[Federal Register Volume 84, Number 145 (Monday, July 29, 2019)]
[Proposed Rules]
[Pages 36762-36812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15423]
[[Page 36761]]
Vol. 84
Monday,
No. 145
July 29, 2019
Part IV
Environmental Protection Agency
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40 CFR Part 80
Renewable Fuel Standard Program: Standards for 2020 and Biomass-Based
Diesel Volume for 2021, Response to the Remand of the 2016 Standards,
and Other Changes; Proposed Rule
Federal Register / Vol. 84 , No. 145 / Monday, July 29, 2019 /
Proposed Rules
[[Page 36762]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-HQ-OAR-2019-0136; FRL-9996-53-OAR]
RIN 2060-AU42
Renewable Fuel Standard Program: Standards for 2020 and Biomass-
Based Diesel Volume for 2021, Response to the Remand of the 2016
Standards, and Other Changes
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 2020. Relying on
statutory waiver authority that is available when the projected
cellulosic biofuel production volume is less than the applicable volume
specified in the statute, EPA is proposing volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel that are
below the statutory volume targets. We are also proposing the
applicable volume of biomass-based diesel for 2021. This action also
proposes to address the remand of the 2016 standard-setting rulemaking,
as well as several regulatory changes to the Renewable Fuel Standard
(RFS) program including new pathways, flexibilities for regulated
parties, and clarifications of existing regulations.
DATES:
Comments. Comments must be received on or before August 30, 2019.
Public hearing. EPA will announce the public hearing date and
location for this proposal in a supplemental Federal Register document.
ADDRESSES: You may send your comments, identified by Docket ID No. EPA-
HQ-OAR-2019-0136, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov
(our preferred method) Follow the online instructions for submitting
comments.
Mail: U.S. Environmental Protection Agency, EPA Docket
Center, Office of Air and Radiation Docket, Mail Code 28221T, 1200
Pennsylvania Avenue NW, Washington, DC 20460.
Hand Delivery/Courier: EPA Docket Center, WJC West
Building, Room 3334, 1301 Constitution Avenue NW, Washington, DC 20004.
The Docket Center's hours of operations are 8:30 a.m.-4:30 p.m.,
Monday-Friday (except Federal Holidays).
Instructions: All submissions received must include the Docket ID
No. for this rulemaking. Comments received may be posted without change
to https://www.regulations.gov, including any personal information
provided. For detailed instructions on sending comments and additional
information on the rulemaking process, see the ``Public Participation''
information in Section X.
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 affected categories include:
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NAICS \1\ Examples of potentially affected
Category codes SIC \2\ codes entities
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Industry...................................... 324110 2911 Petroleum refineries.
Industry...................................... 325193 2869 Ethyl alcohol manufacturing.
Industry...................................... 325199 2869 Other basic organic chemical
manufacturing.
Industry...................................... 424690 5169 Chemical and allied products
merchant wholesalers.
Industry...................................... 424710 5171 Petroleum bulk stations and
terminals.
Industry...................................... 424720 5172 Petroleum and petroleum products
merchant wholesalers.
Industry...................................... 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).
This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be affected by this
proposed action. This table lists the types of entities that EPA is now
aware could potentially be affected by this proposed action. Other
types of entities not listed in the table could also be affected. To
determine whether your entity would be affected 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. Summary of Major Provisions in This Action
1. Approach To Setting Volume Requirements
2. Cellulosic Biofuel
3. Advanced Biofuel
4. Total Renewable Fuel
5. 2021 Biomass-Based Diesel
6. Annual Percentage Standards
7. Response to Remand of 2016 Standards Rulemaking
8. Amendments to the RFS Program Regulations
B. Obligation To Reset Statutory Volumes
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. Severability
C. Treatment of Carryover RINs
1. Carryover RIN Bank Size
2. EPA's Proposed Decision Regarding the Treatment of Carryover
RINs
III. Cellulosic Biofuel Volume for 2020
A. Statutory Requirements
B. Cellulosic Biofuel Industry Assessment
1. Review of EPA's Projection of Cellulosic Biofuel in Previous
Years
2. Potential Domestic Producers
3. Potential Foreign Sources of Cellulosic Biofuel
4. Summary of Volume Projections for Individual Companies
C. Cellulosic Biofuel Volume for 2020
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1. Liquid Cellulosic Biofuel
2. CNG/LNG Derived From Biogas
3. Total Cellulosic Biofuel in 2020
IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2020
A. Volumetric Limitation on Use of the Cellulosic Waiver
Authority
B. Attainable Volumes of Advanced Biofuel
1. Imported Sugarcane Ethanol
2. Other Advanced Biofuel
3. Biodiesel and Renewable Diesel
a. Historical Supply of Biodiesel and Renewable Diesel
b. Assessment of Qualifying Feedstocks for Biodiesel and
Renewable Diesel
c. Biodiesel and Renewable Diesel Imports and Exports
d. Attainable Volume of Advanced Biodiesel and Renewable Diesel
C. Volume Requirement for Advanced Biofuel
D. Volume Requirement for Total Renewable Fuel
V. Response to Remand of 2016 Rulemaking
A. Reevaluating the 2016 Annual Rule
1. The 2016 Renewable Fuel Standard
2. Agency Responsibility
B. Consideration of the Burdens of a Retroactive Standard
VI. Impacts of 2020 Volumes on Costs
A. Illustrative Costs Analysis of 2020 Proposed Volumes Compared
to the 2020 Statutory Volumes Baseline
B. Illustrative Costs Analysis of the 2020 Proposed Volumes
Compared to the 2019 Volumes Baseline Cellulosic Biofuel
VII. Biomass-Based Diesel Volume for 2021
A. Statutory Requirements
B. Review of Implementation of the Program and the 2021
Applicable Volume of Biomass-Based Diesel
C. Consideration of Statutory Factors Set Forth in CAA Section
211(o)(2)(B)(ii)(I)-(VI) for 2021 and Determination of the 2021
Biomass-Based Diesel Volume
VIII. Percentage Standards for 2020
A. Calculation of Percentage Standards
B. Small Refineries and Small Refiners
C. Proposed Standards
IX. Amendments to the RFS Program Regulations
A. Clarification of Diesel RVO Calculations
1. Downstream Re-Designation of Certified Non-Transportation 15
ppm Distillate Fuel to MVNRLM Diesel Fuel
2. Presumptive Inclusion of 15 ppm Sulfur Diesel Fuel
3. Presumptive Exclusion of 15 ppm Sulfur Diesel Fuel
4. Potential Expansion of Scope of Proposed Clarification to
Gasoline
B. Pathway Petition Conditions
C. Esterification Pathway
D. Distillers Corn Oil and Distillers Sorghum Oil Pathways
E. Clarification of the Definition of Renewable Fuel Exporter
and Associated Provisions
X. Public Participation
XI. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Executive Order 13771: Reducing Regulations and Controlling
Regulatory Costs
C. Paperwork Reduction Act (PRA)
D. Regulatory Flexibility Act (RFA)
E. Unfunded Mandates Reform Act (UMRA)
F. Executive Order 13132: Federalism
G. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
H. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
I. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
J. National Technology Transfer and Advancement Act (NTTAA)
K. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
XII. 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. 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
(U.S.) toward ``greater energy independence and security [and]
increas[ing] the production of clean renewable fuels.'' \2\
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\1\ 75 FR 14670, March 26, 2010.
\2\ Public Law 110-140, 121 Stat. 1492 (2007) (``EISA'').
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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 applicable volumes for
cellulosic biofuel, advanced biofuel, and total renewable fuel for
2020, and biomass-based diesel (BBD) for 2021.\3\ We are also proposing
the annual percentage standards (also known as ``percent standards'')
for cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel
that would apply to all gasoline and diesel produced or imported in
2020.\4\
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\3\ The 2020 BBD volume requirement was established in the 2019
final rule. 83 FR 63704 (December 11, 2018).
\4\ For a list of the statutory provisions related to the
determination of applicable volumes, see the 2018 final rule (82 FR
58486, December 12, 2017; Table I.A-2).
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In addition, we are also proposing to address the remand of the
2016 annual rule by the D.C. Circuit Court of Appeals, in Americans for
Clean Energy v. EPA, 864 F.3d 691 (2017) (hereafter ``ACE''). After
considering relevant factors, including the inability of the market to
produce appreciably higher volumes of renewable fuel in 2020 than we
are proposing and our obligation to consider the burdens placed on
obligated parties when setting retroactive standards, we are proposing
to retain the original 2016 required volumes. Finally, we are proposing
several regulatory changes to the RFS program to facilitate the
implementation of this program in going forward including new pathways,
flexibilities for regulated parties, and clarifications of existing
regulations.
Today, nearly all gasoline used for transportation purposes
contains 10 percent ethanol (E10), and on average diesel fuel contains
nearly 5 percent biodiesel and/or renewable diesel.\5\ However, the
market has fallen well short of the statutory volumes for cellulosic
biofuel, resulting in shortfalls in the advanced biofuel and total
renewable fuel volumes. In this action, we are proposing a volume
requirement for cellulosic biofuel at the level we project to be
available for 2020, along with an associated applicable percentage
standard. For advanced biofuel and total renewable fuel, we are
proposing reductions under the ``cellulosic waiver authority'' that
would result in advanced biofuel and total renewable fuel volume
requirements that are lower than the statutory targets by the same
magnitude as the reduction in the cellulosic biofuel reduction. This
would effectively maintain the implied statutory volumes for non-
cellulosic advanced biofuel and conventional biofuel.\6\
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\5\ Average biodiesel and/or renewable diesel blend percentages
based on EIA's April 2019 Short Term Energy Outlook (STEO) and EPA's
Moderated Transaction System (EMTS).
\6\ The statutory total renewable fuel, advanced biofuel and
cellulosic biofuel requirements for 2020 are 30.0, 15.0 and 10.5
billion gallons respectively. This implies a conventional renewable
fuel applicable volume (the difference between the total renewable
fuel and advanced biofuel volumes, which can be satisfied by with
conventional (D6) RINs) of 15.0 billion gallons, and a non-
cellulosic advanced biofuel applicable volume (the difference
between the advanced biofuel and cellulosic biofuel volumes, which
can be satisfied with advanced (D5) RINs) of 4.5 billion gallons.
Qualifying cellulosic biofuel can generate D3 RINs, biomass-based
diesel can generate D4 RINs, advanced biofuel can generate D5 RINs,
conventional renewable fuel can generate D6 RINs, and cellulosic
diesel can generate D7 RINs.
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The resulting proposed volume requirements for 2020 are shown in
Table I-1. Relative to the levels
[[Page 36764]]
finalized for 2019, the proposed 2020 volume requirements for
cellulosic biofuel, advanced biofuel and total renewable fuel would be
higher by approximately 120 million gallons. This entire increase for
each category is attributable to increased projection of cellulosic
biofuel production in 2020 (see Section III for a further discussion of
our cellulosic biofuel projection). We are also establishing the volume
requirement for BBD for 2021 at 2.43 billion gallons. This volume is
equal to the BBD volume finalized for 2020.
Table I-1--Proposed Volume Requirements a
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2020
2019 \b\ statutory 2020 proposed 2021 proposed
volumes volumes volumes
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Cellulosic biofuel (billion gallons)............ 0.42 10.50 0.54 n/a
Biomass-based diesel (billion gallons).......... 2.1 >=1.0 \c\ N/A 2.43
Advanced biofuel (billion gallons).............. 4.92 15.00 5.04 n/a
Renewable fuel (billion gallons)................ 19.92 30.00 20.04 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 2019 volume requirements for cellulosic biofuel, advanced biofuel, and renewable fuel were established
in the 2019 final rule (83 FR 63704, December 11, 2018). The 2019 BBD volume requirement was established in
the 2018 final rule (82 FR 58486, December 12, 2017).
\c\ The 2020 BBD volume requirement of 2.43 billion gallons was established in the 2019 final rule (83 FR 63704,
December 11, 2018).
A. Summary of Major Provisions in This Action
1. Approach To Setting Volume Requirements
For advanced biofuel and total renewable fuel, we are proposing
reductions based on the ``cellulosic waiver authority'' that would
result in advanced biofuel and total renewable fuel volume requirements
that are lower than the statutory targets by the same magnitude as the
reduction in the cellulosic biofuel applicable volume. Further
discussion of our cellulosic waiver authority is found in Section II.
This follows the same general approach as in the 2018 and 2019 final
rules. The proposed volumes for cellulosic biofuel, advanced biofuel,
and total renewable fuel exceed the required volumes for these fuel
types in 2019.
2. Cellulosic Biofuel
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 this rule we
are proposing a cellulosic biofuel volume requirement of 0.54 billion
ethanol-equivalent gallons for 2020 based on our production projection.
This volume is 0.12 billion ethanol-equivalent gallons higher than the
cellulosic biofuel volume finalized for 2019. Our projection in Section
III considers many factors, including RIN generation data for past
years and 2019 to date that is available to EPA through the EPA
Moderated Transaction System (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; and EPA's own
engineering judgment. To project cellulosic biofuel production for 2020
we used the same general methodology as in the 2019 final rule.
However, we have used updated data to derive percentile values used in
our production projection for liquid cellulosic biofuels and to derive
the year-over-year change in the rate of production of compressed
natural gas and liquified natural gas (CNG/LNG) derived from biogas
that is used in the projection for CNG/LNG.
3. Advanced Biofuel
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.'' The conditions that caused us
to reduce the 2019 volume requirement for advanced biofuel below the
statutory target remain relevant in 2020. As in the 2019 final rule, we
investigated the projected availability of non-cellulosic advanced
biofuels in 2020. In Section IV, we considered many factors, including
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 uses to the
production of advanced biofuel used in the U.S., the fact that the
biodiesel tax credit is currently not available for 2020, the tariffs
on imports of biodiesel from Argentina and Indonesia, as well as the
cost of advanced biofuels. Based on these considerations we are
proposing to reduce the statutory volume target for advanced biofuel by
the same amount as the reduction in the statutory volume target for
cellulosic biofuel. This results in a proposed advanced biofuel volume
requirement for 2020 of 5.04 billion gallons, which is 0.12 billion
gallons higher than the advanced biofuel volume requirement for 2019
and is entirely the result of the increase in projected cellulosic
biofuel.
4. Total Renewable Fuel
As we have articulated in previous annual standard-setting
rulemakings, we believe that the cellulosic waiver authority is best
interpreted to require equal reductions in advanced biofuel and total
renewable fuel. Consistent with previous years, we are proposing in
Section IV to reduce total renewable fuel by the same amount as the
reduction in advanced biofuel, such that the resulting implied volume
requirement for conventional renewable fuel would be 15 billion
gallons, the same as the implied volume requirement in the statute. The
result is that the proposed 2020 volume requirement is 20.04 billion
gallons.
5. 2021 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 based on a review of
the implementation of the program during calendar years specified in
the tables in CAA 211(o)(B)(i) and other statutory factors, provided
that the required volume for BBD could not be less than 1.0 billion
gallons. Starting in 2013,
[[Page 36765]]
EPA has set the BBD volume requirement above the statutory minimum,
most recently resulting in 2.43 billion gallons for 2020. In this rule
we are proposing to maintain the BBD volume for 2021 at 2.43 billion
gallons.
We believe that this volume appropriately balances the factors set
forth in the statute, which we detail in Section VII. Most notably, in
recent years, the advanced biofuel volume requirement has driven 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. EPA also continues to believe it is appropriate to
maintain the opportunity for other advanced biofuels to compete for
market share, potentially reducing the costs associated with the
advanced biofuel volume in future years by maintaining this
flexibility, and thus to establish the BBD volume at a level lower than
the advanced biofuel volume. For these reasons, we are proposing an
applicable volume of BBD for 2021 of 2.43 billion gallons.\7\
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\7\ The 330 million gallon increase for BBD from 2019 (2.1
billion gallons) to 2020 (2.43 billion gallons) would generate
approximately 500 million RINs, due to the higher equivalence value
of biodiesel (1.5 RINs/gallon) and renewable diesel (generally 1.7
RINs/gallon).
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6. Annual Percentage Standards
The renewable fuel standards are expressed as a volume percentage
and are used by each refiner and importer of fossil-based gasoline or
diesel to determine their renewable fuel volume obligations.
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 the
national applicable renewable fuel volume to the national projected
non-renewable gasoline and diesel volume less any gasoline and diesel
production attributable to small refineries granted an exemption prior
to the date that the standards are set. The volume of transportation
gasoline and diesel used to calculate the proposed percentage standards
was based on Energy Information Administration's (EIA) April 2019 Short
Term Energy Outlook (STEO), minus an estimate of fuel consumption in
Alaska. The proposed applicable percentage standards for 2020 are shown
in Table I.B.6-1. Details, including the projected gasoline and diesel
volumes used, can be found in Section VIII.
Table I.B.6-1--Proposed 2020 Percentage Standards
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Proposed
percentage
standards
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Cellulosic biofuel......................................... 0.29
Biomass-based diesel....................................... 1.99
Advanced biofuel........................................... 2.75
Renewable fuel............................................. 10.92
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7. Response to Remand of 2016 Standards Rulemaking
In 2015, EPA finalized the total renewable fuel standard for 2016,
relying in part on the general waiver authority under a finding of
inadequate domestic supply.\8\ Several parties challenged that action,
and the D.C. Circuit, in ACE, vacated EPA's use of the general waiver
authority under a finding of inadequate domestic supply, finding that
such use exceeded EPA's authority under the Clean Air Act.
Specifically, EPA had impermissibly considered demand-side factors in
its assessment of inadequate domestic supply, rather than limiting that
assessment to supply-side factors. The court remanded the rule back to
EPA for further consideration in light of the court's ruling.
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\8\ See 80 FR 77420 (December 14, 2015); CAA section
211(o)(7)(A)(ii).
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We have reconsidered the 2016 rulemaking as required by the court.
The use of the general waiver authority reduced the 2016 volume
requirement for total renewable fuel by 500 million gallons. In light
of the retroactive nature of an increase in the volume requirement for
total renewable fuel of 500 million gallons and the additional burden
that such an increase would place on obligated parties, we are
proposing to find that the applicable 2016 volume requirement for total
renewable fuel and the associated percentage standard should not be
changed. See Section V for further discussion.
8. Amendments to the RFS Program Regulations
In implementing the RFS program EPA has identified several areas
where regulatory changes would assist EPA in implementing the RFS
program in future years. These proposed regulatory changes comprise
clarification of diesel RVO calculations, pathway petition conditions,
a biodiesel esterification pathway, distillers corn oil and distillers
sorghum oil pathways, and renewable fuel exporter provisions. Each of
these proposed regulatory changes is discussed in greater detail in
Section IX.
