (e.g., by increasing the diversity of 
feedstock sources used to make biofuels, thereby reducing the impacts 
associated with a shortfall in a particular type of feedstock) and 
increase the likelihood of the development of lower cost advanced 
biofuels that meet the same GHG reduction threshold as BBD.\199\
---------------------------------------------------------------------------

    \199\ All types of advanced biofuel, including biomass-based 
diesel and cellulosic biofuel, must achieve lifecycle greenhouse gas 
reductions of at least 50%.
---------------------------------------------------------------------------

    While a single-minded focus on the ability of the advanced and 
total renewable fuel standards to incentivize increasing production of 
the lowest cost qualifying biofuels, regardless of fuel type, would 
suggest that a flat or even decreasing BBD volume requirement may be 
the optimal solution, this is not the only consideration. Despite many 
of these same issues being present in previous years, we have 
consistently increased the BBD standard each year. Our decisions to 
establish increasing BBD volumes each year have been made in light of 
the fact that while cellulosic biofuel production has fallen far short 
of the statutory volumes, the available supply of BBD in the United 
States has grown each year. This growing supply of BBD allowed EPA to 
establish higher advanced biofuel standards, and to realize the GHG 
benefits associated with greater volumes of advanced biofuel, than 
would otherwise have been possible in light of the continued shortfall 
in the availability of cellulosic biofuel. It is in this context that 
we determined that steadily increasing the BBD requirements was 
appropriate to encourage continued investment and innovation in the BBD 
industry, providing necessary assurances to the industry to increase 
production, while also serving the long term goal of the RFS statute to 
increase volumes of advanced biofuels over time.

[[Page 89798]]

    Although the BBD industry has performed well in recent years, we 
believe that for 2018 a continued appropriate increase in the BBD 
volume requirement will help provide stability to the BBD industry and 
encourage continued growth. This industry is currently the single 
largest contributor to the advanced biofuel pool, one that to date has 
been largely responsible for providing the growth in advanced biofuels 
envisioned by Congress. Nevertheless, many factors that impact the 
viability of the BBD industry in the United States, such as commodity 
prices and the biodiesel tax credit, remain uncertain. Continuing to 
increase the BBD volume requirement should help to provide market 
conditions that allow these BBD production facilities to operate with 
greater certainty. This result is consistent with the goals of the Act 
to increase the production and use of advanced biofuels (for further 
discussion of these issues see 80 FR 77492).
3. BBD Volume for 2018
    With the considerations discussed in Section IV.B.2 in mind, as 
well as our analysis of the factors specified in the statute, we are 
setting the applicable volume of BBD at 2.1 billion gallons for 2018. 
This volume represents an annual increase of 100 million gallons over 
the applicable volume of BBD in 2017. We believe this is appropriate 
for the same reasons reflected in the December 14, 2015 final rule: To 
provide additional support for the BBD industry while allowing room 
within the advanced biofuel volume requirement for the participation of 
non-BBD advanced fuels. Although we are not setting the advanced 
biofuel volume requirement for 2018 at this time, we anticipate that 
the 2018 advanced biofuel requirement will be larger than the 2017 
advanced biofuel volume requirement, and the 2018 BBD volume 
requirement reflects this anticipated approach. Our assessment of the 
required statutory factors, summarized in the next section and in a 
memorandum to the docket, supports this approach.\200\
---------------------------------------------------------------------------

    \200\ ``Memorandum to docket: Final Statutory Factors Assessment 
for the 2018 Biomass-Based Diesel (BBD) Applicable Volumes.''
---------------------------------------------------------------------------

    We believe this approach strikes the appropriate balance between 
providing a market environment where the development of other advanced 
biofuels is incentivized, while also maintaining support for growth in 
BBD volumes. Given the volumes for advanced biofuel we anticipate 
requiring in 2018, setting the BBD standard in this manner would 
continue to allow a considerable portion of the advanced biofuel volume 
to be satisfied by either additional gallons of BBD or by other 
unspecified types of qualifying advanced biofuels.

C. Consideration of Statutory Factors for 2018

    In this section we discuss our consideration of the statutory 
factors set forth in CAA section 211(o)(2)(B)(ii)(I)-(VI). As noted 
earlier in Section IV.B.2, the BBD volume requirement is nested within 
the advanced biofuel requirement and the advanced biofuel requirement 
is, in turn, nested within the total renewable fuel volume requirement. 
This means that any BBD produced beyond the mandated BBD volume can be 
used to satisfy both these other applicable volume requirements. The 
result is that in considering the statutory factors we must consider 
the potential impacts of increasing BBD in comparison to other advanced 
biofuels.\201\ For a given advanced biofuel standard, greater or lesser 
BBD volume requirements do not change the amount of advanced biofuel 
used to displace petroleum fuels; rather, increasing the BBD 
requirement may result in the displacement of other types of advanced 
biofuels that could have been used to meet the advanced biofuels volume 
requirement.
---------------------------------------------------------------------------

    \201\ While excess BBD production could also displace 
conventional renewable fuel under the total renewable standard, as 
long as the BBD applicable volume is significantly lower than the 
advanced biofuel applicable volume our action in setting the BBD 
applicable volume is not expected to displace conventional renewable 
fuel under the total renewable standard, but rather other advanced 
biofuels. See Table V. C-1.
---------------------------------------------------------------------------

