[Federal Register Volume 82, Number 139 (Friday, July 21, 2017)]
[Proposed Rules]
[Pages 34206-34245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14632]



[[Page 34205]]

Vol. 82

Friday,

No. 139

July 21, 2017

Part III





Environmental Protection Agency





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40 CFR Part 80





Renewable Fuel Standard Program: Standards for 2018 and Biomass-Based 
Diesel Volume for 2019; Proposed Rule

  Federal Register / Vol. 82 , No. 139 / Friday, July 21, 2017 / 
Proposed Rules  

[[Page 34206]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2017-0091; FRL-9964-86-OAR]
RIN 2060-AT04


Renewable Fuel Standard Program: Standards for 2018 and Biomass-
Based Diesel Volume for 2019

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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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 proposes the annual percentage 
standards for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel that apply to gasoline and diesel 
transportation fuel produced or imported in the year 2018. Relying on 
statutory waiver authority that is available when projected cellulosic 
biofuel production volumes are less than the applicable volume 
specified in the statute, the EPA is proposing volume requirements for 
cellulosic biofuel, advanced biofuel, and total renewable fuel that are 
below the statutory applicable volumes, and lower than the 2017 
requirements. In this action, we are also proposing the applicable 
volume of biomass-based diesel for 2019.

DATES: Comments must be received on or before August 31, 2017. EPA will 
announce the public hearing date and location for this proposal in a 
supplemental Federal Register document.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2017-0091, at http://www.regulations.gov. Follow the online 
instructions for submitting comments. Once submitted, comments cannot 
be edited or removed from Regulations.gov. The EPA may publish any 
comment received to its public docket. Do not submit electronically any 
information you consider to be Confidential Business Information (CBI) 
or other information whose disclosure is restricted by statute. 
Multimedia submissions (audio, video, etc.) must be accompanied by a 
written comment. The written comment is considered the official comment 
and should include discussion of all points you wish to make. The EPA 
will generally not consider comments or comment contents located 
outside of the primary submission (i.e., on the web, cloud, or other 
file sharing system). For additional submission methods, the full EPA 
public comment policy, information about CBI or multimedia submissions, 
and general guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.

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 
proposed 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:

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                                                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.
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\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
proposed action. This table lists the types of entities that EPA is now 
aware could potentially be regulated by this proposed action. Other 
types of entities not listed in the table could also be regulated. To 
determine whether your entity would be regulated by this proposed 
action, you should carefully examine the applicability criteria in 40 
CFR part 80. If you have any questions regarding the applicability of 
this proposed 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
    C. Statutory Requirement To Reset Volumes
    D. RIN Market Operation
    E. Biofuel Imports
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
    B. Treatment of Carryover RINs
III. Cellulosic Biofuel Volume for 2018
    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. Cellulosic Biofuel Volume for 2018
    1. Liquid Cellulosic Biofuel
    2. CNG/LNG Derived from Biogas
    3. Total Cellulosic Biofuel in 2018
IV. Advanced Biofuel Volume for 2018
    A. Volumetric Limitation on Use of the Cellulosic Waiver 
Authority
    B. Reasonably Attainable Volumes of Advanced Biofuel
    1. Imported Sugarcane Ethanol
    2. Biodiesel and Renewable Diesel
    3. Other Advanced Biofuel
    4. Total Advanced Biofuel
    C. Proposed Advanced Biofuel Volume Requirement for 2018
V. Total Renewable Fuel Volume for 2018
    A. Volumetric Limitation on Use of the Cellulosic Waiver 
Authority
    B. Assessing Attainable Volumes
    1. Ethanol

[[Page 34207]]

    a. Ethanol Concentration in the Gasoline Pool
    b. Assessment of E0 in the Gasoline Pool
    c. Ethanol Supply Volume for Assessment of Total Renewable Fuel
    2. Biodiesel and Renewable Diesel
    3. Total Renewable Fuel Supply
    C. Market Responses to the Advanced Biofuel and Total Renewable 
Fuel Volume Requirements
    D. Impacts of 2018 Standards on Costs
    1. Illustrative Cost Savings Associated With Reducing Statutory 
Cellulosic Volumes
    2. Illustrative Cost Analysis Using the 2017 Baseline
VI. Biomass-Based Diesel Volume for 2019
    A. Statutory Requirements
    B. Determination of Applicable Volume of Biomass-Based Diesel
    C. Consideration of Statutory Factors Set forth in CAA Section 
211(o)(2)(B)(ii)(I)-(VI) for 2019
VII. Percentage Standards for 2018
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Proposed Standards
VIII. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the agency?
IX. 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
X. 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), leading to 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 [and] to increase the 
production of clean renewable fuels.'' Today, nearly all of the 
approximately 143 billion gallons of gasoline used for transportation 
purposes contains 10 percent ethanol (E10), and on average diesel fuel 
contains approximately 4 percent biodiesel and/or renewable diesel.
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    \1\ 75 FR 14670, March 26, 2010.
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    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 obligated parties must meet every 
year. In this action, we are proposing the annual percentage standards 
for cellulosic biofuel, biomass-based diesel (BBD), advanced biofuel, 
and total renewable fuel that would apply to all gasoline and diesel 
produced or imported in 2018. We are also proposing the applicable 
volume of BBD for 2019.
    Real-world challenges, such as the slower-than-expected development 
of the cellulosic biofuel industry, have slowed progress towards 
meeting Congressional goals for renewable fuels, even as progress has 
been made in some areas. Those challenges have made the volume targets 
established by Congress for 2018 beyond reach for all fuel categories 
other than BBD, for which the statute specifies a minimum requirement 
of 1.0 billion gallons. After careful review of the information before 
us, for 2018 we propose to use the cellulosic waiver authority 
provision provided by Congress to reduce the volume requirement for 
cellulosic biofuel to the projected volume available in 2018, and 
establish volume requirements for advanced biofuel and total renewable 
fuel that are lower than the statutory targets, but nevertheless will 
ensure these renewable fuels will continue to play a critical role as a 
complement to our petroleum-based fuels. We are not proposing to 
provide volume reductions through use of the general waiver 
authority.\2\
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    \2\ See 42 U.S.C. 7545(o)(7)(A)(i-ii). See also the discussion 
of the general waiver authority in Section II.A.2. below.
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    We note that while we are proposing to reduce the required volume 
of all of the fuel categories other than BBD due to an anticipated 
shortfall in the production of cellulosic biofuel, the proposed BBD 
volume exceeds the statutory minimum and the proposed volumes of total 
renewable fuel, advanced biofuel and cellulosic biofuel would achieve 
the implied statutory volumes for conventional biofuel \3\ and non-
cellulosic advanced biofuel.\4\
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    \3\ Throughout this proposed rule conventional biofuel refers to 
biofuel that qualifies as renewable fuel, but does not qualify as an 
advanced biofuel. RINs generated for conventional biofuels have a D 
code of 6.
    \4\ Throughout this proposed rule non-cellulosic advanced 
biofuel refers to biofuel that qualifies as advanced biofuel, but 
does not qualify as cellulosic biofuel. RINs generated for non-
cellulosic advanced biofuels have a D code of 4 or 5.
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    The proposed volume requirements for 2018 are shown in Table I-1 
below. Relative to the levels finalized in 2017, the proposed 2018 
volume requirements for advanced biofuel and total renewable fuel are 
lower by 40 million gallons. For the first time EPA is proposing in 
2018 to reduce the advanced biofuel and total renewable fuel volumes by 
the same amount as we would reduce the required volume of cellulosic 
biofuel. These reductions effectively preserve the implied statutory 
volumes for conventional renewable fuel and non-cellulosic advanced 
biofuels, rather than requiring additional volumes of non-cellulosic 
advanced biofuels to backfill for some of the shortfall in cellulosic 
biofuel, as EPA has done in previous years. We are proposing no 
increase, relative to the finalized 2018 levels, in the volume 
requirement for biomass-based diesel for 2019.

               Table I-1--Proposed Volume Requirements \a\
------------------------------------------------------------------------
                                                           2018    2019
------------------------------------------------------------------------
Cellulosic biofuel (million gallons)....................     238     n/a
Biomass-based diesel (billion gallons)..................     \b\     2.1
                                                             2.1
Advanced biofuel (billion gallons)......................    4.24     n/a
Renewable fuel (billion gallons)........................   19.24     n/a
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\a\ All values are ethanol-equivalent on an energy content basis, except
  for BBD which is biodiesel-equivalent.
\b\ The 2018 BBD volume requirement was established in the 2017 final
  rule (81 FR 89746, December 12, 2016).

    The Clean Air Act requires EPA to ``reset'' the statutory volume 
targets for future years when certain conditions are met. As discussed 
later in this Executive Summary, the Administrator has directed staff 
to begin technical analysis to inform a future reset rulemaking action.

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

[[Page 34208]]

211(o)(2). The statutory volumes for 2018 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 2018 Volumes Specified in the Clean Air Act
                          [Billion gallons] \a\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel.............................................      7.0
Biomass-based diesel...........................................    >=1.0
Advanced biofuel...............................................     11.0
Renewable fuel.................................................     26.0
------------------------------------------------------------------------
\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 proposing the annual applicable volume requirements for 
cellulosic biofuel, advanced biofuel, and total renewable fuel for 
2018, and for BBD for 2019.\5\ 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 
proposed rule.
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    \5\ The 2018 BBD volume requirement was established in the 2017 
final rule.
    \6\ CAA 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.

                    Table I.A-2--Statutory Provisions for Determination of Applicable Volumes
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                                                                                           Criteria provided in
                                                                                               statute for
            Applicable volumes                        Clean air act reference                determination of
                                                                                            applicable volume
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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 \6\.................  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 proposed rule, we present our 
analysis of cellulosic biofuel production and the

[[Page 34209]]

proposed applicable volume for 2018. This analysis is based primarily 
on information reported to EPA through our Electronic Moderated 
Transaction System (EMTS) and an evaluation of producers' production 
plans and progress to date following discussions with cellulosic 
biofuel producers.
    With regard to BBD, 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 2017 final rule we established the BBD volume for 
2018. In Section VI of this preamble we discuss our assessment of 
statutory and other relevant factors and our proposed volume 
requirement for BBD for 2019, which has been developed in coordination 
with USDA and DOE. We are proposing an applicable volume of 2.1 billion 
gallons of BBD for use in deriving the BBD percentage standard in 2019. 
This volume is equal to the applicable volume of BBD established in a 
prior rulemaking for 2018, and would provide continued support to an 
industry that is a significant 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 the statutory targets 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 proposed rule describe our use of the cellulosic 
waiver authority alone to derive proposed volumes of advanced biofuel 
and total renewable fuel that are below the statutory target volumes, 
and our assessment that the resulting volumes can be met. We believe 
that reductions in the statutory targets for 2018 are necessary. 
However, in light of our review of available information, we are 
proposing to make those reductions under the cellulosic waiver 
authority alone and are not proposing any additional increment of 
reduction under the general waiver authority. Thus, the reductions 
proposed can be attributed to the significant shortfall in cellulosic 
biofuel production, as compared to the statutory targets. EPA, however, 
solicits comment on whether it would be appropriate to exercise the 
general waiver authority in the final rule, and will evaluate comments 
and updated data to consider whether such an approach is warranted.

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this 
proposed rule. We are proposing applicable volume requirements and 
associated percentage standards for cellulosic biofuel, advanced 
biofuel, and total renewable fuel for 2018; for BBD we are proposing 
the percentage standard for 2018 and the applicable volume requirement 
for 2019.
1. Approach to Setting Volume Requirements
    The approach we have taken in this proposed rule to project 
cellulosic biofuel is modified from that presented in the 2017 final 
rule, as described in further detail below. The approach we have taken 
in this proposed rule of using the cellulosic waiver authority to 
reduce advanced biofuel and total renewable fuel is similar to that 
presented in the 2017 final rule, however, we are proposing to reduce 
the advanced biofuel and total renewable fuel volume requirements by 
the same amount as the cellulosic biofuel volume requirement. In 
previous years we have used the cellulosic waiver authority to reduce 
the advanced biofuel and total renewable fuel volume requirements by a 
lesser amount than the cellulosic biofuel volume requirement to allow 
reasonably attainable volumes of advanced biofuels to partially 
backfill for missing cellulosic biofuel volumes. In this rule we are 
proposing to reduce all three volume requirements by the same amount 
after considering the greenhouse gas (GHG), energy security benefits, 
and anticipated costs of advanced biofuels beyond the level proposed in 
this rule.
    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 2018 cellulosic biofuel 
volume based on a projection of production that reflects a neutral aim 
at accuracy. Sections IV and V describe our assessments of advanced 
biofuel and total renewable fuel, respectively. Finally, Section VI 
provides our determination regarding the 2019 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 
2016, driven largely by compressed natural gas (CNG) and liquefied 
natural gas (LNG) derived from biogas. Cellulosic ethanol, while 
produced in much smaller quantities than CNG/LNG derived from biogas, 
was produced consistently on a commercial scale 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, as well as to increase production 
volumes at existing facilities in 2017 and beyond. In this rule we are 
proposing a cellulosic biofuel volume requirement of 238 million 
ethanol-equivalent gallons for 2018 based on Renewable Identification 
Number (RIN) generation data available to EPA through EMTS, the 
information we have received regarding individual facilities' 
capacities, production start dates and biofuel production plans, a 
review of cellulosic biofuel production relative to EPA's projections 
in previous annual rules, input from other government agencies, and 
EPA's own engineering judgment. We expect to update all of this 
information for the final rule, and to take into account the Energy 
Information Administration's (EIA) projection of cellulosic biofuel 
availability, which should be available in October 2017.
    As part of estimating the volume of liquid cellulosic biofuel that 
will be made available in the U.S. in 2018, we considered all potential 
production sources by company and facility. This included facilities 
still in the commissioning or start-up phases, as

[[Page 34210]]

well as facilities already producing some volume of cellulosic 
biofuel.\7\ From this universe of potential liquid cellulosic biofuel 
sources, we identified the subset that is expected to produce 
commercial volumes of qualifying liquid cellulosic biofuel for use as 
transportation fuel, heating oil, or jet fuel by the end of 2018. 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 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 2018.
---------------------------------------------------------------------------

    \7\ 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.
---------------------------------------------------------------------------

    For 2018, EPA is proposing to use an industry wide, rather than a 
facility-by-facility approach to project the production of CNG/LNG 
derived from biogas. We believe this approach is appropriate due to the 
mature state of this technology and the large number of facilities that 
are registered to produce cellulosic biofuel RINs for these fuels. 
Further discussion on our projection of cellulosic biofuel production 
in 2018, including the factors considered and the way these factors 
were used to determine our proposed cellulosic biofuel projection, can 
be found in Section III.
3. Advanced Biofuel
    The conditions that compelled us to reduce the 2017 volume 
requirement for advanced biofuel below the statutory target remain 
relevant in 2018. As for 2017, we investigated the ability of volumes 
of non-cellulosic advanced biofuels to backfill unavailable volumes of 
cellulosic biofuel in 2018, through domestic production or import. We 
took into account the various constraints on the ability of the market 
to make advanced biofuels available, the ability of the standards we 
set to bring about market changes in the time available, the potential 
impacts associated with diverting biofuels and/or biofuel feedstocks 
from current use to the production of advanced biofuel used in the 
United States, and the potential impact of the expiration of the 
biodiesel tax credit. Based on these considerations, along with 
consideration of the estimated cost of the non-cellulosic advanced 
biofuels most likely to be used to backfill for the shortfall in 
cellulosic biofuel, we are proposing to make a determination that it 
would not be appropriate to set an advanced biofuel standard that would 
require the market to backfill a portion of the shortfall in cellulosic 
biofuel.
    We are proposing to exercise our cellulosic waiver authority to 
reduce the statutory applicable volume of advanced biofuel to a 
proposed volume requirement of 4.24 billion gallons for 2018. This 
proposed applicable volume for 2018 is 40 million gallons lower than 
the applicable volume for advanced biofuel for 2017.
4. Total Renewable Fuel
    Following our proposed determination of the appropriate volume 
reduction for advanced biofuel for 2018 using the cellulosic waiver 
authority, we calculated what the total renewable fuel volume would be 
if we provide the same level of reduction using the cellulosic waiver 
authority. The resulting volume would be 19.24 billion gallons. We then 
evaluated this total renewable fuel volume to determine if it is 
reasonably attainable given assessments of individual fuel types, 
including biodiesel, renewable diesel, ethanol (in the form of E10 or 
higher ethanol blends such as E15 or E85), and other renewable 
fuels.\8\ Our proposed assessment indicates that a total renewable fuel 
volume of 19.24 billion gallons is reasonably attainable in 2018. We do 
not propose, therefore, to use the general waiver authority to further 
reduce the total renewable fuel volume requirement due to a finding of 
inadequate domestic supply.
---------------------------------------------------------------------------

    \8\ As described further in Section V.B, EPA's total renewable 
fuel volume assessment is intended to identify whether domestic 
supply concerns are present that would require a more exacting 
analysis of the maximum reasonably achievable volumes, as EPA has 
previously done when using the general waiver authority based on a 
finding of inadequate domestic supply. Since EPA's proposed 
assessment indicates that the volumes associated with this proposed 
rule are reasonably attainable, we do not believe that supply 
concerns exist that would necessitate the more exacting analysis 
needed to identify the maximum reasonably achievable volumes.
---------------------------------------------------------------------------

    We note that this proposal includes an assessment of E0 (ethanol-
free gasoline) use that marks a change in how we have addressed this 
issue in past standard-setting rulemaking actions. In previous years, 
stakeholders have provided comment to EPA concerning the amount of E0 
that is used in the United States each year for transportation fuel, 
and how such information should be used in development of the annual 
volume requirements. EPA has reassessed this issue, and we have found 
that use of E0 in 2016 was higher than we had assumed in setting the 
2016 standards. Our proposal for 2018 includes consideration of this 
fact (see Section V.B.1).
5. Biomass-Based Diesel
    In EISA, Congress specified increasing applicable volumes of BBD 
through 2012. Beyond 2012 Congress stipulated that EPA, in coordination 
with DOE and USDA, 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.\9\ For 2016 and 
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons 
respectively. Finally, for 2018 the BBD volume requirement was set a 
2.1 billion gallons.
---------------------------------------------------------------------------

    \9\ 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 production and use of biodiesel and 
renewable diesel volumes over and above volumes required through the 
separate BBD standard, and we expect this to continue. For 2019, EPA 
continues to believe that it would still be appropriate to provide a 
floor above the statutory minimum of 1 billion gallons to provide a 
guaranteed level of support for the continued production and use of 
BBD. However, we also believe that the volume of biomass-based diesel 
supplied in previous years demonstrates that the advanced biofuel 
standard is capable of incentivizing additional supply of these fuels 
above the volume required by the biomass-based diesel standard.
    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 proposing to maintain the 
applicable volume of BBD for 2019 at the same level finalized for 2018, 
2.1

[[Page 34211]]

billion gallons. Maintaining the volume at this level will provide a 
guaranteed level of support to BBD producers, who will also be 
incentivized under the advanced and total standards to manufacture 
higher volumes of fuel. This approach leaves opportunity within the 
advanced biofuel mandate for investment in and growth in production of 
other, potentially less costly, 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 applicable volumes used to derive the percentage standards.
    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 proposed percentage standards was derived from reports 
published by the EIA, and we intend to update this information for the 
final rule. The proposed percentage standards for 2018 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--Proposed 2018 Percentage Standards
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel............................................     0.131
Biomass-based diesel..........................................      1.74
Advanced biofuel..............................................      2.34
Renewable fuel................................................     10.62
------------------------------------------------------------------------

C. Statutory Requirement To Reset Volumes

    The Clean Air Act requires EPA to ``reset'' the statutory volume 
targets for future years through 2022 if annual volume requirements are 
waived (reduced) beyond one of two specified thresholds:
    (1) At least 20 percent of the statutory volume target for 2 
consecutive years; or
    (2) At least 50 percent of the statutory volume target for a single 
year.\10\
---------------------------------------------------------------------------

    \10\ CAA section 211(o)(7)(F).
---------------------------------------------------------------------------

    If either of these thresholds is reached, EPA is required to 
promulgate a rule within one year of the triggering waiver action that 
modifies the applicable volume targets for future years for the 
affected standard. However, the statute also indicates that 2016 is the 
first year to which any reset volume would apply.
    In light of these requirements, the Administrator has directed EPA 
staff to initiate the required technical analysis to inform a reset 
rule.
    When resetting the statutory targets, the EPA must comply with the 
processes, criteria, and standards set forth in CAA section 
211(o)(2)(B)(ii). In addition to reviewing the implementation of the 
program during previous years and coordinating with the Secretary of 
Energy and the Secretary of Agriculture, the EPA must also analyze a 
number of factors:
     The impact of the production and use of renewable fuels on 
the environment, including on air quality, climate change, conversion 
of wetlands, ecosystems, wildlife habitat, water quality, and water 
supply;
     The impact of renewable fuels on the energy security of 
the United States;
     The expected annual rate of future commercial production 
of renewable fuels, including advanced biofuels in each category 
(cellulosic biofuel and BBD);
     The impact of renewable fuels on the infrastructure of the 
United States, including deliverability of materials, goods, and 
products other than renewable fuel, and the sufficiency of 
infrastructure to deliver and use renewable fuel;
     The impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
     The impact of the use of renewable fuels on other factors, 
including job creation, the price and supply of agricultural 
commodities, rural economic development, and food prices.
    EPA is not undertaking the analysis of these factors in this 
rulemaking. We are not soliciting comments on the reset rulemaking 
process at this time, but we are including mention of it in this 
Executive Summary in recognition of the importance of, and widespread 
interest in, a potential ``reset rule.'' Any comments received related 
to a possible future reset rule will be deemed beyond the scope of this 
rulemaking.