Additionally, we proposed a number of changes to the RFS
regulations as part of the Renewables Enhancement and Growth Support
(REGS) Rule.\9\ EPA is considering whether several of those proposed
changes, which we believe to be relatively straightforward and would
reduce the burden of RFS program implementation, could be finalized
along with the regulatory changes proposed in this action as part of
the 2020 RVO final rule. In doing so we would address any previous
comments received in response to the 2016 REGS proposal on the
provisions. Specifically, we are considering finalizing with the 2020
RVO Rule the proposed REGS Rule provisions listed below. The other
provisions proposed in the REGS Rule remain under consideration, but we
do not intend to finalize them along with the 2020 RVO Rule.\10\ Any
comments received on REGS provisions other than those listed below will
be deemed beyond the scope of this rulemaking.
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\9\ See 81 FR 80828 (November 16, 2016). While the REGS Rule
proposal itself provided sufficient notice and opportunity for
comment, this action gives additional notice regarding these
provisions to provide greater transparency to stakeholders. EPA's
decision to provide this additional notice is not required by law
and does not require that we provide additional notice in similar
circumstances going forward.
\10\ The provisions related to ``RVO Reporting'' (REGS Section
VIII.A) have been subsumed by the ``Clarification of Diesel RVO
Calculations'' provisions in Section IX.A of this action. The
provisions related to ``Oil from Corn Oil Extraction'' (REGS Section
VIII.B) were already finalized in a separate action (see 83 FR
37735, August 2, 2018).
Allowing Production of Biomass-Based Diesel From Separated
Food Waste (REGS Section VIII.C)
Flexibilities for Renewable Fuel Blending for Military Use
(REGS Section VIII.E)
Heating Oil Used for Cooling (REGS Section VIII.F)
Separated Food Waste Plans (REGS Section VIII.G)
RFS Facility Ownership Changes (REGS Section VIII.H)
Additional Registration Deactivation Justifications (REGS
Section VIII.J)
New RIN Retirement Section (REGS Section VIII.L)
New Pathway for Co-Processing Biomass With Petroleum To
Produce Cellulosic Diesel, Jet Fuel, and Heating Oil (REGS Section
VIII.M)
Public Access to Information (REGS Section VIII.O)
Redesignation of Renewable Fuel on a PTD for Non-Qualifying
Uses (REGS Section VIII.R)
Other Revisions to the Fuels Program (REGS Section IX)
[[Page 36766]]
B. Obligation To Reset Statutory Volumes
EISA also contained a requirement in CAA section 211(o)(7)(F) for a
``Modification of Applicable Volumes'' if certain conditions are met.
This provision states that if EPA waives statutory volume targets
beyond specified thresholds, the EPA shall modify or ``reset'' the
statutory volume targets for all years following the year that the
threshold was exceeded. With the finalization of the 2019 applicable
volumes, we have triggered the requirements to reset the volume of
total renewable fuel for 2020-2022.\11\ EPA intends to fulfill these
requirements in a separate rulemaking.
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\11\ The requirements to reset the volume of cellulosic biofuel
and advanced biofuel were triggered in previous years. We intend to
reset the cellulosic biofuel, advanced biofuel, and total renewable
fuel volumes in the reset rule.
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II. Authority and Need for Waiver of Statutory Applicable Volumes
The CAA provides EPA with the authority to promulgate volume
requirements below the applicable volume targets specified in the
statute under specific circumstances. This section discusses those
authorities. As described in the executive summary, we are proposing
the volume requirement for cellulosic biofuel at the level we project
to be available for 2020, and an associated applicable percentage
standard. For advanced biofuel and total renewable fuel, we are
proposing volume requirements and associated applicable percentage
standards, based on use of the ``cellulosic waiver authority'' that
would result in advanced biofuel and total renewable fuel volume
requirements that are lower than the statutory targets by the same
magnitude as the reduction in the cellulosic biofuel reduction. This
would effectively maintain the implied statutory volumes for non-
cellulosic advanced biofuel and conventional renewable fuel.\12\
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\12\ See supra n.6.
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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. Congress also authorized EPA to set volume requirements for
subsequent years in coordination with USDA and DOE, and based upon
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, then
EPA must reduce the applicable volume of cellulosic biofuel required to
the projected production volume for that calendar year. In making this
projection, EPA may not ``adopt a methodology in which the risk of
overestimation is set deliberately to outweigh the risk of
underestimation'' but must make a projection that ``takes neutral aim
at accuracy.'' API v. EPA, 706 F.3d 474, 479, 476 (D.C. Cir. 2013).
Pursuant to this provision, EPA has set the cellulosic biofuel
requirement lower than the statutory volume for each year since 2010.
As described in Section III.D, the projected volume of cellulosic
biofuel production for 2020 is less than the 10.5 billion gallon volume
target in the statute. Therefore, for 2020, we are proposing a
cellulosic biofuel volume 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 when it reduces the applicable volume of cellulosic
biofuel under that provision. The reduction must be less than or equal
to the reduction in cellulosic biofuel. For 2020, we are reducing the
applicable volumes of advanced biofuel and total renewable fuel under
this authority.
EPA has used the cellulosic waiver authority to lower the
cellulosic biofuel, advanced biofuel and total renewable fuel volumes
every year since 2014. Further discussion of the cellulosic waiver
authority, and EPA's interpretation of it, can be found in the preamble
to the 2017 final rule.\13\ 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); 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); Americans for Clean Energy v. EPA (``ACE''), 864 F.3d
691 (D.C. Cir. 2017) (same).
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\13\ See 81 FR 89752-89753 (December 12, 2016).
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In this action we are proposing to use the cellulosic waiver
authority to reduce the statutory volume targets for advanced biofuel
and total renewable fuel by equal amounts, consistent with our long-
held interpretation of this provision and our approach in setting the
2014-2019 standards. This approach considers the Congressional
objectives reflected in the volume tables in the statute, and the
environmental objectives that generally favor the use of advanced
biofuels over non-advanced biofuels.\14\ See 81 FR 89752-89753
(December 12, 2016). See also 78 FR 49809-49810 (August 15, 2013); 80
FR 77434 (December 14, 2015). We are proposing, as described in Section
IV, to reduce the advanced biofuel volume under the cellulosic waiver
authority by the same quantity as the reduction in cellulosic biofuel,
and to provide an equal reduction under the cellulosic waiver authority
in the applicable volume of total renewable fuel. We are taking this
action both because we do not believe that the statutory volumes can be
achieved, and because we do not believe that backfilling of the
shortfall in cellulosic with advanced biofuel would be appropriate due
to high costs, as well as other factors such as feedstock switching
and/or diversion of foreign advanced biofuels. The volumes of advanced
biofuel and total renewable fuel resulting from this exercise of the
cellulosic waiver authority provide for an implied volume allowance for
conventional renewable fuel of 15 billion gallons, and an implied
volume allowance for non-cellulosic advanced biofuel of 4.5 billion
gallons, equal to the implied statutory volumes for 2020. As discussed
in Section IV, we also believe that the resulting volume of advanced
biofuel is attainable, and that the resulting volume of total renewable
fuel can be made available by the market.
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\14\ Advanced biofuels are required to have lifecycle GHG
emissions that are at least 50% less than the baseline defined in
EISA. Non-advanced biofuels are required to have lifecycle GHG
emissions that are at least 20% less than the baseline defined in
EISA unless the fuel producer meets the grandfathering provisions in
40 CFR 80.1403. Beginning in 2015, all growth in the volumes
established by Congress come from advanced biofuels.
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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
[[Page 36767]]
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.
At this time, we do not believe that the circumstances exist that
would justify further reductions in the volumes using the general
waiver authority.
B. Severability
The various portions of this rule are severable. Specifically, the
following portions are severable from each other: the percentage
standards for 2020 (described in Section VIII); the 2021 BBD volume
requirement (Section VII); the supplemental total renewable fuel
standard in response to the 2016 remand (Section V); and the regulatory
amendments (Section IX). In addition, each of the regulatory amendments
is severable from the other regulatory amendments. If any of the above
portions is set aside by a reviewing court, we intend the remainder of
this action to remain effective. For instance, if a reviewing court
sets aside the supplemental total renewable fuel standard, we intend
for the 2020 percentage standards, including the 2020 total renewable
fuel standard, to go into effect.
C. Treatment of Carryover RINs
Consistent with our approach in the rules establishing the RFS
standards for 2013 through 2019, we have also considered the
availability and role of carryover RINs in setting the cellulosic
biofuel, advanced biofuel, and total renewable fuel volume requirements
for 2020. Neither the statute nor EPA regulations specify how or
whether EPA should consider the availability of carryover RINs in
exercising our statutory authorities.\15\ As noted in the context of
the rules establishing the RFS standards for 2014 through 2019, 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.\16\ Carryover RINs provide
flexibility in the face of a variety of unforeseeable circumstances
that could limit the availability of RINs and reduce spikes in
compliance costs, including weather-related damage to renewable fuel
feedstocks and other circumstances potentially affecting the production
and distribution of renewable fuel.\17\ 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.\18\ EPA's approach to the consideration of
carryover RINs in exercising our cellulosic waiver authority was
affirmed in Monroe Energy and ACE.\19\
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\15\ 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 percent of the obligated party's RVO. For the bank of carryover
RINs to be preserved from one year to the next, individual carryover
RINs are used for compliance before they expire and are essentially
replaced with 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 2018 to 2019, then all of the
vintage 2018 carryover RINs must be used for compliance in 2019, or
they will expire. However, the same volume of 2019 RINs can then be
``banked'' for use in 2020.
\16\ See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55
(December 12, 2016), 82 FR 58493-95 (December 12, 2017), and 83 FR
63708-10 (December 11, 2018).
\17\ See 72 FR 23900 (May 1, 2007), 80 FR 77482-87 (December 14,
2015), 81 FR 89754-55 (December 12, 2016), 82 FR 58493-95 (December
12, 2017) and 83 FR 63708-10 (December 11, 2018).
\18\ See 79 FR 49793-95 (August 15, 2013).
\19\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014); ACE,
864 F.3d at 713.
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An adequate carryover RIN bank serves to make the RIN market liquid
wherein RINs are freely traded in an open market making them readily
available and accessible to those who need them for compliance at
prices established by that open market. 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 too
few 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 and higher compliance costs,
undermining the market certainty so critical to the RFS program.
Moreover, a significant drawdown of the carryover RIN bank leading to a
scarcity of RINs may stop the market from functioning in an efficient
manner (i.e., one in which there are a sufficient number of reasonably
available RINs for obligated parties seeking to purchase them), even
where the market overall could satisfy the standards. For all of these
reasons, the collective carryover RIN bank provides a necessary
programmatic buffer that both facilitates individual compliance and
provides for smooth overall functioning of the program.\20\
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\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.
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1. Carryover RIN Bank Size
We estimate that there are currently approximately 2.19 billion
total carryover RINs available, a decrease of 400 million RINs from the
previous estimate of 2.59 billion total carryover RINs in the 2019
final rule.\21\ At the time of the 2019 final rule, we determined that
carryover RINs should not be counted on to avoid or minimize the need
to reduce the 2019 statutory volume targets under the cellulosic waiver
authority.\22\ 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 in future years.
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\21\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2020 NPRM,'' available in the
docket.
\22\ See ``Carryover RIN Bank Calculations for 2019 Final
Rule,'' available in docket EPA-HQ-OAR-2018-0167.
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The 400 million RIN decrease in the total carryover RIN bank
compared to that projected in the 2019 final rule results from various
factors, including market factors and regulatory and enforcement
actions. This estimate is also lower despite the fact that it includes
the millions of RINs that were not required to be retired by small
refineries that were granted hardship exemptions in recent years.\23\
This total
[[Page 36768]]
volume of carryover RINs is approximately 11 percent of the total
renewable fuel volume requirement that we are proposing for 2020, which
is less than the 20 percent maximum limit permitted by the RFS
regulations to be carried over for use in complying with the 2020
standards.\24\
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\23\ Information about the number of small refinery exemptions
granted and the volume of RINs not required to be retired as a
result of those exemptions can be found at https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rfs-small-refinery-exemptions.
\24\ See 40 CFR 80.1427(a)(5).
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The above discussion applies to total carryover RINs; we have also
considered the available volume of advanced biofuel carryover RINs,
which are a subset of the 2.19 billion total carryover RINs. At the
time of the 2019 final rule, we estimated that there were approximately
600 million advanced carryover RINs available. We now estimate that
there are currently approximately 390 million advanced carryover RINs
available, a decrease of 210 million RINs from the previous estimate in
the 2019 final rule. This volume of advanced carryover RINs is
approximately 8 percent of the advanced renewable fuel volume
requirement that we are proposing for 2020, which is less than the 20
percent maximum limit permitted by the regulations to be carried over
for use in complying with the 2020 standards.
However, there remains considerable uncertainty surrounding the
ultimate size of the carryover RIN bank for several reasons, including
the possibility of additional small refinery exemptions, and the impact
of both 2018 and 2019 RFS compliance on the bank of carryover RINs. In
addition, we note that there have been enforcement actions in past
years that have resulted in the retirement of carryover RINs to make up
for the generation and use of invalid RINs and/or 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 obligations in addition
to complying with the annual standards, thereby potentially creating
demand for RINs greater than can be accommodated through actual
renewable fuel blending in 2020. In light of these uncertainties, the
net result could be a bank of total carryover RINs larger or smaller
than 11 percent of the proposed 2020 total renewable fuel volume
requirement, and a bank of advanced carryover RINs larger or smaller
than 8 percent of the proposed 2020 advanced biofuel volume
requirement.
2. EPA's Proposed Decision Regarding the Treatment of Carryover RINs
We have evaluated the volume of carryover RINs currently available
and considered whether it would justify an intentional drawdown of the
carryover RIN bank in setting the 2020 volume requirements. For the
reasons described above, we do not believe this to be the case. The
current bank of carryover RINs provides an important and necessary
programmatic and cost spike buffer that will both facilitate individual
compliance and provide for smooth overall functioning of the program.
We believe that a balanced consideration of the possible role of
carryover RINs in achieving the statutory volume objectives for
cellulosic biofuel, advanced biofuel, and total renewable fuel, versus
maintaining an adequate bank of carryover RINs for important
programmatic functions, is appropriate when EPA exercises its
discretion under its statutory authorities, and that the statute does
not specify the extent to which EPA should require a drawdown in the
bank of carryover RINs when it exercises its authorities. Therefore,
for the reasons noted above and consistent with the approach we took in
the rules establishing the RFS standards for 2014 through 2019, we are
not proposing to set the 2020 volume requirements at levels that would
envision an intentional drawdown in the bank of carryover RINs.
III. Cellulosic Biofuel Volume for 2020
In the past several years, production of cellulosic biofuel has
continued to increase. Cellulosic biofuel production reached record
levels in 2018, driven largely by CNG and LNG derived from biogas.\25\
Production of liquid cellulosic biofuel has also increased in recent
years, even as the total production of liquid cellulosic biofuels
remains much smaller than the production volumes of CNG and LNG derived
from biogas (see Figure III-1). This section describes our assessment
of the volume of cellulosic biofuel that we project will be produced or
imported into the U.S. in 2020, and some of the uncertainties
associated with those volumes.
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\25\ 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 municipal
solid waste (MSW) digesters, and the cellulosic components of
biomass processed in other waste digesters.
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[[Page 36769]]
[GRAPHIC] [TIFF OMITTED] TP29JY19.007
In order to project the volume of cellulosic biofuel production in
2020, we considered the accuracy of the methodologies used to project
cellulosic biofuel production in previous years, data reported to EPA
through EMTS, and information we collected through meetings with
representatives of facilities that have produced or have the potential
to produce qualifying volumes of cellulosic biofuel in 2020. EIA's
projection of cellulosic biofuel production in 2020, which is not yet
available at the time of this proposed rule, will also inform our
projection of cellulosic biofuel production in the final rule.
There are two main elements to the cellulosic biofuel production
projection: liquid cellulosic biofuel and CNG/LNG derived from biogas.
To project the range of potential production volumes of liquid
cellulosic biofuel we used the same general methodology as the
methodology used in the 2018 and 2019 final rules. We have adjusted the
percentile values used to select a point estimate within a projected
production range for each group of companies based on updated
information (through the end of 2018) with the objective of improving
the accuracy of the projections. To project the production of
cellulosic biofuel RINs for CNG/LNG derived from biogas, we used the
same general year-over-year growth rate methodology as in the 2018 and
2019 final rules, with updated RIN generation data through March 2019.
This methodology reflects the mature status of this industry, the large
number of facilities registered to generate cellulosic biofuel RINs
from these fuels, and EPA's continued attempts to refine its
methodology to yield estimates that are as accurate as possible. This
methodology is an improvement on the methodology that EPA used to
project cellulosic biofuel production for CNG/LNG derived from biogas
in the 2017 and previous years (see Section III.B for a further
discussion of the accuracy of EPA's methodology in previous years). The
methodologies used to project the production of liquid cellulosic
biofuels and cellulosic CNG/LNG derived from biogas are described in
more detail in Sections III.C-1 and III.C-2.
The balance of this section is organized as follows. Section III.A
provides a brief description of the statutory requirements. Section
III.B reviews the accuracy of EPA's projections in prior years, and
also discusses the companies EPA assessed in the process of projecting
qualifying cellulosic biofuel production in the U.S. Section III.C
discusses the methodologies used by EPA to project cellulosic biofuel
production in 2020 and the resulting projection of 0.54 billion
ethanol-equivalent gallons.
A. Statutory Requirements
CAA section 211(o)(2)(B)(i)(III) states the statutory volume
targets for cellulosic biofuel. The volume of cellulosic biofuel
specified in the statute for 2020 is 10.5 billion gallons. The statute
provides that if EPA determines, based on a letter provided to the EPA
by EIA, 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.\26\
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\26\ CAA section 211(o)(7)(D)(i). The U.S. 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.'' Id. at 480,
479. The Court also determined that Congress did not require
``slavish adherence by EPA to the EIA estimate'' and that EPA could
``read the phrase `based on' as requiring great respect but allowing
deviation consistent with that respect.'' EPA has consistently
interpreted the term ``projected volume of cellulosic biofuel
production'' in CAA section 211(o)(7)(D)(i) to include volumes of
cellulosic biofuel likely to be made available in the U.S.,
including from both domestic production and imports (see, e.g., 80
FR 77420 (December 14, 2015) and 81 FR 89746 (December 12, 2016)).