    Consistent with our 2017 approach in setting the final BBD volume 
requirement, EPA's primary assessment of the statutory factors for the 
final 2018 BBD applicable volume is that because the BBD requirement is 
nested within the advanced biofuel volume requirement, we expect that 
the final 2018 advanced volume requirement, when set next year, will 
largely determine the level of BBD production and imports that occur in 
2018. Therefore, EPA continues to believe that the same overall volume 
of BBD would likely be supplied in 2018 regardless of the BBD volume we 
mandate for 2018 in this final rule. This assessment is based, in part, 
on our review of the RFS program implementation to date, as discussed 
above in Section VI.B.1-VI.B-2.
    As we stated in our proposal, even though we are not setting the 
2018 advanced biofuel volume requirement in this final rule, the final 
BBD volume requirement for 2018 that we are establishing in this action 
is not expected to impact the volume of BBD that is actually produced 
and imported during the 2018-time period. Thus we do not expect our 
final 2018 BBD volume requirement to result in a difference in the 
factors we are required to consider pursuant to CAA section 
211(o)(2)(B)(ii)(I)-(VI). However, we note that our approach of setting 
BBD volume requirement at a higher level in 2018 (as we did in 2017), 
while still at a volume level lower than the anticipated overall 
production and consumption of BBD in 2018, is consistent with our 
evaluation of statutory factors in CAA sections 211(o)(2)(B)(ii) (I), 
(II) and (III), since we continue to believe that our decision on the 
BBD volume requirement can have a positive impact on the future 
development and marketing of other advanced biofuels and can also 
result in potential environmental and energy security benefits, while 
still sending a supportive signal to potential BBD investors, 
consistent with the objectives of the Act to encourage the continued 
growth in production and use of renewable fuels, and in particular, 
advanced renewable fuels.
    Even though we are finalizing only the 2018 BBD volume requirement 
at this time and not the 2018 advanced biofuel requirement, we believe 
that our primary assessment with respect to the 2018 BBD volume 
requirement is appropriate, as is clear from the fact that the 
reasoning and analysis would apply even if we did not increase the 2018 
advanced biofuel requirement above 2017 levels.\202\ Nevertheless, we 
anticipate that the 2018 advanced biofuel requirement will be set to 
reflect reasonably attainable and appropriate volumes in the use of all 
advanced biofuels, similar to the approach used in this rule, and that 
the advanced biofuel volume standard will be larger in 2018 than in 
2017.
---------------------------------------------------------------------------

    \202\ As explained in Section IV, in deriving the 2017 advanced 
biofuel applicable volume requirement, we assumed that 2.4 billion 
gallons of BBD (3.72 billion RINs) would be used to satisfy the 4.28 
bill gal advanced biofuel requirement. Thus the mandated 2018 BBD 
applicable volume is less than we anticipate will actually be used 
in 2017.
---------------------------------------------------------------------------

    As an additional supplementary assessment, we have considered the 
potential impacts of modifying the 2018 BBD volume requirement from the 
level of 2.1 billion gallons based on the assumption that in 
guaranteeing the BBD volume at any given level there could be greater 
use of BBD and a corresponding decrease in the use of other types of 
advanced biofuels. However, setting a BBD volume requirement higher or 
lower than 2.1

[[Page 89799]]

billion gallons in 2018 would only be expected to impact BBD volumes on 
the margin, protecting to a lesser or greater degree BBD from being 
outcompeted by other advanced biofuels. In this supplementary 
assessment we have considered all of the statutory factors found in CAA 
section 211(2)(B)(ii), and as described in a memorandum to the 
docket,\203\ our assessment does not appear, based on available 
information, to provide a reasonable basis for setting a higher or 
lower volume requirement for BBD than 2.1 billion gallons for 2018.
---------------------------------------------------------------------------

    \203\ ``Memorandum to docket: Final Statutory Factors Assessment 
for the 2018 Biomass-Based Diesel (BBD) Applicable Volumes.''
---------------------------------------------------------------------------

    Overall and as described in our final memorandum to the docket, we 
have determined that both the primary assessment and the supplemental 
assessment of the statutory factors specified in CAA section 
211(o)(2)(B)(ii)(I)-(VI) for the year 2018 does not provide significant 
support for setting the BBD standard at a level higher or lower than 
2.1 billion gallons in 2018.
    The EPA received numerous comments pertaining to the consideration 
of the statutory factors for the 2018 BBD volume requirement. Many of 
these comments were made previously in response to last year's proposal 
to set the 2017 BBD volume requirement at 2.0 billion as part of the 
renewable fuels program's annual rulemaking.\204\ Below we reiterate 
our responses to a number of key issues which continue to be raised by 
the National Biodiesel Board (NBB). Additional comments and EPA 
responses can be found in the Response to Comment document that 
accompanies this final rule.
---------------------------------------------------------------------------

    \204\ Renewable Fuel Standard Program: Standards for 2014, 2015, 
and 2016 and Biomass-Based Diesel Volume for 2017; Final Rule. 80 FR 
77420.
---------------------------------------------------------------------------