D. RIN Market Operation

    Some stakeholders have expressed concerns the current provisions 
related to RIN trading render the RFS program vulnerable to market 
manipulation. EPA takes such issues seriously. The RIN system was 
originally designed with an open trading market in order to maximize 
its liquidity and ensure a robust marketplace for RINs. However, EPA is 
interested in further assessing whether and how the current trading 
structure provides an opportunity for market manipulation. To that 
effect, EPA seeks comment and input on potential changes to the RIN 
trading system that might help address these concerns. EPA is not 
soliciting comment on any aspect of the current RFS regulatory program 
other than those specifically related to RIN trading, as mentioned 
above, and the proposed annual standards for 2018 and biomass-based 
diesel applicable volume for 2019. In particular, EPA is not re-opening 
for public comment in this rulemaking the current definition of 
``obligated party. '' \11\
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    \11\ Separately, EPA has received a number of petitions seeking 
reconsideration of the definition of ``obligated party,'' and 
solicited public comment on its proposed resolution of those 
petitions. See 81 FR 83776 (November 22, 2016).
---------------------------------------------------------------------------

    Separate from evaluating the RIN trading options in the RFS 
program, the EPA is working with appropriate market regulators to 
analyze targeted concerns of some stakeholders. For example, the EPA 
has executed a memorandum of understanding with the Commodity Futures 
Trading Commission (CFTC) and welcomes CFTC involvement in evaluating 
RIN market concerns.
    In the meantime, EPA has continued to explore additional ways to 
increase program transparency in order to support the program and share 
data with all stakeholders. EPA already publishes RFS program data on 
our Web site, including data related to RIN generation, sales and 
holdings, and annual compliance. We are interested in providing more 
information, to the extent consistent with our obligations to protect 
confidential business information. EPA seeks comment on specific data 
elements and posting frequency that stakeholders believe would be 
useful to help with market transparency and liquidity.

E. Biofuel Imports

    In establishing the RFS program, Congress sought to bolster energy 
security and independence by boosting the amount of renewable fuels 
used in

[[Page 34212]]

the domestic transportation fuel pool. Indeed, EISA's stated goals 
include moving the United States toward ``greater energy independence 
and security [and] to increase the production of clean renewable 
fuels.'' \12\ This is not simply a general goal, but is embedded in 
statutory provisions, as well: for example, one of the factors EPA is 
directed to consider in the context of establishing the biomass-based 
diesel standard for 2019 under CAA section 211(o)(2)(B)(ii) is the 
impact of renewable fuels on the energy security of the United States.
---------------------------------------------------------------------------

    \12\ Energy Independence and Security Act of 2007.
---------------------------------------------------------------------------

    In recent years increasing volumes of renewable fuels have been 
imported and used by obligated parties to comply with their RFS 
obligations. For example, data from EPA's EMTS system show that in 
2016, 46 million gallons of ethanol and 731 million gallons of advanced 
biodiesel and renewable diesel were imported into the United 
States.\13\ Due to their origin outside the United States, imported 
renewable fuels may not have the same impact on energy independence as 
those produced domestically. Industry stakeholders have observed the 
trend of increasing imports, too. The United States Department of 
Commerce, in response to a petition filed by U.S. biodiesel interests, 
has instituted countervailing duty and antidumping duty investigations 
regarding alleged subsidized and dumped imports of biodiesel.\14\
---------------------------------------------------------------------------

    \13\ 66 and 95 million gallons of ethanol were imported in 2014 
and 2015 respectively. Of the 731 million gallons of advanced 
biodiesel and renewable diesel imported into the United States in 
2016, 561 million gallons (which generated 842 million RINs) were 
advanced biodiesel and 170 million gallons (which generated 289 
million RINs) were advanced renewable diesel. 259 and 382 million 
gallons of advanced biodiesel and renewable diesel were imported in 
2014 and 2015 respectively. An additional 113 million gallons of 
conventional biodiesel (generating 170 million RINs) and 43 million 
gallons of conventional renewable diesel (generating 73 million 
RINs) were also imported in 2016. 52 and 180 million gallons of 
conventional biodiesel and renewable diesel were imported in 2014 
and 2015 respectively. Imported biofuel represented a significant 
percentage of the RINs available for compliance with the total 
renewable fuel volume requirement (8%), and especially the advanced 
biofuel (29%) and BBD (29%) volume requirements in 2016.
    \14\ See 82 FR 22155 (May 12, 2017).
---------------------------------------------------------------------------

    EPA is interested in stakeholder views on this topic and on what 
steps EPA might take to ensure energy independence and security. 
Furthermore, and in light of these considerations, EPA requests comment 
on whether or not to reduce the biomass-based diesel required volume 
below the level specified in this proposed rule for 2019. Finally, we 
request comment on whether and to what degree these considerations 
could support the use of the general waiver authority, inherent 
authority or other basis consistent with general construction of 
authority in the statute to reduce the required volume of advanced 
biofuel (with a corresponding reduction to the total renewable fuel 
requirement) below the level proposed for 2018.

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 
2018 volume requirements for cellulosic biofuel, advanced biofuel, and 
total renewable fuel that are below the statutory volume targets.
    Within this rulemaking action under CAA section 211(o)(3)(i), EPA 
is using its authority under CAA section 211(o)(7) to take an 
administrative action to reduce the required volumes of cellulosic 
biofuel, advanced biofuel, and total renewable fuel 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 BBD 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 2018 is less than the 7.0 
billion gallon volume target in the statute. Therefore, for 2018, we 
are proposing to set the cellulosic biofuel volume requirement at a 
level lower than the statutory applicable volume, in accordance with 
this provision.
    CAA section 211(o)(7)(D)(i) also provides EPA with the authority to 
reduce the applicable volume of total renewable fuel and advanced 
biofuel in years where it reduces the applicable volume of cellulosic 
biofuel. The reduction must be less than or equal to the reduction in 
cellulosic biofuel. For 2018, we are also proposing to reduce 
applicable volumes of advanced biofuel and total renewable fuel under 
this authority.
    The cellulosic waiver authority is discussed in detail in the 
preamble to the 2017 final rule. See also, API v. EPA, 706 F.3d 474 
(D.C. Cir. 2013) (requiring that EPA's cellulosic biofuel projections 
reflect a neutral aim at accuracy) and Monroe Energy v. EPA, 750 F.3d 
909 (D.C. Cir. 2014) (affirming EPA's broad discretion under the 
cellulosic waiver authority to reduce volumes of advanced biofuel and 
total renewable fuel).
    EPA is proposing an equal reduction from the statutory volume 
targets for advanced biofuels and total renewable fuel, as was our 
approach in using the cellulosic waiver authority for the 2014-2017 
standards. EPA's reasoning for an equal reduction is explained in the 
2017 final rule.\15\ We are proposing, as described in Section IV, that 
the applicable volume for advanced biofuels specified in the statute 
for 2018 cannot be achieved and we are proposing to exercise 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 equal reduction in the applicable volume of total 
renewable fuel. In addition, we have determined that there is likely to 
be adequate supply to satisfy the total renewable fuel volume derived 
through applying an equal volume reduction as for advanced biofuel. 
Therefore, we are proposing that no further reductions of the total 
renewable fuel volume requirement are necessary to address supply 
concerns. The resulting volume requirements provide for an implied 
volume requirement for conventional biofuel

[[Page 34213]]

equal to that envisioned by Congress for 2018.
---------------------------------------------------------------------------

    \15\ 81 FR 89752-89753, December 12, 2016.
---------------------------------------------------------------------------

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 volumes specified in the Act in whole or in part 
based on a petition by one or more States, by any person subject to the 
requirements of the Act, or by the EPA Administrator on his 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.
    Based on a preliminary evaluation of the availability of renewable 
fuel in the market, regarding which we seek public comment, EPA is not 
proposing to use the general waiver authority to further reduce volumes 
for 2018. However, EPA solicits comments on whether it is appropriate 
to exercise the general waiver authority and will evaluate comments and 
updated data in considering whether such an approach is warranted.

B. Treatment of Carryover RINs

    Consistent with our approach in the 2013, 2014-16, and 2017 final 
rules, we have also considered the availability and role of carryover 
RINs in evaluating whether we should exercise our discretion to use the 
cellulosic waiver authority in setting the cellulosic, advanced, and 
total volume requirements for 2018. Neither the statute nor EPA 
regulations specify how or whether EPA should consider the availability 
of carryover RINs in exercising its cellulosic waiver authority.\16\ As 
noted in the context of the rules establishing the 2014-16 and 2017 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.\17\ 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.\18\ 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.\19\
---------------------------------------------------------------------------

    \16\ 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 renewable volume obligation. 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 newer vintage RINs that are then 
held for use in the next year. For example, if the volume of the 
collective carryover RIN bank is to remain 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.
    \17\ See 80 FR 77482-87 (December 14, 2015) and 81 FR 89754-55 
(December 12, 2016).
    \18\ See id., and 72 FR 23900 (May 1, 2007).
    \19\ See 79 FR 49794 (August 15, 2013).
---------------------------------------------------------------------------

    An adequate RIN bank serves to make the RIN market liquid. 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 RFS program. 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.\20\
---------------------------------------------------------------------------

    \20\ Here we use the term ``buffer'' as shorthand reference to 
all of the benefits that are provided by a sufficient bank of 
carryover RINs.
---------------------------------------------------------------------------

    At the time of the 2017 final rule, we estimated that there would 
be at most 1.54 billion carryover RINs available for compliance with 
the 2017 standards and decided that carryover RINs should not be 
counted on to avoid or minimize the need to reduce the 2017 statutory 
volume targets. We also stated that we may or may not take a similar 
approach in future years, and that we would evaluate the issue on a 
case-by-case basis considering the facts present in future years. Since 
that time, obligated parties have submitted their compliance 
demonstrations for the 2015 and 2016 compliance years and we now 
estimate that there are now at most 2.06 billion carryover RINs 
available,\21\ an increase of 520 million RINs from the previous 
estimate of 1.54 billion carryover RINs in the 2017 final rule.\22\ The 
volume of carryover RINs currently available is approximately 11 
percent of the proposed 2018 total renewable fuel volume standard, 
which is less than the 20 percent limit permitted by the regulations to 
be carried over for use in complying with the 2018 standards.\23\ 
However, there remains considerable uncertainty surrounding this number 
since compliance demonstrations still need to be made for the 2017 RFS 
standards, and it is unclear at this time whether some portion of the 
currently available carryover RINs will be used for compliance prior to 
2018. In addition, we note that there have been enforcement actions in 
past years that have resulted in the retirement of RINs to true up past 
compliance demonstrations. These enforcement actions have involved the 
generation and use of invalid RINs and the failure to retire RINs for 
exported renewable fuel. Future enforcement actions could have similar 
results, and require that obligated parties and/or renewable fuel 
exporters settle past enforcement-related

[[Page 34214]]

obligations in addition to the annual standards, thereby potentially 
creating demand for RINs greater than can be accommodated through 
actual renewable fuel blending in 2018. Collectively, the result of 
satisfying RFS obligations in 2017 and settling enforcement-related 
accounts could be an effective reduction in the size of the collective 
bank of carryover RINs. Thus, we believe there is considerable 
uncertainty that a RIN bank as large as 11 percent of the proposed 2018 
total renewable fuel standard will be available in 2018.
---------------------------------------------------------------------------

    \21\ The calculations performed to estimate the number of 
carryover RINs currently available can be found in the memorandum, 
``Carryover RIN Bank Calculations for 2018 NPRM,'' available in the 
docket.
    \22\ This increase in the carryover RIN bank compared to that 
projected in the 2017 final rule is not due to an underestimate by 
EPA in the amount of gasoline, diesel fuel, or ethanol that was 
consumed in 2016, but rather is driven almost entirely by a 
combination of over-compliance by biodiesel producers facing an 
expiring biodiesel tax credit at the end of 2016 and approximately 
390 million RINs that small refineries granted a hardship exemption 
for 2016 were not required to retire.
    \23\ See Sec.  80.1427(a)(5).
---------------------------------------------------------------------------

    Therefore, for the reasons noted above, and consistent with the 
approach we took in the 2014-2016 and 2017 final rules, we are 
proposing that, under current circumstances, an intentional drawdown of 
the carryover RIN bank should not be assumed in establishing the 2018 
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 proposing to set the renewable fuel 
volume requirements at levels that would envision a drawdown in the 
bank of carryover RINs.

III. Cellulosic Biofuel Volume for 2018

    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 
2016, driven largely by CNG and LNG derived from biogas.\24\ While 
multiple large cellulosic ethanol facilities struggled to achieve 
consistent commercial scale production, several facilities consistently 
produced cellulosic ethanol from corn kernel fiber at a smaller scale 
during 2016 and the first few months of 2017. This section describes 
our assessment of the volume of cellulosic biofuel that we project will 
be produced or imported into the United States in 2018, 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 
2018 we considered data reported to EPA through EMTS along with 
information we collected through meetings with representatives of 
facilities that have produced or have the potential to produce 
qualifying volumes of cellulosic biofuel for consumption as 
transportation fuel, heating oil, or jet fuel in the U.S. in 2018. Upon 
receipt of EIA's projection of cellulosic biofuel production for 2018, 
EPA will consider these estimates, together with updated information 
regarding the potential for contributions from individual facilities 
and groups of facilities, in determining the projected volume of 
cellulosic biofuel production in 2018 for the final rule.
    In this proposed rule we use the same general methodology as in the 
2017 final rule to project the range of potential production volumes of 
liquid cellulosic biofuel, however we have adjusted the percentile 
values used to select a point estimate within a projected production 
range for each group of companies based on recent information, and with 
the objective of improving the accuracy of the projections. We use a 
new methodology to project the production of cellulosic biofuel RINs 
for CNG/LNG derived from biogas that reflects the mature status of this 
industry and the large number of facilities registered to generate 
cellulosic biofuel RINs from these fuels. These methodologies are 
described in more detail in Section III.C below.
    New cellulosic biofuel production facilities projected to be 
brought online in the United States over the next few years could 
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 increased 
production of cellulosic biofuel from existing production facilities. 
Section B, below, discusses the companies the EPA reviewed in the 
process of projecting qualifying cellulosic biofuel production in the 
United States in 2018. Information on these companies forms the basis 
for our projection of 238 million ethanol-equivalent gallons of 
cellulosic biofuel produced for use as transportation fuel, heating 
oil, or jet fuel in the United States in 2018.

A. Statutory Requirements

    The volumes of renewable fuel to be produced and used as 
transportation fuel 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 2018 is 7 
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 
shall reduce the applicable volume of cellulosic biofuel to the 
projected volume available during that calendar year.\25\
---------------------------------------------------------------------------

    \25\ 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.\26\ Our 
consideration of the 2018 volume requirements for advanced biofuel and 
total renewable fuel is presented in Sections IV and V of this rule.
---------------------------------------------------------------------------

    \26\ See Sec.  80.1456.
---------------------------------------------------------------------------

B. Cellulosic Biofuel Industry Assessment

    In order to project cellulosic biofuel production for 2018, 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 standard for 
2018. 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.\27\
---------------------------------------------------------------------------

    \27\ 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 March 2017 has been less than 
100,000 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

[[Page 34215]]

biofuel producers, to make a determination of which facilities are most 
likely to produce cellulosic biofuel and generate cellulosic biofuel 
RINs in 2018. 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 2018. Both 
in our discussions with representatives of individual companies 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.
    The methodology used by EPA to project cellulosic biofuel 
production in 2015-2017 has resulted in a total cellulosic biofuel 
production projection that was lower than the actual number of 
cellulosic RINs made available in 2015,\28\ and higher than the actual 
number of RINs generated in 2016.\29\ This methodology is most recently 
described in the 2017 final rule.\30\ The fact that the projections in 
both years proved somewhat inaccurate, under-estimating the actual 
number of RINs made available one year and over-estimating the next, 
reflects the inherent difficulty with projecting cellulosic biofuel 
production.
---------------------------------------------------------------------------

    \28\ EPA only projected cellulosic biofuel production for the 
final three months of 2015, since data on the availability of 
cellulosic biofuel RINs (D3+D7) for the first nine months of the 
year were available at the time the analyses were completed for the 
final rule.
    \29\ EPA projected that 123 million and 230 million cellulosic 
RINs would be generated in 2015 and 2016, respectively. The number 
of available cellulosic RINs in these years (RINs generated minus 
RINs retired for non-compliance reasons) was 140 and 190 million 
RINs. See ``Assessment of the Accuracy of Cellulosic Biofuel 
Production Projections in 2015 and 2016 (June 2016 Update)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091 for more detail.
    \30\ For a full description of this approach, see 81 FR 89746, 
89755 (December 12, 2016).
---------------------------------------------------------------------------

    EPA's projections of liquid cellulosic biofuel, however, were 
higher than the actual volume of liquid cellulosic biofuel produced in 
both 2015 and 2016. We believe that new data warrants a change to the 
methodology for projecting liquid cellulosic biofuel in an effort to 
make the projections more accurate. We are therefore proposing to 
adjust the percentile values used to project liquid cellulosic biofuel 
production based on actual liquid cellulosic biofuel production in 
2016. We believe that the use of this methodology, with the adjusted 
approach to developing the percentile values used to project production 
volumes for liquid cellulosic biofuels, results in a projection that 
reflects a neutral aim at accuracy since it accounts for expected 
growth in the near future, and does so in a way that directly reflects 
the accuracy of EPA's projections in the most recent year (2016) for 
which complete data is available.
    In previous years we used the same methodology for CNG/LNG derived 
from biogas as for liquid cellulosic biofuel, but with different 
percentile values reflecting the more established nature of the CNG/LNG 
industry relative to liquid cellulosic biofuel production. For 2018, 
EPA is proposing to use an industry wide approach, rather than an 
approach that projects volumes for individual companies or facilities, 
to project the production of CNG/LNG derived from biogas. This updated 
approach reflects the fact that this industry is far more mature than 
the liquid cellulosic biofuel industry, and that there are a large 
number of facilities registered to generate cellulosic biofuel RINs 
from biogas, rendering a facility-by-facility analysis difficult and of 
questionable need for purposes of accuracy. As described in Section 
V.C.2 below, EPA is instead proposing to use the rate of growth in the 
renewable CNG/LNG industry observed between the first five months of 
2016 and the first five months of 2017,\31\ together with actual data 
on total RINs generated for CNG/LNG in 2016, to estimate the production 
of CNG/LNG derived from biogas in 2018.
---------------------------------------------------------------------------

    \31\ At the time of this proposal, EPA has RIN generation data 
for the first five months of 2017 (January-May).
---------------------------------------------------------------------------

    For the final rule we intend to review all available data with 
respect to cellulosic biofuel production in 2017 for the months for 
which data will be available. We will consider that information, 
together with comments received and updated information on the status 
of potential production facilities, to make any appropriate adjustments 
to the methodology and/or projected production volume in the final 
rule. 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 2018 and describes in more 
detail the methodology EPA is proposing to use to project cellulosic 
biofuel production in 2018 (including a review of cellulosic biofuel 
production and the accuracy of the projection methodology in previous 
years). This information forms the basis for the proposed applicable 
volume for cellulosic biofuel for 2018.
1. Potential Domestic Producers
    There are a number of companies and facilities \32\ 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 2018. The financial incentive provided by cellulosic 
biofuel RINs,\33\ combined with the facts that to date nearly all 
cellulosic biofuel produced in the United States has been used 
domestically \34\ 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 considered in our assessment of potential cellulosic biofuel 
producers in 2018 have already successfully completed facility 
registration, and many have successfully generated RINs.\35\ 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 2018 
can be found in a memorandum to the docket for this

[[Page 34216]]

proposed rule.\36\ General information on each of these companies or 
group of companies considered in our projection of the potentially 
available volume of cellulosic biofuel in 2018 is summarized in Table 
III.B.3-1 below.
---------------------------------------------------------------------------

    \32\ 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.
    \33\ According to data from Argus, the price for 2017 cellulosic 
biofuel RINs averaged $2.67 in 2017 (through March 2017). 
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 2017 
advanced biofuel RINs averaged $0.94 in 2017 (through March 2017) 
while the price for a 2017 cellulosic waiver credit is $2.00.
    \34\ The only known exception was a small volume of fuel 
produced at a demonstration scale facility exported to be used for 
promotional purposes.
    \35\ All of the facilities listed in Table III.B.3-1 are 
registered to produced cellulosic (D3 or D7) RINs with the exception 
of several of the producers of CNG/LNG derived from biogas, many of 
the facilities projected to produce cellulosic ethanol using 
Edeniq's technology, and Ensyn's Port-Cartier, Quebec facility.
    \36\ ``Cellulosic Biofuel Producer Company Descriptions (May 
2017)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2017-0091.
---------------------------------------------------------------------------