We do not believe it would be reasonable to include in the
projection all cellulosic biofuel produced throughout the world,
regardless of likelihood of import to the U.S., since volumes that
are not imported would not be available to obligated parties for
compliance and including them in the projection would render the
resulting volume requirement and percentage standards unachievable
through the use of cellulosic biofuel RINs.
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In addition, if EPA reduces the required volume of cellulosic
biofuel below the level specified in the statute, we may reduce the
applicable volumes of advanced biofuels and total renewable fuel by the
same or a lesser volume,\27\ and we are also required to make
cellulosic waiver credits available.\28\ Our consideration of the 2020
volume requirements for advanced
[[Page 36770]]
biofuel and total renewable fuel is presented in Section IV.
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\27\ CAA section 211(o)(7)(D)(i).
\28\ See CAA section 211(o)(7)(D)(ii); 40 CFR 80.1456.
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B. Cellulosic Biofuel Industry Assessment
In this section, we first explain our general approach to assessing
facilities or groups of facilities (which we collectively refer to as
``facilities'') that have the potential to produce cellulosic biofuel
in 2020. We then review the accuracy of EPA's projections in prior
years. Next, we discuss the criteria used to determine whether to
include potential domestic and foreign sources of cellulosic biofuel in
our projection for 2020. Finally, we provide a summary table of all
facilities that we expect to produce cellulosic biofuel in 2020.
In order to project cellulosic biofuel production for 2020 we have
tracked the progress of a number of potential cellulosic biofuel
production facilities, located both in the U.S. and in foreign
countries. We considered a number of factors, including information
from EMTS, the registration status of potential biofuel production
facilities as cellulosic biofuel producers in the RFS program, publicly
available information (including press releases and news reports), and
information provided by representatives of potential cellulosic biofuel
producers. As discussed in greater detail in Section III.C.1, our
projection of liquid cellulosic biofuel is based on a facility-by-
facility assessment of each of the likely sources of cellulosic biofuel
in 2020, while our projection of CNG/LNG derived from biogas is based
on an industry-wide assessment. To make a determination of which
facilities are most likely to produce liquid cellulosic biofuel and
generate cellulosic biofuel RINs in 2019, each potential producer of
liquid cellulosic biofuel was investigated further to determine the
current status of its facilities and its likely cellulosic biofuel
production and RIN generation volumes for 2020. 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.
1. Review of EPA's Projection of Cellulosic Biofuel in Previous Years
As an initial matter, it is useful to review the accuracy of EPA's
past cellulosic biofuel projections. The record of actual cellulosic
biofuel production and EPA's projected production volumes from 2015-
2018 are shown in Table III.B-1. These data indicate that EPA's
projection was lower than the actual number of cellulosic RINs made
available in 2015,\29\ higher than the actual number of RINs made
available in 2016 and 2017, and lower than the actual number of RINs
made available in 2018. The fact that the projections made using this
methodology have been somewhat inaccurate, under-estimating the actual
number of RINs made available in 2015 and 2018, and over-estimating in
2016 and 2017, reflects the inherent difficulty with projecting
cellulosic biofuel production. It also emphasizes the importance of
continuing to make refinements to our projection methodology in order
to make our projections more accurate.
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\29\ 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.
Table III.B.1-1--Projected and Actual Cellulosic Biofuel Production (2015-2018); Million Gallons a
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected volume b Actual production volume c
------------------------------------------------------------------------------------------------
Liquid CNG/LNG Total Liquid CNG/LNG Total
cellulosic derived from cellulosic cellulosic derived from cellulosic
biofuel biogas biofuel d biofuel biogas biofuel d
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015 e................................................. 2 33 35 0.5 52.8 53.3
2016................................................... 23 207 230 4.1 186.2 190.3
2017................................................... 13 298 311 11.8 239.5 251.3
2018................................................... 14 274 288 10.6 303.9 314.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ As noted in Section III.A. above, EPA has consistently interpreted the term ``projected volume of cellulosic biofuel production'' to include volumes
of cellulosic biofuel likely to be made available in the U.S., including from both domestic production and imports. The volumes in this table
therefore include both domestic production of cellulosic biofuel and imported cellulosic biofuel.
\b\ Projected volumes for 2015 and 2016 can be found in the 2014-2016 Final Rule (80 FR 77506, 77508, December 14, 2015); projected volumes for 2017 can
be found in the 2017 Final Rule (81 FR 89760, December 12, 2016); projected volumes for 2018 can be found in the 2018 Final Rule (82 FR 58503,
December 12, 2017).
\c\ Actual production volumes are the total number of RINs generated minus the number of RINs retired for reasons other than compliance with the annual
standards, based on EMTS data.
\d\ Total cellulosic biofuel may not be precisely equal to the sum of liquid cellulosic biofuel and CNG/LNG derived from biogas due to rounding.
\e\ Projected and actual volumes for 2015 represent only the final 3 months of 2015 (October-December) as EPA used actual RIN generation data for the
first 9 months of the year.
EPA's projections of liquid cellulosic biofuel were higher than the
actual volume of liquid cellulosic biofuel produced each year from 2015
to 2018.\30\ As a result of the over-projections in 2015-2016 (and the
anticipated over-projection in 2017), and in an effort to take into
account the most recent data available and make the liquid cellulosic
biofuel projections more accurate, EPA adjusted our methodology in the
2018 final rule.\31\ The adjustments to our methodology adopted in the
2018 final rule appear to have resulted in a projection that is close
to the volume of liquid cellulosic biofuel produced in 2018. In this
proposed rule we are again applying the approach we first used in the
2018 final rule: Using percentile values based on actual production in
previous years, relative to the projected volume of liquid cellulosic
biofuel in these years. We have adjusted the percentile values to
project liquid cellulosic biofuel production based on actual liquid
cellulosic biofuel production in 2016 to
[[Page 36771]]
2018. We believe that the use of the methodology (described in more
detail in Section III.D.1), with the adjusted percentile values,
results in a projection that reflects a neutral aim at accuracy since
it accounts for expected growth in the near future by using historical
data that is free of any subjective bias.
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\30\ We note, however, that because the projected volume of
liquid cellulosic biofuel in each year was very small relative to
the total volume of cellulosic biofuel, these over-projections had a
minimal impact on the accuracy of our projections of cellulosic
biofuel for each of these years.
\31\ 82 FR 58486 (December 12, 2017).
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We next turn to the projection of CNG/LNG derived from biogas. For
2018 and 2019, EPA used 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. EPA used a
facility-by-facility approach to project the production of CNG/LNG
derived from biogas from 2015-2017. Notably the facility-by-facility
methodology resulted in significant over-estimates of CNG/LNG
production in 2016 and 2017, leading EPA to develop the alternative
industry wide projection methodology first used in 2018. This updated
approach reflects the fact that this industry is far more mature than
the liquid cellulosic biofuel industry, with a far greater number of
potential producers of CNG/LNG derived from biogas. In such cases,
industry-wide projection methods can be more accurate than a facility-
by-facility approach, especially as macro market and economic factors
become more influential on total production than the success or
challenges at any single facility. The industry-wide projection
methodology slightly under-projected the production of CNG/LNG derived
from biogas in 2018. However, the difference between the projected and
actual production volume of these fuels was smaller than in 2017.
As further described in Section III.C.2, EPA is again projecting
production of CNG/LNG derived from biogas using the industry-wide
approach. We calculate a year-over-year rate of growth in the renewable
CNG/LNG industry by comparing RIN generation for CNG/LNG derived from
biogas from April 2017-March 2018 to the RIN generation for these same
fuels from April 2018-March 2019 (the most recent month for which data
are available). We then apply this year-over-year growth rate to the
total number of cellulosic RINs generated and available to be used for
compliance with the annual standards in 2018 to estimate the production
of CNG/LNG derived from biogas in 2020.\32\ We have applied the growth
rate to the number of available 2018 RINs generated for CNG/LNG derived
from biogas as data from this year allows us to adequately account for
not only RIN generation, but also for RINs retired for reasons other
than compliance with the annual standards. While more recent RIN
generation data is available, the retirement of RINs for reasons other
than compliance with the annual standards generally lags RIN
generation, sometimes by up to a year or more.\33\ Should this
methodology continue to under predict in the future as it did in 2018,
then we may need to revisit the methodology, but with only 2018 data to
compare to it is premature to make any adjustments. We request comment
on potential adjustments to this methodology for the final rule,
especially if RIN generation data suggests that this methodology is
likely to significantly under or over project the production of CNG/LNG
derived from biogas in 2019.
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\32\ To project the volume of CNG/LNG derived from biogas in
2020, we multiply the number of 2018 RINs generated for these fuels
and available to be used for compliance with the annual standards by
the calculated growth rate to project production of these fuels in
2019 and then multiply the resulting number by the growth rate again
to project the production of these fuels in 2020.
\33\ Although we do not apply the calculated growth rate to the
most recent monthly data on the number of RINs generated for CNG/LNG
derived from biogas that are available for compliance, we do use it
to calculate the year-over-year growth rate used to project the
production of CNG/LNG derived from biogas in 2020.
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The production volumes of cellulosic biofuel in previous years also
highlight that the production of CNG/LNG derived from biogas has been
significantly higher than the production of liquid cellulosic biofuel
in previous years. This is likely the result of a combination of
several factors, including the mature state of the technology used to
produce CNG/LNG derived from biogas relative to the technologies used
to produce liquid cellulosic biofuel, the relatively low production
cost of CNG/LNG derived from biogas (discussed in further detail in
Section VI), and the high RIN value of cellulosic RINs relative to the
fuel value of CNG/LNG derived from biogas. Unlike liquid cellulosic
fuels which are generally dependent on a high RIN value to produce fuel
economically, in some cases CNG/LNG derived from biogas can be produced
at a cost that is competitive with fossil natural gas without account
for any RIN value. Further, while the cellulosic RIN value, which
averaged $2.25 per RIN in 2018, is high relative to the fuel value for
all types of cellulosic biofuels it is extremely high in the case of
CNG/LNG derived from biogas (approximately 9 times the value of the
fuel in 2018).\34\ These factors are unlikely to change in 2020. While
we project production volumes of liquid cellulosic biofuel and CNG/LNG
derived from biogas separately, the actual volume of each fuel type
produced may be higher or lower than projected.
---------------------------------------------------------------------------
\34\ Average D3 RIN price in 2018 using EMTS data. To calculate
the RIN value relative to the fuel value of CNG/LNG derived from
biogas we converted the price of fossil natural gas in 2018 ($3.15
per MMBTU) from EIA's April 2019 STEO to the price per ethanol-
equivalent gallon ($0.24 per 77,000 BTU) and compared this value to
the average D3 RIN value in 2018 ($2.25).
---------------------------------------------------------------------------
2. Potential Domestic Producers
There are several companies and facilities \35\ located in the U.S.
that have either already begun producing cellulosic biofuel for use as
transportation fuel, heating oil, or jet fuel at a commercial
scale,\36\ or are anticipated to be in a position to do so at some time
during 2020. The financial incentive provided by cellulosic biofuel
RINs,\37\ combined with the fact that to date nearly all cellulosic
biofuel produced in the U.S. has been used domestically \38\ and all
the domestic facilities we have contacted in deriving our projections
intend to produce fuel on a commercial scale for domestic consumption
and plan to use approved pathways, gives us a high degree of confidence
that cellulosic biofuel RINs will be generated for all cellulosic
biofuel produced by domestic commercial scale facilities. To generate
RINs, each of these facilities must be registered with EPA 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
domestic companies and facilities considered in our assessment of
potential cellulosic biofuel producers in 2019 have already
successfully completed facility registration, and have successfully
generated RINs.\39\ A brief
[[Page 36772]]
description of each of the domestic companies (or group of companies
for cellulosic CNG/LNG producers and the facilities using Edeniq's
technology) that EPA believes may produce commercial-scale volumes of
RIN generating cellulosic biofuel by the end of 2020 can be found in a
memorandum to the docket for this final rule.\40\ General information
on each of these companies or group of companies considered in our
projection of the potentially available volume of cellulosic biofuel in
2020 is summarized in Table III.B.4-1.
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\35\ The volume projection from CNG/LNG producers and facilities
using Edeniq's production technology do not represent production
from a single company or facility, but rather a group of facilities
utilizing the same production technology.
\36\ For a further discussion of EPA's decision to focus on
commercial scale facilities, rather than R&D and pilot scale
facilities, see the 2019 proposed rule (83 FR 32031, July 10, 2018).
\37\ According to data from EMTS, the average price for a 2018
cellulosic biofuel RINs sold in 2018 was $2.25. Alternatively,
obligated parties can satisfy their cellulosic biofuel obligations
by purchasing an advanced (or biomass-based diesel) RIN and a
cellulosic waiver credit. The average price for a 2018 advanced
biofuel RINs sold in 2018 was $0.48 while the price for a 2018
cellulosic waiver credit is $1.96 (EPA-420-B-17-036).
\38\ The only known exception was a small volume of fuel
produced at a demonstration scale facility exported to be used for
promotional purposes.
\39\ Most of the facilities listed in Table III.B.3-1 are
registered to produce cellulosic (D3 or D7) RINs with the exception
of several of the producers of CNG/LNG derived from biogas and Red
Rock Biofuels.
\40\ ``Cellulosic Biofuel Producer Company Descriptions (May
2019),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2019-0136.
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3. Potential Foreign Sources of Cellulosic Biofuel
In addition to the potential sources of cellulosic biofuel located
in the U.S., there are several foreign cellulosic biofuel companies
that may produce cellulosic biofuel in 2019. 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 their facilities under the RFS program and generate RINs
for any qualifying fuel imported into the U.S. While these facilities
may be able to generate RINs for any volumes of cellulosic biofuel they
import into the U.S., demand for the cellulosic biofuels they produce
is expected to be high in their own local markets.
EPA's projection of cellulosic biofuel production in 2020 includes
cellulosic biofuel that is projected to be imported into the U.S. in
2020, including potential imports from all the registered foreign
facilities under the RFS program. 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 U.S.,
cellulosic biofuel imports from foreign facilities not currently
registered to generate cellulosic biofuel RINs are generally highly
unlikely in 2020. For purposes of our 2020 cellulosic biofuel
projection we have excluded potential volumes from foreign cellulosic
biofuel production facilities that are not currently registered under
the RFS program.
Cellulosic biofuel produced at three foreign facilities (Ensyn's
Renfrew facility, GranBio's Brazilian facility, and Raizen's Brazilian
facility) generated cellulosic biofuel RINs for fuel exported to the
U.S. in 2017 and/or 2018; projected volumes from each of these
facilities are included in our projection of available volumes for
2020. EPA has also included projected volume from two additional
foreign facilities. These two facilities (Enerkem's Canadian facility
and Ensyn's Port-Cartier, Quebec facility) have both completed the
registration process as cellulosic biofuel producers. We believe that
it is appropriate to include volume from these facilities in light of
their proximity to the U.S., the proven technology used by these
facilities, the volumes of cellulosic biofuel exported to the U.S. by
the company in previous years (in the case of Ensyn), and the company's
stated intentions to market fuel produced at these facilities to
qualifying markets in the U.S. All of the facilities included in EPA's
cellulosic biofuel projection for 2020 are listed in Table III.B.4-1.
4. Summary of Volume Projections for Individual Companies
General information on each of the cellulosic biofuel producers (or
group of producers, for producers of CNG/LNG derived from biogas and
producers of liquid cellulosic biofuel using Edeniq's technology) that
factored into our projection of cellulosic biofuel production for 2020
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
2020. 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.\41\
---------------------------------------------------------------------------
\41\ ``Cellulosic Biofuel Producer Company Descriptions (May
2019),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2019-0136.
\42\ The Facility Capacity is generally equal to the nameplate
capacity provided to EPA by company representatives or found in
publicly available information. Capacities are listed in physical
gallons (rather than ethanol-equivalent gallons). 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).
\43\ 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.
\44\ For more information on these facilities see ``May 2019
Assessment of Cellulosic Biofuel Production from Biogas (2020),''
memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-
0136.
\45\ The nameplate capacity of Enerkem's facility is 10 million
gallons per year. However, we anticipate that a portion of their
feedstock will be non-biogenic municipal solid waste (MSW). RINs
cannot be generated for the portion of the fuel produced from non-
biogenic feedstocks. We have taken this into account in our
production projection for this facility (See ``May 2019 Liquid
Cellulosic Biofuel Projections for 2020 CBI'').
\46\ This date reflects the first production of ethanol from
this facility. The facility began production of methanol in 2015.
Table III.B.4-1--Projected Producers of Cellulosic Biofuel in 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility capacity
Company name Location Feedstock Fuel (million gallons Construction start First production \43\
per year) \42\ date
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \44\....... Various......... Biogas.......... CNG/LNG......... Various............ Various.............. August 2014.
Edeniq....................... Various......... Corn Kernel Ethanol......... Various............ Various.............. October 2016.
Fiber.
Enerkem...................... Edmonton, AL, Separated MSW... Ethanol......... 10 \45\............ 2012................. September 2017.\46\
Canada.
Ensyn........................ Renfrew, ON, Wood Waste...... Heating Oil..... 3.................. 2005................. 2014.
Canada.
Ensyn........................ Port-Cartier, Wood Waste...... Heating Oil..... 10.5............... June 2016............ January 2018.
QC, Canada.
GranBio...................... S[atilde]o Sugarcane Ethanol......... 21................. Mid 2012............. September 2014.
Miguel dos bagasse.
Campos, Brazil.
Poet-DSM..................... Emmetsburg, IA.. Corn Stover..... Ethanol......... 20................. March 2012........... 4Q 2015.
[[Page 36773]]
QCCP/Syngenta................ Galva, IA....... Corn Kernel Ethanol......... 4.................. Late 2013............ October 2014.
Fiber.
Red Rock Biofuels............ Lakeview, OR.... Wood Waste...... Diesel, Jet 15................. July 2018............ 2Q 2020.
Fuel, Naphtha.
Raizen....................... Piracicaba City, Sugarcane Ethanol......... 11................. January 2014......... July 2015.
Brazil. bagasse.