    NBB restated its claim that we improperly based our consideration 
of the statutory factors on a comparison of BBD to other advanced 
biofuels, rather than to diesel fuel. They continued to suggest that 
setting the BBD standard at a higher level than proposed would actually 
result in BBD competing against diesel fuel, and therefore, EPA should 
analyze the impacts of displacing diesel fuel with BBD in its statutory 
factors analysis. We continue to disagree. In setting the advanced 
biofuel volume requirement, we have assumed reasonably attainable and 
appropriate volumes in BBD and other advanced biofuels. After 
determining that it is in the interest of the program, as described in 
Section VI.B.2 to set the BBD volume requirement at a level below 
anticipated BBD production and imports, so as to provide continued 
incentives for research and development of alternative advanced 
biofuels, it is apparent that excess BBD above the BBD volume 
requirement will compete with other advanced biofuels, rather than 
diesel.\205\ The only way for EPA's action on the BBD volume 
requirement to result in a direct displacement of petroleum-based 
fuels, rather than other advanced biofuels, would be if the BBD volume 
requirement were set larger than the total renewable fuel requirement. 
However, since BBD is a type of advanced biofuel, and advanced biofuel 
is a type of renewable fuel, the BBD volume requirement could never be 
larger than the advanced requirement and the advanced biofuel 
requirement could never be larger than the total renewable fuel 
requirement.
---------------------------------------------------------------------------

    \205\ The possibility for competition between BBD and other 
types of advanced biofuels is not precluded by our setting the 
advanced biofuel requirement at a level that reflects reasonably 
attainable volumes of all advanced biofuel types, or by our setting 
the total renewable fuel volume requirement at a level that also 
reflects the reasonably achievable volume of all fuel types. Any of 
our estimates related to a particular fuel type could prove to be 
either an over or under estimate. We are confident that the sum of 
all individual estimates used in setting the applicable volumes for 
2017 as well as the 2018 BBD volume requirement at an appropriate 
level are reasonable, and more accurate than our individual 
estimates for any particular fuel type. It is at the margin where 
our estimates regarding production and import of individual fuel 
types may be in error that competition between qualifying fuels can 
take place.
---------------------------------------------------------------------------

    NBB also continues to assert that our analysis of the desirability 
of setting the BBD volume requirement in a manner that would promote 
the development and use of a diverse array of advanced biofuels is 
prohibited by statute. We disagree with these comments and continue to 
believe that the statutory volumes of renewable fuel established by 
Congress in CAA section 211(o)(2)(B) provide an opportunity for other 
advanced biofuels (advanced biofuels that do not qualify as cellulosic 
biofuel or BBD) to be used to satisfy the advanced biofuel standard 
after the cellulosic biofuel and BBD standards have been met. Ensuring 
that a diversity of renewable biofuels are produced is consistent with 
CAA section 211 (o)(2)(A)(i), which requires that the EPA ``ensure that 
transportation fuel sold, or introduced into commerce in the United 
States . . . contains at least the applicable volume of renewable fuel, 
advanced biofuels, cellulosic biofuel, and biomass-based diesel . . 
.''. Because the BBD standard is nested within the advanced biofuel and 
total renewable fuel standards, when an obligated party retires a BBD 
RIN (D4) to satisfy their obligation, this RIN also counts towards 
meeting their advanced biofuel and total renewable fuel obligations. It 
also means that obligated parties may use BBD RINs in excess of their 
BBD obligations to satisfy their advanced biofuel and total renewable 
fuel obligations. To the extent that obligated parties are required to 
achieve compliance with the overall advanced biofuel standard using 
higher volumes of BBD D4 RINs, they forgo the use of other biofuels 
considered advanced biofuels to meet the advanced biofuel requirement. 
Therefore, the higher the BBD volume standard is, the lower the 
opportunity for other non-BBD advanced biofuels to compete for market 
share within the context of the advanced biofuel standard. When viewed 
in a long-term perspective, BBD can be seen as competing for research 
and development dollars with other types of advanced biofuels for 
participation as advanced biofuels in the RFS program.
    Finally, NBB restated its argument that the EPA previously found 
statutory factors supported greater annual increases in BBD volume 
requirement for 2013 and the statutory factors analysis developed to 
justify the 2017 BBD and now the 2018 volume requirements contradicts 
the analysis EPA put forward in 2013. We disagree. As in 2013, we have 
determined that incremental increases in the 2018 BBD volume 
requirement are appropriate to provide continued support to the BBD 
industry. We did this in 2013, acknowledging the important role the 
industry thus far had played in providing advanced biofuels to the 
marketplace, and in furthering the GHG reduction objectives of the 
statute. We did not in 2013, and are not today, setting the BBD volume 
requirement at the maximum potential production volume of BBD.

VII. Percentage Standards for 2017

    The renewable fuel standards are expressed as volume percentages 
and are used by each obligated party to determine their Renewable 
Volume Obligations (RVOs). Since there are four separate standards 
under the RFS program, there are likewise four separate RVOs applicable 
to each obligated party. Each standard applies to the sum of all non-
renewable gasoline and diesel produced or imported. The percentage 
standards are set so that if every obligated party meets the 
percentages by acquiring and retiring an appropriate number of RINs, 
then the amount of renewable fuel, cellulosic biofuel, biomass-based 
diesel (BBD), and advanced biofuel used will meet the

[[Page 89800]]

applicable volume requirements on a nationwide basis.
    Sections III through V provide our rationale and basis for the 
volume requirements for 2017.\206\ The volumes used to determine the 
percentage standards are shown in Table VII-1.
---------------------------------------------------------------------------

    \206\ The 2017 volume requirement for BBD was established in the 
2014-2016 final rule.

 Table VII-1--Volumes for Use in Setting the 2017 Applicable Percentage
                                Standards
                            [Billion gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................           0.311
Biomass-based diesel \a\................................            2.00
Advanced biofuel........................................            4.28
Renewable fuel..........................................           19.28
------------------------------------------------------------------------
\a\ Represents physical volume.