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 2018. 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 proposed rule we have considered all of the registered 
foreign facilities under the RFS program to be potential sources of 
cellulosic biofuel in 2018. 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 foreign facilities not currently registered to 
generate cellulosic biofuel RINs are generally highly unlikely in 2018. 
For purposes of our 2018 cellulosic biofuel projection we have, with 
only one exception (described below) excluded from our proposal 
potential volumes from foreign cellulosic biofuel production facilities 
that are not currently registered under the RFS program. Two foreign 
facilities (Ensyn's Renfrew facility and the CNG/LNG facility Complexe 
Enviro Progressive Ltee) 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 
2018. Three additional foreign facilities (Gran Bio's Bioflex 
Agroindustrial S/A, Saint-Thomas Biomethane Plant, and Raizen's Costa 
Pinto) have registered as cellulosic biofuel producers, but have not 
yet generated any cellulosic RINs. EPA attempted to contact 
representatives from these facilities to inquire about their intentions 
to export cellulosic biofuel to the United States in 2018. In two cases 
(Gran Bio's Bioflex Agroindustrial S/A and Saint-Thomas Biomethane 
Plant), 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 these 
companies are likely. Finally, EPA has included projected volume from 
one foreign facility (Ensyn's Port-Cartier, Quebec facility) that is 
not currently registered to generate cellulosic biofuel RINs under the 
RFS program. We believe that it is appropriate to include volume from 
this facility in light of the facility's proximity to the United 
States, the proven technology used by the facility, the volumes of 
cellulosic biofuel exported to the United States by the company in 
previous years, and the company's stated intention to market all of the 
fuel produced at this facility to qualifying markets in the United 
States. All of the facilities included in EPA's cellulosic biofuel 
projection for 2018 are listed in Table III.B.3-1 below.
3. Summary of Volume Projections for Individual Companies
    General information on each of the cellulosic biofuel producers (or 
group of producers in the case of producers of CNG/LNG derived from 
biogas and facilities using Edeniq's technology) that factored into our 
projection of cellulosic biofuel production for 2018 is shown in Table 
III.B.3-1. This table includes both facilities that have already 
generated cellulosic RINs, as well as those that have not yet generated 
cellulosic RINs, but are projected to do so by the end of 2018. As 
discussed above, we have focused on commercial-scale cellulosic biofuel 
production facilities. Each of these facilities (or group of 
facilities) is discussed further in a memorandum to the docket.\37\ In 
addition to the facilities (or groups of facilities) discussed in Table 
III.B.3-1 below, EPA is aware of two additional technologies that may 
be used to produce qualifying cellulosic biofuel in 2018. Multiple 
companies, in addition to Edeniq and Quad County Corn Processors, are 
working to commercialize technology to convert corn kernel fiber to 
cellulosic ethanol at existing corn ethanol facilities. At this point, 
however, none of these companies have successfully registered a 
facility to generate cellulosic RINs using their technology.\38\ 
Several other companies are seeking to register to generate cellulosic 
biofuel RINs for anaerobic digesters that produce CNG/LNG from a 
variety of waste feedstocks.\39\ If the outstanding technical issues 
related to these processes are resolved prior to the final rule, EPA 
anticipates including production projections from these technologies in 
our projection of cellulosic biofuel production for 2018.
---------------------------------------------------------------------------

    \37\ ``Cellulosic Biofuel Producer Company Descriptions (May 
2017)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2017-0091.
    \38\ A significant issue that must be resolved to register a 
facility to produce cellulosic biofuel from corn kernel fiber at an 
existing ethanol production facility is the quantification of the 
volume of ethanol produced from cellulosic feedstocks rather than 
non-cellulosic feedstocks such as starch. Until these companies 
develop a methodology for quantifying cellulosic biofuel production 
that is approved by EPA we do not believe it is appropriate to 
include an estimate of cellulosic biofuel production from these 
facilities in our projection of cellulosic biofuel production in 
2018.
    \39\ These facilities must be able to quantify the volume of 
CNG/LNG produced from cellulosic feedstocks and the volume of CNG/
LNG produced from non-cellulosic feedstocks. To date none of the 
quantification methodologies proposed by the companies interested in 
registering as cellulosic biofuel producers has been approved by 
EPA. While these companies may be able to register to generate 
advanced biofuel (D5) RINs, they cannot generate cellulosic (D3) 
RINs until this issue is resolved.

                                           Table III.B.3-1--Projected Producers of Cellulosic Biofuel by 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Facility  capacity
         Company name              Location          Feedstock             Fuel           (million gallons     Construction start     First production
                                                                                           per year) \40\             date                  \41\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \42\.......  Various (US and   Biogas..........  CNG/LNG............  Various............  N/A..................  August 2014.
                                Canada).
DuPont.......................  Nevada, IA......  Corn Stover.....  Ethanol............  30.................  November 2012........  1Q 2017.

[[Page 34217]]

 
Edeniq.......................  Various.........  Corn Kernel       Ethanol............  Various............  Various..............  October 2016.
                                                  Fiber.
Ensyn........................  Renfrew, ON,      Wood Waste......  Heating Oil........  3..................  N/A..................  2014.
                                Canada.
Ensyn........................  Port-Cartier,     Wood Waste......  Heating Oil........  10.5...............  June 2016............  April 2018.
                                QC, Canada.
GranBio......................  S[atilde]o        Sugarcane         Ethanol............  21.................  Mid 2012.............  September 2014.
                                Miguel dos        bagasse.
                                Campos, Brazil.
Poet.........................  Emmetsburg, IA..  Corn Stover.....  Ethanol............  24.................  March 2012...........  4Q 2015.
QCCP.........................  Galva, IA.......  Corn Kernel       Ethanol............  4..................  Late 2013............  October 2014.
                                                  Fiber.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Cellulosic Biofuel Volume for 2018
---------------------------------------------------------------------------

    \40\ 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 at the time of 
facility registration 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).
    \41\ 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.
    \42\ For more information on these facilities see ``June 2017 
Assessment of Cellulosic Biofuel Production from Biogas (2018)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091.
---------------------------------------------------------------------------

1. Liquid Cellulosic Biofuel
    For our 2018 liquid cellulosic biofuel projection, we use a 
modified version the same general methodology we used in establishing 
the cellulosic biofuel volume standards for 2015 (the final three 
months for which data were not available), 2016, and 2017. This 
methodology is briefly described here, and is described in detail in 
the 2017 annual rule.\43\ We are proposing to use the same methodology 
to come up with the range of potential volumes for the different 
categories of facilities. However, we are proposing to adjust the 
percentile values used to project liquid cellulosic biofuel production 
from within the range of projected production values, based on an 
analysis of actual liquid cellulosic biofuel production in 2016. We 
believe an adjustment to our methodology is warranted, as EPA's 
estimates for liquid cellulosic biofuel exceeded actual production of 
liquid cellulosic biofuel in both 2015 and 2016,\44\ and that this 
adjusted methodology will continue to improve the accuracy of the 
production projection that will further EPA's objective to project 
volumes with a ``neutral aim at accuracy.''
---------------------------------------------------------------------------

    \43\ See 81 FR 89755 (December 12, 2016) for additional detail.
    \44\ EPA notes that once standards are set based on these 
projections, cellulosic biofuel RINs can be generated for either 
type of cellulosic biofuel. Cellulosic biofuel RINs generated for 
liquid biofuels and CNG/LNG derived from biogas can be used to 
satisfy an obligated party's cellulosic biofuel obligation. There 
are no separate standards for liquid and gaseous cellulosic 
biofuels.
---------------------------------------------------------------------------

    The projected ranges for liquid cellulosic biofuel production in 
2016, along with the percentile values used to project a production 
volume within the calculated ranges and the actual number of cellulosic 
RINs generated in 2016 that are available for compliance, are shown in 
Table III.C.1-1 below.

               Table III.C.1-1-- Projected and Actual Liquid Cellulosic Biofuel Production in 2016
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                                      Actual
                                  Low end of the    High end of     Percentile       Projected      production
                                       range         the range                      production         \45\
----------------------------------------------------------------------------------------------------------------
New Facilities..................               0              76            25th              19            1.06
Consistent Producers \46\.......               2               5            50th               4            3.28
----------------------------------------------------------------------------------------------------------------

    Since the actual production in 2016 was lower than projected 
production for both new facilities and consistent producers, it seems 
appropriate to adjust the percentiles downward for the purposes of 
making projections for 2018. To this end, EPA calculated the percentile 
values that would have resulted in accurate production projections in 
2016 based on the actual number of cellulosic biofuel RINs generated 
for liquid cellulosic biofuels and available for compliance in 2016. 
These calculated percentile values are the 1st percentile for new 
facilities (replacing the 25th percentile used for 2016 and 2017) and 
the 43rd percentile for consistent producers (replacing the 50th 
percentile used for 2016 and 2017). In this rule EPA is proposing to 
use these updated percentile values to project the production of liquid 
cellulosic biofuel in 2018. We believe it is appropriate to use 2016 
production data to calculate these percentile values as EPA first 
adopted the methodology for calculating expected production ranges used 
in this rule in the 2014-2016 final rule. While EPA also has projected 
production ranges for the final three months of 2015 as well as all of 
2017, we do not have sufficient data to compare our projected volumes 
to actual production volumes over a full year for either of these 
years. For purposes of this proposal, therefore, we have selected 2016 
data as the most representative source of data currently available for 
purposes of projecting what may occur in 2018. We anticipate that we 
will review these percentile values as additional data from 2017 become 
available, and update them as appropriate for the final rule. We 
request comment on methods that EPA could use to take into account 
available 2017 data for the final rule,

[[Page 34218]]

notwithstanding the expected lack of data for the last few months of 
2017.
---------------------------------------------------------------------------

    \45\ Actual production is calculated by subtracting RINs retired 
for any reason other than compliance with the RFS standards from the 
total number of cellulosic RINs generated.
    \46\ In the 2014-2016 Annual Rule EPA categorized Ensyn and Quad 
County Corn Processors as consistent cellulosic biofuel producers 
for 2016. All other companies were categorized as new facilities. 
This is in contrast to 2018, for which EPA has categorized 
additional facilities as consistent cellulosic biofuel producers. 
See below.
---------------------------------------------------------------------------

    EPA also considered whether it would be appropriate to modify other 
individual components of the past methodology for liquid cellulosic 
biofuel based on a narrow consideration of each factor, but we do not 
believe there is currently sufficient information to support these 
changes. Making the single proposed adjustment to the percentile values 
used in the methodology should, we believe, provide an appropriate 
adjustment to the methodology that reflects recent past experience. We 
acknowledge, however, that using the calculated percentile values from 
previous years to project liquid cellulosic biofuel production in 
future years does not eliminate the possibility that actual production 
will differ from our projections. This is especially true for the 
liquid cellulosic biofuel industry, which is currently in the early 
stages of commercialization. We will continue to evaluate the success 
of this methodology, including a consideration of the data on 
cellulosic biofuel production in 2017 available at the time of the 
final rule, and will consider adjusting the methodology if it appears 
warranted. If the methodology appears to be projecting volumes that are 
significantly higher or lower than actual production volumes for months 
in 2017 for which data is available (after taking into account the 
seasonality of RIN generation and the expected ramp-up of production 
volumes in the latter half of 2017) we may consider adjustments to the 
methodology used in the final rule, such as further adjusting the 
percentile values used to project liquid cellulosic biofuel production 
within the projected range for a group of companies, or creating new 
groupings of companies with similar types and levels of risk associated 
with cellulosic biofuel production. We request comment on our 
methodology and adjustments that could be made to increase the accuracy 
of the projection.
    Consistent with our approach for 2016 and 2017, to project liquid 
cellulosic biofuel production in 2018 we separated the list of 
potential producers of cellulosic biofuel into two groups according to 
whether or not the facilities have achieved consistent commercial-scale 
production and cellulosic biofuel RIN generation (See Table III.C.1-2 
through Table III.C-.1-3). 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 at 
the time our technical assessment was completed (April 2016-March 
2017). For potential producers that have not yet generated any 
cellulosic RINs, the low end of the range is zero. For the high end of 
the range of production volumes for companies expected to produce 
liquid cellulosic biofuel we considered a variety of factors, including 
the expected start-up date and ramp-up period,\47\ facility capacity, 
and fuel off-take agreements. The projected ranges for each of the 
companies considered in our 2018 cellulosic biofuel projection are 
shown in Tables III.C.1-2 and III.C.1-3 below.\48\
---------------------------------------------------------------------------

    \47\ As in our 2015-2017 projections, EPA calculated a high end 
of the range for each facility (or group of facilities) based on the 
expected start-up date and a six-month straight line ramp-up period. 
The high end of the range for each facility (or group of facilities) 
is equal to the value calculated by EPA using this methodology, or 
the number of RINs the producer expects to generate in 2018, 
whichever is lower.
    \48\ More information on the data and methods EPA used to 
calculate each of the ranges in these tables can be found in ``May 
2017 Cellulosic Biofuel Individual Company Projections for 2018 
(CBI)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2017-0091.

  Table III.C.1-2--2018 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                                 Low end of  High end of
                                                 the range    the range
------------------------------------------------------------------------
DuPont........................................            0           15
Edeniq (New Producers)........................            0           80
GranBio.......................................            0            5
Ensyn (Port-Cartier)..........................            0            5
Aggregate Range...............................            0          105
------------------------------------------------------------------------


  Table III.C.1-3--2018 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                                 Low end of  High end of
                                                 the range    the range
------------------------------------------------------------------------
Edeniq (Active Facilities)....................        \a\ X            5
Ensyn.........................................        \a\ X            3
Poet..........................................        \a\ X           20
Quad County Corn Processors...................        \a\ X            3
Aggregate Range...............................          3.9           31
------------------------------------------------------------------------
\a\ 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.

    After defining likely production ranges for each group of companies 
we used the percentile values described earlier in this section to 
project a production volume within the production ranges. We used the 
1st and 43rd percentiles, respectively, for liquid cellulosic biofuel 
producers without and with a history of consistent cellulosic biofuel 
production and RIN generation. The resulting projections for liquid 
cellulosic biofuel in 2018 are shown in Table III.C.1-4 below.

                     Table III.C.1-4--Projected Volume of Liquid Cellulosic Biofuel in 2018
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                     range \a\     the range \a\    Percentile      volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers                 0             105             1st               1
 without Consistent Commercial Scale Production.
Liquid Cellulosic Biofuel Producers; Producers               3.9              31            43rd              16
 with Consistent Commercial Scale Production....
                                                 ---------------------------------------------------------------

[[Page 34219]]

 
    Total.......................................             N/A             N/A             N/A              17
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.

    We believe our range of projected production volumes for each 
company (or group of companies for those using the Edeniq technology) 
reasonably represents the range of potential production volumes for 
each company, and that projecting overall production in 2018 in the 
manner described above results in a neutral estimate (neither biased to 
produce a projection that is either too high or too low) of likely 
liquid cellulosic biofuel production in 2018 (17 million gallons).
2. CNG/LNG Derived From Biogas
    For 2018, EPA is proposing to use a new methodology to project 
production of CNG/LNG derived from biogas used as transportation fuel. 
We believe a new methodology is warranted for purposes of this rule for 
two primary reasons: The over-projection of CNG/LNG derived from biogas 
in 2016 and, the relative maturity of the CNG/LNG industry relative to 
the liquid cellulosic biofuel industry. EPA's projection of the 
production of CNG/LNG derived from biogas in 2016 was 207 million 
ethanol-equivalent gallons. Actual production of cellulosic biofuel 
RINs for CNG/LNG derived from biogas that were available for compliance 
in 2016 was 185 million gallons, suggesting that the approach we took 
to projecting CNG/LNG derived from biogas in 2016 resulted in an 
overestimate by 22 million ethanol-equivalent gallons. More 
importantly, we believe that the technology and market for CNG/LNG 
derived from biogas used as transportation fuel is sufficiently mature 
that a facility-by-facility assessment of potential production is 
unnecessary, and is not the most appropriate method for projecting the 
production of these fuels in 2018 across the entire industry.
    EPA is proposing to use an industry-wide approach, rather than a 
projecting production from each specific facility or company, to 
project the 2018 production of CNG/LNG derived from biogas. EPA has 
calculated the observed year-over-year growth in the number of RINs 
generated for CNG/LNG derived from biogas based on data from the first 
five months of both 2016 and 2017.\49\ These production volumes are 
shown in Table III.C.2-1 below.
---------------------------------------------------------------------------

    \49\ At the time of this proposal, EPA has RIN generation data 
for the first five months of 2017 (January-May).

             Table III.C.2-1--Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                            RIN generation (January 2017-    Year-over-year increase (Jan.-May
  RIN generation (January 2016-May 2016)              May 2017)                    2016 to Jan.-May 2017)
----------------------------------------------------------------------------------------------------------------
62.91.....................................                         68.75                                   9.3%
----------------------------------------------------------------------------------------------------------------

    Under the assumption that this growth rate based on five months of 
data is representative of the annual growth rate, EPA then applied this 
9.3% growth rate to the total number of 2016 cellulosic RINs generated 
for CNG/LNG that were available for compliance (185.14 million) to 
project the production of cellulosic RINs from these fuels in 2017, and 
then repeated the calculation to arrive at a projection for 2018. This 
methodology results in a projection of 221.2 million gallons of CNG/LNG 
derived from biogas in 2018.\50\ We believe that projecting the 
production of CNG/LNG derived from biogas in this manner appropriately 
takes into consideration the actual recent rate of growth of this 
industry, and that this growth rate accounts for both the potential for 
future growth and the challenges associated with increasing RIN 
generation from these fuels in future years. While this methodology may 
not be appropriate to use once the projected volume of CNG/LNG derived 
from biogas approaches the total volume of CNG/LNG that is used as 
transportation fuel, our projection for 2018 is well below the total 
volume of CNG/LNG that is currently used as transportation fuel.\51\ 
For the final rule we intend to review the year-over-year increase with 
additional data and modify the year-over-year increase from 2016 to 
2017 and the resulting projection of CNG/LNG derived from biogas in 
2018 as appropriate. We request comment on the use of an industry-wide, 
rather than a facility-by-facility projection of the production of CNG/
LNG derived from biogas, as well as possible adjustments to the 
methodology used in this proposed rule or alternative methodologies 
that could be used for this purpose.
---------------------------------------------------------------------------

    \50\ To calculate this value, EPA multiplied the total number of 
2016 RINs generated for CNG/LNG derived from biogas and available 
for compliance by 1.093 (representing a 9.3% year-over-year 
increase), and then multiplied the product by 1.093 a second time 
(to project the annual production volume in 2018, rather than 2017). 
The number 2016 of RINs generated for CNG/LNG derived from biogas 
and available for compliance (185.14) is based on EMTS data.
    \51\ EPA projects that 580 million ethanol-equivalent gallons of 
CNG/LNG will be used as transportation fuel in 2018 based on EIA's 
April 2017 Short Term Energy Outlook (STEO). To calculate this 
estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom 
Table Builder (0.12 billion cubic feet/day in 2018). This projection 
includes all CNG/LNG used as transportation fuel from both renewable 
and non-renewable sources. EIA does not project the amount of CNG/
LNG from biogas used as transportation fuel. To convert billion 
cubic feet/day to ethanol-equivalent gallons EPA used conversion 
factors of 1020 BTU per cubic foot of natural gas and 77,000 BTU of 
natural gas per ethanol-equivalent gallon.
---------------------------------------------------------------------------

3. Total Cellulosic Biofuel in 2018
    After projecting production of cellulosic biofuel from liquid 
cellulosic biofuel production facilities and producers of CNG/LNG 
derived from biogas, EPA combined these projections to project total 
cellulosic biofuel production for 2018. These projections are shown in 
Table III.C.3-1. Using the methodologies described in this section,

[[Page 34220]]

we project that 238 million ethanol-equivalent gallons of cellulosic 
biofuel will be produced in 2018. We believe that projecting overall 
production in 2018 in the manner described above results in a neutral 
estimate (neither biased to produce a projection that is too high nor 
too low) of likely cellulosic biofuel production in 2018.

     Table III.C.3-1--Projected Volume of Cellulosic Biofuel in 2018
                            [Million gallons]
------------------------------------------------------------------------
                                                             Projected
                                                            volume \a\
------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers without                 1
 Consistent Commercial Scale Production.................
Liquid Cellulosic Biofuel Producers; Producers with                   16
 Consistent Commercial Scale Production.................
CNG/LNG Derived from Biogas.............................             221
                                                         ---------------
    Total...............................................             238
------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.