--------------------------------------------------------------------------------------------------------------------------------------------------------
C. Cellulosic Biofuel Volume for 2020
1. Liquid Cellulosic Biofuel
For our 2020 liquid cellulosic biofuel projection, we use the same
general approach as we have in projecting these volumes in previous
years. We begin by first categorizing potential liquid cellulosic
biofuel producers in 2020 according to whether or not they have
achieved consistent commercial scale production of cellulosic biofuel
to date. We refer to these facilities as consistent producers and new
producers, respectively. Next, we define a range of likely production
volumes for 2020 for each group of companies. Finally, we use a
percentile value to project from the established range a single
projected production volume for each group of companies in 2020. As in
the 2018 and 2019 final rules, we calculated percentile values for each
group of companies based on the past performance of each group relative
to our projected production ranges. This methodology is briefly
described here and is described in detail in memoranda to the
docket.\47\
---------------------------------------------------------------------------
\47\ ``May 2019 Liquid Cellulosic Biofuel Projections for 2020
CBI'' and ``Calculating the Percentile Values Used to Project Liquid
Cellulosic Biofuel Production for the 2020 NPRM,'' memorandums from
Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136.
---------------------------------------------------------------------------
We first separate the list of potential producers of cellulosic
biofuel (listed in Table III.B.3-1) into two groups according to
whether the facilities have achieved consistent commercial-scale
production and cellulosic biofuel RIN generation. 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 were available at the time our technical
assessment was completed (April 2018-March 2019).\48\ 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, we considered a
variety of factors, including the expected start-up date and ramp-up
period, facility capacity, and the number of RINs the producer expects
to generate in 2020.\49\ The projected range for each group of
companies is shown in Tables III.C.1-1 and III.C.1-2.\50\
---------------------------------------------------------------------------
\48\ Consistent with previous years, we have considered whether
there is reason to believe any of the facilities considered as
potential cellulosic biofuel producers for 2020 is likely to produce
a smaller volume of cellulosic biofuel in 2020 than in the previous
12 months for which data are available. At this time, EPA is not
aware of any information that would indicate lower production in
2020 from any facility considered than in the previous 12 months for
which data are available.
\49\ As in our 2015-2019 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 2020,
whichever is lower.
\50\ More information on the data and methods EPA used to
calculate each of the ranges in these tables in contained in ``May
2019 Liquid Cellulosic Biofuel Projections for 2020 CBI'' memorandum
from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136. We have
not shown the projected ranges for each individual company. This is
because the high end of the range for some of these companies are
based on the company's production projections, which they consider
confidential business information (CBI). Additionally, the low end
of the range for facilities that have achieved consistent commercial
scale production is based on actual RIN generation data in the most
recent 12 months, which is also claimed as CBI.
Table III.C.1-1--2020 Production Ranges for Liquid Cellulosic Biofuel Producers Without Consistent Commercial
Scale Production
[Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
Low end of the High end of the
Companies included range range \a\
----------------------------------------------------------------------------------------------------------------
Enerkem, Ensyn (Port Cartier facility), BioEnergy, Red Rock Biofuels.......... 0 24
----------------------------------------------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
Table III.C.1-2--2020 Production Ranges for Liquid Cellulosic Biofuel Producers With Consistent Commercial Scale
Production
[Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
Low end of the High end of the
Companies included range \a\ range \b\
----------------------------------------------------------------------------------------------------------------
Facilities using Edeniq's technology (registered facilities), Ensyn (Renfrew 13 50
facility), Poet-DSM, GranBio, QCCP/Syngenta, Raizen..........................
----------------------------------------------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
After defining likely production ranges for each group of
companies, we next determined the percentile values to use in
projecting a production volume for each group of companies. In this
proposed rule we have calculated the
[[Page 36774]]
percentile values using actual production data from 2016 through 2018.
The first full year in which EPA used the current methodology for
developing the range potential production volumes for each company was
2016, while 2018 is the most recent year for which we have complete
data.
For each group of companies and for each year from 2016-2018, Table
III.C.1-3 shows the projected ranges for liquid cellulosic biofuel
production (from the 2014-16, 2017, and 2018 final rules), actual
production, and the percentile values that would have resulted in a
projection equal to the actual production volume.
Table III.C.1-3--Projected and Actual Liquid Cellulosic Biofuel Production in 2016-2018
[Million gallons]
----------------------------------------------------------------------------------------------------------------
Actual
Low end of the High end of production Actual percentile
range the range \51\
----------------------------------------------------------------------------------------------------------------
New Producers \52\
----------------------------------------------------------------------------------------------------------------
2016................................ 0 76 1.06 1st.
2017................................ 0 33 8.79 27th.
2018................................ 0 47 2.87 6th.
Average \a\......................... N/A N/A N/A 11th.
----------------------------------------------------------------------------------------------------------------
Consistent Producers \53\
----------------------------------------------------------------------------------------------------------------
2016................................ 2 5 3.28 43rd.
2017................................ 3.5 7 3.02 -14th.
2018................................ 7 24 7.74 4th.
Average \a\......................... N/A N/A N/A 11th.
----------------------------------------------------------------------------------------------------------------
\a\ We have not averaged the low and high ends of the ranges, or actual production, as we believe it is more
appropriate to average the actual percentiles from 2016-2018 rather than calculating a percentile value for
2016-2018 in aggregate. This approach gives equal weight to the accuracy of our projections from 2016-2018,
rather than allowing the average percentiles calculated to be dominated by years with greater projected
volumes.
Based upon this analysis, EPA has projected cellulosic biofuel
production from new producers at the 11th percentile of the calculated
range and from consistent producers at the 11th percentile.\54\ These
percentiles are calculated by averaging the percentiles that would have
produced cellulosic biofuel projections equal to the volumes produced
by each group of companies in 2016-2018. Prior to 2016, EPA used
different methodologies to project available volumes of cellulosic
biofuel and thus believes it inappropriate to calculate percentile
values based on projections from those years.\55\
---------------------------------------------------------------------------
\51\ 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.
\52\ Companies characterized as new producers in the 2014-2016,
2017, and 2018 final rules were as follows: Abengoa (2016),
CoolPlanet (2016), DuPont (2016, 2017), Edeniq (2016, 2017), Enerkem
(2018), Ensyn Port Cartier (2018), GranBio (2016, 2017), IneosBio
(2016), and Poet (2016, 2017).
\53\ Companies characterized as consistent producers in the
2014-2016, 2017, and 2018 final rules were as follows: Edeniq Active
Facilities (2018), Ensyn Renfrew (2016-2018), GranBio (2018), Poet
(2018), and Quad County Corn Processors/Syngenta (2016-2018).
\54\ For more detail on the calculation of the percentile values
used in this final rule see ``Calculating the Percentile Values Used
to Project Liquid Cellulosic Biofuel Production for 2020,''
available in EPA docket EPA-HQ-OAR-2019-0136.
\55\ EPA used a similar projection methodology for 2015 as in
2016-2018, however we only projected cellulosic biofuel production
volume for the final 3 months of the year, as actual production data
were available for the first 9 months. We do not believe it is
appropriate to consider data from a year for which 9 months of the
data were known at the time the projection was made in determining
the percentile values used to project volume over a full year.
---------------------------------------------------------------------------
We then used these percentile values, together with the ranges
determined for each group of companies discussed above, to project a
volume for each group of companies in 2020. These calculations are
summarized in Table III.C.1-4.
Table III.C.1-4--Projected Volume of Liquid Cellulosic Biofuel in 2020
[Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
Low end of the High end of Projected
range \a\ the range \a\ Percentile volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; 0 24 11th...................... 3
Producers without Consistent
Commercial Scale Production.
Liquid Cellulosic Biofuel Producers; 13 50 11th...................... 17
Producers with Consistent
Commercial Scale Production.
---------------------------------------------------------------------------
Total........................... N/A N/A N/A....................... 20
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.
2. CNG/LNG Derived From Biogas
For 2020, EPA is proposing to use the same industry wide projection
approach as used for 2018 and 2019 based on a year-over-year growth
rate to project production of CNG/LNG derived from biogas used as
transportation fuel.\56\ For this proposed rule, EPA calculated the
year-over-year growth rate in CNG/LNG
[[Page 36775]]
derived from biogas by comparing RIN generation from April 2018 to
March 2019 (the most recent 12 months for which data are available) to
RIN generation in the 12 months that immediately precede this time
period (April 2017 to March 2018). The growth rate calculated using
this data is 31.4 percent.\57\ These RIN generation volumes are shown
in Table III.C.2-1.
---------------------------------------------------------------------------
\56\ Historically RIN generation for CNG/LNG derived from biogas
has increased each year. It is possible, however, that RIN
generation for these fuels in the most recent 12 months for which
data are available could be lower than the preceding 12 months. We
believe our methodology accounts for this possibility. In such a
case, the calculated rate of growth would be negative.
\57\ This growth rate is higher than the growth rates used to
project CNG/LNG volumes in the 2019 final rule (29.0%, see 83 FR
63717, December 11, 2018) and the 2018 final rule (21.6%, see 82 FR
58502, December 12, 2017).
Table III.C.2-1--Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas
[Million gallons] \58\
----------------------------------------------------------------------------------------------------------------
RIN generation (April 2017-March 2018) RIN generation (April 2018-March 2019) Year-over-year increase (%)
----------------------------------------------------------------------------------------------------------------
247 325 31.4
----------------------------------------------------------------------------------------------------------------
EPA then applied this 31.4 percent year-over-year growth rate to
the total number of 2018 cellulosic RINs generated and available for
compliance for CNG/LNG. This methodology results in a projection of 525
million gallons of CNG/LNG derived from biogas in 2020. In previous
proposed rules (2017 through 2019) we applied this rate of growth to
the volume of CNG/LNG derived from biogas projected to be produced in
the preceding annual rule (e.g., in the 2019 proposed rule we applied
the calculated year-over-year rate of growth to the volume of CNG/LNG
derived from biogas projected to be produced in the 2018 final rule).
In this proposed rule we are instead applying the calculated year-over-
year rate of growth to the volume of CNG/LNG actually supplied in 2018
(taking into account actual RIN generation as well as RINs retired for
reasons other than compliance with the annual volume obligations) to
provide an updated projection of the production of these fuels in 2019,
and then applying the rate of growth to this updated 2019 projection to
project the production of these fuels in 2020.\59\ We note that this
methodology (applying the calculated rate of growth to the last full
year for which we have complete data) was also used in the 2018 and
2019 final rules. We are proposing to use this approach, with an
updated rate of growth based on the most recent data available, in the
2020 final rule. By applying the rate of growth to the same baseline
(use of qualifying CNG/LNG derived from biogas as transportation fuel)
for the proposed and final rules we hope to avoid the potential for
confusion that changing the baseline between the proposed rule and
final rule may cause and to better enable stakeholders to comment on
our proposed rule.
---------------------------------------------------------------------------
\58\ Further detail on the data used to calculate each of these
numbers in this table, as well as the projected volume of CNG/LNG
derived from biogas used as transportation fuel in 2020 can be found
in ``May 2019 Assessment of Cellulosic Biofuel Production from
Biogas (2020)'' memorandum from Dallas Burkholder to EPA Docket EPA-
HQ-OAR-2019-0136.
\59\ To calculate this value, EPA multiplied the number of 2018
RINs generated and available for compliance for CNG/LNG derived from
biogas (303.9 million), by 1.314 (representing a 31.4 percent year-
over-year increase) to project production of CNG/LNG in 2019, and
multiplied this number (399.3 million RINs) by 1.314 again to
project production of CNG/LNG in 2020.
---------------------------------------------------------------------------
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. This methodology may not be appropriate to use as the projected
volume of CNG/LNG derived from biogas approaches the total volume of
CNG/LNG that is used as transportation fuel, as RINs can be generated
only for CNG/LNG used as transportation fuel. We do not believe that
this is yet a constraint as our projection for 2020 is below the total
volume of CNG/LNG that is currently used as transportation fuel.\60\
---------------------------------------------------------------------------
\60\ EPA is aware of several estimates for the quantity of CNG/
LNG that will be used as transportation fuel in 2020. As discussed
in a paper prepared by Bates White for the Coalition for Renewable
Gas (``Renewable Natural Gas Supply and Demand for Transportation.''
Bates White Economic Consulting, April 5, 2019) these estimates
range from nearly 600 million ethanol-equivalent gallons in 2020
(February 2019 STEO) to over 1.5 billion gallons (Fuels Institute--
US Share). While there is considerable uncertainty about the
quantity of CNG/LNG that will be used in transportation fuel in
2020, all of these projections are greater than the volume of
qualifying CNG/LNG derived from biogas projected to be used in 2020.
Thus, the volume of CNG/LNG used as transportation fuel would not
appear to constrain the number of RINs generated for this fuel in
2020.
---------------------------------------------------------------------------
3. Total Cellulosic Biofuel in 2020
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 2020. These projections are shown in
Table III.C.3-1. Using the methodologies described in this section, we
project that 0.54 billion ethanol-equivalent gallons of cellulosic
biofuel will be produced in 2020. We believe that projecting overall
production in 2020 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 2019.
Table III.C.3-1--Projected Volume of Cellulosic Biofuel in 2020
------------------------------------------------------------------------
Projected
volume a
------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers without 3
Consistent Commercial Scale Production (million
gallons)...............................................
Liquid Cellulosic Biofuel Producers; Producers with 17
Consistent Commercial Scale Production (million
gallons)...............................................
CNG/LNG Derived from Biogas (million gallons)........... 525
---------------
Total (billion gallons)............................. 0.54
------------------------------------------------------------------------
[[Page 36776]]
Unlike in previous years, we have rounded the projected volume of
cellulosic biofuel to the nearest 10 million gallons. This is
consistent with the volumes in the tables containing the statutory
volume targets for cellulosic biofuel through 2022. While in previous
years we have rounded the required cellulosic biofuel volume to the
nearest million gallons, the projected volume of cellulosic biofuel has
grown such that this level of precision is unnecessary, and likely
unfounded. By rounding to the nearest 10 million gallons the total
projected volume of cellulosic biofuel is affected in the most extreme
case by only 5 million gallons, or approximately 1% of the total
projected volume. The uncertainty in the projected volume of cellulosic
biofuel is significantly higher than any error introduced by rounding
the projected volume to the nearest 10 million gallons.
For the final rule we intend to update our projections with the
most recent data available. We intend to use this additional
information to update various elements of our projections including:
Which potential liquid cellulosic biofuel producers are included in our
projections, how to categorize each potential producer (whether they
have achieved consistent commercial scale production), the aggregate
projected production range for each group of facilities, the percentile
values used to project a production volume within the range, and the
year-over-year growth rate used to project production of CNG/LNG
derived from biogas. We request comment on our projected volume of
cellulosic biofuel production for 2020 (0.54 billion gallons), as well
as the various aspects of the methodology used to project production of
both liquid cellulosic biofuels and CNG/LNG derived from biogas.
IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2020
The national volume targets for advanced biofuel and 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) and (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). Congressional intent is evident in the
fact that the implied statutory volume requirement for conventional
renewable fuel is 15 billion gallons for all years after 2014, while
the advanced biofuel volume requirements, driven largely by growth in
cellulosic biofuel, continue to grow each year through 2022 to a total
of 21 billion gallons.
Due to a projected shortfall in the availability of cellulosic
biofuel, and consistent with our long-held interpretation of the
cellulosic waiver authority as best interpreted to provide equal
reductions to advanced biofuel and total renewable fuel volumes, we are
proposing to reduce the statutory volume targets for both advanced
biofuel and total renewable fuel for 2020 using the full extent of the
cellulosic waiver authority. The remainder of this introduction
summarizes our rationale for reducing advanced biofuel using the full
extent of the cellulosic waiver authority, including the shortfall in
reasonably attainable volumes of advanced biofuels and the high costs
of advanced biofuel.\61\ Section IV.A explains the volumetric
limitation on our use of the cellulosic waiver authority to reduce
advanced biofuel and total renewable fuel volumes. Section IV.B
presents our technical analysis of the reasonably attainable and
attainable volumes of advanced biofuel. Sections IV.C and IV.D further
explain our decision to exercise the maximum discretion available under
the cellulosic waiver authority to reduce advanced biofuel and total
renewable fuel, respectively.
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\61\ In the 2019 Final Rule we projected that additional volumes
of soybean biodiesel would increase costs by $0.74-$1.23 per ethanol
equivalent gallon and additional volumes of and sugarcane ethanol
would increase costs by $0.39-$1.04 per ethanol equivalent gallon
(83 FR 63734 December 11, 2018).
---------------------------------------------------------------------------
To begin, we have evaluated the capabilities of the market and are
making a proposed finding that the 15.0 billion gallons specified in
the statute for advanced biofuel cannot be reached in 2020. 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, we project that it will fall far short of the statutory
target of 10.5 billion gallons in 2020. For this and other reasons
described in this section we are proposing to reduce the advanced
biofuel statutory target by the full amount of the shortfall in
cellulosic biofuel for 2020.
In previous years when we have used the cellulosic waiver
authority, we have determined the extent to which we should reduce
advanced biofuel volumes by considering a number of different factors
under the broad discretion which that authority provides, including:
The availability of advanced biofuels (e.g., historic data
on domestic supply, expiration of the biodiesel blenders' tax credit,
potential imports of biodiesel in light of the Commerce Department's
determination on tariffs on biodiesel imports from Argentina and
Indonesia, potential imports of sugarcane ethanol, and anticipated
decreasing growth in production of feedstocks for advanced biodiesel
and renewable diesel).
The energy security and greenhouse gas (GHG) impacts of
advanced biofuels.
The availability of carryover RINs.
The apparent intent of Congress as reflected in the
statutory volumes tables to substantially increase the use of advanced
biofuels over time.
Increased costs associated with the use of advanced
biofuels, and
The increasing likelihood of adverse unintended impacts
associated with use of advanced biofuel volumes achieved through
diversion of foreign fuels or substitution of advanced feedstocks from
other uses to biofuel production.
Before the 2018 standards were set, the consideration of these
factors led us to conclude 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.\62\ For the 2018 standards, we placed a greater emphasis on
cost considerations in the context of balancing the various
considerations, ultimately concluding that partial backfilling with
non-cellulosic advanced biofuels was not warranted and the applicable
volume requirement for advanced biofuel should be based on the maximum
reduction permitted under the cellulosic waiver authority.\63\ In the
2019 standards final rule, we again concluded that partial backfilling
was not warranted, primarily due to a shortfall in reasonably
attainable volumes of advanced biofuels, high costs, and an interest in
preserving the existing carryover RIN bank.\64\
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\62\ For instance, see 81 FR 89750 (December 12, 2016).
\63\ See 82 FR 58504 (December 12, 2017).
\64\ See 83 FR 63719 (December 11, 2018).