    For the purposes of converting these volumes into percentage 
standards, we generally use two decimal places to be consistent with 
the volume targets as given in the statute, and similarly two decimal 
places in the percentage standards. However, for cellulosic biofuel we 
use three decimal places in both the volume requirement and percentage 
standards to more precisely capture the smaller volume projections and 
the unique methodology that in some cases results in estimates of only 
a few million gallons for a single producer.

A. Calculation of Percentage Standards

    The formulas used to calculate the percentage standards applicable 
to producers and importers of gasoline and diesel are provided in Sec.  
80.1405. The formulas rely on estimates of the volumes of gasoline and 
diesel fuel, for both highway and nonroad uses, which are projected to 
be used in the year in which the standards will apply. The projected 
gasoline and diesel volumes are provided by EIA, and include ethanol 
and biodiesel used in transportation fuel. Since the percentage 
standards apply only to the non-renewable gasoline and diesel produced 
or imported, the volumes of ethanol and biodiesel are subtracted out of 
the EIA projections of gasoline and diesel.
    Transportation fuels other than gasoline or diesel, such as natural 
gas, propane, and electricity from fossil fuels, are not currently 
subject to the standards, and volumes of such fuels are not used in 
calculating the annual percentage standards. Since under the 
regulations the standards apply only to producers and importers of 
gasoline and diesel, these are the transportation fuels used to set the 
percentage standards, as well as to determine the annual volume 
obligations of an individual gasoline or diesel producer or importer.
    As specified in the March 26, 2010 RFS2 final rule, the percentage 
standards are based on energy-equivalent gallons of renewable fuel, 
with the cellulosic biofuel, advanced biofuel, and total renewable fuel 
standards based on ethanol equivalence and the BBD standard based on 
biodiesel equivalence. However, all RIN generation is based on ethanol-
equivalence. For example, the RFS regulations provide that production 
or import of a gallon of qualifying biodiesel will lead to the 
generation of 1.5 RINs. The formula specified in the regulations for 
calculation of the BBD percentage standard is based on biodiesel-
equivalence, and thus assumes that all BBD used to satisfy the BBD 
standard is biodiesel and requires that the applicable volume 
requirement be multiplied by 1.5. However, BBD often contains some 
renewable diesel, and a gallon of renewable diesel typically generates 
1.7 RINs.\207\ In addition, there is often some renewable diesel in the 
conventional renewable fuel pool. As a result, the actual number of 
RINs generated by biodiesel and renewable diesel is used in the context 
of our assessing reasonably attainable volumes for purposes of deriving 
the applicable volume requirements and associated percentage standards 
for advanced biofuel and total renewable fuel, and likewise in 
obligated parties' determination of compliance with any of the 
applicable standards. While there is a difference in the treatment of 
biodiesel + renewable diesel in the context of determining the 
percentage standard for BBD versus determining the percentage standard 
for advanced biofuel and total renewable fuel, it is not a significant 
one given our approach to determining the BBD volume requirement; o. 
Our intent in setting the BBD applicable volume is to provide an 
additional increment of guaranteed volume for BBD, but as described in 
Section VI.B, we do not expect the BBD standard to be binding. That is, 
we expect that actual supply of BBD, as well as supply of conventional 
biodiesel + renewable diesel, will be driven by the advanced biofuel 
and total renewable fuel standards.
---------------------------------------------------------------------------

    \207\ Although in some cases a gallon of renewable diesel 
generates either 1.5 or 1.6 RINs.
---------------------------------------------------------------------------

B. Small Refineries and Small Refiners

    In CAA section 211(o)(9), enacted as part of the Energy Policy Act 
of 2005, and amended by the Energy Independence and Security Act of 
2007, Congress provided a temporary exemption to small refineries \208\ 
through December 31, 2010. Congress provided that small refineries 
could receive a temporary extension of the exemption beyond 2010 based 
either on the results of a required DOE study, or based on an EPA 
determination of ``disproportionate economic hardship'' on a case-by-
case basis in response to small refinery petitions. In reviewing 
petitions, EPA, in consultation with the Department of Energy, 
evaluates the impacts petitioning refineries would likely face in 
achieving compliance with the RFS requirements and how compliance would 
affect their ability to remain competitive and profitable.
---------------------------------------------------------------------------

    \208\ A small refiner that meets the requirements of 40 CFR 
80.1442 may also be eligible for an exemption.
---------------------------------------------------------------------------

    EPA has granted some exemptions pursuant to this process in the 
past. However, at this time, no exemptions have been approved for 2017, 
and therefore we have calculated the percentage standards for this year 
without an adjustment for exempted volumes. Any requests for exemptions 
for 2017 that are approved after the final rule is released will not be 
reflected in the percentage standards that apply to all gasoline and 
diesel produced or imported in 2017. As stated in the final rule 
establishing the 2011 standards, ``EPA believes the Act is best 
interpreted to require issuance of a single annual standard in November 
that is applicable in the following calendar year, thereby providing 
advance notice and certainty to obligated parties regarding their 
regulatory requirements. Periodic revisions to the standards to reflect 
waivers issued to small refineries or refiners would be inconsistent 
with the statutory text, and would introduce an undesirable level of 
uncertainty for obligated parties.'' \209\
---------------------------------------------------------------------------

    \209\ See 75 FR 76804 (December 9, 2010).
---------------------------------------------------------------------------

C. Final Standards

    The formulas in Sec.  80.1405 for the calculation of the percentage 
standards require the specification of a total of 14 variables covering 
factors such as the renewable fuel volume requirements, projected 
gasoline and diesel demand for all states and territories where the RFS 
program applies, renewable fuels projected by EIA to be included in the 
gasoline and diesel demand, and exemptions for small refineries. The 
values of all the variables used for this final rule are shown in Table 
VII.C-1.\210\
---------------------------------------------------------------------------

    \210\ To determine the 49-state values for gasoline and diesel, 
the amounts of these fuels used in Alaska is subtracted from the 
totals provided by DOE. The Alaska fractions are determined from the 
June 29, 2016 EIA State Energy Data System (SEDS), Energy 
Consumption Estimates.