    A brief overview of individual companies we believe will produce 
cellulosic biofuel and make it commercially available in 2018 can be 
found in a memorandum to the docket.\52\ In the case of cellulosic 
biofuel produced from CNG/LNG and facilities using Edeniq's technology 
we have discussed the production potential from these facilities as a 
group rather than individually.\53\ We request comment on the 
methodology used to project cellulosic biofuel production in 2018 \54\ 
potential adjustments to the methodology that may result in more 
accurate projections, the companies listed as potential cellulosic 
biofuel producers and the volume of cellulosic biofuel projected to be 
produced in 2018 (including potential volumes from additional produces 
of cellulosic biofuel from corn kernel fiber and anaerobic waste 
digesters as discussed in Section III.B.3).
---------------------------------------------------------------------------

    \52\ ``Cellulosic Biofuel Producer Company Descriptions (May 
2017)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2017-0091.
    \53\ For individual company information see ``May 2017 
Cellulosic Biofuel Individual Company Projections for 2018 (CBI)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091.
    \54\ For a more complete description of the methodology used to 
calculate the likely production ranges for the liquid cellulosic 
biofuel producers see 81 FR 89758, December 12, 2016.
---------------------------------------------------------------------------

IV. Advanced Biofuel Volume for 2018

    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, for years after 2011, prioritized that growth as occurring 
principally in advanced biofuels (contrary to previous growth patterns 
where most growth was in conventional renewable fuel, principally corn-
ethanol). Congressional intent is evident in the fact that the portion 
of the total renewable fuel volume target in the statutory volume 
tables that is not required to be advanced biofuel is 15 billion 
gallons for all years after 2014, while the advanced volumes, driven by 
growth in cellulosic volumes, continue to grow through 2022 to a total 
of 21 billion gallons.
    We have evaluated the capabilities of the market and are proposing 
to find that the 11.0 billion gallons specified in the statute for 
advanced biofuel cannot be reached in 2018. 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 percent or more, and as described in Section III, it will fall 
far short of the statutory target of 7.0 billion gallons again in 2018. 
In addition, although for the 2016 and 2017 standards we determined 
that the projected reasonably attainable supply of non-cellulosic 
advanced biofuel and other considerations justified establishing 
standards that include a partial backfill of the shortfall in 
cellulosic biofuel, for reasons described in this section we are not 
proposing such partial backfilling for 2018.
    In previous years when exercising the cellulosic waiver authority 
to determine the required volume of advanced biofuel, we have taken 
into account the availability of advanced biofuels, their energy 
security and GHG benefits, and the apparent intent of Congress as 
reflected in the statutory volumes tables to substantially increase the 
use of advanced biofuels over time, as well as factors such as 
increased costs associated with the use of advanced biofuels and the 
environmental and food competition concerns raised by some commenters. 
In considering these factors, in those years, we have concluded that it 
was appropriate to set the advanced biofuel standard in a manner that 
would allow the partial backfilling of missing cellulosic volumes with 
non-cellulosic advanced biofuels. For purposes of this NPRM we are 
focusing primarily on the availability of advanced biofuels, their GHG 
and energy security benefits, and the costs associated with increased 
advanced biofuel mandates to propose no such backfilling with non-
cellulosic advanced biofuel volumes in 2018. In other words, we propose 
to reduce the statutory volume target for advanced biofuel by the same 
amount as our proposed reduction in cellulosic biofuel. This action 
takes into account the fact that the substantial growth in advanced 
biofuel volumes after 2015 that was anticipated by Congress, and 
reflected in the statutory tables, was to be driven primarily by 
increases in cellulosic biofuel as opposed to non-cellulosic advanced 
biofuels. In addition, we recognize that the proposed approach involves 
placing a greater reliance on cost considerations than we have in past 
rulemakings. We believe this proposed new approach to balancing 
relevant considerations and exercising our discretion under the 
cellulosic waiver authority is permissible under the statute, and 
consistent with the principles articulated in FCC v. Fox TV Stations, 
556 U.S. 502, 514-15 (2009), regarding circumstances when an agency may 
appropriately depart from prior policy. We will, as in past years, 
consider comments on these factors, their appropriate balancing, and 
any other factors identified by commenters that are relevant to the 
exercise of our cellulosic waiver authority in finalizing this rule, 
and will consider making appropriate adjustments for the final rule.
    We note that the predominant non-cellulosic advanced biofuels 
available in the near term are advanced biodiesel and renewable diesel. 
We expect a decreasing rate of growth in the availability of feedstocks 
used to

[[Page 34221]]

produce these fuel types. To the extent that higher advanced biofuel 
requirements cannot be satisfied through growth in the production of 
advanced biofuel feedstocks, they would instead be satisfied through a 
re-direction of advanced feedstocks from competing uses, leading to 
lower overall GHG emission benefits. There would also likely be market 
disruptions and increased burden associated with shifting feedstocks 
among the wide range of companies that are relying on them today and 
which have optimized their processes to accommodate them. Furthermore, 
the fact that the tax credit for biodiesel has not been renewed, and if 
renewed could be in the form of a producer's tax credit rather than a 
blender's tax credit, has resulted in added uncertainty regarding the 
potential for volumes to be made available to the United States at 
levels above the proposed volume.
    We believe that the factors and considerations noted above are all 
appropriately considered in our exercise of the broad discretion 
provided under the cellulosic waiver authority, and that a 
comprehensive consideration of these factors supports our proposed 
approach.\55\ Some of the considerations discussed in this proposal are 
clearly related to the availability of non-cellulosic biofuels (e.g., 
historic data on supply, expiration of the biodiesel blenders' tax 
credit, and anticipated decreasing growth in production of advanced 
feedstocks), while others clearly focus on the potential benefits and 
costs of requiring use of available volumes (e.g., relative cost of 
advanced biofuels to the petroleum fuels they displace, GHG reduction 
benefits and energy security benefits). One important consideration 
does not fall neatly in these two categories--the likelihood that 
higher advanced biofuel standards would be satisfied by diversion of 
advanced feedstocks from other uses or diversion of foreign advanced 
biofuel from foreign markets, and the diminished benefits associated 
with such diversions. We believe, in the exercise of our discretion 
under the cellulosic waiver authority, and as discussed in more detail 
below, that it would not be appropriate to set the advanced biofuel 
volume requirement at a level that would lead to such diversions. 
Accordingly, we have factored this consideration into our assessment of 
available supplies. In other words, we first identify below volumes 
that we believe would be reasonably attainable in 2018 without these 
diversions, and then discuss whether or not other considerations, such 
as cost and GHG benefits, indicate that it would be appropriate to set 
the advanced biofuel volume requirement so as to require use of such 
reasonably attainable volumes to partially backfill for missing 
cellulosic volumes.
    If finalized, the net impact of today's proposal would be that the 
volume requirement for advanced biofuel for 2018 would be 40 million 
gallons less than the applicable volume used to derive the 2017 
percentage standard.

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 proposing a 
2018 applicable volume for cellulosic biofuel of 238 million gallons, 
representing a reduction of 6,762 million gallons from the statutory 
target of 7,000 million gallons. As a result, 6,762 million gallons is 
the maximum volume reduction for advanced biofuel and total renewable 
fuel that is permissible using the cellulosic waiver authority.\56\ If 
we were to use the cellulosic waiver authority to this maximum extent, 
the resulting 2018 volumes would be 4.24 and 19.24 billion gallons for 
advanced biofuel and total renewable fuel, respectively, following 
standard rounding methods applied to the applicable volumes expressed 
in billion gallons with two decimal places, as done in previous annual 
standard-setting rulemakings.
---------------------------------------------------------------------------

    \56\ If we determined it necessary to provide further reductions 
to address inadequate domestic supply or severe economic or 
environmental harm, such further reductions would only be possible 
using the general waiver authority.

   Table IV.A-1--Lowest Permissible Volume Requirements Using Only the
                       Cellulosic Waiver Authority
                            [Million gallons]
------------------------------------------------------------------------
                                                               Total
                                             Advanced        renewable
                                              biofuel          fuel
------------------------------------------------------------------------
Statutory target........................          11,000          26,000
Maximum reduction permitted under the              6,762           6,762
 cellulosic waiver authority............
Lowest 2018 volume requirement permitted           4,238          19,238
 using only the cellulosic waiver
 authority..............................
------------------------------------------------------------------------

    We are authorized under the cellulosic waiver authority to reduce 
the advanced biofuel 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. 
Indeed, in exercising the cellulosic waiver authority in setting 
standards for 2014-2017, we did not use the full extent of the 
authority. As discussed in Section II.A, EPA has broad discretion in 
using the cellulosic waiver authority in instances where its use is 
authorized under the statute, since Congress did not specify factors 
that EPA must consider in determining whether to use the authority or 
what appropriate volume reductions (within the range permitted by 
statute) should be. Thus, EPA could potentially set the 2018 advanced 
biofuel standard at a level that is designed to partially backfill for 
the shortfall in cellulosic biofuel. However, based on our 
consideration of the factors described in more detail below, we are 
proposing to use the full extent of the cellulosic waiver authority. 
The proposed advanced biofuel applicable volume is, therefore, 4.24 
billion gallons.\57\
---------------------------------------------------------------------------

    \57\ We specify the volume requirements as billion gallons with 
two decimal places to be consistent with the volume targets as given 
in the statute. The only exception is for cellulosic biofuel which 
we specify in million gallons due to the substantial reduction from 
the statutory target. However, calculations are typically shown in 
million gallons for all four standards for clarity.
---------------------------------------------------------------------------

B. Reasonably Attainable Volumes of Advanced Biofuel

    After use of the cellulosic waiver authority to reduce volumes of 
cellulosic biofuel, the statute does not specify conditions or any 
criteria or factors that EPA should consider in determining whether, 
and to what extent, to use the authority to reduce advanced biofuel and 
total renewable

[[Page 34222]]

fuel. 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 we are proposing to do in today's rule. In 
exercising this broad discretion, we need not require use of the 
maximum achievable volumes as would be the case if we were using the 
general waiver authority based on a finding of inadequate domestic 
supply, as we did for total renewable fuels in the 2014-2016 RFS 
standards rule.
    As noted above, a higher advanced biofuel volume requirement has a 
greater potential to increase the incentive for switching advanced 
biofuel feedstocks from existing uses to biofuel production. Such 
market reactions could cause disruptions and/or price increases in the 
non-biofuel markets that currently use these feedstocks. 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. Increasing the supply of 
advanced biofuels in this way (by shifting the end use of advanced 
feedstocks to biofuel production and satisfying the current markets for 
these advanced feedstocks with non-qualifying or petroleum based 
feedstocks or simply shifting advanced biodiesel or renewable diesel 
from foreign to domestic use) would likely not produce the additional 
GHG benefits that might otherwise be expected. We are proposing that we 
not set the advanced volume requirement at a level that would require 
such diversions. Our individual assessments of reasonably attainable 
volumes reflect this approach. That is, while we refer to them as 
``reasonably attainable'' volumes for convenience, they represent those 
volumes that are not likely to lead to feedstock diversions. Greater 
volumes could likely be made available if feedstock diversions were not 
of concern.
1. Imported Sugarcane Ethanol
    The predominant available source of advanced biofuel other than 
cellulosic biofuel and BBD is imported sugarcane ethanol. For both the 
2016 and 2017 standards, we used a volume of 200 million gallons of 
imported sugarcane ethanol for purposes of determining the reasonably 
attainable volume of advanced biofuel. In using this volume of 
sugarcane ethanol, we attempted to balance indications of lower 
potential imports from recent data with indications that higher volumes 
were possible based on older data. 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, 
and the only significant source of imported advanced ethanol), 
increasing gasoline consumption in Brazil, and variability in Brazilian 
production of sugar as reasons that it would be inappropriate to assume 
that sugarcane ethanol imports would reach the much higher levels 
suggested by some stakeholders.
    The data currently available on 2016 ethanol imports suggests that 
we overestimated the volume of sugarcane ethanol imports for that year. 
Despite the fact that the applicable standards for 2016 were set prior 
to the beginning of 2016, and despite suggestions from UNICA \58\ that 
2016 imports could reach as high as 2 billion gallons, total ethanol 
imports only reached 34 million gallons. 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), 
which applies in addition to the RFS program, has not resulted in the 
large volumes of advanced ethanol imports that some stakeholders 
believed would occur.
---------------------------------------------------------------------------

    \58\ UNICA is the Brazilian Sugarcane Industry Association.

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

[[Page 34223]]

[GRAPHIC] [TIFF OMITTED] TP21JY17.001

    While the low import levels of sugarcane ethanol in 2014 and 2015 
could, at least in part, be attributed to the fact that the applicable 
RFS standards had not been set prior to the beginning of the compliance 
period, this was not true for 2016. The experience in 2016 suggests 
that 200 million gallons may be too high for the purposes of projecting 
reasonably attainable volumes of advanced biofuel for 2018. At the same 
time, higher import volumes than those which occurred in 2016 are 
clearly possible, and could potentially be achieved under the influence 
of a higher RFS standard. Taking all of these considerations into 
account, we propose to use 100 million gallons of imported sugarcane 
ethanol for the purposes of projecting reasonably attainable volumes of 
advanced biofuel for 2018. This level takes into account the lower than 
expected import volumes that occurred in 2016, but also the fact that 
higher volumes have occurred in past years.
    We recognize that there are factors that could result in lower 
import volumes of sugarcane ethanol in 2018 than 100 million gallons. 
These include weather and harvests in Brazil, world ethanol demand and 
prices, and constraints associated with the E10 blendwall in the U.S. 
Also, global sugar consumption has continued to increase steadily, 
while production has decreased. If the trend continues, Brazilian 
production of sugar could increase, with a concurrent reduction in 
production of ethanol.\59\ On the other hand, the world average price 
of sugar is projected to remain relatively flat between 2016 and 2018, 
suggesting little change in sugar production and implying that ethanol 
production in Brazil might likewise remain unchanged.\60\ In light of 
these and other considerations discussed above, we request comment on 
whether it would be appropriate to use a volume of imported sugarcane 
ethanol different than 100 million gallons in the final determination 
of the advanced biofuel volume requirement for 2018.
---------------------------------------------------------------------------

    \59\ ``Sugar--World Markets and Trade,'' USDA, November 2016.
    \60\ ``Commodity Markets Outlook,'' World Bank Group, January 
2017.
---------------------------------------------------------------------------

2. Biodiesel and Renewable Diesel
    With regard to biodiesel and renewable diesel, there are many 
different factors that could potentially influence the total reasonably 
attainable volume of these fuels (including both advanced and non-
advanced forms) used as transportation fuel or heating oil in the 
United States.\61\ These factors could include the availability of 
qualifying biodiesel and renewable diesel feedstocks, the production 
capacity of biodiesel and renewable diesel facilities (both in the 
United States and internationally), the market's ability to distribute 
biodiesel, and diesel engine manufacturers' recommendations for 
biodiesel use in the engines they produce. The degree to which these 
and other factors may affect the total supply of biodiesel and 
renewable diesel in 2018, is discussed in Section V.B.2.
---------------------------------------------------------------------------

    \61\ For a further discussion of the factors that influence the 
availability of biodiesel and renewable diesel see Section V.B.2 of 
the preamble and a further discussion of these factors from the 2017 
final rule (81 FR 89781--89789, December 12, 2016).
---------------------------------------------------------------------------

    However, the primary considerations in our determination of the 
reasonably attainable volumes of advanced biodiesel and renewable 
diesel for 2018 are a review of the supply of advanced biodiesel and 
renewable diesel in previous years, the uncertain impact of the 
expiration of the biodiesel tax credit

[[Page 34224]]

on biodiesel production and importation, the projected growth in 
production of advanced biodiesel and renewable diesel feedstocks in 
2018, and consideration of the extent to which our decision in setting 
advanced biofuel requirements could influence the market.\62\ A review 
of the volumes of advanced biodiesel and renewable diesel made 
available in previous years is especially useful in projecting the 
potential for growth in such fuels, since for these fuels there are a 
number of complex and inter-related factors (including the expiration 
of the biodiesel tax credit) that are likely to affect the total 
supply. We also believe the likely growth in production of feedstocks 
used to produce these fuels is an important factor to consider. This is 
because the maximum energy security and GHG reduction value associated 
with the growth in the use of advanced biofuels is obtained when that 
growth is associated with an increase in advanced feedstock production, 
rather than a switching of existing advanced feedstocks from other 
uses. Such feedstock switching could result in unintended negative 
consequences, such as market disruption in the renewable oils market, 
which could offset some of the anticipated benefits of the production 
and use of advanced biofuels.
---------------------------------------------------------------------------

    \62\ 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 
refer 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).
---------------------------------------------------------------------------

    The volume of advanced biodiesel and renewable diesel projected to 
be available based on a consideration of these factors is less than the 
total volume of biodiesel and renewable diesel we believe could be 
produced (based solely on an assessment of the available production 
capacity) or consumed (based on an assessment of the ability of the 
market to distribute and use biodiesel and renewable diesel). 
Production capacity and the ability for the market to distribute and 
use biodiesel and renewable diesel are therefore not constraining 
factors in our assessment of the reasonably attainable volume of 
advanced biodiesel and renewable diesel in 2018.
    Before considering the projected growth in the production 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 diesel to the United States in recent years. While 
historic data and trends alone are insufficient to project the volumes 
of biodiesel and renewable diesel that could be provided 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 biodiesel and renewable diesel used in the United 
States (from both domestic production and imports) qualifies as 
advanced biofuel.\63\ In previous years, biodiesel and renewable diesel 
produced in the United States has been almost exclusively advanced 
biofuel.\64\ Imports of advanced biodiesel have increased in recent 
years, however, as seen in Table IV.B.2-1. Volumes of imported advanced 
biodiesel and renewable diesel have varied significantly from year to 
year, as they are impacted both by domestic and foreign policies, as 
well as economic factors.
---------------------------------------------------------------------------

    \63\ From 2011 through 2016 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 (9,372 million 
gallons of the 9,850 million gallons) according to EMTS data.
    \64\ From 2011 through 2016 over 99.9% of all the domestically 
produced biodiesel and renewable diesel supplied to the United 
States qualified as advanced biodiesel and renewable diesel (8,258 
million gallons of the 8,265 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 \b\        2015 \b\          2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)......................       967 (N/A)     1,014 (+47)    1,376 (+362)     1,303 (-73)     1,253 (-50)    1,633 (+380)
Domestic Renewable Diesel (Annual Change)...............        58 (N/A)        11 (-47)        92 (+81)       155 (+63)       175 (+20)       221 (+46)
Imported Biodiesel (Annual Change)......................        44 (N/A)         40 (-4)      156 (+116)       130 (-26)      261 (+131)      561 (+300)
Imported Renewable Diesel (Annual Change)...............         0 (N/A)        28 (+28)      145 (+117)       129 (-16)        121 (-8)       170 (+49)
Exported Biodiesel and Renewable Diesel (Annual Change).        48 (N/A)       102 (+54)       125 (+23)        134 (+9)        133 (-1)        129 (-4)
                                                         -----------------------------------------------------------------------------------------------
    Total (Annual Change)...............................     1,021 (N/A)       991 (-30)    1,644 (+653)     1,583 (-61)     1,677 (+94)    2,456 (+779)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data for 2011-2016 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\ RFS required volumes for these years were not established until December 2015.


                                   Table IV.B.2-2--Conventional (D6) Biodiesel and Renewable Diesel From 2011 to 2016
                                                                  [Million gallons] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2011            2012            2013          2014 \b\        2015 \b\          2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)......................         0 (N/A)          0 (+0)          6 (+6)          1 (-5)          0 (+0)          0 (+0)
Domestic Renewable Diesel (Annual Change)...............         0 (N/A)          0 (+0)          0 (+0)          0 (+0)          0 (+0)          0 (+0)
Imported Biodiesel (Annual Change)......................         0 (N/A)          0 (+0)        31 (+31)        52 (+21)        74 (+22)       113 (+39)
Imported Renewable Diesel (Annual Change)...............         0 (N/A)          0 (+0)        53 (+53)         0 (-53)      106 (+106)        43 (-63)

[[Page 34225]]

 
Exported Biodiesel and Renewable Diesel (Annual Change).         0 (N/A)          0 (+0)          0 (+0)          0 (+0)          0 (+0)          1 (+1)
    Total (Annual Change)...............................         0 (N/A)          0 (+0)        90 (+90)        53 (-37)      180 (+127)       155 (-25)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data for 2011-2016 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\ RFS required volumes for these years were not established until December 2015.