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These considerations in the 2019 standards final rule continue to
apply to 2020. Again, we project that there will be insufficient
reasonably attainable volumes of non-cellulosic advanced biofuels in
2020 to allow any backfilling for missing volumes of cellulosic
biofuel.\65\ As a result of this projection,
[[Page 36777]]
the high cost of advanced biofuels, and our consideration of carryover
RINs, we are proposing to reduce the statutory volume target for
advanced biofuel by the same amount as the reduction in cellulosic
biofuel. This would result in the non-cellulosic component of the
advanced biofuel volume requirement being equal to the implied
statutory volume target of 4.5 billion gallons in 2020. This also
equals the 2019 implied statutory volume target and final implied
volume requirement for non-cellulosic advanced biofuel.
---------------------------------------------------------------------------
\65\ As described further below, ``reasonably attainable''
volumes are not merely those that can be attained given available
biofuel production capacity and feedstocks, but also take into
consideration factors such as costs and feedstock and/or fuel
diversions that could create disruptions in other markets.
---------------------------------------------------------------------------
The predominant non-cellulosic advanced biofuels available in the
near term are advanced biodiesel and renewable diesel.\66\ We expect
limited growth in the availability of feedstocks used to produce these
fuel types, absent the diversion of these feedstocks from other uses.
In addition, we expect diminishing incremental GHG benefits and higher
per gallon costs as the required volumes of advanced biodiesel and
renewable diesel increase. These outcomes are a result of the fact that
the lowest cost and most easily available feedstocks are typically used
first, and each additional increment of advanced biodiesel and
renewable diesel requires the use of feedstocks that are generally
incrementally more costly and/or more difficult to obtain. Moreover, 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
such feedstocks from competing uses. Products that were formerly
produced using these feedstocks are likely to be replaced by products
produced using the lowest cost alternatives, likely derived from palm
oil (for food and animal feed) or petroleum sources (for non-edible
consumer products). This in turn could increase the lifecycle GHG
emissions associated with these incremental volumes of non-cellulosic
advanced biofuel, since fuels produced from both palm oil and petroleum
have higher estimated lifecycle GHG emissions than qualifying advanced
biodiesel and renewable diesel.\67\ 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 use them. Higher advanced
biofuel standards could also be satisfied by diversion of foreign
advanced biofuel from foreign markets, and there would also be an
increased likelihood of adverse unintended impacts associated with such
diversions. Taking these and other considerations into account, we
believe that it would be appropriate to exercise our discretion under
the cellulosic waiver authority to set the advanced biofuel volume
requirement at a level that would minimize such diversions.
---------------------------------------------------------------------------
\66\ While sugarcane ethanol, as well as a number of other fuel
types, can also contribute to the supply of advanced biofuel, in
recent years use of these other advanced biofuels has been
considerably lower than use of advanced biodiesel or renewable
diesel. See Table IV.B.3-1.
\67\ For instance, see the draft GHG assessment of palm oil
biodiesel and renewable diesel at 77 FR 4300 (January 27, 2012). Our
consideration of lifecycle GHG emissions in today's action is
limited to the discretionary exercise of our cellulosic waiver
authority. We are not reopening or soliciting comment on the draft
GHG assessment of palm oil biodiesel and renewable diesel, and any
comments on that assessment will be deemed beyond the scope.
---------------------------------------------------------------------------
We also considered whether this resulting volume of advanced
biofuel is attainable, notwithstanding the likelihood of fuel and
feedstock diversions and higher costs. Our assessment of advanced
biofuel suggests that achieving the implied statutory volume target for
non-cellulosic advanced biofuel in 2020 (4.5 billion gallons) is
attainable. While it may also be possible that a volume of non-
cellulosic advanced biofuel greater than 4.5 billion gallons may be
attainable, a volume equal to or higher than 4.5 billion gallons would
likely result in the diversion of advanced feedstocks from other uses
or diversion of advanced biofuels from foreign sources, and thus is not
reasonably attainable. In that case, our assessment of other factors,
such as cost and GHG emissions, indicate that while such higher volumes
may be attainable, it would not be appropriate to set the advanced
biofuel volume requirement so as to require use of such volumes to
partially backfill for missing cellulosic volumes.
Furthermore, several other factors have added uncertainty regarding
the volume of advanced biofuels that we project are attainable in 2020,
including tax credits and tariffs in both the U.S. and abroad which
change unpredictably. As several of these factors primarily affect
imports and exports of advanced biofuels they primarily impact the
attainable volume of advanced biofuels rather than the reasonably
attainable volume, which does not include increased volumes of imported
biofuels relative to previous years. Each of these factors is discussed
in more detail in Section IV.B.3.
The impact of our exercise of the cellulosic waiver authority is
that after waiving the cellulosic biofuel volume down to the projected
available level, and applying the same volume reduction to the
statutory volume target for advanced biofuel, the resulting volume
requirement for advanced biofuel for 2020 would be 120 million gallons
more than the applicable volume used to derive the 2019 percentage
standard. Furthermore, after applying the same reduction to the
statutory volume target for total renewable fuel, the volume
requirement for total renewable fuel would also be 120 million gallons
more than the applicable volume used to derive the 2019 percentage
standard. These increases are entirely attributable to a 120 million
gallon increase in the cellulosic biofuel volume; the implied non-
cellulosic advanced biofuel and conventional renewable fuel volumes
would remain the same as in 2019 (4.5 and 15 billion gallons,
respectively).
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.C, we are proposing to
establish a 2020 applicable volume for cellulosic biofuel of 540
million gallons, representing a reduction of 9,960 million gallons from
the statutory target of 10,500 million gallons. As a result, 9,960
million gallons is the maximum volume reduction for advanced biofuel
and total renewable fuel that is permissible using the cellulosic
waiver authority. Use of the cellulosic waiver authority to this
maximum extent would result in volumes of 5.04 and 20.04 billion
gallons for advanced biofuel and total renewable fuel, respectively.
[[Page 36778]]
Table IV.A-1--Lowest Permissible Volumes Using Only the Cellulosic
Waiver Authority
[Million gallons]
------------------------------------------------------------------------
Total
Advanced renewable
biofuel fuel
------------------------------------------------------------------------
Statutory target........................ 15,000 30,000
Maximum reduction permitted under the 9,960 9,960
cellulosic waiver authority............
Lowest 2020 volume requirement permitted 5,040 20,040
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.\68\ 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 to
reduce advanced biofuel or total renewable fuel, nor what the
appropriate volume reductions (within the range permitted by statute)
should be. This broad discretion was affirmed in both Monroe and
ACE.\69\ Thus, we have the authority set the 2020 advanced biofuel
volume requirement at a level that is designed to partially backfill
for the shortfall in cellulosic biofuel. However, based on our
consideration of a number of relevant factors, we are proposing to use
the full extent of the cellulosic waiver authority in deriving volume
requirements for 2020.
---------------------------------------------------------------------------
\68\ CAA section 211(o)(7)(D)(i).
\69\ See ACE, 864 F.3d at 730-35 (citing Monroe, 750 F.3d 909,
915-16).
---------------------------------------------------------------------------
B. Attainable Volumes of Advanced Biofuel
We have considered both attainable and reasonably attainable
volumes of advanced biofuel to inform our exercise of the cellulosic
waiver authority. As used in this rulemaking, both ``reasonably
attainable'' and ``attainable'' are terms of art defined by EPA.\70\
Volumes described as ``reasonably attainable'' are those that can be
reached with minimal market disruptions, increased costs, reduced GHG
benefits, and diversion of advanced biofuels or advanced biofuel
feedstocks from existing uses. Volumes described as ``attainable,'' in
contrast, are those we believe can be reached but would likely result
in market disruption, higher costs, and/or reduced GHG benefits.
Neither ``reasonably attainable'' nor ``attainable'' are meant to
convey the ``maximum achievable'' level, which, as we explained in the
2017 final rule, we do not consider to be an appropriate target under
the cellulosic waiver authority.\71\ Finally, we note that our
assessments of the ``reasonably attainable'' and ``attainable'' volumes
of non-cellulosic advanced biofuels are not intended to be as exacting
as our projection of cellulosic biofuel production, described in
Section III of this rule.\72\
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\70\ Our consideration of ``reasonably attainable'' volumes is
not intended to imply that ``attainable'' volumes are unreasonable
or otherwise inappropriate. As we explain in this section, we
believe that an advanced biofuel volume of 5.04 billion gallons,
although not reasonably attainable, is attainable, and that
establishing such volume would be an appropriate exercise of our
cellulosic waiver authority.
\71\ 81 FR 89762 (December 12, 2016). The maximum achievable
volume may be relevant to our consideration of whether to exercise
the general waiver authority on the basis of inadequate domestic
supply. However, for 2020, we have determined that after exercising
our cellulosic waiver authority to the full extent permitted, the
resulting advanced biofuel volume is attainable. Therefore, further
reductions using the general waiver authority on the basis of
inadequate domestic supply would not be necessary.
\72\ The statute directs EPA to lower the cellulosic biofuel
volume to the projected production level where that level falls
short of the statutory volume. Under API v. EPA, 706 F.3d 474, 479-
80 (D.C. Cir. 2013), we must project this production level with
neutral aim at accuracy, that is, make a technical determination
about the market's ability to produce cellulosic biofuels. By
contrast, the discretionary portion of the cellulosic waiver
authority does not explicitly require EPA to project the
availability of advanced biofuels, but instead confers broad
discretion on EPA. Moreover, while we have chosen to estimate
reasonably attainable and attainable volumes of advanced biofuel,
these volumes do not equate to projected production alone. Rather,
in exercising the discretionary portion of the cellulosic waiver
authority, we also consider a range of policy factors--such as
costs, greenhouse gas emissions, energy security, market
disruptions, etc., as described throughout this section.
---------------------------------------------------------------------------
As in prior rulemakings, we begin by considering what volumes of
advanced biofuels are reasonably attainable. In ACE, the Court noted
that in assessing what volumes are ``reasonably attainable,'' EPA had
considered the availability of feedstocks, domestic production
capacity, imports, and market capacity to produce, distribute, and
consume renewable fuel.\73\ These considerations include both demand-
side and supply-side factors.\74\ We are proposing to take a similar
approach for 2020, with the added consideration of the possibility that
higher volume requirements would lead to ``feedstock switching'' or
diversion of advanced biofuels from use in other countries. We also
took these factors into account in setting the 2017, 2018, and 2019
volume requirements, and we continue to believe that they are
appropriate considerations under the broad discretion provided by the
cellulosic waiver authority. We are proposing to establish the advanced
biofuel volume requirement at a level that would seek to minimize such
feedstock/fuel diversions within the discretion available under the
cellulosic waiver authority.
---------------------------------------------------------------------------
\73\ See ACE, 864 F.3d at 735-36.
\74\ See id. at 730-35.
---------------------------------------------------------------------------
Our individual assessments of reasonably attainable volumes of each
type of advanced biofuel reflect this approach. As discussed in further
detail in this section, we find that 60 million gallons of imported
advanced ethanol, 60 million gallons of other advanced biofuels, and
2.78 billion gallons of advanced biodiesel and renewable diesel are
reasonably attainable. Together with our projected volume of 540
million gallons of cellulosic biofuel, the sum of these volumes is 4.94
billion gallons, slightly less than the 5.04 billion gallons which is
the lowest advanced biofuel requirement that EPA can require under the
cellulosic waiver authority.
Therefore, we also have considered whether the market can
nonetheless make available 5.04 billion gallons of advanced biofuel,
notwithstanding likely feedstock/fuel diversions. That is, we assess
whether 5.04 billion gallons is merely ``attainable,'' as opposed to
``reasonably attainable.'' In particular, we assess whether additional
volumes of advanced biodiesel and renewable diesel are attainable. We
conclude that 2.83 billion gallons of advanced biodiesel and renewable
diesel are attainable, notwithstanding potential feedstock/fuel
diversions. This quantity of advanced biodiesel and renewable diesel,
together with the cellulosic biofuel, sugarcane ethanol, and other
advanced biofuels described above, would enable the market to make
[[Page 36779]]
available 5.04 billion gallons of advanced biofuels.
1. Imported Sugarcane Ethanol
The predominant available source of advanced biofuel other than
cellulosic biofuel and BBD has historically been imported sugarcane
ethanol. Imported sugarcane ethanol from Brazil is the predominant form
of imported ethanol and the only significant source of imported
advanced ethanol. In setting the 2019 standards, we estimated that 100
million gallons of imported sugarcane ethanol would be reasonably
attainable.\75\ This was based on a combination of data from recent
years demonstrating relatively low import volumes and older data
indicating that higher volumes were possible. We also noted the high
variability in ethanol import volumes in the past (including of
Brazilian sugarcane 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.
---------------------------------------------------------------------------
\75\ 83 FR 63704 (December 11, 2018).
---------------------------------------------------------------------------
At the time of the 2019 standards final rule, we used available
data from a portion of 2018 to estimate that import volumes of
sugarcane ethanol were likely to fall significantly below the 200
million gallons we had assumed when we set the 2018 standards. Since
the 2019 final rule, new data reveals a continued trend of low imports.
Specifically, import data for all of 2018 is now available and
indicates that imports of sugarcane ethanol reached just 44 million
gallons.
[GRAPHIC] [TIFF OMITTED] TP29JY19.008
While it is difficult to predict imports for 2020, we believe that
the most recent data suggests that it would be unreasonable to expect
more than 100 million gallons of sugarcane ethanol imports in 2020.
Moreover, the E10 blendwall, the existence of a recurring tax credit
for biodiesel with which it competes within the advanced biofuel
category, and the fact that imported sugarcane ethanol typically costs
more than corn ethanol create disincentives for increasing imports
above the levels in recent years.\76\ As a result of these factors and
the lower levels that have occurred in recent years, we believe it
would be appropriate to reduce the expected volume of imported
sugarcane ethanol below 100 million gallons. Imports of sugarcane
ethanol appear to have stabilized in the 2014-2018 timeframe in
comparison to previous years. The average for these years was 62
million gallons. Due to the difficulty in precisely projecting future
import volumes as described further below, we believe that a rounded
value of 60 million gallons would be more appropriate and thus we use
60 million gallons of imported sugarcane ethanol for the purposes of
projecting reasonably attainable volumes of advanced biofuel for 2020.
While we have not conducted an in-depth assessment of the volume of
sugarcane ethanol that could be imported into the U.S. without
diverting this fuel from other markets, we believe the volume of fuel
imported in previous years is a reasonable way to project the
reasonably attainable volume of sugarcane ethanol in 2020.
---------------------------------------------------------------------------
\76\ The difference between D5 and D6 RIN prices can also
influence the relative attractiveness to consumers of advanced
ethanol compared to conventional ethanol. However, there has been
considerable variability in this particular RIN prices difference
over the last few years.
---------------------------------------------------------------------------
We note that the future projection of imports of sugarcane ethanol
is inherently imprecise and that actual imports in 2020 could be lower
or higher than 60 million gallons. Factors that could affect import
volumes include uncertainty in the Brazilian political climate, weather
and harvests in Brazil, world ethanol demand and
[[Page 36780]]
prices, constraints associated with the E10 blendwall in the U.S., the
status of the biodiesel tax credit, world demand for and prices of
sugar, and the cost of sugarcane ethanol relative to that of corn
ethanol. After considering these factors, and in light of the high
degree of variability in historical imports of sugarcane ethanol, we
believe that 60 million gallons is reasonably attainable for 2020.\77\
---------------------------------------------------------------------------
\77\ Given the relatively small volumes of sugarcane ethanol we
are projecting (approximately 1% of the advanced biofuel standard),
even a significant deviation in its actual availability would likely
have negligible impact on the market's ability to meet the advanced
biofuel volumes.
---------------------------------------------------------------------------
2. 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 2020. These other advanced
biofuels include non-cellulosic CNG, naphtha, heating oil, and
domestically produced advanced ethanol. However, the supply of these
fuels has been relatively low in the last several years.
Table IV.B.2-1--Historical Supply of Other Advanced Biofuels
[Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
Domestic
CNG/LNG Heating oil Naphtha ethanol Total a
----------------------------------------------------------------------------------------------------------------
2013............................ 26 0 3 23 52
2014............................ 20 0 18 26 64
2015............................ 0 1 24 25 50
2016............................ 0 2 26 27 55
2017............................ 2 2 32 26 62
2018............................ 1 3 31 25 60
----------------------------------------------------------------------------------------------------------------
\a\ Excludes consideration of D5 renewable diesel, as this category of renewable fuel is considered as part of
BBD as discussed in Section IV.B.3.
The significant decrease after 2014 in CNG/LNG from 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).\78\ Subsequently, total supply of these other advanced biofuels has
exhibited no consistent trend during 2015 to 2018. Based on this
historical record, we believe that 60 million gallons is reasonably
attainable in 2020.\79\ As with sugarcane ethanol, we have not
conducted an in-depth assessment of the volume of other advanced
biofuels that could be made available to the U.S. without diverting
this fuel from other markets. We believe the volume of fuel supplied in
previous years is a reasonable way to project the reasonably attainable
volume of sugarcane ethanol in 2020.
---------------------------------------------------------------------------
\78\ 79 FR 42128 (July 18, 2014).
\79\ The imprecision in projecting volumes of other advanced
biofuel has the same relative impact on our overall assessment of
the attainability of advanced biofuel as our consideration of
imports of sugarcane ethanol. Namely, even a significant deviation
in the actual availability of other advanced biofuel would likely
have negligible impact on the market's ability to meet the advanced
biofuel volumes.
---------------------------------------------------------------------------
We recognize that the potential exists for additional volumes of
advanced biofuel from sources such as jet fuel, liquefied petroleum gas
(LPG), butanol, and liquefied natural gas (as distinct from CNG), as
well as non-cellulosic CNG from biogas produced in digesters. However,
since they have been produced, if at all, in only de minimis and
sporadic amounts in the past, we do not have a reasonable basis for
projecting substantial volumes from these sources in 2020.\80\
---------------------------------------------------------------------------
\80\ No RIN-generating volumes of these other advanced biofuels
were produced in 2018, and less than 1 million gallons total in
prior years.