[[Page 89801]]



  Table VII.C-1--Values for Terms in Calculation of the 2017 Standards
                                  \211\
                            [Billion gallons]
------------------------------------------------------------------------
            Term                     Description               Value
------------------------------------------------------------------------
RFVCB......................  Required volume of                    0.311
                              cellulosic biofuel.
RFVBBD.....................  Required volume of biomass-            2.00
                              based diesel.
RFVAB......................  Required volume of advanced            4.28
                              biofuel.
RFVRF......................  Required volume of                    19.28
                              renewable fuel.
G..........................  Projected volume of                  143.61
                              gasoline.
D..........................  Projected volume of diesel.           53.15
RG.........................  Projected volume of                   14.35
                              renewables in gasoline.
RD.........................  Projected volume of                    2.28
                              renewables in diesel.
GS.........................  Projected volume of                    0.00
                              gasoline for opt-in areas.
RGS........................  Projected volume of                    0.00
                              renewables in gasoline for
                              opt-in areas.
DS.........................  Projected volume of diesel             0.00
                              for opt-in areas.
RDS........................  Projected volume of                    0.00
                              renewables in diesel for
                              opt-in areas.
GE.........................  Projected volume of                    0.00
                              gasoline for exempt small
                              refineries.
DE.........................  Projected volume of diesel             0.00
                              for exempt small
                              refineries.
------------------------------------------------------------------------

    Projected volumes of gasoline and diesel, and the renewable fuels 
contained within them, were provided by EIA and are consistent with the 
October, 2016 version of EIA's Short-Term Energy Outlook (STEO).\212\ 
These projections reflect EIA's judgment of future demand volumes in 
2017, accounting for the low oil price environment in 2016.
---------------------------------------------------------------------------

    \211\ See ``Calculation of final % standards for 2017'' in 
docket EPA-HQ-OAR-2016-0004.
    \212\ ``EIA projections of transportation fuel for 2017,'' 
docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    Using the volumes shown in Table VII.C-1, we have calculated the 
percentage standards for 2017 as shown in Table VII.C-2.

           Table VII.C-2--Final Percentage Standards for 2017
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................           0.173
Biomass-based diesel....................................            1.67
Advanced biofuel........................................            2.38
Renewable fuel..........................................           10.70
------------------------------------------------------------------------

VIII. Assessment of Aggregate Compliance

A. Assessment of the Domestic Aggregate Compliance Approach

    The RFS2 regulations contain a provision for renewable fuel 
producers who use planted crops and crop residue from U.S. agricultural 
land that relieves them of the individual recordkeeping and reporting 
requirements concerning the specific land from which their feedstocks 
were harvested. To enable this approach, EPA established a baseline 
number of acres for U.S. agricultural land in 2007 (the year of EISA 
enactment) and determined that as long as this baseline number of acres 
was not exceeded, it was unlikely that new land outside of the 2007 
baseline would be devoted to crop production based on historical trends 
and economic considerations. We therefore provided that renewable fuel 
producers using planted crops or crop residue from the U.S. as 
feedstock in renewable fuel production need not comply with the 
individual recordkeeping and reporting requirements related to 
documenting that their feedstocks are renewable biomass, unless EPA 
determines through one of its annual evaluations that the 2007 baseline 
acreage of 402 million acres agricultural land has been exceeded.
    In the final RFS2 regulations, EPA committed to make an annual 
finding concerning whether the 2007 baseline amount of U.S. 
agricultural land has been exceeded in a given year. If the baseline is 
found to have been exceeded, then producers using U.S. planted crops 
and crop residue as feedstocks for renewable fuel production would be 
required to comply with individual recordkeeping and reporting 
requirements to verify that their feedstocks are renewable biomass.
    The Aggregate Compliance methodology provided for the exclusion of 
acreage enrolled in the Grassland Reserve Program (GRP) and the 
Wetlands Reserve Program (WRP) from the estimated total U.S. 
agricultural land. However, the 2014 Farm Bill terminated the GRP and 
WRP as of 2013 and USDA established the Agriculture Conservation 
Easement Program (ACEP) with wetlands and land easement components. The 
ACEP provides financial and technical assistance to help conserve 
agricultural lands and wetlands and their related benefits. Under the 
Agricultural Land Easements (ACEP-ALE) component, USDA helps Indian 
tribes, state and local governments and non-governmental organizations 
protect working agricultural lands and limit non-agricultural uses of 
the land. Under the Wetlands Reserve Easements (ACEP-WRE) component, 
USDA helps to restore, protect and enhance enrolled wetlands. The WRP 
was a voluntary program that offered landowners the opportunity to 
protect, restore, and enhance wetlands on their property. The GRP was a 
voluntary conservation program the emphasized support for working 
grazing operations, enhancement of plant and animal biodiversity, and 
protection of grassland under threat of conversion to other uses.
    USDA and EPA concur that the ACEP-WRE and ACEP-ALE represent a 
continuation in basic objectives and goals of the original WRP and GRP. 
Therefore, it was assumed in this rulemaking that acreage enrolled in 
the easement programs would represent a reasonable proxy of WRP and GRP 
acreage and was excluded when estimating total U.S. agricultural land.
    Based on data provided by the USDA Farm Service Agency (FSA) and 
Natural Resources Conservation Service (NRCS), we have estimated that 
U.S. agricultural land reached approximately 380 million acres in 2016, 
and thus did not exceed the 2007 baseline acreage. This acreage 
estimate is based on the same methodology used to set the 2007 baseline 
acreage for U.S. agricultural land in the RFS2 final rulemaking, with 
the GRP and WRP substitution as noted above. Specifically, we started 
with FSA crop history data for 2016, from which we derived a total 
estimated acreage of 380,429,574 acres. We then subtracted the ACEP-ALE 
and ACEP-WRE enrolled areas by the end of Fiscal Year 2016, 313,284 
acres, to yield an estimate