    Since 2011 the year-over-year changes 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 779 million gallons from 2015 to 2016. These changes 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, biofuel policies in both the 
United States and foreign 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 779 million gallons of advanced biodiesel and renewable 
diesel would be reasonable to expect from 2017 to 2018, nor does it 
indicate that the low growth rates observed in other years represent 
the limit of potential growth in 2018. 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.
    The historic data indicates that the biodiesel tax policy in the 
United States can have a significant impact on the supply of biodiesel 
and renewable diesel in any given year. While the biodiesel blenders 
tax credit has applied in each year from 2010-2016, it has only been in 
effect during the calendar year in 2011, 2013 and 2016, while other 
years it has been applied retroactively. The biodiesel blenders tax 
credit expired at the end of 2009 and was re-instated to apply 
retroactively in 2010 and extend through the end of 2011 in December 
2010. Similarly, after expiring at the end of 2011, 2013, and 2014 the 
tax credit was re-instated in January 2013 (for 2012 and 2013), 
December 2014 (for 2014), and December 2015 (for 2015 and 2016). Each 
of the years in which the biodiesel blenders tax credit was in effect 
during the calendar year (2013 and 2016) resulted in significant 
increases in the supply of advanced biodiesel and renewable diesel over 
the previous year (653 million gallons and 779 million gallons 
respectively). However, following this large increase in 2013, the 
supply of advanced biodiesel and renewable diesel in 2014 and 2015 was 
minimal, only 33 million gallons from 2013 to 2015. This pattern is 
likely the result of both accelerated production and/or importation of 
biodiesel and renewable diesel in the final few months of 2013 to take 
advantage of the expiring tax credit as well as relatively lower 
volumes of biodiesel and renewable diesel production and import in 2014 
and 2015 than would have occurred if the tax credit had been in 
place.\65\
---------------------------------------------------------------------------

    \65\ We also acknowledge that the fact that EPA did not finalize 
the required volumes of renewable fuel under the RFS program for 
2014 and 2015 until December 2015 likely had an impact on the volume 
of advanced biodiesel and renewable diesel supplied in these years.
---------------------------------------------------------------------------

    We believe it is reasonable to anticipate a similar production 
pattern in 2016 through 2018 as observed in 2013 through 2015; that 
increases in the volumes of advanced biodiesel and renewable diesel 
will be modest in 2017-2018, following a significant increase in 2016. 
Available RIN generation data further supports this pattern. Very high 
volumes of advanced biodiesel and renewable diesel were supplied in the 
last quarter of 2016, likely driven by a desire to capture the expiring 
tax credit, while significantly smaller volumes of these fuels were 
supplied in the first quarter of 2017.\66\ We request comment on the 
likely impact of the expiration of the blenders tax credit on supplies 
of biodiesel and renewable diesel in 2018.
---------------------------------------------------------------------------

    \66\ According to data on EPA's public Web site, RINs were 
generated for 823 million gallons of biomass-based diesel in the 
last quarter of 2016 while RINs were generated for 444 million 
gallons of biomass-based diesel in the first quarter of 2017. The 
vast majority of advanced biodiesel and renewable diesel qualifies 
as biomass-based diesel.
---------------------------------------------------------------------------

    In addition to a review of the historical supply of advanced 
biodiesel and renewable diesel and consideration of the possible impact 
of the expiration of the biodiesel tax credit (discussed above) EPA has 
also focused on the expected increase in the availability of advanced 
biodiesel and renewable diesel feedstocks in 2018 in projecting the 
reasonably attainable volume of biodiesel and renewable diesel in the 
context of the 2018 advanced biofuel standard. We acknowledge that the 
availability of advanced biodiesel and renewable diesel in 2018 is not 
strictly tied to the increase in the availability of the feedstocks 
used to produce these fuels, and that it may be possible to realize 
higher volumes of advanced biodiesel and renewable diesel in 2018 
through a diversion of advanced feedstocks from other uses, or a 
diversion of advanced biodiesel and renewable diesel from existing 
markets in other countries. We perceive the net benefits associated 
with such increased advanced biofuel and renewable fuel supply to be 
significantly less than the net benefits associated with the production 
of additional advanced biodiesel and renewable diesel with the use of 
newly-available advanced feedstocks. This is both because of the 
potential disruption and associated cost impacts to other industries 
resulting from feedstock switching, as well as reduced GHG reduction 
benefit related to use of feedstocks for biofuel production that would 
have been used for other purposes, and must now be backfilled with 
other feedstocks with potentially lesser environmental benefits. By 
focusing our assessment of the reasonably attainable volume of 
biodiesel and renewable diesel on the expected growth in the production 
of advanced feedstocks (rather than the total supply of these 
feedstocks in 2018, which would include feedstocks currently being used 
for non-biofuel purposes), we are attempting to minimize the incentives 
for the RFS program to increase the supply of advanced biodiesel and 
renewable diesel through feedstock switching.
    Advanced biodiesel and renewable diesel feedstocks include both 
waste oils, fats and greases and oils from planted crops. While we 
believe a small

[[Page 34226]]

increase in supply of waste oils, fats, and greases may be possible in 
2018, we 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.\67\ 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.\68\ This means that the 
planted acres of these crops are likely to be made based on the 
projected demand for livestock feed, rather than for vegetable oil to 
produce biofuels or for other markets, as the vegetable oils produced 
are not the primary source of revenue for these crops.
---------------------------------------------------------------------------

    \67\ 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.
    \68\ According to EIA data 6,096 million pounds of soy bean oil 
and 1,306 million pounds of corn oil were used to produce biodiesel 
in the United States in 2016. Other significant sources of feedstock 
were yellow grease (1,389 million pounds), canola oil (1,130 million 
pounds), white grease (578 million pounds), tallow (332 million 
pounds), and poultry fat (220 million pounds). Numbers from EIA's 
February 2017 Monthly Biodiesel Production Report. Available at 
https://www.eia.gov/biofuels/biodiesel/production/archive/2016/2016_12/biodiesel.pdf.
---------------------------------------------------------------------------

    Increasing the demand for advanced biodiesel and renewable diesel 
beyond the projected increase in the feedstocks used to produce these 
fuels would likely require diverting volumes of advanced biodiesel and 
renewable diesel (or the feedstocks used to produce these fuels) from 
existing markets to be used to produce biofuels supplied to the United 
States. 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 to biodiesel and renewable diesel 
production and meeting non-biofuel demand for these feedstocks with 
conventional renewable and/or petroleum based feedstocks) may not 
advance the full GHG or energy security 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.
    We believe the most reliable source for projecting the expected 
increase in vegetable oils in the United States is USDA's World 
Agricultural Supply and Demand Estimates (WASDE). At this time the most 
current version of the WASDE report only projects domestic vegetable 
oil production through 2017. Based on domestic vegetable oil production 
from 2011-2016 as reported by WASDE, the average annual increase in 
vegetable oil production in the United States was 0.288 million metric 
tons per year.\69\ Assuming a similar increase in domestic vegetable 
oil production from 2017 to 2018, this quantity of vegetable oils could 
be used to produce approximately 65 million gallons of advanced 
biodiesel or renewable diesel.\70\
---------------------------------------------------------------------------

    \69\ According to the April 2017 WASDE report, US vegetable oil 
production in the 2015/2016 agricultural marketing year is estimated 
to be 11.20 million metric tons. According to the January 2013 WASDE 
report, US vegetable oil production in the 2010/2011 agricultural 
marketing year was 9.76 million metric tons.
    \70\ 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 2018. The 
WASDE report does not project distillers corn oil production, so EPA 
must use an alternative source to project the growth in the production 
of this feedstock. EPA is proposing to use the results of the World 
Agricultural Economic and Environmental Services (WAEES) model to 
project the growth in the production of distillers corn oil.\71\ In 
assessing the likely increase in the availability of distillers corn 
oil from 2017 to 2018, the authors of the WAEES model considered the 
impacts of an increasing adoption rate of distillers corn oil 
extraction technologies at domestic ethanol production facilities, as 
well as increased corn oil extraction rates enabled by advances in this 
technology. The projected increase in the production of distillers corn 
oil, if devoted entirely to biofuel production, could be used to 
produce approximately 42 million gallons of biodiesel or renewable 
diesel in 2018.\72\ We believe that this is a reasonable projection. 
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, as many of these feedstocks that can be recovered economically 
are already being used for the production of biodiesel or renewable 
diesel, or in other markets. In total, we expect that increases in 
feedstocks produced in the United States are sufficient to produce 
approximately 100 million more gallons of advanced biodiesel and 
renewable diesel in 2018 relative to 2017.
---------------------------------------------------------------------------

    \71\ For the purposes of this proposed rule, EPA relied on WAEES 
modeling results submitted as comments on the 2017 final rule 
(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)).
    \72\ 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).
---------------------------------------------------------------------------

    We have also considered the expected increase in the imports of 
advanced biodiesel and renewable diesel produced in other countries. In 
previous years, significant volumes of foreign produced advanced 
biodiesel and renewable diesel have been supplied to markets in the 
United States (see Table IV.B.2-1 above). These significant imports 
were likely the result of a strong U.S. demand for advanced biodiesel 
and renewable diesel, supported by both the RFS standards, the LCFS in 
California, and the biodiesel blenders tax credit. At this time the 
impacts of the expiration of the biodiesel blenders tax credit on the 
volumes of foreign-produced biodiesel and renewable diesel imported 
into the United States, is highly uncertain. In light of this 
uncertainty, we do not believe it is reasonable at this point to 
project increasing volumes of imported advanced biodiesel and renewable 
diesel in 2018, and for the purposes of projecting the reasonably 
attainable volume of advanced biodiesel and renewable diesel in 2018 we 
have assumed that imported volumes of biodiesel and renewable diesel 
will not increase from the volumes imported in 2017.\73\ This approach 
also seeks to minimize the incentives to increase the

[[Page 34227]]

supply of advanced biodiesel and renewable diesel by diverting fuels 
that would otherwise be used in foreign countries to the United States. 
We believe the historic volumes of imported advanced biodiesel and 
renewable diesel support this projection, with a slight decrease in the 
total volume of imported biodiesel and renewable diesel in 2014 after 
the expiration of the biodiesel blenders tax credit, followed by a 
slight increase in 2015 after the tax credit was reinstated in December 
2015 (see Table IV.B.2-1).
---------------------------------------------------------------------------

    \73\ We further note that there have been recent efforts to 
reinstate the biodiesel tax credit as a producers tax credit, rather 
than a blenders tax credit. If the biodiesel tax credit were 
reinstated as a producers tax credit it would not apply to foreign 
biodiesel producers, further impacting the likely supply of imported 
advanced biodiesel and renewable diesel.
---------------------------------------------------------------------------

    After a careful consideration of the historic supply of advanced 
biodiesel and renewable diesel to the United States in previous years, 
the likely impact of the expiration of the biodiesel tax credit, and an 
assessment of the availability of feedstocks used to produced advanced 
biodiesel and renewable diesel in 2018, EPA has determined, for the 
purposes of our proposal, that approximately 2.5 billion gallons of 
advanced biodiesel and renewable diesel is reasonably attainable for 
use in our determination of the advanced biofuel standard for 2018. 
This volume is 100 million gallons higher than the volume of advanced 
biodiesel and renewable diesel determined to be reasonably attainable 
and appropriate for the purposes of deriving the advanced biofuel 
standard in 2017.
    The 100 million gallon increase in advanced biodiesel and renewable 
diesel that we project will be reasonably attainable for 2018 
represents a smaller annual increase in advanced biodiesel and 
renewable diesel than we assumed in deriving the 2017 advanced biofuel 
standard (approximately 300 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 2017 final rule. The primary 
differences are a smaller projected increase in advanced feedstock 
production in the United States and the expiration of the biodiesel tax 
credit. While the biodiesel blenders tax credit was still in effect at 
the end of 2016 when EPA completed the 2017 final rule, this tax credit 
has since expired. It is uncertain whether the tax credit will be 
renewed for 2017 and 2018 as it has in the past.
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 volumes of advanced biofuel for 2018. These other advanced 
biofuels include biogas, naphtha, heating oil, butanol, jet fuel, and 
domestically-produced advanced ethanol. 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       Domestic
                                                                CNG         Heating oil       Naphtha       diesel \a\        ethanol          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013....................................................              26               0               3              64              23             116
2014....................................................              20               0              18              15              26              79
2015....................................................               0               1              24               8              25              58
2016....................................................               0               2              26               8              27              63
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Some renewable diesel generates D5 rather than D4 RINs as a result of being produced through co-processing 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).\74\ Apart from 
biogas, total supply of advanced biofuel other than imported sugarcane 
ethanol has been relatively constant during 2014-2016. Based on this 
historical record, we propose to find that 60 million gallons would be 
reasonably attainable in 2018.\75\
---------------------------------------------------------------------------

    \74\ 79 FR 42128, July 18, 2014.
    \75\ For the purposes of determining the availability of total 
renewable fuel, we propose to use a volume of 40 million gallons of 
non-ethanol other advanced biofuel and 20 million gallons of 
advanced domestic ethanol (see discussion in Section V.B.2).
---------------------------------------------------------------------------

    We recognize that the potential exists for additional volumes of 
advanced biofuel from sources such as jet fuel, liquefied petroleum gas 
(LPG), and liquefied natural gas (as distinct from compressed natural 
gas), as well as non-cellulosic biogas such as from digesters. 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 2018. For the final rule, we may modify our projection of 60 
million gallons for other advanced biofuel as information becomes 
available.
4. Total Advanced Biofuel
    The total volume of advanced biofuel that we believe is reasonably 
attainable in 2018 is the combination of cellulosic biofuel and the 
sources described above: Imported sugarcane ethanol, biodiesel and 
renewable diesel which qualifies as BBD, and other advanced biofuels 
such as advanced biogas that does not qualify as cellulosic biofuel, 
heating oil, naphtha, domestic advanced ethanol, and advanced renewable 
diesel that does not qualify as BBD. Our assessment of the reasonably 
attainable volumes of these sources, discussed in the preceding 
sections, is summarized below. We note that the reasonably attainable 
volumes of each of these advanced biofuels cannot themselves be viewed 
as volume requirements. These volumes are merely one part of the 
analysis used to determine the volume requirement for advanced biofuel. 
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 higher or lower volumes of these fuel types than 
discussed in this section. In addition, as discussed below, we do not 
believe it would be appropriate to require use of all volumes we have 
determined to be reasonably attainable.

      Table IV.B.4-1--Potential Volumes of Advanced Biofuel in 2018
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................             238
Advanced biodiesel and renewable diesel (ethanol-            3,875/2,500
 equivalent volume/physical volume).....................
Imported sugarcane ethanol..............................             100
Other advanced..........................................              60
                                                         ---------------
    Total advanced biofuel..............................           4,273
------------------------------------------------------------------------


[[Page 34228]]

C. Proposed Advanced Biofuel Volume Requirement for 2018

    Based on the information presented above, we believe that 4.27 
billion gallons of advanced biofuel would be reasonably attainable in 
2018. This volume is 30 million gallons higher than the 4.24 billion 
gallons that would result from reducing the applicable volume of 
advanced biofuel by the same amount as the proposed reduction to the 
statutory applicable volume of cellulosic biofuel (see Section III for 
a discussion of the proposed cellulosic biofuel standard for 2018). 
Requiring use of the additional 30 million gallons to partially 
backfill for missing cellulosic volumes would be expected to result in 
GHG reduction and energy security benefits. In exercising the 
cellulosic waiver authority in past years, we sought to capture such 
benefits by requiring a partial backfilling of missing cellulosic 
volumes with volumes of non-cellulosic biofuel we determined to be 
reasonably attainable and appropriate. We did so, notwithstanding 
consideration of the increase in costs associated with our actions.\76\ 
However, this year we are proposing to balance these considerations in 
a different manner in setting the 2018 standards, placing a greater 
emphasis on cost considerations.\77\
---------------------------------------------------------------------------

    \76\ See, e.g., Response to Comments Document for the 2014-16 
Rule, pages 628-631, available at https://www.epa.gov/sites/production/files/2015-12/documents/420r15024.pdf.
    \77\ EPA notes that while the factors considered under the 
cellulosic waiver authority to reduce volumes could apply to volumes 
beyond the reduction in cellulosic biofuel, EPA is limited in the 
exercise of its cellulosic waiver authority to reductions up to the 
amount of the reduction in cellulosic biofuel. Any further 
reductions would require a determination under the general waiver 
authority that the volumes would result in severe economic or 
environmental harm, or that there is an inadequate domestic supply.
---------------------------------------------------------------------------

    In Section V.D we present illustrative cost projections for 
sugarcane ethanol and soybean biodiesel in 2018, the two advanced 
biofuels that have been most widely supplied in previous years and that 
would be most likely to provide the marginal volume of advanced biofuel 
in 2018. Our projected costs for sugarcane ethanol range from $0.58-
$1.53 per ethanol-equivalent gallon of gasoline displaced ($0.87-$2.29 
for every gallon of gasoline displaced) and the costs for soybean 
biodiesel range from $0.83-$1.13 per ethanol-equivalent gallon of 
diesel displaced ($1.36-$1.85 for every gallon of diesel replaced).\78\ 
These costs are high on a per gallon basis compared to the petroleum 
fuels they displace. In light of these comparative costs, we believe it 
is reasonable to forgo the marginal benefit that might be achieved by 
establishing the advanced biofuel standard to require an additional 30 
million gallons. See Section V.D for a further discussion of the 
projected cost of this proposed rule.
---------------------------------------------------------------------------

    \78\ These ethanol-equivalent gallon costs are calculated by 
dividing the total projected cost for soybean biodiesel ($33-$45 
million) and sugarcane ethanol ($23-$61 million) by the proposed 
decrease in the required volume advanced biofuel for 2018 (40 
million ethanol-equivalent gallons). All costs comparisons are on an 
energy-equivalent, rather than a volumetric, basis.
---------------------------------------------------------------------------

    Based on consideration of the volumes that may be reasonably 
attainable in 2018, along with a balancing of the costs and benefits 
associated with the option of setting the advanced biofuel standard at 
a level that would require use of all volumes that we have estimated 
could be reasonably attainable, we are proposing an advanced biofuel 
volume requirement of 4.24 billion gallons for 2018. This proposed 
reasonably attainable and appropriate volume requirement for advanced 
biofuel for 2018 would represent a decrease of 40 million gallons from 
the 2017 advanced biofuel volume requirement of 4.28 billion gallons. 
As discussed in Section I.E, we request comment on use of the general 
waiver authority to further reduce the required volume of advanced 
biofuel (with a corresponding reduction to the total renewable fuel 
requirement) in an effort to increase the energy independence impacts 
of the RFS program.
    We propose to use the cellulosic waiver authority to provide an 
equivalent reduction in the applicable volume of total renewable fuel 
as the reduction we are proposing for advanced biofuel. That step is 
described in more detail in Section V.A, together with our proposed 
assessment that no further increment of reduction is required for total 
renewable fuel in 2018.

V. Total Renewable Fuel Volume for 2018

    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 2018 the statute stipulates a volume 
target of 26 billion gallons. Since we are proposing to reduce the 
statutory volume target for cellulosic biofuel to reflect the projected 
production volume of that fuel type in 2018, 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 pursuant to the general waiver 
authority in CAA section 211(o)(7)(A) under specific conditions as 
described in Section II.A.2, including based on a finding of 
``inadequate domestic supply.'' Our proposed assessment indicates that 
there will be adequate supply of total renewable fuel in 2018 to meet a 
total renewable fuel volume requirement of 19.24 billion gallons that 
would result from the use of the cellulosic waiver authority alone. The 
use of the general waiver authority for 2018 to further reduce the 
total renewable fuel standard on the basis of supply considerations 
would therefore not be necessary. As a result, the implied volume for 
conventional renewable fuel (calculated by subtracting the advanced 
volume from the total volume) would be 15.0 billion gallons, consistent 
with the statutory targets provided in the statute for 2018.

A. Volumetric Limitation on Use of the Cellulosic Waiver Authority

    In Section IV.B we explained our proposed use of the cellulosic 
waiver authority to reduce the 11 billion gallon 2018 statutory volume 
target for advanced biofuel to 4.24 billion gallons for purposes of 
setting the 2018 advanced biofuel volume standard. This represents a 
reduction of 6.76 billion gallons.
    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.\79\ We also believe this 
interpretation is consistent with statutory language and best 
effectuates the objectives of the statue. If EPA were to reduce the 
total renewable fuel volume requirement by a lesser amount than the 
advanced biofuel volume requirement, we would effectively increase the 
opportunity for conventional biofuels to participate in the RFS program 
beyond the implied statutory cap of 15 billion gallons.\80\
---------------------------------------------------------------------------

    \79\ For instance, see discussion in the final rules setting the 
2013, 2014-2016, and 2017 standards: 78 FR 49809-49810, August 15, 
2013; 80 FR 77434, December 14, 2015; 81 FR 89752-89753, December 
12, 2016.
    \80\ 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.