---------------------------------------------------------------------------
3. Biodiesel and Renewable Diesel
Having projected the production volume of cellulosic biofuel, and
the reasonably attainable volumes of imported sugarcane ethanol and
``other'' advanced biofuels, we next assess the potential supply of
advanced biodiesel and renewable diesel. First, we calculate the amount
of advanced biodiesel and renewable diesel that would need to be
supplied to meet the advanced requirement were we to exercise our
maximum discretion under the cellulosic authority: 2.83 billion
gallons. This calculation, shown in Table IV.B.3-1, helps inform the
exercise of our waiver authorities. Second, we consider the historical
supply of these fuels and the impact of the biodiesel tax policy on
advanced biodiesel and renewable diesel use in the U.S. Next, we
consider factors that could potentially limit the supply of these fuels
including the production capacity of advanced biodiesel and renewable
diesel production facilities, the ability for the market to distribute
and use these fuels, the availability of feedstocks to produce these
fuels, and fuel imports and exports. Based on our projection of the
domestic growth in advanced biodiesel and renewable diesel feedstocks,
we project a reasonably attainable volume of 2.75 billion gallons of
advanced biodiesel and renewable diesel in 2020. Since this volume is
lower than the 2.83 billion gallons we calculated would need to be
supplied to meet the advanced requirement were we to exercise our
maximum discretion under the cellulosic authority, we finally consider
if additional supplies of advanced biodiesel and renewable diesel are
attainable. Ultimately, we conclude that a volume of at least 2.83
billion gallons of advanced biodiesel and renewable diesel is
attainable in 2020. We note that we have not attempted to determine the
maximum attainable volume of these fuels. While the maximum attainable
volume of advanced biodiesel and renewable diesel in 2020 is likely
greater than 2.83 billion gallons we do not believe it would be
appropriate to require a greater volume of these fuels due to the high
cost and the increased likelihood of adverse unintended impacts
associated with these fuels.
Calculating the volume of advanced biodiesel and renewable diesel
that would be needed to meet the volume of advanced biofuel for 2020 is
an important benchmark to help inform EPA's consideration of our waiver
authorities. In situations where the reasonably attainable volume of
biodiesel and renewable diesel exceeds the volume of these fuels that
would be needed to meet the volume of advanced biofuel after reducing
the advanced biofuel volume by the same amount as
[[Page 36781]]
the cellulosic biofuel volume, as was the case in 2017 and 2018, EPA
may consider whether or not to allow additional volumes of these fuels
to backfill for missing cellulosic biofuel volumes. In situations where
the reasonably attainable volume of advanced biodiesel and renewable
diesel is less than the volume of these fuels that would be needed to
meet the volume of advanced biofuel after reducing the advanced biofuel
volume by the same amount as the cellulosic biofuel volume, EPA may
consider whether or not to use additional waiver authorities, to the
extent available, to make further reductions to the advanced biofuel
volume.
Table IV.B.3-1--Determination of Volume of Biodiesel and Renewable
Diesel Needed in 2020 To Achieve 5.04 Billion Gallons of Advanced
Biofuel
[Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
------------------------------------------------------------------------
Lowest 2020 advanced biofuel volume requirement 5,040
permitted using under the cellulosic waiver authority..
Cellulosic biofuel...................................... 540
Imported sugarcane ethanol.............................. 60
Other advanced.......................................... 60
Calculated advanced biodiesel and renewable diesel 4,380/2,826
needed (ethanol-equivalent gallons/physical gallons)
\81\...................................................
------------------------------------------------------------------------
Having calculated the volume of advanced biodiesel and renewable
diesel that would need to be supplied to meet the volume of advanced
biofuel for 2020 after reducing the advanced biofuel volume by the same
amount as the cellulosic biofuel volume, EPA next projected the
reasonably attainable volume of these fuels for 2020. With regard to
advanced biodiesel and renewable diesel, there are many different
factors that could potentially influence the reasonably attainable
volume of these fuels used as transportation fuel or heating oil in the
U.S. These factors include the availability of qualifying biodiesel and
renewable diesel feedstocks, the production capacity of biodiesel and
renewable diesel facilities (both in the U.S. and internationally), and
the availability of imported volumes of these fuels.\82\ A review of
the volumes of advanced biodiesel and renewable diesel used in previous
years is especially useful in projecting the potential for growth in
the production and use of such fuels, since for these fuels there are a
number of complex and inter-related factors beyond simply total
production capacity (including the availability of advanced feedstocks,
the expiration of the biodiesel tax credit, recent tariffs on biodiesel
from Argentina and Indonesia, and other market-based factors) that are
likely to affect the supply of advanced biodiesel and renewable diesel.
---------------------------------------------------------------------------
\81\ To calculate the volume of advanced biodiesel and renewable
diesel that would generate the 4.38 billion RINs needed to meet the
advanced biofuel volume EPA divided the 4.38 billion RINs by 1.55.
1.55 is the approximate average (weighted by the volume of these
fuels expected to be produced in 2020) of the equivalence values for
biodiesel (generally 1.5) and renewable diesel (generally 1.7).
\82\ 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). While cellulosic diesel (D7) also
contributed towards an obligated party's advanced biofuel
obligation, these fuels are discussed in Section III rather than in
this section. 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 40 CFR 80.1426 or in petition
approvals issued pursuant to section 80.1416, that can be used to
produce fuel that qualifies for D4 or D5 RINs. These feedstocks
include, for example, 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 section
80.1426).
---------------------------------------------------------------------------
In addition to a review of the volumes of advanced biodiesel and
renewable diesel used in previous years, we believe the likely growth
in production of feedstocks used to produce these fuels, as well as the
total projected available volumes of these feedstocks, are important
factors to consider. This is because while there are many factors that
could potentially limit the production and availability of these fuels,
the impacts of increasing production of advanced biodiesel and
renewable diesel on factors such as costs, energy security, and GHG
emissions are expected to vary depending on whether the feedstocks used
to produce these fuels are sourced from waste sources or by-products of
other industries (such as the production of livestock feed or ethanol
production),\83\ from the diversion of feedstocks from existing uses,
or whether they drive increased oilseed production, or from the
diversion of feedstocks from existing uses. The energy security and GHG
reduction value associated with the growth in the use of advanced
biofuels is greater when these fuels are produced from waste fats and
oils or feedstocks that are byproducts of other industries (such as
soybean oil from soybeans primarily grown as animal feed), rather than
from materials that represent a switching of existing advanced
feedstocks from other uses to renewable fuel production or the
diversion of advanced biodiesel and renewable diesel from foreign
markets. This is especially true if the parties that previously used
the advanced biofuel or feedstocks replace these oils with low cost
palm oil \84\ or petroleum-derived products, as we believe would likely
be the case in 2020.\85\ In this case the global production of advanced
biodiesel and renewable diesel would not increase, and the potential
benefits associated with increasing the diversity of the supply of
transportation fuel (energy security) \86\ and the production of
additional volumes of advanced biodiesel and renewable diesel (low GHG
sources of transportation fuel) would be reduced.
---------------------------------------------------------------------------
\83\ Vegetable oils from oilseeds grown in the U.S. such as
soybeans and canola are generally by-products or secondary products
of the production of livestock feed. However, depending on the
relative value of protein meal and vegetable oil, as well as the
cost of production of oilseed crops, higher demand for vegetable oil
can lead to increased planting of oilseed crops. Vegetable oil is
the primary product of palm oil plantations, and demand for this oil
is the primary driver for increased planting of palm oil
plantations.
\84\ For instance, see the draft GHG assessment of palm oil
biodiesel and renewable diesel at 77 FR 4300 (January 27, 2012).
\85\ We believe palm or petroleum-derived products would likely
be used replace advanced biodiesel and renewable diesel diverted to
the U.S. as these products are currently the lowest cost sources.
\86\ If qualifying vegetable oils that are diverted to produce
biodiesel and renewable diesel in the U.S. are replaced with
vegetable oil or petroleum products that would otherwise have been
used in the transportation fuel pool there would be no increase in
energy security. Conversely, if diverting vegetable oils to produce
biodiesel and renewable diesel results in the increased production
of vegetable oils or increased extraction of crude oil we would
expect some energy security benefits.
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a. Historical Supply of Biodiesel and Renewable Diesel
Before considering the projected growth in the production of
qualifying feedstocks that could be used to produce advanced biodiesel
and renewable diesel, as well as the total
[[Page 36782]]
volume of feedstocks that could be used to produce these fuels, it is
helpful to review the volumes of biodiesel and renewable diesel that
have been used in the U.S. 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 reference in considering future volumes. Past
experience suggests that a high percentage of the biodiesel and
renewable diesel used in the U.S. (from both domestic production and
imports) qualifies as advanced biofuel.\87\ In previous years,
biodiesel and renewable diesel produced in the U.S. have been almost
exclusively advanced biofuel.\88\ Imports of advanced biodiesel
increased through 2016, but were lower in 2017 and 2018, as seen in
Table IV.B.2-1. Volumes of imported biodiesel and renewable diesel,
which include both advanced and conventional biodiesel and renewable
diesel, have varied significantly from year to year, as they are
impacted both by domestic and foreign policies, as well as many
economic factors.
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\87\ From 2011 through 2018 approximately 96 percent of all
biodiesel and renewable diesel supplied to the U.S. (including
domestically produced and imported biodiesel and renewable diesel)
qualified as advanced biodiesel and renewable diesel (14,214 million
gallons of the 14,869 million gallons) according to EMTS data.
\88\ From 2011 through 2018 over 99.9 percent of all the
domestically produced biodiesel and renewable diesel supplied to the
U.S. qualified as advanced biodiesel and renewable diesel (12,268
million gallons of the 12,275 million gallons) according to EMTS
data.
Table IV.B.3-2--Advanced (D4 and D5) Biodiesel and Renewable Diesel From 2011 to 2018
[Million gallons] \a\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 \b\ 2015 \b\ 2016 2017 2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change).............................. 967 (N/A) 1,014 (+47) 1,377 (+363) 1,303 (-74) 1,253 (-50) 1,633 (+380) 1,573 (-60) 1,844 (+271)
Domestic Renewable Diesel (Annual Change)....................... 62 (N/A) 23 (-39) 98 (+75) 156 (+58) 175 (+19) 226 (+51) 258 (+32) 306 (+48)
Imported Biodiesel (Annual Change).............................. 44 (N/A) 40 (-4) 156 (+116) 130 (-26) 261 (+131) 562 (+301) 462 (-100) 173 (-289)
Imported Renewable Diesel (Annual Change)....................... 0 (N/A) 28 (+28) 145 (+117) 129 (-16) 121 (-8) 170 (+49) 193 (+23) 185 (-8)
Exported Biodiesel and Renewable Diesel (Annual Change)......... 48 (N/A) 68 (+20) 83 (+15) 89 (+6) 96 (+7) 135 (+39) 171 (+36) 163 (-8)
-------------------------------------------------------------------------------------------------------------------------------
Total \c\ (Annual Change)................................... 1,025 (N/A) 1,037 (+12) 1,693 (+656) 1,629 (-64) 1,714 (+85) 2,456 (+742) 2,315 (-141) 2,345 (+30)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data 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 volume in each year.
\b\ RFS required volumes for these years were not established until December 2015.
\c\ Total is equal to domestic production of biodiesel and renewable plus imported biodiesel and renewable diesel minus exports.
Table IV.B.3-3--Conventional (D6) Biodiesel and Renewable Diesel From 2011 to 2018
[Million gallons] \a\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 \b\ 2015 \b\ 2016 2017 2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change).............................. 0 (N/A) 0 (+0) 6 (+6) 1 (-5) 0 (+0) 0 (+0) 0 (+0) 0 (+0)
Domestic Renewable Diesel (Annual Change)....................... 0 (N/A) 0 (+0) 0 (+0) 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) 0 (-113) 0 (+0)
Imported Renewable Diesel (Annual Change)....................... 0 (N/A) 0 (+0) 53 (+53) 0 (-53) 106 (+106) 43 (-63) 144 (+101) 33 (-111)
Exported Biodiesel and Renewable Diesel (Annual Change)......... 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 1 (+1) 0 (-1) 0 (+0)
-------------------------------------------------------------------------------------------------------------------------------
Total \c\ (Annual Change)................................... 0 (N/A) 0 (+0) 90 (+90) 53 (-37) 180 (+127) 155 (-25) 144 (-11) 33 (-111)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data 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 volume in each year.
\b\ RFS required volumes for these years were not established until December 2015.
\c\ Total is equal to domestic production of biodiesel and renewable plus imported biodiesel and renewable diesel minus exports.
Since 2011, the year-over-year changes in the volume of advanced
biodiesel and renewable diesel used in the U.S. have varied greatly,
from a low of 141 million fewer gallons from 2016 to 2017 to a high of
742 million additional gallons from 2015 to 2016. These changes were
likely influenced by multiple 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 U.S.
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 742
million gallons of advanced biodiesel and renewable diesel would be
reasonable to expect in 2019 or 2020, nor does it indicate that the low
(or negative) growth rates observed in other years would recur. Rather,
these data illustrate both the magnitude of the changes in advanced
biodiesel and renewable diesel in previous years and the significant
variability in these changes.
[[Page 36783]]
The historic data indicates that the biodiesel tax policy in the
U.S. can have a significant impact on the volume of biodiesel and
renewable diesel used in the U.S. in any given year.\89\ While the
biodiesel blenders tax credit has applied in each year from 2010 to
2017, it has only been prospectively 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 in December 2010 to apply retroactively in
2010 and extend through the end of 2011. 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), December
2015 (for 2015 and 2016), and February 2018 (for 2017). 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 volume of advanced biodiesel and renewable diesel used in the U.S.
over the previous year (656 million gallons and 742 million gallons
respectively). However, following these large increases in 2013 and
2016, there was little to no growth in the use of advanced biodiesel
and renewable diesel in the following years: Only 21 million gallons
from 2013 to 2015, negative 141 million gallons from 2016 to 2017, and
30 million gallons from 2017 to 2018. This decrease from 2016 to 2017
occurred even though the required volume of advanced biofuel increased
from 3.61 in 2016 to 4.28 billion gallons in 2017. This pattern is
likely the result of both accelerated production and/or importation of
biodiesel and renewable diesel in the final few months of years during
which the tax credit was available to take advantage of the expiring
tax credit, as well as relatively lower volumes of biodiesel and
renewable diesel production and import in 2014, 2015, and 2017 than
would have occurred if the tax credit had been in place.\90\ The
availability of this tax credit also provides biodiesel and renewable
diesel with a competitive advantage relative to other advanced biofuels
that do not qualify for the tax credit.
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\89\ The status of the tax credit does not impact our assessment
of the reasonably attainable volume of advanced biodiesel and
renewable diesel in 2020 as our assessment is primarily based on
feedstock availability. The status of the tax credit may affect the
maximum attainable volume of these fuels, but our assessment
demonstrates that 2.83 billion gallons of advanced biodiesel and
renewable diesel is attainable whether or not the tax credit is
renewed prospectively (or retrospectively) for 2020.
\90\ We also acknowledge that EPA not finalizing the required
volumes of renewable fuel under the RFS program for 2014 and 2015
until December 2015 likely affected the volume of advanced biodiesel
and renewable diesel supplied in these years. Further, the
preliminary tariffs on biodiesel imported from Argentina and
Indonesia announced in August 2017 likely negatively affected the
volume of biodiesel supplied in 2017 and 2018.
---------------------------------------------------------------------------
Another important factor highlighted by the historic data is the
impact of the recently imposed tariffs imposed the U.S. on biodiesel
imported from Argentina and Indonesia. In December 2017 the U.S.
International Trade Commission adopted tariffs on biodiesel imported
from Argentina and Indonesia.\91\ According to data from EIA,\92\ no
biodiesel was imported from Argentina or Indonesia since September
2017, after a preliminary decision to impose tariffs on biodiesel
imported from these countries was announced in August 2017. As a result
of these tariffs, total imports of biodiesel into the U.S. were
significantly lower in 2018 than they had been in 2016 and 2017. The
decrease in imported biodiesel did not, however, result in a decrease
in the volume of advanced biodiesel and renewable diesel supplied to
the U.S. in 2018. Instead, higher domestic production of advanced
biodiesel and renewable diesel, in combination with lower exported
volumes of domestically produced biodiesel, resulted in an overall
increase in the volume of advanced biodiesel and renewable diesel
supplied in 2018.
---------------------------------------------------------------------------
\91\ ``Biodiesel from Argentina and Indonesia Injures U.S.
Industry, says USITC,'' Available online at: https://www.usitc.gov/press_room/news_release/2017/er1205ll876.htm.
\92\ See ``EIA Biomass-Based Diesel Import Data'' available in
docket EPA-HQ-OAR-2019-0136.
---------------------------------------------------------------------------
The historical data suggests that the supply of advanced biodiesel
and renewable diesel could potentially increase from the projected 2.35
billion gallons in 2018 to 2.83 billion gallons in 2020 (the projected
volume needed to meet the advanced biofuel volume for 2020 after
reducing the statutory advanced biofuel volume by the same amount as
the cellulosic biofuel reduction). This would represent an average
annual increase of approximately 240 million gallons from 2018 to 2020.
These increases are very similar to the average increase in the volume
of advanced biodiesel and renewable diesel used in the U.S. from 2011
through 2018 (190 million gallons per year) and significantly less than
the highest annual increase during this time (742 million gallons from
2015 to 2016).
b. Assessment of Qualifying Feedstocks for Biodiesel and Renewable
Diesel
After reviewing the historical volume of advanced biodiesel and
renewable diesel used in the U.S. and considering the possible impact
of the expiration of the biodiesel tax credit (discussed in Section
IV.B.3.a), EPA next considers other factors that may impact the
production, import, and use of advanced biodiesel and renewable diesel
in 2020. The production capacity of registered advanced biodiesel and
renewable diesel production facilities is highly unlikely to limit the
production of these fuels, as the total production capacity for
biodiesel and renewable diesel at registered facilities in the U.S.
(4.1 billion gallons) exceeds the volume of these fuels that are
projected to be needed to meet the advanced biofuel volume for 2020
after exercising the cellulosic waiver authority (2.83 billion
gallons).\93\ Significant registered production also exists
internationally. Similarly, the ability for the market to distribute
and use advanced biodiesel and renewable diesel appears unlikely
constrain the growth of these fuels to a volume lower than 2.83 billion
gallons. The investments required to distribute and use this volume of
biodiesel and renewable diesel are expected to be manageable by the
marketplace given the RIN value incentive, as this volume is less than
400 million gallons greater than the volume of biodiesel and renewable
diesel produced, imported, and used in the U.S. in 2018.
---------------------------------------------------------------------------
\93\ The production capacity of the sub-set of biodiesel and
renewable diesel producers that generated RINs in 2018 is
approximately 2.9 billion gallons. See ``Biodiesel and Renewable
Diesel Registered Capacity (March 2019)'' Memorandum from Dallas
Burkholder to EPA Docket EPA-HQ-OAR-2019-0136.