[[Page 89802]]

of approximately 380 million acres of U.S. agricultural land in 2016. 
Note that these programs were still in place in 2016. The USDA data 
used to make this derivation can be found in the docket to this 
rule.\213\
---------------------------------------------------------------------------

    \213\ For the first time since 2013, USDA provided EPA with data 
on legacy acreage still covered by the discontinued GRP and WRP. 
Given this new data, EPA also estimated the total U.S. agricultural 
land taking the GRP and WRP acreage into account. In 2016, combined 
land under GRP and WRP totaled 2,966,122 acres. Factoring in the 
GRP, WRP, ACEP-WRE, and ACEP-ALE data yields an estimate of 
377,150,168 acres or approximately 377 million total acres of U.S. 
agricultural land in 2016.
---------------------------------------------------------------------------

B. Assessment of the Canadian Aggregate Compliance Approach

    On March 15, 2011, EPA issued a notice of receipt of and solicited 
public comment on a petition for EPA to authorize the use of an 
aggregate approach for compliance with the Renewable Fuel Standard 
renewable biomass requirements, submitted by the Government of Canada. 
The petition requested that EPA determine that an aggregate compliance 
approach will provide reasonable assurance that planted crops and crop 
residue from Canada meet the definition of renewable biomass. After 
thorough consideration of the petition, all supporting documentation 
provided and the public comments received, EPA determined that the 
criteria for approval of the petition were satisfied and approved the 
use of an aggregate compliance approach to renewable biomass 
verification for planted crops and crop residue grown in Canada.
    The Government of Canada utilized several types of land use data to 
demonstrate that the land included in their 124 million acre baseline 
is cropland, pastureland or land equivalent to U.S. Conservation 
Reserve Program land that was cleared or cultivated prior to December 
19, 2007, and was actively managed or fallow and non-forested on that 
date (and is therefore RFS2 qualifying land). The total agricultural 
land in Canada in 2016 is estimated at 118.4 million acres. This total 
agricultural land area includes 94.6 million acres of cropland and 
summer fallow, 14.0 million acres of pastureland and 9.8 million acres 
of agricultural land under conservation practices. This acreage 
estimate is based on the same methodology used to set the 2007 baseline 
acreage for Canadian agricultural land in the RFS2 response to 
petition. The trigger point for further evaluation of the data for 
subsequent years, provided by Canada, is 124 million acres. The data 
used to make this calculation can be found in the docket to this rule.

IX. 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 May 31, 2016 (81 FR 34778), and we also held a public 
hearing on June 9, 2016, at which many parties provided both verbal and 
written testimony. All comments received, both verbal and written, are 
available in EPA docket EPA-HQ-OAR-2016-0004 and we considered these 
comments in developing the final rule. Public comments and EPA 
responses are discussed throughout this preamble and in the 
accompanying RTC document, which is available in the docket for this 
action.

X. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is an economically significant regulatory action that 
was submitted to the Office of Management and Budget (OMB) for review. 
Any changes made in response to OMB recommendations have been 
documented in the docket. The EPA prepared an analysis of illustrative 
costs associated with this action. This analysis is presented in 
Section V.D of this preamble.

B. Paperwork Reduction Act (PRA)

    This action does not impose any new information collection burden 
under the PRA. OMB has previously approved the information collection 
activities contained in the existing regulations and has assigned OMB 
control numbers 2060-0637 and 2060-0640. The final standards will not 
impose new or different reporting requirements on regulated parties 
than already exist for the RFS program.

C. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. In 
making this determination, the impact of concern is any significant 
adverse economic impact on small entities. An agency may certify that a 
rule will not have a significant economic impact on a substantial 
number of small entities if the rule relieves regulatory burden, has no 
net burden, or otherwise has a positive economic effect on the small 
entities subject to the rule.
    The small entities directly regulated by the RFS program are small 
refiners, which are defined at 13 CFR 121.201. We have evaluated the 
impacts of this final rule on small entities from two perspectives: As 
if the 2017 standards were a standalone action or if they are a part of 
the overall impacts of the RFS program as a whole.
    When evaluating the standards as if they were a standalone action 
separate and apart from the original rulemaking which established the 
RFS2 program, then the standards could be viewed as increasing the 
volumes required of obligated parties between 2016 and 2017. To 
evaluate this rule from this perspective, EPA has conducted a screening 
analysis \214\ to assess whether it should make a finding that this 
action would not have a significant economic impact on a substantial 
number of small entities. Currently-available information shows that 
the impact on small entities from implementation of this rule would not 
be significant. EPA has reviewed and assessed the available 
information, which suggests that obligated parties, including small 
entities, are generally able to recover the cost of acquiring the RINs 
necessary for compliance with the RFS standards through higher sales 
prices of the petroleum products they sell than would be expected in 
the absence of the RFS program.215 216 This is true whether 
they acquire RINs by purchasing renewable fuels with attached RINs or 
purchase separated RINs. Even if we were to assume that the cost of 
acquiring RINs were not recovered by obligated parties, and we used the 
maximum values of the illustrative costs discussed in Section V.D and 
the gasoline and diesel fuel volume projections and wholesale prices 
from the October 2016 version of EIA's Short-Term Energy Outlook, and 
current wholesale fuel prices, a cost-to-sales ratio test shows that 
the costs to small entities of the RFS standards are far less than 1% 
of the value of their sales.
---------------------------------------------------------------------------