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

[[Page 34229]]

    Applying an equal reduction of 6.76 billion gallons to both the 
statutory target for advanced biofuel and the statutory target for 
total renewable fuel results in a total renewable fuel volume of 19.24 
billion gallons as shown in Table IV.A-1. If we were to determine that 
there is a basis to exercise the general waiver authority, described in 
Section II.A.2, we could provide further reductions. However, as 
described below in Section V.B, we believe that there will be adequate 
supply to meet a total renewable fuel volume requirement of 19.24 
billion gallons in 2018. This means that we believe that 15.0 billion 
gallons of conventional renewable fuel is reasonably attainable, and 
that further reductions in the total renewable fuel applicable volume 
using the general waiver authority are not necessary to address supply 
issues. We note that EPA has received numerous comments in previous 
annual standard rulemakings asserting that there are negative 
environmental impacts that may be associated with the RFS program.\81\ 
A significant portion of these concerns center on feedstock production, 
particularly feedstocks used to produce conventional biofuels. Although 
we are authorized to reduce the statutory volume targets on the basis 
of a finding of ``severe environmental harm,'' we are not proposing any 
reductions on this basis. Similarly, although EPA is authorized to 
reduce volumes on the basis of a finding of ``severe economic harm,'' 
we are not proposing any reductions on that basis.
---------------------------------------------------------------------------

    \81\ For instance, see public comments provided in response to 
the proposed 2017 standards in docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

B. Assessing Attainable Volumes

    As noted above, the proposed volume requirement for total renewable 
fuel was derived by applying the same volume reduction to the statutory 
volume target for total renewable fuel as we are proposing for advanced 
biofuel, using the cellulosic waiver authority. This section describes 
our proposed determination that there will be adequate renewable fuel 
to meet an applicable volume requirement of 19.24 billion gallons in 
2018. We have evaluated available sources of renewable fuel to 
determine if in the aggregate it appears that a total renewable fuel 
volume of 19.24 billion gallons is reasonably attainable. Since we 
believe that this volume is indeed reasonably attainable, as discussed 
below, we propose that it is unnecessary to consider further reductions 
through use of the general waiver authority on the basis of an 
inadequate domestic supply. Therefore, in this assessment, we have not 
attempted 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, as we would do if we were 
proposing to use the general waiver authority based on a finding of 
inadequate domestic supply. However, as noted previously, we are 
soliciting comment on whether it would be appropriate to exercise the 
general waiver authority.
    As for previous annual standard-setting rulemakings, we note that 
it is a very challenging task to estimate the available volumes 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 standards 
we set. This is the type of assessment that is not given to precise 
measurement and necessarily involves considerable exercise of judgment.
    Our investigation into whether the total renewable fuel volume 
shown in Table V.A-1 is reasonably attainable in 2018 was driven 
primarily by a consideration of the reasonable availability of ethanol, 
biodiesel, and renewable diesel. We also considered smaller 
contributions from non-ethanol cellulosic and other types of renewable 
fuels (i.e., naphtha, heating oil, butanol, and jet fuel). After 
estimating what we consider to be the reasonably attainable supply of 
ethanol in 2018, and taking into account the estimates of non-ethanol 
cellulosic biofuel supply discussed in Section III.D above and 
estimates of the supply of other non-ethanol renewable fuels discussed 
in Section IV.B.3, we considered whether the reasonably attainable 
supply of total biodiesel and renewable diesel would be adequate to 
satisfy a requirement of 19.24 billion gallons.\82\ The following 
sections provide our preliminary assessment of ethanol and biodiesel/
renewable diesel volumes.
---------------------------------------------------------------------------

    \82\ 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 19.24 billion gallons, 
then there is no basis for a finding that there is an inadequate 
domestic supply to satisfy a 19.24 billion gallon requirement.
---------------------------------------------------------------------------

    The proposed volume requirements are based on the data available to 
EPA at the time of this proposal. However, we recognize that there is 
uncertainty related to some of this data with respect to the volume of 
renewable fuels that can be supplied in the United States in 2018 and 
the economic and environmental impacts associated with requiring 
renewable fuel use. We request comment on the data presented in this 
proposed rule, and invite commenters to submit additional data relevant 
to these issues. Additional data could also indicate that it would be 
appropriate to finalize volume requirements lower than indicated in 
this proposed rule, through use of either the general waiver authority 
in CAA section 211(o)(7)(A) or as a result of a lower projection of 
cellulosic biofuel production, combined with corresponding increased 
waivers of advanced and total renewable fuel using the cellulosic 
waiver authority in CAA section 211(o)(7)(D).
    We note that in prior annual RFS rulemaking actions, some 
stakeholders have commented to EPA that the Agency should exercise its 
discretion to use the general waiver authority to reduce volumes to 
avoid severe harm to the economy or environment of a state, region, or 
the United States. For example, some commenters suggested that 
standards that would result in ethanol use beyond the blendwall would 
cause severe economic harm, justifying use of the general waiver 
authority. Additionally, as discussed in Section I.E, we also request 
comment on use of the general waiver authority to reduce the required 
volume of renewable fuel in an effort to increase the energy 
independence impacts of the RFS program. EPA invites comment and data 
on these issues, including data and analysis that would support 
different use of the waiver authorities than we are proposing in 
today's action, such as use of the general waiver authority to achieve 
greater reductions than proposed.
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 gasoline 
that contains 10 volume percent ethanol (E10), favorable blending 
economics have diminished, and efforts to expand the use of higher 
ethanol blends such as E15 and E85

[[Page 34230]]

have not been sufficient to maintain past growth rates in total ethanol 
supply. Although we believe that use of higher ethanol blends 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 flexible fuel 
vehicles (FFVs), among other considerations, 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.\83\ That 
discussion generally remains relevant for 2018 just as it was relevant 
for 2017, though we believe that the supply of ethanol can be somewhat 
higher in 2018 than in 2017.
---------------------------------------------------------------------------

    \83\ 80 FR 77456-77465, December 14, 2015.
---------------------------------------------------------------------------

    Ethanol supply is not currently limited by production and import 
capacity, which is in excess of 15 billion gallons.\84\ Instead, the 
amount of ethanol supplied is constrained by the following:
---------------------------------------------------------------------------

    \84\ ``RFA 2016 Annual Industry Outlook,'' docket EPA-HQ-OAR-
2016-0004.
---------------------------------------------------------------------------

     Overall gasoline use 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.
a. Ethanol Concentration in the Gasoline Pool
    As stated in the 2014-2016 final rule and in the 2017 final rule, 
we continue to believe that there are real constraints on the ability 
of the market to exceed an average nationwide ethanol content of 10 
percent. However, these constraints do not have the same significance 
at all ethanol concentrations above 10 percent. Instead, for the state 
of infrastructure that can be available in 2018, the constraints 
represent a continuum of mild resistance to growth at the first 
increments above 10 percent 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 percent unlimited 
in the 2018 timeframe. These views are demonstrated by the fact that 
the poolwide ethanol concentration of all gasoline increased 
dramatically until about 2010, after which growth has been much slower 
and has remained very close to 10.0 percent. In 2016, the average 
ethanol concentration reached 10.05 percent.\85\
---------------------------------------------------------------------------

    \85\ According to the March, 2017 version of EIA's Short-Term 
Energy Outlook, total ethanol consumption in 2016 was 14,406 mill 
gal, while total gasoline consumption was 143,367 mill gal.
[GRAPHIC] [TIFF OMITTED] TP21JY17.000


[[Page 34231]]


    We continue to believe that the constraints associated with the E10 
blendwall do not represent a firm barrier that cannot 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.
    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 accessibility of 
feedstocks as with biodiesel, the end result is that these constraints 
limit the annual growth rate in the availability of renewable fuel as 
transportation fuel, heating oil, or jet fuel. These constraints were 
discussed in detail in the 2014-2016 final rule and summarized in the 
2017 final rule, and while the market continues to grow, we believe 
that the same constraints will operate to limit growth in the 
availability of renewable fuel in 2018 as well, both for ethanol and 
non-ethanol renewable fuels.\86\ Other factors outside the purview of 
the RFS program also impact the availability 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 attainability of renewable fuel requirements 
in the future.
---------------------------------------------------------------------------

    \86\ See 80 FR 77450 (December 14, 2015) and 81 FR 89774 
(December 12, 2016).
---------------------------------------------------------------------------

    The total volume of ethanol that can be supplied is a function of 
total volume of gasoline that is used, as well as the potential for 
sales of different ethanol fuel blends (i.e., E0, E15, and E85). 
According to the April, 2017 version of EIA's Short-Term Energy Outlook 
(STEO), the Department of Energy projects that total use of gasoline 
energy in 2018 will be 17.198 Quadrillion Btu.\87\ This is somewhat 
lower than the total projected gasoline energy use that we used in 
setting the 2017 standards. As a result, the projected volume of 
ethanol that can be sold as E10 in 2018 is also somewhat lower.
---------------------------------------------------------------------------

    \87\ Derived from Table 4a of the STEO, converting consumed 
gasoline and ethanol projected volumes into energy using conversion 
factors supplied by EIA. Excludes gasoline consumption in Alaska. 
For further details, see ``Calculation of proposed % standards for 
2018'' in docket EPA-HQ-OAR-2017-0091.

                       Table V.B.1.iii-1--Projected Gasoline Energy Use and E10 Blendwall
----------------------------------------------------------------------------------------------------------------
                                                          2017                             2018
----------------------------------------------------------------------------------------------------------------
STEO edition.................................  October, 2016............  April, 2017.
Quad Btu.....................................  17.288...................  17.198.
Equivalent volume of E10 if there were no E0,  14,362...................  14,287.
 E15, or E85.
----------------------------------------------------------------------------------------------------------------

    The volumes of E15 and E85 used in the near term will continue to 
be primarily a function of the number of retail service stations that 
offer it since the number of vehicles that are legally permitted to use 
E15 (2001 model year and later) and E85 (flexible fuel vehicles, or 
FFVs) currently exceeds the retail dispensing capacity by a substantial 
margin. 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 higher 
ethanol blends and E10.
    Growth in the number of retail stations offering E15 and/or E85 has 
been relatively slow, but accelerated in 2016 as a result of USDA's 
Biofuels Infrastructure Partnership (BIP) program and the ethanol 
industry's Prime the Pump program. While these grant programs have 
increased E15 and E85 offerings at retail, we expect the programs to be 
fully phased in by the end of 2017 and thus have no influence on 
further growth in the number of retail stations offering E15 and E85 in 
2018. In the 2017 final rule, we noted that while the BIP program was 
intended to be fully phased in by the end of 2016, it was not expected 
to meet this deadline. The BIP program permits states to extend 
implementation by up to two additional years. Currently, we have no 
reason to believe that the BIP program will not be fully implemented by 
the end of 2017; indeed, this was our assumption in projecting 
attainable volumes in the context of the 2017 final rule. Similarly, 
the Prime the Pump program was expected to complete all projects by the 
end of 2017.
b. Assessment of E0 in the Gasoline Pool
    For the 2016 and 2017 standards, we based the total renewable fuel 
volume requirement in part on the expectation that the RFS program 
would result in all but a tiny portion--estimated at 200 million 
gallons--of gasoline to contain at least 10 percent ethanol. We based 
this determination on the fact that higher volume requirements would 
provide an incentive for the market to transition from E0 to E10 and 
other higher level ethanol blends through the RIN mechanism, but that 
recreational marine engines represented a market segment that we 
believed 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.
    While we continue to believe that the market is capable of reaching 
a point wherein all but about 200 million gallons contains some amount 
of ethanol, we note that this did not occur in 2016 despite the fact 
that the 2016 standards were based in part on the expectation that it 
would occur. As described in a memorandum to the docket, we now 
estimate that the volume of E0 used in 2016 was about 500 million 
gallons.\88\ While this is considerably less than the historical 
volumes of E0 cited by some stakeholders in response to the proposed 
2016 standards, it does suggest that the market chose to respond to the 
2016 standards by increasing the use of non-ethanol renewable fuels 
such as biodiesel rather than by reducing E0 use down to 200 million 
gallons. We do

[[Page 34232]]

not yet have adequate information about the use of E0 in 2017, but we 
believe it is reasonable to adjust our approach to estimating the 
volume of ethanol that is reasonably attainable in 2018 to account for 
the likely market response to the applicable standards in terms of E0 
volumes.
---------------------------------------------------------------------------

    \88\ ``Estimate of E0 use in 2016,'' memorandum from David 
Korotney to docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

c. Ethanol Supply Volume for Assessment of Total Renewable Fuel
    Given that the BIP and Prime the Pump grant programs are expected 
to be fully phased in by the end of 2017, we expect less growth in E15 
and E85 supply in 2018 than in 2017. Moreover, any growth in ethanol 
use due to higher volumes of E15 and E85 may be offset by a higher 
volume of E0 as discussed above in terms of total ethanol supply. For 
example, a 40 million gallon increase in the volume of E85 supplied in 
2018 could be offset by a 250 million gallon increase in the volume of 
E0 supplied.\89\ Therefore, for the purposes of determining whether 
19.24 billion gallons of renewable fuel is reasonably attainable in 
2018, we believe that it would be appropriate to assume that the 
poolwide ethanol concentration would be the same in 2018 as the level 
used in the determination of the final 2017 standards. This level was 
10.13 percent.\90\ Based on the projected 2018 gasoline energy use 
shown in Table V.B.1.iii-1, this ethanol concentration would correspond 
to 14,479 million gallons of ethanol in 2018.\91\
---------------------------------------------------------------------------

    \89\ Alternatively, a 250 million gallon increase in the volume 
of E0 supplied could be offset by a 500 million gallon increase in 
the volume of E15 supplied or an increase of 17 million gallons of 
biodiesel supplied.
    \90\ 14,561 million gallons of ethanol in 143,683 million 
gallons of gasoline. See Table V.B.1.iv-1, 81 FR 89780.
    \91\ We note that the purpose of our analysis here is to 
establish an amount of ethanol that is reasonably attainable to be 
supplied as transportation fuel. To the extent stakeholders believe 
higher amounts can be supplied, that would simply confirm our 
decision not to exercise the general waiver authority on the ground 
of inadequate domestic supply.
---------------------------------------------------------------------------

    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 while the market could supply a volume of 
ethanol greater than 14,479 million gallons, this volume represents a 
reasonably attainable level of ethanol supply in 2018 that takes into 
account the constraints to fuel supply that we have noted. For the 
final rule, we intend to use an updated version of the STEO as well as 
a more detailed assessment of the volumes of E15 and E85 that may be 
reasonably attainable in 2018.
    As described in the 2017 final rule, we do not believe that setting 
the applicable standards at levels exceeding those we believe to be 
reasonably attainable would result in dramatic increases in the number 
of additional retail stations offering E15 or E85 in 2018 beyond those 
that may be upgraded through independent efforts.\92\ We do not 
believe, for instance, that the core concerns retailers have with 
liability over equipment compatibility and misfueling for E15 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 have expressed in the past about high 
capital costs and opportunities for return on their investment would 
remain. With regard to E85, we continue to believe that the full value 
of the RIN is not passed through to retail fuel prices, diluting the 
influence that the RFS program would otherwise have on E85 sales.\93\ 
Moreover, in light of these constraints on RIN pass-through and the 
unpredictability of crude oil prices, many retailers are concerned 
about the return on investment for the substantial capital costs 
required for retail stations to offer E85. Notably, as pointed out in 
the 2017 final rule, some retail station owners who had offered E85 
have stopped doing so as a result of poor sales, despite the annual 
increases in the RFS standards in previous years.\94\
---------------------------------------------------------------------------

    \92\ For instance, see 81 FR 89779, December 12, 2016.
    \93\ See more detailed discussion in Section 2.3.8 of the 
Response to Comments document for the 2017 final rule (EPA-HQ-OAR-
2016-0004).
    \94\ See 81 FR 89778, December 12, 2016.
---------------------------------------------------------------------------

2. Biodiesel and Renewable Diesel
    While the market constraints on ethanol supply are relatively well 
understood, 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 2018. Therefore, as 
discussed in the introduction to Section V.B, after estimating the 
supply of ethanol in 2018, and taking into account the estimates of 
non-ethanol cellulosic biofuel supply discussed in Section III.D 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 the remainder of the 
volume needed to achieve a requirement of 19.24 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 19.24 
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.C. 
While other renewable fuels such as naphtha, heating oil, butanol, and 
jet fuel can be expected to continue growing in 2018, collectively, we 
expect them to contribute considerably less than ethanol and biodiesel/
renewable diesel to the total volume of renewable fuel supplied in 
2018. These fuels were discussed in Section IV.B.3. Based on these 
estimates, about 2.9 billion gallons of biodiesel and renewable diesel, 
including both advanced and conventional biodiesel and renewable 
diesel, would be needed in order to meet a total renewable fuel volume 
requirement of 19.24 billion gallons (see Table V.B.2-1 below).

Table V.B.2-1--Determination of Volume of Biodiesel and Renewable Diesel
 Needed in 2018 To Achieve 19.24 Billion Gallons of Total Renewable Fuel
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total renewable fuel volume.............................          19,238
Ethanol.................................................          14,479
Non-ethanol cellulosic biofuel..........................             223
Other non-ethanol renewable fuels \a\...................              40
Biodiesel and renewable diesel needed (ethanol-              4,496/2,901
 equivalent volume/physical volume).....................
------------------------------------------------------------------------
\a\ Includes naphtha, heating oil, butanol, and jet fuel. See further
  discussion in Section IV.B.3.

    A starting point in developing a projection of the attainable 
supply of biodiesel and renewable diesel in 2018 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 D4, D5, and D6 biodiesel and 
renewable diesel) supplied each year from 2011 through 2016 are shown 
below, along with the volume of these fuels projected for 2017 in the 
2017 final rule.

[[Page 34233]]

[GRAPHIC] [TIFF OMITTED] TP21JY17.002

    After examining the historical data (shown in the figure above) we 
believe it is very likely that there will be a sufficient supply of 
biodiesel and renewable diesel (volumes at least as high as 2.9 billion 
gallons) in 2018 to meet the total renewable fuel volume requirement 
after exercising the cellulosic waiver authority. Indeed, there would 
be sufficient supply of biodiesel and renewable diesel to meet the 2018 
total renewable fuel volume requirement after using the cellulosic 
waiver authority even if there was no increase in the supply of these 
fuels from 2017 to 2018. Alternatively, even if the supply of biodiesel 
and renewable diesel in 2017 falls short of the projected supply from 
the 2017 final rule, an increase in supply from 2016 to 2018 equal to 
the average annual supply increase observed from 2011-2016 would be 
sufficient to meet the total renewable fuel requirement for 2018 after 
using the cellulosic waiver authority.
    In assessing the probative value of historical data on the supply 
of biodiesel and renewable diesel, we must also consider the extent to 
which historic supply and growth rates can be seen as representing what 
is possible with the RFS standards and other incentives in place. The 
years with the highest historic growth rates (2013 and 2016) were years 
in which both tax incentives and RFS incentives were in place to 
incentivize growth through the entire year.\95\ While the biodiesel 
blenders tax credit expired at the end of 2016, we believe it is 
reasonable to assume the incentives provided by the RFS standards in 
2017 and 2018 will be sufficient to enable the supply of biodiesel and 
renewable diesel to reach 2.9 billion gallons in 2018 despite the 
current absence of the tax credit. The absence of the tax credit would 
be expected to have two primary potential impacts on the supply of 
biodiesel and renewable diesel in 2018; lower imported volumes of 
biodiesel and renewable diesel and a lesser economic incentive for 
blenders and retailers to offer fuel blends containing biodiesel and 
renewable diesel (which could potentially impact both domestic and 
foreign biodiesel and renewable diesel producers). Imported volumes of 
these fuels could be impacted if the loss of the economic incentive 
previously provided by the tax credit results in other markets offering 
higher value to potential importers of biodiesel and renewable diesel 
than the United States.\96\ Similarly, the loss of the tax credit could 
impact the ability for blenders and retailers of biodiesel and 
renewable diesel blends to offer these fuels at prices that are 
competitive with petroleum diesel. We note, however, that these 
potential impacts of the loss of the tax credit could be offset, in 
whole or in part, by rising RIN values associated with biodiesel and 
renewable diesel. We believe the most likely impact of the absence of 
the tax credit will be a decrease in the rate of growth of the supply 
of biodiesel and renewable diesel to the United States in 2017 and 
2018, rather than an absolute decrease in the supply of these 
fuels.\97\
---------------------------------------------------------------------------

    \95\ While the rule finalizing the 2013 RFS RVOs was not 
finalized until August 2013, EPA announced the proposed volume 
requirements for 2013 in January 2013. EPA did not propose to use 
our waiver authorities to reduce the statutory advanced or total 
renewable fuel volume requirements. We believe the market 
anticipated the final RVOs in 2013 and responded accordingly.
    \96\ While this could also impact domestic producers, leading 
some to consider exporting the biodiesel or renewable diesel they 
produce to foreign markets. Domestic producers, however, would have 
to amend their current distribution systems to enable them to supply 
fuel to foreign markets, while parties that are currently importing 
biodiesel and renewable diesel to the United States must simply 
divert the deliveries to new destinations.
    \97\ The most recent years in which the biodiesel tax credit was 
not available during the year in which it applied were 2014 and 
2015. The total supply of biodiesel and renewable diesel decreased 
by 98 million gallons from 2013 to 2014 and then increased by 221 
million gallons from 2014 to 2015, averaging an increase of 
approximately 100 million gallons over these two years. We also note 
that the RVOs for 2014 and 2015 were not finalized until December 
2015. We believe that it is reasonable to project that the supply of 
biodiesel and renewable diesel could increase by at least this 
amount (100 million gallons per year) from 2017 to 2018 without the 
biodiesel tax credit, but with the 2018 RFS requirements in place to 
incentivize the necessary supply.
---------------------------------------------------------------------------

    Ultimately, we believe the historic data provides a reasonable 
guide for assessing the potential growth of advanced biodiesel and 
renewable diesel in 2018. We recognize that there

[[Page 34234]]

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 interdependent factors that have factored into 
historical growth, as is the case for 2018.
    In the 2017 final rule EPA assessed a number of factors that could 
potentially constrain the supply of biodiesel and renewable diesel to 
the United States. The list of factors considered included feedstock 
availability, the capacity of the market to produce, import, and 
distribute biodiesel and renewable diesel, the retail infrastructure 
capacity, the ability for the market to consume biodiesel and renewable 
diesel in approved engines, and consumer response. We noted that in 
each of these areas there are challenges that will need to be overcome 
to enable the continued growth in the supply of biodiesel and renewable 
diesel in the United States, but nevertheless concluded that the market 
was capable of supplying 2.9 billion gallons of biodiesel and renewable 
diesel (including both advanced and conventional biodiesel and 
renewable diesel) to the United States in 2017.\98\ The global supply 
of feedstocks projected to be available for biodiesel and renewable 
diesel production significantly exceeds the quantity necessary to 
produce 2.9 billion gallons of biodiesel and renewable diesel.\99\ 
Similarly, an assessment of the production capacity of registered 
biodiesel and renewable diesel production facilities conducted for the 
2017 final rule demonstrates that there is sufficient production 
capacity to produce 2.9 billion gallons of biodiesel and renewable 
diesel in 2018.\100\ Finally, we believe that there will be sufficient 
infrastructure in place to enable the distribution, sale, and use of 
2.9 billion gallons of biodiesel and renewable diesel in 2018. 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) on our 2017 proposed rule support this projection, 
suggesting that parties have already begun making the necessary 
investments to distribute and sell the volumes of biodiesel and 
renewable diesel necessary to meet the required volume of total 
renewable fuel in 2017 (and thus 2018), after exercising the cellulosic 
waiver authority.\101\
---------------------------------------------------------------------------