---------------------------------------------------------------------------
Conversely, the availability of advanced feedstocks that can be
used to produce advanced biodiesel and renewable diesel, as well as the
availability of imported advanced biodiesel and renewable diesel, may
be limited in 2020. We acknowledge that an increase in the required use
of advanced biodiesel and renewable diesel could be realized through a
diversion of advanced feedstocks from other uses, or a diversion of
advanced biodiesel and renewable diesel from existing markets in other
countries. Furthermore, the volume of advanced biodiesel and renewable
diesel and their corresponding feedstocks projected to be produced
globally exceeds the volume projected to be required in 2020 (2.83
billion gallons of advanced biodiesel and renewable diesel and the
corresponding volume of advanced feedstocks) by a significant
margin.\94\ In
[[Page 36784]]
addition, actions unrelated to the RFS program, such as recent tariffs
on soybeans exported to China, could result in increased supplies of
domestic biodiesel feedstocks.\95\ However, we expect that further
increases in advanced biofuel and renewable fuel volumes would be
increasingly likely to incur adverse unintended impacts.
---------------------------------------------------------------------------
\94\ The March 2019 WASDE projects production of vegetable oils
in 2018/2019 in the World to be 203.93 million metric tons. This
quantity of vegetable oil would be sufficient to produce
approximately 58.3 billion gallons of biodiesel and renewable
diesel. Global production of biodiesel is projected to be 39.0
billion liters (10.3 billion gallons) in 2019 according to the July
2018 OECD-FAO Agricultural Outlook. Based on the projected
production of biodiesel by country we estimate that approximately
85% of this biodiesel (all biodiesel except that produced in
Columbia, Indonesia, Malaysia, and Thailand) could qualify as
advanced biofuel if the feedstocks meet the definition of renewable
biomass.
\95\ The potential impacts of this tariff on the availability of
biodiesel feedstocks is discussed in our discussion of available
vegetable oils in Section IV.B.3.c.
---------------------------------------------------------------------------
We perceive the net benefits to be lower both because of the
potential disruption of the current biogenic fats, oils, and greases
market, the associated cost impacts to other industries resulting from
feedstock switching, and the potential adverse effect on lifecycle GHG
emissions associated with feedstocks for biofuel production that would
have been used for other purposes and which must then be backfilled
with other feedstocks. Similarly, increasing the supply of biodiesel
and renewable diesel to the U.S. by diverting fuel that would otherwise
have been used in other countries results in higher lifecycle GHG
emissions than if the supply of these fuels was increased by an
increased collection of waste fats and oils or increased production of
feedstocks that are byproducts of other industries, especially if this
diversion results in increased consumption of petroleum fuels in the
countries that would have otherwise consumed the biodiesel or renewable
diesel. By focusing our assessment on the expected growth in the
production of advanced feedstocks (rather than the total supply of
these feedstocks in 2020, 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 or diverting
biodiesel and renewable diesel from foreign markets to the U.S.
Advanced biodiesel and renewable diesel feedstocks include both
waste oils, fats, and greases; and oils from planted crops. The
projected growth in these feedstocks is expected to be modest relative
to the volume of these feedstocks that are currently being used to
produce biodiesel and renewable diesel. Most of the waste oils, fats,
and greases that can be recovered economically are already being
recovered and used in biodiesel and renewable diesel production or for
other purposes. The availability of animal fats will likely increase
with beef, pork, and poultry production. Most of the vegetable oil used
to produce advanced biodiesel and renewable diesel that is sourced from
planted crops comes from crops primarily grown for purposes other than
providing feedstocks for biodiesel and renewable diesel, such as for
livestock feed, with the oil that is used as feedstock for renewable
fuel production a co-product or by-product.\96\ This is true for
soybeans and corn, which are the two largest sources of feedstock from
planted crops used for biodiesel production in the U.S.\97\ We do not
believe that the increased demand for soybean oil or corn oil caused by
a higher 2020 advanced biofuel standard would result in an increase in
soybean or corn prices large enough to induce significant changes in
agricultural activity.\98\ However, we acknowledge that production of
these feedstocks is likely to increase as crop yields, oil extraction
rates, and demand for the primary products increase in 2020.
---------------------------------------------------------------------------
\96\ For example, corn oil is a co-product of corn grown
primarily for feed or ethanol production, while soy and canola are
primarily grown as livestock feed.
\97\ According to EIA data 7,542 million pounds of soy bean oil
and 2,085 million pounds of corn oil were used to produce biodiesel
in the U.S. in 2018. Other significant sources of feedstock were
yellow grease (1,668 million pounds), canola oil (total volume
withheld, but monthly data suggests greater than 700 million
pounds), and white grease (618 million pounds). Numbers from EIA's
April 2019 Monthly Biodiesel Production Report (With data for
February 2019).
\98\ This position is supported by several commenters, including
the South Dakota Soybean Association (EPA-HQ-OAR-2018-0167-0389),
the International Council on Clean Transportation (EPA-HQ-OAR-2018-
0167-0531), and the Union of Concerned Scientists (EPA-HQ-OAR-2018-
0167-0535).
---------------------------------------------------------------------------
We believe the most reliable source for projecting the expected
increase in vegetable oils in the U.S. is USDA's World Agricultural
Supply and Demand Estimates (WASDE). At the time of our assessment for
this proposed rule, the most current version of the WASDE report
(February 2019) only projects domestic vegetable oil production through
2018/2019. Based on domestic vegetable oil production from 2010/2011
through 2018/2019 as reported by WASDE, the average annual increase in
vegetable oil production in the U.S. was 0.34 million metric tons per
year.\99\ Assuming a similar increase in domestic vegetable oil
production from 2018/2019 to 2019/2020, this additional quantity of
vegetable oils could be used to produce approximately 97 million
additional gallons of advanced biodiesel or renewable diesel in 2020
relative to 2018.\100\
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\99\ According ot the February 2019 WASDE report, U.S. vegetable
oil production in the 2018/2019 agricultural marketing year is
projected to be 12.48 million metric tons. According to the January
2013 WASDE report, U.S. vegetable oil production in the 2010/2011
agricultural marketing year was 9.76 million metric tons.
\100\ To calculate this volume, we have used a conversion of 7.7
pounds of feedstock per gallon of biodiesel or renewable diesel.
This is based on the expected conversion of soybean oil (http://extension.missouri.edu/p/G1990), which is the largest source of
feedstock used to produce advanced biodiesel and renewable diesel.
Conversion rates for other types of vegetable oils used to produce
biodiesel and renewable diesel are similar to those for soybean oil.
---------------------------------------------------------------------------
In the 2019 final rule we also noted that the WASDE projected a
decrease in trade of both oilseeds and vegetable oils. This projected
decrease in oilseed trade is likely due to tariffs enacted by China on
soybean exports from the U.S. As noted in the 2019 final rule, the
duration and ultimate impacts of these tariffs on total exports of U.S.
soybeans are highly uncertain. As in the 2019 final rule, we did not
include the potential biodiesel or renewable diesel that could
theoretically be produced from the oilseeds and vegetable oil projected
to remain in the U.S. due to reduced trade of these products in our
projection of the reasonably attainable volumes. This is because any
biodiesel and renewable diesel produced from soybeans previously
exported to China are necessarily diverted from other uses (even if the
reason for this diversion is the tariffs, rather than the RFS program),
and biodiesel produced from these diverted feedstocks is therefore more
likely to have the adverse unintended effects as previously discussed.
In addition to virgin vegetable oils, we also expect increasing
volumes of distillers corn oil \101\ to be available for use in 2020.
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. For this proposed rule we use results
from the World Agricultural Economic and Environmental Services (WAEES)
model to project the growth in the production of distillers corn
oil.\102\ In assessing the
[[Page 36785]]
likely increase in the availability of distillers corn oil from 2019 to
2020, the authors of the WAEES model considered the effects 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 WAEES
model projects that production of distillers corn oil will increase by
approximately 120 million pounds from the 2018/2019 to the 2019/2020
agricultural marketing year. This quantity of feedstock could be used
to produce approximately 15 million gallons of biodiesel or renewable
diesel. We believe it is reasonable to use these estimates from the
WAEES model for these purposes based on the projected increase in the
use of corn oil extraction and corn oil yield increases.
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\101\ Distillers corn oil is non-food grade corn oil produced by
ethanol production facilities.
\102\ For the purposes of this rule, EPA relied on WAEES
modeling results submitted as comments by the National Biodiesel
Board on the 2019 proposed rule (Kruse, J., ``Implications of an
Alternative Advanced and Biomass Based Diesel Volume Obligation for
Global Agriculture and Biofuels,'' August 13, 2018, World
Agricultural Economic and Environmental Services (WAEES)).
---------------------------------------------------------------------------
While much of the increase in advanced biodiesel and renewable
diesel feedstocks produced in the U.S. from 2019 to 2020 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. The WAEES model projects an increase of only 14 million gallons
in the volume of biodiesel produced from feedstocks other than soybean
oil, canola oil, and distillers corn oil from 2019 to 2020.\103\
Conversely, an assessment conducted by LMC in 2017 and submitted in
comments on our 2018 proposed rule projected that the waste oil supply
in the U.S. could increase by approximately 2.4 million metric tons
from 2016 to 2022.\104\ This estimate represents a growth rate of
approximately 0.4 billion tons per year, or enough feedstock to produce
approximately 115 million gallons of biodiesel and renewable diesel per
year. This estimate, however, only accounts for potential sources of
feedstock and not for the economic viability of recovering waste oils.
---------------------------------------------------------------------------
\103\ Kruse, J., ``Implications of an Alternative Advanced and
Biomass Based Diesel Volume Obligation for Global Agriculture and
Biofuels,'' August 13, 2018, World Agricultural Economic and
Environmental Services.
\104\ LMC International. Global Waste Grease Supply. August 2017
(EPA-HQ-OAR-2017-0091-3880).
---------------------------------------------------------------------------
In the proposal we are not simply using the results from the WAEES
model to project increases in the use of biogenic waste fats, oils, and
greases (FOG), but have conducted our own analysis. To project the
likely increase in the use of biogenic FOG we used historical data to
determine the increase in the use of these feedstocks to produce
biodiesel and renewable diesel. From 2015-2017 biodiesel and renewable
diesel produced from biogenic FOG increased by an average of 32 million
gallons per year.\105\ This annual increase is higher than the increase
in the use of these feedstocks projected by the WAEES model, but lower
than the potential increase projected by LMC. We have included an
additional 32 million gallons of advanced biodiesel and renewable
diesel from FOG in our assessment of the reasonably attainable volume
for 2020, consistent with the observed annual increase in advanced
biodiesel and renewable diesel produced from these feedstocks in recent
years.
---------------------------------------------------------------------------
\105\ ``Projections of FOG biodiesel and renewable diesel,''
memorandum from David Korotney to EPA Docket, EPA-HQ-OAR-2019-0136.
---------------------------------------------------------------------------
In total, we expect that increases in feedstocks produced in the
U.S. are sufficient to produce approximately 144 million more gallons
of advanced biodiesel and renewable diesel in 2020 relative to 2019.
This number includes 97 million gallons from increased vegetable oil
production, 15 million gallons from increased corn oil production, and
32 million gallons from increased waste oil collection. This number
does not include additional volumes related to decreases in exported
volumes of soybeans or soybean oil to China as a result of tariffs.
Decreased exports of soybeans and soybean oil represent feedstocks
diverted from use in other countries, while any additional in the
collection of waste oils is highly uncertain. Our projection also does
not consider factors which could potentially decrease the availability
of advanced biofuel feedstocks that could be used to produce biodiesel
or renewable diesel, such as an increase in the volume of vegetable
oils used in food markets or other non-biofuel industries. In our 2019
final rule, we determined that 2.61 billion gallons of advanced
biodiesel and renewable diesel were reasonably attainable in 2019,\106\
therefore our projection of the reasonably attainable volume of
advanced biodiesel and renewable diesel in 2020 is 2.75 billion
gallons.
---------------------------------------------------------------------------
\106\ 83 FR 63704 (December 11, 2018).
---------------------------------------------------------------------------
EPA's projections of the growth of advanced feedstocks does not,
however, suggest that the total supply of advanced biodiesel and
renewable diesel to the U.S. in 2020 will be limited to 2.78 billion
gallons. Rather, this is the volume of these fuels that we project
could be supplied while seeking to minimize diversions of advanced
feedstocks or biofuels from existing uses. The March 2019 WASDE
projects that production of vegetable oil in the U.S. in the 2018/2019
market year will be sufficient to produce approximately 3.6 billion
gallons of biodiesel and renewable diesel (including both advanced and
conventional biofuels) if the entire volume of vegetable oil was used
to produce these fuels. Additional advanced biodiesel and renewable
diesel could be produced from waste fats, oils, and greases. The global
production of vegetable oil projected in the 2018/2019 marketing year
would be sufficient to produce approximately 58.0 billion gallons of
biodiesel and renewable diesel (including both advanced and
conventional biofuels).\107\ While it would not be reasonable to assume
that all, or even a significant portion, of global vegetable oil
production could be available to produce biodiesel or renewable diesel
supplied to the U.S. for a number of reasons,\108\ the large global
supply of vegetable oil indicates that 2.83 billion gallons of advanced
biodiesel and renewable diesel is attainable in 2019. Reaching this
level, however, may result in the diversion of advanced feedstocks
currently used in other markets and/or the import of biodiesel and
renewable diesel from these feedstocks.
---------------------------------------------------------------------------
\107\ The March 2019 WASDE projects production of vegetable oils
in 2018/19 in the U.S. and the World to be 12.54 and 203.93 million
metric tons respectively. To convert projected vegetable oil
production to potential biodiesel and renewable diesel production we
have used a conversion of 7.7 pounds of feedstock per gallon of
biodiesel or renewable diesel.
\108\ These reasons include the demand for vegetable oil in the
food, feed, and industrial markets both domestically and globally;
constraints related to the production, import, distribution, and use
of significantly higher volumes of biodiesel and renewable diesel;
and the fact that biodiesel and renewable diesel produced from much
of the vegetable oil available globally would not qualify as an
advanced biofuel under the RFS program.
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Further, the attainable volume of advanced biodiesel and renewable
diesel to the U.S. in 2020 could be increased by approximately 163
million gallons if all of the exported volumes of these fuels were used
domestically. Diverting this fuel to markets in the U.S. may be
complicated, however, as doing so would likely require higher prices
for these fuels in the U.S. to divert the fuels from foreign markets
that are presumably more profitable currently. It may also be more
difficult and costly to distribute this additional volume of biodiesel
and renewable diesel to domestic markets than the current foreign
markets. Finally, reducing advanced biodiesel and renewable diesel
exports may indirectly result in the decreased availability of imported
[[Page 36786]]
volumes of these fuels, as other countries seek to replace volumes
previously imported from the U.S.
c. Biodiesel and Renewable Diesel Imports and Exports
EPA next considered potential changes 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 U.S. (see Table
IV.B.2-1). These significant imports were likely the result of a strong
U.S. demand for advanced biodiesel and renewable diesel, supported by
the RFS standards, the low carbon fuel standard (LCFS) in California,
the biodiesel blenders tax credit, and the opportunity for imported
biodiesel and renewable diesel to realize these incentives. We have not
included the potential for increased (or decreased) volumes of imported
advanced biodiesel and renewable diesel in our projection of the
reasonably attainable volume for 2020. There is a far higher degree of
uncertainty related to the availability and production of advanced
biodiesel and renewable diesel in foreign countries, as this supply can
be impacted by a number of unpredictable factors such as the imposition
of tariffs and increased incentives for the use of these fuels in other
countries (such as tax incentives or blend mandates). EPA also lacks
the data necessary to determine the quantity of these fuels that would
otherwise be produced and used in other countries, and thus the degree
to which the RFS standards are simply diverting this fuel from use in
other countries as opposed to incentivizing additional production.
In addition to EPA's assessment of the market's ability to produce,
import, distribute, and use the 2.83 billion gallons of advanced
biodiesel and renewable diesel projected to be used in 2020 to meet the
advanced biofuel volume requirement, EPA compared the projected
increase in these fuels to the increases observed in recent years. A
projected increase comparable to past increases further confirms that
the volume is attainable. Domestic production of advanced biodiesel and
renewable diesel, which averaged approximately 1.85 billion gallons in
2016 and 2017, increased to approximately 2.15 billion gallons in 2018.
Of this total, approximately 163 million gallons of domestically
produced biodiesel and renewable diesel was exported in 2018. If
imported biodiesel and renewable diesel volumes remain constant at
approximately 350 million gallons per year (the total volume of
advanced biodiesel and renewable diesel imported in 2018) domestic
production would need to increase by approximately 240 million gallons
annually in 2019 and 2020 to reach a total advanced biodiesel and
renewable diesel supply of 2.83 billion gallons by 2020.\109\ This
growth is attainable, as it is only slightly higher than the average
annual increase in the domestic production of advanced biodiesel and
renewable diesel from 2011 to 2018 (approximately 160 million gallons),
and lower than the rate of growth observed from 2017 to 2018
(approximately 320 million gallons) and in previous years (for example
the increase of 443 million gallons from 2012 to 2013 or the increase
of 431 million gallons from 2015 to 2016). We note, however, that using
this volume of advanced biodiesel and renewable diesel in the U.S. may
result in the diversion of advanced biodiesel and renewable diesel and/
or feedstocks used to produce these fuels, as what is currently
exported may instead be used in the U.S. and alternative sources would
be needed to replace these volumes.
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\109\ This estimate assumes that the U.S. continues to export
approximately 100 million gallons of biodiesel per year in 2020.
Alternatively, if the U.S. consumes all domestically produced
biodiesel and renewable diesel, rather than exporting any of this
fuel, domestic production of advanced biodiesel and renewable diesel
would have to increase by approximately 150 million gallons annually
in 2019 and 2020.
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d. Attainable Volume of Advanced Biodiesel and Renewable Diesel
After a careful consideration of the factors discussed above, EPA
has determined that the 2.83 billion gallons of advanced biodiesel and
renewable diesel projected to be needed to satisfy the implied
statutory volume for non-cellulosic advanced biofuel in 2020 (4.5
billion gallons) are attainable. The total production capacity of
registered biodiesel and renewable diesel producers is significantly
higher than 2.83 billion gallons, even if only those facilities that
generated RINs for advanced biodiesel and renewable diesel in 2018 are
considered (2.9 billion gallons). This volume (2.83 billion gallons) is
only 200 million gallons higher than the total volume of biodiesel and
renewable diesel supplied in 2016 (approximately 2.6 billion gallons),
strongly suggesting that production capacity and the ability to
distribute and use biodiesel and renewable diesel will not limit the
supply of advanced biodiesel and renewable diesel to a volume below
2.83 billion gallons in 2020. Sufficient feedstocks are expected to be
available to produce this volume of advanced biodiesel and renewable
diesel in 2020. However, doing so may result in some level of diversion
of advanced feedstocks and/or advanced biodiesel and renewable diesel
from existing uses. Finally, the increase in the production and import
of advanced biodiesel and renewable diesel projected from 2018 to 2020
to supply a volume of 2.83 billion gallons in 2020 is comparable to (or
has been exceeded) by the increases observed in the past. While we do
not believe it will be necessary, in the event that the supply of
advanced biodiesel and renewable diesel falls short of the projected
2.83 billion gallons in 2020, obligated parties could rely on the
available supply of carryover advanced RINs projected to be available
in 2020 (See Section II.B for a further discussion of carryover RINs).