    \214\ ``Updated Screening Analysis for the Final Renewable Fuel 
Standard Program Renewable Volume Obligations for 2017'', memorandum 
from Dallas Burkholder and Tia Sutton to EPA Air Docket EPA-HQ-OAR-
2016-0004.
    \215\ For a further discussion of the ability of obligated 
parties to recover the cost of RINs see ``A Preliminary Assessment 
of RIN Market Dynamics, RIN Prices, and Their Effects,'' Dallas 
Burkholder, Office of Transportation and Air Quality, US EPA. May 
14, 2015, EPA Air Docket EPA-HQ-OAR-2015-0111.
    \216\ Knittel, Christopher R., Ben S. Meiselman, and James H. 
Stock. ``The Pass-Through of RIN Prices to Wholesale and Retail 
Fuels under the Renewable Fuel Standard.'' Working Paper 21343. NBER 
Working Paper Series. Available online http://www.nber.org/papers/w21343.pdf.

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

[[Page 89803]]

    While the screening analysis described above supports a 
certification that this rule would not have a significant economic 
impact on small refiners, we continue to believe that it is more 
appropriate to consider the standards as a part of ongoing 
implementation of the overall RFS program. When considered this way, 
the impacts of the RFS program as a whole on small entities were 
addressed in the RFS2 final rule (75 FR 14670, March 26, 2010), which 
was the rule that implemented the entire program required by the Energy 
Independence and Security Act of 2007 (EISA 2007). As such, the Small 
Business Regulatory Enforcement Fairness Act (SBREFA) panel process 
that took place prior to the 2010 rule was also for the entire RFS 
program and looked at impacts on small refiners through 2022.
    For the SBREFA process for the RFS2 final rule, EPA conducted 
outreach, fact-finding, and analysis of the potential impacts of the 
program on small refiners, which are all described in the Final 
Regulatory Flexibility Analysis, located in the rulemaking docket (EPA-
HQ-OAR-2005-0161). This analysis looked at impacts to all refiners, 
including small refiners, through the year 2022 and found that the 
program would not have a significant economic impact on a substantial 
number of small entities, and that this impact was expected to decrease 
over time, even as the standards increased. For gasoline and/or diesel 
small refiners subject to the standards, the analysis included a cost-
to-sales ratio test, a ratio of the estimated annualized compliance 
costs to the value of sales per company. From this test, it was 
estimated that all directly regulated small entities would have 
compliance costs that are less than one percent of their sales over the 
life of the program (75 FR 14862).
    We have determined that this final rule will not impose any 
additional requirements on small entities beyond those already 
analyzed, since the impacts of this final rule are not greater or 
fundamentally different than those already considered in the analysis 
for the RFS2 final rule assuming full implementation of the RFS 
program. As shown above in Tables I-1 and I.A-1 (and discussed further 
in Sections III, IV, and V), this rule establishes the 2017 volume 
requirements for cellulosic biofuel, advanced biofuel, and total 
renewable fuel at levels significantly below the statutory volume 
targets. This exercise of EPA's waiver authority reduces burdens on 
small entities, as compared to the burdens that would be imposed under 
the volumes specified in the Clean Air Act in the absence of waivers--
which are the volumes that we assessed in the screening analysis that 
we prepared for implementation of the full program. Regarding the 
biomass-based diesel standard, we are increasing the volume requirement 
for 2018 over the statutory minimum value of 1 billion gallons. 
However, this is a nested standard within the advanced biofuel 
category, which we are significantly reducing from the statutory volume 
targets. As discussed in Section VI, we are setting the 2018 biomass-
based diesel volume requirement at a level below what is anticipated 
will be produced and used to satisfy the reduced advanced biofuel 
requirement. The net result of the standards being established in this 
action is a reduction in burden as compared to implementation of the 
statutory volume targets, as was assumed in the RFS2 final rule 
analysis.
    While the rule will not have a significant economic impact on a 
substantial number of small entities, there are compliance 
flexibilities in the program that can help to reduce impacts on small 
entities. These flexibilities include being able to comply through RIN 
trading rather than renewable fuel blending, 20% RIN rollover allowance 
(up to 20% of an obligated party's RVO can be met using previous-year 
RINs), and deficit carry-forward (the ability to carry over a deficit 
from a given year into the following year, providing that the deficit 
is satisfied together with the next year's RVO). In the RFS2 final 
rule, we discussed other potential small entity flexibilities that had 
been suggested by the SBREFA panel or through comments, but we did not 
adopt them, in part because we had serious concerns regarding our 
authority to do so.
    Additionally, as we realize that there may be cases in which a 
small entity experiences hardship beyond the level of assistance 
afforded by the program flexibilities, the program provides hardship 
relief provisions for small entities (small refiners), as well as for 
small refineries.\217\ As required by the statute, the RFS regulations 
include a hardship relief provision (at 40 CFR 80.1441(e)(2)) that 
allows for a small refinery to petition for an extension of its small 
refinery exemption at any time based on a showing that compliance with 
the requirements of the RFS program would result in the refinery 
experiencing a ``disproportionate economic hardship.'' EPA regulations 
provide similar relief to small refiners that are not eligible for 
small refinery relief. A small refiner may petition for a small refiner 
exemption based on a similar showing that compliance with the 
requirements of the RFS program would result in the refiner 
experiencing a ``disproportionate economic hardship'' (see 40 CFR 
80.1442(h)). EPA evaluates these petitions on a case-by-case basis and 
may approve such petitions if it finds that a disproportionate economic 
hardship exists. In evaluating such petitions, EPA consults with the 
U.S. Department of Energy, and takes the findings of DOE's 2011 Small 
Refinery Study and other economic factors into consideration. EPA 
successfully implemented these provisions by evaluating petitions for 
exemption from 13 small refineries for the 2014 RFS standards.
---------------------------------------------------------------------------