    \98\ 81 FR 89781, December 12, 2016.
    \99\ A study conducted by LMC International in 2016 projected 
the global availability of feedstocks for use in advanced biodiesel 
and renewable diesel production would be sufficient to produce 
approximately 9.2 billion gallons of these fuels in 2018. The OECD-
FAO Agricultural Outlook 2016-2025 estimated global biodiesel 
production at approximately 8.8 billion gallons in 2016, rising to 
9.3 billion gallons in 2018. This suggests that the 2.6 billion 
gallons of biodiesel and renewable diesel consumed in the U.S. in 
2016 (according to EMTS data) was approximately 30% of the global 
supply of these fuels. 30% of the 9.3 billion gallons of biodiesel 
and renewable diesel projected to be produced in 2018 (or the 9.2 
billion gallons based on projected available feedstocks from the LMC 
international projection) is approximately 2.8 billion gallons. We 
believe the RFS program is capable of the marginal increase in U.S. 
consumption of the global biodiesel supply necessary to supply 2.9 
billion gallons of biodiesel to the United States in 2018. While we 
believe some of the assumptions made by LMC International in this 
study were overly optimistic and the study did not project the 
quantity of these feedstocks available to supply the U.S. biodiesel 
and renewable diesel markets, we nevertheless believe this study, 
along with other information reviewed in preparing the 2017 final 
rule, demonstrate that sufficient feedstocks will be available in 
2018 to supply 2.9 billion gallons of biodiesel and renewable diesel 
to the United States (See 81 FR 89767-89769, December 12, 2016, for 
a further discussion of the availability of biodiesel and renewable 
diesel feedstocks).
    \100\ ``Biodiesel and Renewable Diesel Registered Capacity 
(October 2016)'', Memorandum from Dallas Burkholder to EPA Docket 
EPA-HQ-OAR-2016-0004. In this assessment we determined that 
biodiesel and renewable diesel production capacity at registered 
facilities in the United States was approximately 4.2 billion 
gallons. Registered production capacity of biodiesel and renewable 
diesel facilities in the United States that generated RINs in 2015 
or 2016 was approximately 3.1 billion gallons, and actual supply of 
biodiesel and renewable diesel from these facilities in 2016 was 
approximately 1.72 billion gallons. Significant additional 
production capacity also exists at registered biodiesel and 
renewable diesel production facilities outside of the United States.
    \101\ See testimony of Michael Whitney, Musket Corporation, June 
9, 2016 (Chicago Room), comments from NATSO (EPA-HQ-OAR-2016-0004-
1830), comments from NBB (EPA-HQ-OAR-2016-0004-2904), and comments 
from REG (EPA-HQ-OAR-2016-0004-3477). A fuller discussion of these 
comments is contained in the 2017 final rule (81 FR 89746, December 
12, 2016).
---------------------------------------------------------------------------

    Since finalizing the 2017 rule, EPA has continued to monitor the 
development of the biodiesel and renewable diesel industry, including 
the ability for the market to produce/import, distribute, and consume 
these fuels. Based on the data available to EPA at this time, including 
data considered in the 2017 final rule, we believe that the market is 
capable of producing, distributing, and using 2.9 billion gallons of 
biodiesel and renewable diesel in 2018. EPA is unaware of any 
information that would lead us to conclude that our assessment that the 
biodiesel and renewable diesel market is capable of supplying 2.9 
billion gallons to the United States in 2017 is no longer reasonable, 
nor are we aware of any factors (other than the absence of the 
biodiesel blenders tax credit) that will likely negatively impact the 
ability for the market to supply biodiesel and renewable diesel in 2018 
relative to 2017. We therefore do not see any significant marketplace 
impediments that are likely to prevent the supply of 2.9 billion 
gallons of biodiesel and renewable diesel in 2018 and believe that 
despite the loss of the biodiesel blenders tax credit the 2.9 billion 
gallon supply of biodiesel and renewable diesel projected to be 
available in 2017 can also be supplied in 2018.
    We recognize that the market may not necessarily respond to the 
proposed 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 2018, 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 19.24 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 2018.
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 19.24 
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 believe 
that a total of 19.24 billion gallons of renewable fuel is reasonably 
attainable in 2018. As a result, we do not propose any further 
reductions on the basis of an ``inadequate domestic supply'' using the 
general waiver authority.
    Our use of the cellulosic waiver authority alone to set the 
advanced biofuel and total renewable fuel volume requirements would 
result in an implied volume for non-advanced (i.e., conventional) 
renewable fuel of 15.0 billion gallons. This would be equal to the 
statutory implied volume for 2018. We anticipate that this volume would 
be comprised primarily of corn-ethanol with lesser amounts of 
conventional biodiesel and renewable diesel. As shown in Table 
V.B.1.iii-1, the volume of ethanol that can be consumed as E10 in 2018 
is projected to be 14.29 billion gallons. Thus, the implied volume for

[[Page 34235]]

conventional renewable fuel would exceed this value by 0.71 billion 
gallons.\102\
---------------------------------------------------------------------------

    \102\ We note, however, that some volume of advanced ethanol is 
expected to be used in 2018. This additional volume of implied 
conventional biofuel above the volume of ethanol that can be 
supplied as E10 (less any advanced ethanol used in 2018) could be 
met with any combination of E15, E85, biodiesel, and renewable 
diesel.
---------------------------------------------------------------------------

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

    Because the transportation fuel market is dynamic and complex, and 
the RFS standards that we set can be satisfied through use of a wide 
variety of renewable fuels, we cannot precisely predict the mix of 
different fuel types that will result from the standards we are 
proposing. In this section we describe a range of possible outcomes, 
and doing so provides a means of demonstrating that the proposed 
standards 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 a reasonable 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 proposed total 
renewable fuel and advanced biofuel standards would be satisfied.

                        Table V.C-1--Volume Scenarios Illustrating Possible Compliance With the Proposed 2018 Volume Requirements
                                                                  [Million gallons] a b
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                              Minimum
                                                                                                                               Total         volume of
                                                                                          Total  ethanol     Sugarcane    biodiesel  and     advanced
                           E85                                  E15             E0              \c\           ethanol        renewable     biodiesel and
                                                                                                                            diesel \d\       renewable
                                                                                                                                            diesel \d\
--------------------------------------------------------------------------------------------------------------------------------------------------------
200.....................................................             600             200          14,430               0           2,934           2,543
200.....................................................             600             500          14,399               0           2,954           2,543
200.....................................................             600             500          14,399             100           2,954           2,479
200.....................................................             600             500          14,399             300           2,954           2,350
200.....................................................             600             500          14,399             500           2,954           2,221
200.....................................................           1,200             200          14,461             300           2,914           2,350
350.....................................................             600             500          14,498             500           2,890           2,221
350.....................................................           1,200             200          14,560               0           2,850           2,543
350.....................................................           1,200             200          14,560             100           2,850           2,479
350.....................................................           1,200             200          14,560             300           2,850           2,350
350.....................................................           1,200             200          14,560             500           2,850           2,221
350.....................................................           1,200             500          14,529             100           2,870           2,479
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Assumes for the purposes of these scenarios that supply of other advanced biofuel other than imported sugarcane ethanol, BBD, and renewable diesel
  (e.g., domestic ethanol, heating oil, naphtha, etc.) is 60 mill gal, and that the cellulosic biofuel proposed volume requirement is 238 mill gal, of
  which 15 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. 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 10.18%.
\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 proposed 2018 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 continue to believe, as we stated in previous rulemakings, that 
it would be inappropriate to construct a new scenario based on the 
highest or lowest volumes in each category that are shown in the table 
above. Thus, for instance, while every scenario in Table V.C-1 
represents 4.24 billion gallons of advanced biofuel and 19.24 billion 
gallons of total renewable fuel, combining the lowest volume of E0 
shown in the table with the highest volumes of E15, E85, sugarcane 
ethanol, total biodiesel and renewable diesel, and advanced biodiesel 
and renewable diesel shown in the table, would result in 4.74 billion 
gallons of advanced biofuel and 19.40 billion gallons of total 
renewable fuel. We do not believe that such volumes would be reasonably 
attainable for 2018. Conversely, combining the highest volume of E0 
shown in the table with the lowest volumes of E15, E85, sugarcane 
ethanol, total biodiesel and renewable diesel, and advanced biodiesel 
and renewable diesel shown in the table, would result in 3.74 billion 
gallons of advanced biofuel and 19.08 billion gallons of total 
renewable fuel. Such volumes would be below the levels that we believe 
are reasonably attainable to require in 2018. We have more confidence 
in the ability of the market to attain the proposed 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.
    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 350 million gallons could be reached. For instance, growth

[[Page 34236]]

in the number of retail stations offering E85 may increase more rapidly 
than historical rates following the completion of USDA's BIP grant 
program and the ethanol industry's Prime the Pump program (both of 
which we have assumed will be fully phased in by the end of 2017). If 
so, the total number of retail stations offering E85 could perhaps 
increase from about 3,100 today to more than 5,000 in 2018. Also, it is 
possible that increases in the price of D6 RINs since the release of 
the 2017 final rule can help to increase the E85 price discount 
relative to E10 if producers and marketers of E85 pass on more of 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 
E10. Under such circumstances, an E85 price discount as high as 30 
percent might be possible. Indeed, E85 price discounts this high have 
been reached in the past in some locales.\103\ 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 400 
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.
---------------------------------------------------------------------------

    \103\ For instance, data from the Fuels Institute indicates that 
3% of E85 price discounts were above 30% at surveyed retail stations 
in 2015.
---------------------------------------------------------------------------

    Similarly, under favorable conditions, it is possible that E15 
volumes as high as 1,200 million gallons could be reached in 2018 as 
shown in Table V.D-1. This volume could be reached through some 
combination of different changes such as the following:
     Following the conclusion of the BIP program and Prime the 
Pump program, it is possible that the growth rate for retail stations 
offering E15 could be higher than historical rates, potentially 
reaching as high as 2,700 in 2018 (average for the year).
     Sales of E15 could be as high as 50 percent of all 
gasoline sales at stations selling both E10 and E15 under favorable 
pricing conditions rather than the 15 percent we assumed in the 2017 
final rule, based on limited data from Iowa.
     Additional terminals could produce E15 in 2018 beyond 
those that are expected to do so in 2017.\104\
---------------------------------------------------------------------------

    \104\ 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 2.95 billion gallons of biodiesel and 
renewable diesel in 2018. This level is less than our estimate of the 
production capacity for all registered domestic biodiesel and renewable 
diesel production facilities, though slightly higher than the 2.9 
billion gallons that we used in the context of determining whether a 
total renewable fuel volume requirement of 19.24 billion gallons in 
2018 would be reasonably attainable. Given the necessarily imprecise 
nature of our estimate of the ability of the market to supply about 2.9 
billion gallons of biodiesel and renewable diesel for purposes of 
meeting a total renewable fuel volume requirement of 19.24 billion 
gallons in 2018, volumes as high as 2.95 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, 2.54 billion 
gallons could be advanced biodiesel. While this is slightly higher than 
the 2.5 billion gallons that we used in determining the advanced 
biofuel volume requirement, it could be supplied from current biodiesel 
and renewable diesel domestic production capacity,\105\ though this 
would possibly involve additional feedstock switching as discussed in 
Section IV.
---------------------------------------------------------------------------

    \105\ ``Biodiesel and Renewable Diesel Registered Capacity 
(October 2016)'', Memorandum from Dallas Burkholder to EPA Docket 
EPA-HQ-OAR-2016-0004. In this assessment we determined that 
biodiesel and renewable diesel production capacity at registered 
facilities in the United States was approximately 4.2 billion 
gallons. Registered production capacity of biodiesel and renewable 
diesel facilities in the United States that generated RINs in 2015 
or 2016 was approximately 3.1 billion gallons, and actual supply of 
biodiesel and renewable diesel from these facilities in 2016 was 
approximately 1.72 billion gallons. Significant additional 
production capacity also exists at registered biodiesel and 
renewable diesel production facilities outside of the United States.
---------------------------------------------------------------------------

D. Impacts of 2018 Standards on Costs

1. Illustrative Cost Savings Associated With Reducing Statutory 
Cellulosic Volumes
    To provide an illustrative estimate of the cost of the proposed 
2018 RFS volume requirements, EPA has compared the proposed 2018 volume 
requirements to the statutory volume that would be required absent the 
exercise of our cellulosic waiver authority under CAA section 
211(o)(7)(D)(i) to reduce the applicable volume of cellulosic 
biofuel.\106\ As described in other sections of this proposed rule, we 
believe that the additional 6.76 billion gallons of cellulosic biofuel 
envisioned by the statute will not be produced in 2018. Therefore, 
estimating costs of this volume reduction is inherently challenging. 
However, we have taken the relatively straightforward methodology of 
multiplying the per-gallon costs associated with the volumes that would 
be required under this proposal by the amount of cellulosic renewable 
fuel proposed to be waived. This comparison results in a cost savings 
estimated to be at least $6.2-$11.8 billion.
---------------------------------------------------------------------------

    \106\ EPA is also using its discretion to reduce the advanced 
biofuel and total renewable fuel requirements using the cellulosic 
waiver authority. This discretionary action is based partially on 
the costs of advanced biofuels and provides additional cost savings.
---------------------------------------------------------------------------

    To estimate the overall cost savings from waiving the cellulosic 
renewable fuel volumes, EPA has taken the following steps. First, EPA 
determined the magnitude of the volume reduction of cellulosic biofuel 
we are proposing in this rule, relative to the statutory volume. In 
this rule we are proposing to reduce the required volume of cellulosic 
biofuel by approximately 6.76 billion gallons, with corresponding 
reductions in the advanced biofuel and total renewable fuel standards. 
Second, we estimated the per gallon costs of producing cellulosic 
ethanol derived from corn kernel fiber that would be expected in 
complying with the proposed standards. Third, the per gallon costs of 
cellulosic biofuel from corn fiber were multiplied by the volume of 
cellulosic renewable fuels being waived from the statutory levels to 
the proposed cellulosic renewable fuel volumes.\107\
---------------------------------------------------------------------------

    \107\ The cost estimates for cellulosic biofuel provided in this 
section are primarily intended to provide a cost estimate for this 
rule. The proposed cellulosic biofuel standard is based on EPA's 
projection of cellulosic biofuel production in 2018.
---------------------------------------------------------------------------

    While there may be growth in other cellulosic sources, for this 
exercise we believe it is appropriate to use corn kernel fiber as the 
representative cellulosic renewable fuel since the majority of liquid 
cellulosic biofuel in 2018 is expected to be produced using this 
technology. The application of this technology in the future could 
result in significant incremental volumes of cellulosic biofuel. In 
addition, as explained in Section III, we believe that production of 
the major alternative cellulosic biofuel--CNG/LNG derived from biogas--
is likely to plateau eventually due to a limitation in the number of 
vehicles capable of using this form of fuel. To estimate the per gallon 
costs of corn kernel fiber ethanol, we focus on wholesale level costs. 
These cost estimates do not consider taxes, retail margins, or other 
costs or transfers that occur at or after the point of blending 
(transfers are payments within

[[Page 34237]]

society and are not additional costs). We do not attempt to estimate 
potential cost savings related to avoided infrastructure costs (e.g., 
the cost savings of not having to provide pumps and storage tanks 
associated with higher-level ethanol blends). When estimating per 
gallon costs, we consider the costs of ethanol on an energy equivalent 
basis to gasoline (i.e., per energy equivalent gallon), since more 
ethanol gallons must be consumed to go the same distance as gasoline 
due to the ethanol's lower energy content.
    Table V.D-1 below presents the cost savings associated with this 
proposed rule.\108\ The statutory cellulosic volume set in EISA for 
2018 is seven billion gallons (ethanol equivalent). The proposed 
cellulosic volume requirement for this annual rule is 238 million 
gallons (ethanol equivalent). The amount of cellulosic renewable fuels 
being waived is approximately 6.76 billion gallons (ethanol 
equivalent), or approximately 4.51 billion gallons on a gasoline 
equivalent basis. The per-gallon cost difference estimates for 
cellulosic ethanol ranges $1.37-$2.62 gallon on a gasoline equivalent 
basis, compared to gasoline.\109\ Multiplying those per-gallon cost 
differences by the amount of cellulosic biofuel waived in this proposed 
rule, 4,510 million gallons of gasoline equivalent, results in 
approximately $6.2-$11.8 billion in cost savings.
---------------------------------------------------------------------------

    \108\ Details of the data and assumptions used can be found in a 
Memorandum available in the docket entitled ``Cost Impacts of the 
Proposed 2018 Annual Renewable Fuel Standards'', Memorandum from 
Michael Shelby, Dallas Burkholder, and Aaron Sobel to EPA Docket 
EPA-HQ-OAR-2017-0091.
    \109\ For the purposes of the cost estimates in this Section EPA 
has not attempted to adjust the price of the petroleum fuels to 
account for the impact of the RFS program. Rather, we have simply 
used the wholesale price projections for gasoline and diesel as 
reported in EIA's STEO.

  Table V.D-1--Impacts of the Difference Between EISA Volumes for the Cellulosic Biofuel Standard and Proposed
                                            Cellulosic Volume in 2018
----------------------------------------------------------------------------------------------------------------
                                                                                    2018 EISA
                                                                                   cellulosic     2018 Proposed
                                                                                     volume         cellulosic
                                                                                    standard          volume
----------------------------------------------------------------------------------------------------------------
Cellulosic Volume Required (Million Ethanol-Equivalent Gallons) \110\..........           7,000              238
Change in Required Cellulosic Biofuels (Million Gallons as Ethanol)............  ..............          (6,762)
GGE \111\......................................................................  ..............          (4,510)
Cost Difference Between Cellulosic Corn Fiber-Derived Ethanol and Gasoline Per   ..............      $1.37-$2.62
 Gallon ($/GGE) \112\..........................................................
Estimated Cost Difference in Meeting Cellulosic Biofuel Volume (Billion $)\113\  ..............   $(6.2)-$(11.8)
----------------------------------------------------------------------------------------------------------------


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

    \110\Overall fuel volumes may not match due to rounding.
    \111\ Gasoline gallon equivalent; 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; 
6,762 million gallons of ethanol is energy-equivalent to 
approximately 4,510 million gallons of gasoline.
    \112\ Approximate costs are rounded to the cents place.
    \113\ Approximate costs are rounded to the first decimal place.
---------------------------------------------------------------------------

2. Illustrative Cost Analysis Using the 2017 Baseline
    We recognize that for the purpose of estimating the cost of the 
proposed 2018 RFS volume requirements that a number of different 
scenarios using different ``baselines'' would be of interest to 
stakeholders. Therefore, in this section we are also providing an 
illustrative cost analysis that shows the costs as compared to those 
associated with the preceding year's standard, which as discussed in 
section IV.C. is a reduction of 40 million gallons of advanced biofuel 
in comparison to 2017.\114\
---------------------------------------------------------------------------

    \114\ There is also a reduction of 40 million gallons in the 
proposed 2018 applicable volume of total renewable fuel as compared 
to the 2017 volume. However, in light of the nested standards, that 
reduction is entirely attributable to the reduction in the advanced 
volume.
---------------------------------------------------------------------------

    It is important to note that these ``illustrative costs'' do not 
attempt to capture the full impacts of this proposed 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. There 
are a number of different feedstocks that could be used to produce 
biofuels, and there is a significant amount of heterogeneity in the 
costs associated with these different feedstocks and fuels. Some 
renewable 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.
    The annual standard-setting process encourages consideration of the 
RFS program on a piecemeal (i.e., year-to-year) basis, which may not 
reflect the full, long-term costs and benefits of the program. For the 
purposes of this proposed rule, EPA did not quantitatively assess other 
direct and indirect costs or benefits of changes in 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 the annual standards. While some of these impacts 
were analyzed in the 2010 final rulemaking that established the current 
RFS program, we have not analyzed these impacts for the 2018 volume 
requirements. We framed the analyses we have performed for this 
proposed rule as ``illustrative'' so as not to give the impression of 
comprehensive estimates.
    EPA is providing an illustrative cost analysis for the proposed 
reduction in the overall advanced biofuel volume of 40 million ethanol 
equivalent gallons using four different scenarios, assuming this 
reduction in advanced biofuel volumes is comprised of (1) cellulosic 
biofuel from CNG/LNG, (2) cellulosic biofuel from corn kernel fiber, 
(3) soybean oil BBD, or (4) sugarcane ethanol from Brazil. Showing the 
illustrative costs of soybean oil BBD and sugarcane ethanol is 
consistent with the methodology EPA developed for previous rulemakings. 
Since EPA has also developed per gallon cost estimates for corn kernel 
fiber ethanol and cellulosic biofuel from CNG/LNG, we are also 
including costs for these hypothetical scenarios for informational 
purposes. However, this discussion should not be interpreted as 
suggesting that the various renewable fuel types discussed are 
necessarily available in the marketplace. The availability of different 
types of renewable fuel is discussed in other sections of this 
preamble; in this section we assess costs

[[Page 34238]]

as if the different fuel types are available, without intending to 
suggest that they are.
    In previous annual RFS rules, EPA provided an illustrative cost 
estimate for the entire change in the total renewable fuel volume 
standard assuming it was satisfied with conventional (i.e., non-
advanced) corn ethanol. As there is no proposed change in the 2018 
conventional volume relative to the 2017 volume, all of the changes in 
both the advanced and total renewable fuel volumes are properly 
attributed to advanced biofuel.
    As described earlier, we are focusing on the wholesale level in our 
cost scenarios, and do not consider taxes, retail margins, additional 
infrastructure, or other costs or transfers that occur at or after the 
point of blending. 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 available in the 
docket.\115\
---------------------------------------------------------------------------

    \115\ ``Cost Impacts of the Proposed 2018 Annual Renewable Fuel 
Standards'', Memorandum from Michael Shelby, Dallas Burkholder, and 
Aaron Sobel to EPA Docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    Table V.D-2 below presents estimates of per energy-equivalent 
gallon costs for producing soybean biodiesel, Brazilian sugarcane 
ethanol, CNG/LNG derived from landfill biogas, and cellulosic ethanol 
derived from corn fiber relative to the petroleum fuels they replace at 
the wholesale level. For each of the four scenarios, these per gallon 
costs are then multiplied by the 40 million ethanol-equivalent gallon 
reduction in the proposed 2018 advanced standard relative to the 
previous 2017 standard to obtain an overall cost estimate.

    Table V.D-2--Illustrative Costs of the Proposed 40 Million Gallon
 Reduction to the Advanced Biofuel Volume Requirements in 2018 Relative
                     to the 2017 Volume Requirements
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                       Soybean Biodiesel Scenario
------------------------------------------------------------------------
Cost Difference Between Soybean Biodiesel and Petroleum      $1.36-$1.85
 Diesel Per Gallon ($/DGE) \116\........................
Annual Change in Overall Costs (Million $) \117\........     $(45)-$(33)
------------------------------------------------------------------------
                  Brazilian Sugarcane Ethanol Scenario
------------------------------------------------------------------------
Cost Difference Between Sugarcane Ethanol and Gasoline       $0.87-$2.29
 Per Gallon ($/GGE) \118\...............................
Annual Change in Overall Costs (Million $)..............     $(61)-$(23)
------------------------------------------------------------------------
              CNG/LNG Derived from Landfill Biogas Scenario
------------------------------------------------------------------------
Cost Difference Between CNG/LNG Derived from Biogas and    $(0.06)-$0.05
 Natural Gas ($/EGE)....................................
Annual Change in Overall Costs (Million $)..............         $(2)-$2
------------------------------------------------------------------------
                   Corn Fiber-Derived Ethanol Scenario
------------------------------------------------------------------------
Cost Difference Between Cellulosic Corn Fiber-Derived        $1.37-$2.62
 Ethanol and Gasoline Per Gallon ($/GGE)................
Annual Change in Overall Costs (Million $)..............     $(70)-$(36)
------------------------------------------------------------------------

    Based on this illustrative analysis of four separate hypothetical 
scenarios, EPA estimates that the costs for changes in the advanced 
fuel volumes compared to 2017 could range from $(70)-$2 million in 
2018. It is important to note that these illustrative costs do not take 
into consideration the benefits of the program. For the purpose of this 
annual rulemaking, we have not quantified benefits for the proposed 
2018 standards. We do not have a quantified estimate of the GHG or 
energy security impacts for a single year (e.g., 2018), and there are a 
number of benefits that are difficult to quantify, such as rural 
economic development and employment impacts from more diversified fuel 
sources.
---------------------------------------------------------------------------

    \116\ 40 million gallons on an ethanol gallon equivalent (EGE) 
basis is approximately 27 million gallons of biodiesel on an energy 
equivalent basis, assuming 1.5 RINs per gallon of biodiesel for the 
purposes of this illustrative costs example. 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; 27 million gallons of biodiesel (or 40 million ethanol-
equivalent gallons) is energy-equivalent to approximately 24 million 
gallons of diesel.
    \117\ Overall costs may not match per gallon costs times volumes 
due to rounding.
    \118\ 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; 40 million gallons of 
ethanol is energy-equivalent to approximately 27 million gallons on 
a gasoline gallon equivalent (GGE) basis.
---------------------------------------------------------------------------

VI. Biomass-Based Diesel Volume for 2019

    In this section we discuss the proposed BBD applicable volume for 
2019. 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 2019 but intend to 
do so in the Fall of 2018, after receiving EIA's estimate of gasoline 
and diesel consumption for 2019. 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 
2019 BBD volume can be used to satisfy both of these other applicable 
volume requirements. Therefore, these other standards 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

[[Page 34239]]

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 specified in the statute 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 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. As shown in Table VI.B.1-1 below, we have raised the BBD standard 
above the statutory minimum each year beginning in 2013.

B. Determination of Applicable Volume of Biomass-Based Diesel

    One of the primary considerations in determining the BBD volume for 
2019 is a review of the implementation of the program to date, as it 
affects BBD. 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 2011-2018 are shown in Table VI.B.1-1 
below.

                                      Table VI.B.1-1--Biomass-Based (D4) RIN Generation and Standards in 2011-2018
                                                                 [million gallons] \119\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            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              72                98           1,522             800           1,200
2012..................................................           1,737             102                90           1,545           1,000           1,500
2013..................................................           2,739             124               101           2,514           1,280           1,920
2014..................................................           2,710             134                92           2,484           1,630       \b\ 2,490
2015..................................................           2,796             145                32           2,619           1,730       \b\ 2,655
2016..................................................           4,008             203                52           3,753           1,900           2,850
2017..................................................             N/A             N/A               N/A             N/A           2,000           3,000
2018..................................................             N/A             N/A               N/A             N/A           2,100           3,150
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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 BBD 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, 2012, 2013, and 2016. 
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,\120\ and 
favorable blending economics. The number of RINs available in 2014 and 
2015 was approximately equal to the number required for compliance in 
those years, as the standards for these years were finalized at the end 
of November 2015. In 2016, with RFS standards established prior to the 
beginning of the year and the blenders tax credit in place, BBD RIN 
generation exceeded the volume required by the BBD standard by more 
than one billion RINs. This strongly suggests that there is demand for 
BBD RINs to satisfy the advanced biofuel and/or total renewable fuel 
requirements beyond the required volume of BBD.\121\
---------------------------------------------------------------------------

    \119\ Net BBD RINs Generated, Exported BBD RINs, and BBD RINs 
Retired for Non-Compliance Reasons information from EMTS.
    \120\ 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 authorized and applied 
retro-actively for all of 2015 as well as through the end of 2016.
    \121\ For a further discussion of the ability for the advanced 
biofuel and total renewable fuel volume requirements to provide a 
demand for BBD beyond the BBD required volume see ``Memorandum to 
docket: Draft Statutory Factors Assessment for the 2019 Biomass-
Based Diesel (BBD) Applicable Volumes'' and the 2017 final rule (81 
FR 89795-89798, December 12, 2016).
---------------------------------------------------------------------------

    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

[[Page 34240]]

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 the appropriate rate of participation of BBD within the 
advanced biofuel standard.
    The BBD 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. 
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 2019. 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.\122\
---------------------------------------------------------------------------

    \122\ All types of advanced biofuel, including BBD, must achieve 
lifecycle GHG reductions of at least 50%.
---------------------------------------------------------------------------

    With the considerations discussed above and in Section IV.B.2 in 
mind, as well as our analysis of the factors specified in the statute, 
we are proposing to maintain the applicable volume of BBD at 2.1 
billion gallons for 2019. We believe it is appropriate to continue to 
support the BBD industry through a guaranteed volume requirement, while 
allowing room within the advanced biofuel volume requirement for the 
participation of non-BBD advanced fuels. While in recent years we have 
annually increased this BBD guarantee, we note that there has been a 
very substantial cumulative increase since 2012, and that the 2018 
guarantee is over twice the minimum BBD volume specified in the 
statute. While we believe it is important to provide continued support 
to the BBD industry, we do not believe it is necessary to increase the 
BBD set-aside in 2019 in order to do so. Our assessment of the required 
statutory factors, summarized in the next section and in a memorandum 
to the docket (the ``2019 BBD docket memorandum''), supports our 
proposal.\123\ We request comment on the biomass-based diesel volume 
requirement for 2019.
---------------------------------------------------------------------------

    \123\ ``Memorandum to docket: Draft Statutory Factors Assessment 
for the 2019 Biomass-Based Diesel (BBD) Applicable Volumes.'' See 
Docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    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 the BBD 
industry. Based on our review of the data, and the nested nature of the 
BBD standard within the advanced standard, we conclude that the advance 
standard continues to drive the ultimate volume of BBD supplied. This 
means that setting a marginally lower or higher BBD standard would not 
change the volume of BBD used in 2019. Given the success of the 
industry in the past few years, as well as the substantial increases in 
the BBD volume requirement since 2012, we are proposing that a higher 
volume requirement for BBD in 2019 is not necessary to provide support 
for the industry, and are proposing to maintain the volume requirement 
at the level specified for 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 and potentially less costly types of qualifying 
advanced biofuels. As discussed in Section I.E., EPA also requests 
comment on decreasing the required volume of BBD for 2019 in an effort 
to increase the energy independence impacts of the RFS program.

C. Consideration of Statutory Factors Set Forth in CAA Section 
211(o)(2)(B)(ii)(I)-(VI) for 2019

    As noted earlier in Section IV.B., 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.\124\ 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.
---------------------------------------------------------------------------

    \124\ 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.
---------------------------------------------------------------------------

    Consistent with our 2018 approach in setting the final BBD volume 
requirement, EPA's primary assessment of the statutory factors for the 
proposed 2019 BBD applicable volume is that because the BBD requirement 
is nested within the advanced biofuel volume requirement, we expect 
that the 2019 advanced volume requirement, when set next year, will 
determine the level of BBD production and imports that occur in 
2019.\125\ Therefore, EPA continues to believe that the same overall 
volume of BBD would likely be supplied in 2019 regardless of the BBD 
volume we mandate for 2019 in this proposed rule. This assessment is 
based, in part, on our review of the RFS program implementation to 
date, as discussed above in Section VI.B. and in the 2019 BBD docket 
memorandum. Thus, we do not expect our proposed 2019 BBD volume 
requirement to result in a difference in the factors we consider 
pursuant to CAA section 211(o)(2)(B)(ii)(I)-(VI).
---------------------------------------------------------------------------

    \125\ Even though we are not proposing to set the 2019 advanced 
biofuel volume requirement as part of this rulemaking, we expect 
that the 2019 advanced volume requirement will be considerably 
higher than the 2019 BBD requirement, consistent with past practice 
and, therefore, that the BBD volume requirement for 2019 would not 
be expected to impact the volume of BBD that is actually produced 
and imported during the 2019-time period.
---------------------------------------------------------------------------

    As an additional supplementary assessment, we have considered the 
potential impacts of selecting an applicable volume of BBD other than 
2.1 billion gallons in 2019 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 billion gallons in 2019 would only be expected to impact 
BBD volumes on the margin, protecting to a lesser or greater degree BBD 
from being outcompeted by

[[Page 34241]]

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 the 2019 BBD docket memorandum, 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.
    Overall and as described in the 2019 BBD docket memorandum, 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 2019 does not provide significant 
support for setting the BBD standard at a level higher or lower than 
2.1 billion gallons in 2019.

VII. Percentage Standards for 2018

    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, BBD, and 
advanced biofuel used will meet the applicable volume requirements on a 
nationwide basis.
    Sections III through V provide our rationale and basis for the 
proposed volume requirements for 2018.\126\ The volumes used to 
determine the proposed percentage standards are shown in Table VII-1.
---------------------------------------------------------------------------

    \126\ The 2018 volume requirement for BBD was established in the 
2017 final rule.

 Table VII-1--Volumes for Use in Setting the 2018 Applicable Percentage
                                Standards
                            [Billion gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel.............................................    0.238
Biomass-based diesel \a\.......................................     2.10
Advanced biofuel...............................................     4.24
Renewable fuel.................................................    19.24
------------------------------------------------------------------------
\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

    To calculate the proposed percentage standards, we are following 
the same methodology for 2018 as we have in all prior years. 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 
projections of 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,\127\ 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.\128\ 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. Our 
intent in setting the BBD applicable volume is to provide a level 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.
---------------------------------------------------------------------------

    \127\ 75 FR 14670, March 26, 2010.
    \128\ 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 \129\ 
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.
---------------------------------------------------------------------------

    \129\ A small refiner that meets the requirements of 40 CFR 
80.1442 may also be eligible for an exemption.
---------------------------------------------------------------------------

    EPA has granted exemptions pursuant to this process in the past. In 
the Consolidated Appropriations Act of

[[Page 34242]]

2017, an explanatory statement directed EPA ``to follow DOE's 
recommendations which are based on the original 2011 Small Refinery 
Exemption study prepared for Congress and the conference report to 
division D of the Consolidated Appropriations Act of 2016.'' \130\ This 
directive could impact how EPA evaluates small refinery hardship 
petitions and the number and magnitude of exemptions granted. As a 
result, EPA seeks comment on how we should account for exemptions in 
setting the annual percentage standards for 2018 under CAA section 
211(o)(3) and 40 CFR 80.1405.
---------------------------------------------------------------------------

    \130\ Consolidated Appropriations Act, 2017, Public Law 115-31. 
The Explanatory Statement is available at: https://rules.house.gov/sites/republicans.rules.house.gov/files/115/OMNI/DIVISION%20G%20-%20INT%20SOM%20FY17%20OCR.pdf, and reads ``The agreement includes 
the directive contained in Senate Report 114-281 related to small 
refinery relief.'' Senate Report 114-281 includes the quoted 
language above directing EPA to follow DOE's recommendation and is 
available at: https://www.congress.gov/114/crpt/srpt281/CRPT-114srpt281.pdf.
---------------------------------------------------------------------------

C. Proposed 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 proposed rule are shown in 
Table VII.C-1.\131\
---------------------------------------------------------------------------

    \131\ 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 because petroleum based fuels used in Alaska 
do not incur RFS obligations. The Alaska fractions are determined 
from the June 29, 2016 EIA State Energy Data System (SEDS), Energy 
Consumption Estimates.

  Table VII.C-1--Values for Terms in Calculation of the 2018 Standards
                                  \132\
                            [Billion gallons]
------------------------------------------------------------------------
              Term                     Description             Value
------------------------------------------------------------------------
RFVCB..........................  Required volume of                0.238
                                  cellulosic biofuel.
RFVBBD.........................  Required volume of                 2.10
                                  biomass-based diesel.
RFVAB..........................  Required volume of                 4.24
                                  advanced biofuel.
RFVRF..........................  Required volume of                19.24
                                  renewable fuel.
G..............................  Projected volume of              142.90
                                  gasoline.
D..............................  Projected volume of               55.23
                                  diesel.
RG.............................  Projected volume of               14.38
                                  renewables in gasoline.
RD.............................  Projected volume of                2.58
                                  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                0.00
                                  diesel 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                0.00
                                  diesel for exempt
                                  small refineries.
------------------------------------------------------------------------

    Projected volumes of gasoline and diesel, and the renewable fuels 
contained within them, were taken from the April, 2017 version of EIA's 
STEO. For the final rule, we intend to use volume projections provided 
by EIA as required in the statute at CAA section 211(o)(3)(A), which 
are typically consistent with those available in the STEO.
---------------------------------------------------------------------------

    \132\ See ``Calculation of proposed % standards for 2018'' in 
docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    Using the volumes shown in Table VII.C-1, we have calculated the 
percentage standards for 2018 as shown in Table VII.C-2.

          Table VII.C-2--Proposed Percentage Standards for 2018
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel............................................     0.131
Biomass-based diesel..........................................      1.74
Advanced biofuel..............................................      2.34
Renewable fuel................................................     10.62
------------------------------------------------------------------------

VIII. Public Participation

    We request comment on all aspects of this proposal. This section 
describes how you can participate in this process.

A. How do I submit comments?

    We are opening a formal comment period by publishing this document. 
We will accept comments during the period indicated under the DATES 
section above. If you have an interest in the proposed standards, we 
encourage you to comment on any aspect of this rulemaking. We also 
request comment on specific topics identified throughout this proposal.
    Your comments will be most useful if you include appropriate and 
detailed supporting rationale, data, and analysis. Commenters are 
especially encouraged to provide specific suggestions for any changes 
that they believe need to be made. You should send all comments, except 
those containing proprietary information, to our Docket (see ADDRESSES 
section above) by the end of the comment period.
    You may submit comments electronically through the electronic 
public docket, www.regulations.gov, by mail to the address shown in 
ADDRESSES, or through hand delivery/courier. To ensure proper receipt 
by EPA, identify the appropriate docket identification number in the 
subject line on the first page of your comment. Please ensure that your 
comments are submitted within the specified comment period. Comments 
received after the close of the comment period will be marked ``late.'' 
EPA is not required to consider these late comments. If you wish to 
submit Confidential Business Information (CBI) or information that is 
otherwise protected by statute, please follow the instructions in 
Section VIII.B below.
    EPA will also hold a public hearing on this proposed rule. We will 
announce the public hearing date and location for this proposal in a 
supplemental Federal Register document.

B. How should I submit CBI to the agency?

    Do not submit information that you consider to be CBI 
electronically through the electronic public docket, 
www.regulations.gov, or by email. Send or deliver information 
identified as CBI only to the following address: U.S. Environmental 
Protection Agency,

[[Page 34243]]

Assessment and Standards Division, 2000 Traverwood Drive, Ann Arbor, MI 
48105, Attention Docket ID EPA-HQ-OAR-2017-0091. You may claim 
information that you submit to EPA as CBI by marking any part or all of 
that information as CBI (if you submit CBI on disk or CD ROM, mark the 
outside of the disk or CD ROM as CBI and then identify electronically 
within the disk or CD ROM the specific information that is CBI). 
Information so marked will not be disclosed except in accordance with 
procedures set forth in 40 CFR part 2.
    In addition to one complete version of the comments that include 
any information claimed as CBI, a copy of the comments that does not 
contain the information claimed as CBI must be submitted for inclusion 
in the public docket. This non-CBI version of your comments may be 
submitted electronically, by mail, or through hand delivery/courier. If 
you submit the copy that does not contain CBI on disk or CD ROM, mark 
the outside of the disk or CD ROM clearly that it does not contain CBI. 
Information not marked as CBI will be included in the public docket 
without prior notice. If you have any questions about CBI or the 
procedures for claiming CBI, please consult the person identified in 
the FOR FURTHER INFORMATION CONTACT section.

IX. 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 proposed standards would 
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 proposed rule on small entities from two perspectives: 
as if the 2018 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 decreasing the 
advanced and total renewable fuel volumes required of obligated parties 
by 40 million gallons between 2017 and 2018. To evaluate the impacts of 
the proposed volumes on small entities relative to 2017, EPA has 
conducted a screening analysis \133\ 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 shows 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.134 135 
This is true whether they acquire RINs by purchasing renewable fuels 
with attached RINs or purchase separated RINs. The costs of the RFS 
program are thus generally being passed on to consumers in the highly 
competitive marketplace. 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 of 
this preamble and the gasoline and diesel fuel volume projections and 
wholesale prices from the April 2017 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 percent of the value of their sales.
---------------------------------------------------------------------------

    \133\ ``Draft Screening Analysis for the Proposed Renewable Fuel 
Standard Program Renewable Volume Obligations for 2018'', memorandum 
from Dallas Burkholder, Nick Parsons, and Tia Sutton to EPA Air 
Docket EPA-HQ-OAR-2017-0091.
    \134\ 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.
    \135\ 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.
---------------------------------------------------------------------------

    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

[[Page 34244]]

of the program (75 FR 14862, March 26, 2010).
    We have determined that this proposed rule would not impose any 
additional requirements on small entities beyond those already 
analyzed, since the impacts of this proposed 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. This rule proposes the 2018 advanced and total renewable fuel 
volume requirements at levels 40 million gallons lower than the 2017 
volume requirements, and 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 BBD 
standard, we are proposing to maintain the volume requirement for 2019 
at the same level as 2018. While this volume is an increase over the 
statutory minimum value of 1 billion gallons, the BBD standard 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 proposing to set the 2019 BBD 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 proposed 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 percent RIN rollover 
allowance (up to 20 percent 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 may be in a difficult financial situation and the level of 
assistance afforded by the program flexibilities is insufficient. For 
such circumstances, the program provides hardship relief provisions for 
small entities (small refiners), as well as for small refineries.\136\ 
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 (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 12 small 
refineries for the 2016 RFS standards.
---------------------------------------------------------------------------

    \136\ See CAA section 211(o)(9)(B).
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    Given that this proposed rule would not impose additional 
requirements on small entities, would decrease burden via a reduction 
in required volumes as compared to statutory volume targets and as 
compared to the 2017 volume requirements, 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 action does not contain an unfunded mandate of $100 million or 
more as described in UMRA, 2 U.S.C. 1531-1538, and does not 
significantly or uniquely affect small governments. 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.

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 proposed rule would 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 proposes to establish the 
required renewable fuel content of the transportation fuel supply for 
2018, 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 GHG emissions of transportation 
fuel.

[[Page 34245]]

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 proposed 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.

X. 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 proposed 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: July 5, 2017.
E. Scott Pruitt,
Administrator.

    For the reasons set forth in the preamble, EPA proposes to amend 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--Renewable Fuel Standard

0
2. Section 80.1405 is amended by adding new paragraph (a)(9) to read as 
follows:


Sec.  80.1405   What are the Renewable Fuel Standards?

    (a) * * *
    (9) Renewable Fuel Standards for 2018.
    (i) The value of the cellulosic biofuel standard for 2018 shall be 
0.131 percent.
    (ii) The value of the biomass-based diesel standard for 2018 shall 
be 1.74 percent.
    (iii) The value of the advanced biofuel standard for 2018 shall be 
2.34 percent.
    (iv) The value of the renewable fuel standard for 2018 shall be 
10.62 percent.
* * * * *
[FR Doc. 2017-14632 Filed 7-20-17; 8:45 am]
 BILLING CODE 6560-50-P