    \217\ See CAA section 211(o)(9)(B).
---------------------------------------------------------------------------

    Given that this final rule will not impose additional requirements 
on small entities, would decrease burden via a reduction in required 
volumes as compared to statutory volume targets, would not change the 
compliance flexibilities currently offered to small entities under the 
RFS program (including the small refinery hardship provisions we 
continue to successfully implement), and available information shows 
that the impact on small entities from implementation of this rule 
would not be significant viewed either from the perspective of it being 
a standalone action or a part of the overall RFS program, we have 
therefore concluded that this action would have no net regulatory 
burden for directly regulated small entities.

D. Unfunded Mandates Reform Act (UMRA)

    This final action contains a federal mandate under UMRA, 2 U.S.C. 
1531-1538, 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. Accordingly, the EPA has prepared a written 
statement required under section 202 of UMRA. This statement is 
presented in Section V.D in the form of illustrative cost estimates of 
the 2017 RFS standards. This action implements mandates specifically 
and explicitly set forth in CAA section 211(o) and we believe that this 
action represents the least costly, most cost-effective approach to 
achieve the statutory requirements of the rule.
    This action is not subject to the requirements of section 203 of 
UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

[[Page 89804]]

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.

F. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This action does not have tribal implications as specified in 
Executive Order 13175. This final rule will be implemented at the 
Federal level and affects transportation fuel refiners, blenders, 
marketers, distributors, importers, exporters, and renewable fuel 
producers and importers. Tribal governments would be affected only to 
the extent they produce, purchase, and use regulated fuels. Thus, 
Executive Order 13175 does not apply to this action.

G. Executive Order 13045: Protection of Children From Environmental 
Health Risks and Safety Risks

    The EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that concern environmental health or safety risks 
that the EPA has reason to believe may disproportionately affect 
children, per the definition of ``covered regulatory action'' in 
section 2-202 of the Executive Order. This action is not subject to 
Executive Order 13045 because it implements specific standards 
established by Congress in statutes (CAA section 211(o)) and does not 
concern an environmental health risk or safety risk.

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

    This action is not a ``significant energy action'' because it is 
not likely to have a significant adverse effect on the supply, 
distribution, or use of energy. This action establishes the required 
renewable fuel content of the transportation fuel supply for 2017, 
consistent with the CAA and waiver authorities provided therein. The 
RFS program and this rule are designed to achieve positive effects on 
the nation's transportation fuel supply, by increasing energy 
independence and lowering lifecycle greenhouse gas emissions of 
transportation fuel.

I. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations, and Low-Income Populations

    The EPA believes that this action does not have disproportionately 
high and adverse human health or environmental effects on minority 
populations, low-income populations, and/or indigenous peoples, as 
specified in Executive Order 12898 (59 FR 7629, February 16, 1994). 
This final rule does not affect the level of protection provided to 
human health or the environment by applicable air quality standards. 
This action does not relax the control measures on sources regulated by 
the RFS regulations and therefore would not cause emissions increases 
from these sources.

K. Congressional Review Act (CRA)

    This action is subject to the CRA, and the EPA will submit a rule 
report to each House of the Congress and to the Comptroller General of 
the United States. This action is a ``major rule'' as defined by 5 
U.S.C. 804(2).

XI. Statutory Authority

    Statutory authority for this action comes from section 211 of the 
Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural 
and compliance related aspects of this final rule 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, Diesel fuel, Fuel additives, Gasoline, Imports, 
Oil imports, Petroleum, Renewable fuel.

    Dated: November 23, 2016.
Gina McCarthy,
Administrator.

    For the reasons set forth in the preamble, EPA amends 40 CFR part 
80 as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

0
1. The authority citation for part 80 continues to read as follows:

    Authority: 42 U.S.C. 7414, 7521, 7542, 7545, and 7601(a).

Subpart M--[Amended]

0
2. Section 80.1405 is amended by adding new paragraph (a)(8) to read as 
follows:


Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) * * *
    (8) Renewable Fuel Standards for 2017.
    (i) The value of the cellulosic biofuel standard for 2017 shall be 
0.173 percent.
    (ii) The value of the biomass-based diesel standard for 2017 shall 
be 1.67 percent.
    (iii) The value of the advanced biofuel standard for 2017 shall be 
2.38 percent.
    (iv) The value of the renewable fuel standard for 2017 shall be 
10.70 percent.
* * * * *
[FR Doc. 2016-28879 Filed 12-9-16; 8:45 am]
BILLING CODE 6560-50-P