C. Volume Requirement for Advanced Biofuel
In exercising the cellulosic waiver authority for 2017 and earlier,
we determined it was appropriate to require a partial backfilling of
missing cellulosic volumes with volumes of non-cellulosic advanced
biofuel we determined to be reasonably attainable, notwithstanding the
increase in costs associated with those decisions.\110\ For the 2018
standards, in contrast, we placed a greater emphasis on cost
considerations in the context of balancing the various considerations,
ultimately concluding that the applicable volume requirement should be
based on the maximum reduction permitted under the cellulosic waiver
authority. In the 2019 standards final rule, we also concluded that it
would be appropriate to exercise the maximum reduction permitted under
the cellulosic waiver authority to set the advanced biofuel volume
requirement at 4.92 billion gallons. We did this based on similar cost
considerations as for 2018, as well as a shortfall in the reasonably
attainable volume of advanced biofuels. We acknowledged it may be
possible that more than 4.92 billion gallons of advanced biofuel is
attainable in 2019, but did not believe that requiring higher volumes
would be appropriate based on our expectation that doing so would lead
to higher costs and feedstock switching and/or diversion of foreign
advanced biofuels that would not be appropriate.
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\110\ See, e.g., Renewable Fuel Standards for 2014, 2015 and
2016, and the Biomass-Based Volume for 2017: Response to Comments
(EPA-420-R-15-024, November 2015), pages 628-631, available in
docket EPA-HQ-OAR-2015-0111-3671.
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[[Page 36787]]
For 2020, the implied statutory volume target for non-cellulosic
advanced biofuel is identical to that for 2019 at 4.5 billion gallons,
and this is the level that would result from application of the maximum
reduction permitted under the cellulosic waiver authority. Moreover,
the concerns we expressed for the 2019 standards regarding impacts on
costs and feedstock switching and/or diversion of foreign advanced
biofuels remain valid for 2020. As in 2019, the reasonably attainable
volume of advanced biofuel for 2020 falls short of the volume resulting
from the maximum exercise of the cellulosic authority, although that
volume is likely to be attainable. Moreover, while there is some
uncertainty in the volume of advanced biofuel that may be attainable or
reasonably attainable in 2020, even if greater volumes of advanced
biofuel are attainable or reasonably attainable, the high cost of these
fuels provides sufficient justification to reduce the advanced biofuel
volume for 2020 by the maximum amount under the cellulosic waiver
authority. In the 2019 final rule we presented illustrative cost
projections for sugarcane ethanol and soybean biodiesel in 2019, the
two advanced biofuels that would be most likely to provide the marginal
increase in volumes of advanced biofuel in 2020 in comparison to 2019.
Sugarcane ethanol results in a cost increase compared to gasoline that
ranges from $0.39-$1.04 per ethanol-equivalent gallon. Soybean
biodiesel results in a cost increase compared to diesel fuel that
ranges from $0.74-$1.23 per ethanol-equivalent gallon. The cost of
these renewable fuels is high as compared to the petroleum fuels they
displace.
Based on the information presented above, we believe that 5.04
billion gallons of advanced biofuel is attainable in 2020. After a
consideration of the projected volume of cellulosic biofuel and
reasonably attainable volumes of imported sugarcane ethanol and other
advanced biofuels, we determined that 2.83 billion gallons of advanced
biodiesel and renewable diesel would be needed to reach 5.04 billion
gallons of advanced biofuel. Based on a review of the factors relevant
to the supply of advanced biodiesel and renewable diesel as discussed
in Section IV.B.2, including historic production and import data, the
production capacity of registered biodiesel and renewable diesel
producers, and the availability of advanced feedstocks, we have
determined that 2.83 billion gallons of advanced biodiesel and
renewable diesel is attainable in 2020. This is similar to the
conclusions we reached for 2019, where we also determined that the same
volume of non-cellulosic advanced biofuel would be attainable.
We acknowledge that there is some uncertainty regarding whether the
market will actually supply 5.04 billion gallons of advanced biofuel in
2020. In the event that the market does not supply this volume, the
carryover RIN bank represents a source of RINs that could help
obligated parties meet an advanced biofuel volume requirement of 5.04
billion gallons in 2020 if the market fails to supply sufficient
advanced biofuels. As discussed in greater detail in Section II.C.1,
carryover RINs provide obligated parties compliance flexibility in the
face of substantial uncertainties in the transportation fuel
marketplace and provide a liquid and well-functioning RIN market upon
which success of the entire program depends. We currently estimate that
there are approximately 390 million advanced carryover RINs available.
D. Volume Requirement for Total Renewable Fuel
As discussed in Section II.A.1, we believe that the cellulosic
waiver provision is best interpreted as requiring that the advanced
biofuel and total renewable fuel volumes be reduced by equal amounts.
For the reasons we have previously articulated, we believe this
interpretation is consistent with the statutory language and best
effectuates the objectives of the statute, including the environmental
objectives that generally favor the use of advanced biofuels over non-
advanced biofuels and the legislative intent reflected in the statutory
volume tables.\111\ If we 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 volume of 15 billion gallons. Applying an equal
reduction of 9.96 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 20.04 billion gallons as
shown in Table IV.A-1.\112\ This volume of total renewable fuel results
in an implied volume of 15 billion gallons of conventional fuel, which
is the same as in the 2019 final rule.
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\111\ See 81 FR 89752-89753 (December 12, 2016). See also 78 FR
49809-49810 (August 15, 2013); 80 FR 77434 (December 14, 2015).
\112\ EPA also considered the availability of carryover RINs in
determining whether reduced use of the cellulosic waiver authority
would be warranted. For the reasons described in Section II.B, we do
not believe this to be the case.
---------------------------------------------------------------------------
We note that because we are proposing to use the maximum reduction
possible under the cellulosic waiver authority, no additional
reductions are possible under that authority. While the general waiver
authority does provide a means for further reductions in the applicable
volume requirement for total renewable fuel, the record before us does
not indicate that such a waiver is justified. In particular, in a
separate memorandum we provide a description of the ways in which the
market could make 20.04 billion gallons of total renewable fuel
available in 2020.\113\ In light of the total volume of ethanol that
could be used in 2020,\114\ along with the potential for conventional
biodiesel and renewable diesel, we find that there would be sufficient
volumes of conventional renewable fuel to reach 15 billion gallons and
of total renewable fuel to reach 20.04 billion gallons.
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\113\ ``Market impacts of biofuels in 2020,'' memorandum from
David Korotney to docket EPA-HQ-OAR-2019-0136. In prior actions,
similar analyses indicated that the market was capable of both
producing and consuming the required volume of renewable fuels, and
that as a result there was no basis for finding an inadequate
domestic supply of total renewable fuel. See 82 FR 34229 & n.82
(July 21, 2017). Given the D.C. Circuit's decision in ACE, however,
assessment of demand-side constraints is no longer relevant for
determining inadequate domestic supply. However, we believe
consideration of the ways that the market could make this volume
available may still be generally relevant to whether and how EPA
exercises its waiver authorities, such as our consideration of
whether the volumes will cause severe economic harm.
\114\ We note that the previously cited memorandum discusses the
potential for total ethanol consumption in 2020, but does not make
specific projections for E0, E15 and E85. Volumes of these ethanol
blends are highly dependent upon consumer demand. In prior annual
rules, we assessed volumes of these blends in determining whether
and to what extent to exercise the inadequate domestic supply waiver
authority. The D.C. Circuit's decision ACE precludes assessment of
demand-side constraints in determining inadequate domestic supply,
and consistent with that decision, we no longer assess such blend
volumes. While we could still assess such blend volumes in deciding
whether and to what extent to exercise our discretionary waiver
authorities, and in evaluating the market's ability to meet the
total renewable fuel requirement, doing so is not necessary. In
terms of the market's ability to satisfy the total renewable fuel
requirement, the more relevant consideration is whether the pool-
wide ethanol volume, together with volumes of other biofuels,
suffices. We note that EPA does not establish standards for E0, E15,
or E85. Moreover, there has historically been a lack of reliable
data on volumes of these blends.
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V. Response to Remand of 2016 Rulemaking
In addition to proposing the applicable volume requirements and
percentage standards for 2020, in this
[[Page 36788]]
rulemaking we are also proposing to address the remand of the 2016
annual rule by the D.C. Circuit Court of Appeals, in ACE. In light of
the fact that we can no longer incent additional renewable fuel
generation in 2016, and the significant burden on obligated parties of
imposing an additional standard, we are proposing to retain the
original 2016 total renewable fuel standard. This section describes the
relevant aspects of the 2016 annual rule, the court's decision, EPA's
responsibilities following the court's remand, and our proposed
approach.
A. Reevaluating the 2016 Annual Rule
1. The 2016 Renewable Fuel Standard
On December 14, 2015, we promulgated a rulemaking establishing the
volume requirements and percentage standards for 2014, 2015, and
2016.\115\ In establishing those standards, we utilized the cellulosic
waiver authority under CAA 211(o)(7)(D) to lower the cellulosic
biofuel, advanced biofuel, and total renewable fuel volume requirements
for 2016, and the general waiver authority under CAA 211(o)(7)(A) to
lower total renewable fuel by an additional increment.
---------------------------------------------------------------------------
\115\ 80 FR 77420.
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As an initial step, under CAA 211(o)(7)(D), we lowered the
cellulosic biofuel volume requirement by 4.02 billion gallons, to the
projected production of cellulosic biofuel for 2016, as required by the
statute.\116\ Using that same authority, we then elected to reduce the
advanced biofuel and total renewable fuel volumes. We did not reduce
the advanced biofuel volume requirement by the full 4.02 billion
gallons that was permitted under this authority, but rather by a lesser
3.64 billion gallons that resulted in an advanced biofuel volume
requirement that was ``reasonably attainable.'' \117\ This allowed some
advanced biofuel to ``backfill'' for the shortfall in cellulosic
biofuel. We then reduced the total renewable fuel volume by an amount
equivalent to the reduction in advanced biofuel in accordance with our
longstanding interpretation that when making reductions to advanced
biofuel and total renewable fuel under CAA 211(o)(7)(D), the best
reading of the statute is to reduce them both by the same amount.\118\
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\116\ See Id. at 77499.
\117\ Id at 77442-43.
\118\ Id.
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As a second step, under CAA 211(o)(7)(A), under a finding of
inadequate domestic supply, we further lowered the total renewable fuel
standard by 500 million gallons for 2016.\119\ In assessing
``inadequate domestic supply,'' we considered the availability of
renewable fuel to consumers. Based on such demand-side considerations,
we made the additional 500 million gallon reduction in the total
renewable fuel requirement.
---------------------------------------------------------------------------
\119\ Id. at 77444.
---------------------------------------------------------------------------
The 2016 total renewable fuel standard was challenged in court. In
an opinion issued on July 28, 2017, the D.C. Circuit vacated our use of
the general waiver authority under a finding of inadequate domestic
supply to reduce the 2016 total renewable fuel standard, the second
step of setting the 2016 total renewable fuel standard.\120\ The court
in ACE held that we had improperly focused on supply of renewable fuel
to consumers, and that the statute instead requires a ``supply-side''
assessment of the volumes of renewable fuel that can be supplied to
refiners, blenders, and importers.\121\ Other components of our
interpretation of ``inadequate domestic supply'' were either upheld by
the court in ACE (e.g., our interpretation that carryover RINs are not
part of the ``supply'' for purposes of this waiver authority) or were
not challenged (e.g., our consideration of biofuel imports as part of
the domestic supply). Our use of the cellulosic waiver authority to
provide the initial reduction in total renewable fuel was also upheld
by the court.
---------------------------------------------------------------------------
\120\ ACE, 864 F.3d 691.
\121\ Id. at 696.
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2. Agency Responsibility
The court in ACE upheld our volume requirements for advanced
biofuel and cellulosic biofuel, so there is therefore no need for the
agency to adjust those 2016 final volume requirements. The court also
upheld EPA's use of the cellulosic waiver authority to reduce the 2016
total renewable fuel volume requirement. The court only vacated our
decision to further reduce that requirement under the ``inadequate
domestic supply'' waiver authority, remanding this issue to the Agency
for further consideration consistent with the court's opinion.\122\ Our
obligation is thus to reevaluate the 2016 total renewable fuel volume
requirement in accordance with the court's decision.
---------------------------------------------------------------------------
\122\ Id. at 703.
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B. Consideration of the Burdens of a Retroactive Standard
We propose to find that imposing an additional burden on obligated
parties for the 2016 volume requirements through a higher standard at
this time would be unduly burdensome and inappropriate. In the ACE
decision, and two previous decisions,\123\ the court stated that in
imposing a retroactive standard, we must balance the burden on
obligated parties of a retroactive standard with the broader goal of
the RFS program to increase renewable fuel use.\124\ We believe that in
the case of the 2016 renewable fuel volumes, any approach that requires
additional volumes of renewable fuel use would impose a significant
burden on obligated parties, without any corresponding benefit as any
additional standard cannot result in additional renewable fuel use in
2016. Thus, we are proposing to retain the original 2016 total
renewable fuel standard.
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\123\ Monroe Energy, LLC v. EPA, 750 F.3d 909 (D.C. Cir. 2014);
NPRA v. EPA, 630 F.3d 145 (D.C. Cir. 2010).
\124\ E.g., in Monroe, the court held that EPA's action was
reasonable because it ``considered various ways to minimize the
hardship caused to obligated parties.'' Monroe at 920.
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We believe the burdens associated with altering the 2016 standard
are high. In order to revise the 2016 standard EPA would need to
rescind the 2016 standard and return the RINs used for compliance
returned to the original owners. Once those RINs were unretired, a
process that could take several months, trading of those RINs could
resume for a designated amount of time before retirements would again
be required to demonstrate compliance. Obligated parties could then
comply with a new, higher standard that includes an adjustment to the
required total renewable fuel volume to address the ACE decision.
Under our current regulations, only 2015 and 2016 RINs can be used
to demonstrate compliance with the 2016 standard.\125\ However, there
are far fewer 2015 and 2016 RINs available today (i.e., RINs that are
valid but have not already been retired to comply with the 2015, 2016,
or 2017 standards) than would be needed to comply with a supplemental
standard commensurate with our exercise of the general waiver
authority, that is, 500 million gallons. Additionally, the few 2015 and
2016 RINs available are unevenly held between obligated parties;
because of the small number of RINs, any parties who held excess 2015
and 2016 RINs could attempt to sell them at a high price, creating
dysfunction within the RIN market. These high prices would create a
burden on obligated parties, without providing any incentive for
additional renewable fuel use.
---------------------------------------------------------------------------
\125\ 40 CFR 80.1427(a).
---------------------------------------------------------------------------
We also considered and rejected two alternative approaches for
addressing the remand. First, we considered an
[[Page 36789]]
approach where 2016 RINs used for compliance with the 2017 standards
could be unretired and used for compliance with the increased 2016
standard, but this would essentially also reopen 2017 compliance, and
likely 2018 compliance for the same reason.\126\ Reopening compliance
would impose a significant burden on both obligated parties and EPA as
described above. Moreover, stakeholders have expressed strong desires
for consistent compliance requirements on an annual basis,\127\ and
having compliance for the prior year complete before requiring
compliance with the subsequent year is essential to properly account
for the status of RINs, due to the 2-year RIN lifespan. Reopening
compliance for 2016-2018 could have cascading effects on compliance for
2019 and subsequent years. Compliance with an additional standard would
also necessarily result in a drawdown of the carryover RIN bank. It is
no longer possible to generate 2016, 2017, or 2018 RINs; an additional
standard would require the use of carryover RINs and drawdown of the
carryover RIN bank, which as explained in Section II, we do not believe
to be appropriate. Therefore, we do not find that it would be
appropriate or reasonable to reopen compliance with the entire 2016
total renewable fuel standard.
---------------------------------------------------------------------------
\126\ If 2017 compliance is reopened, 2018 compliance would then
also need to be reopened due to the 2-year lifespan of RINs.
\127\ See, e.g., Comments from API/AFPM on the 2014-2016 annual
rule suggesting that delayed compliance can make it difficult to
assess the size of the RIN bank, Docket ID: EPA-HQ-OAR-2015-0111-
1948.
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Second, we also considered imposing an additional obligation as a
supplement to the 2020 standards and allowing compliance with 2019 and
2020 RINs. Under this approach, there would likely be sufficient RINs
to comply with an additional 500 million gallon standard. However, as
we believe there are very limited opportunities to use biofuels beyond
the volumes we are proposing for 2020,\128\ we believe that this is
unlikely to incent significant new biofuel generation in 2020. Instead,
it would likely lead to a significant draw-down of the carryover RIN
bank, which as explained in section II, we do not believe to be
appropriate.
---------------------------------------------------------------------------
\128\ See section IV (finding that the advanced biofuel volume
resulting from the full reduction under the cellulosic waiver
authority is not reasonably attainable, and further noting
uncertainties relating to the attainable volume) and ``Market
impacts of biofuels in 2020,'' available in the docket (describing
limitations on the ability of the market to use biofuels).
---------------------------------------------------------------------------
For the forgoing reasons, we are proposing to retain the 2016 total
renewable fuel in response to the court's remand in ACE.\129\
---------------------------------------------------------------------------
\129\ In addition to today's response to the remand, we note
that the precedential effect of the ACE decision has governed
subsequent RFS annual rules. Compare, e.g., 82 FR 34229 & n.82 (July
21, 2017) (2018 annual rule proposal, issued prior to ACE)
(soliciting comment on whether it would be appropriate to exercise
the inadequate domestic supply waiver authority based on the
``maximum reasonably achievable volume'' of renewable fuel, which
incorporates demand-side considerations), with 82 FR 46177 (Oct. 4,
2017) (2018 annual rule availability of supplemental information and
request for comment, issued after ACE) (recognizing, under ACE, that
EPA may not consider demand-side constraints in determining
inadequate domestic supply).
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VI. Impacts of 2020 Volumes on Costs
In this section, EPA presents its assessment of the illustrative
costs of this proposed rulemaking. It is important to note that these
illustrative costs do not attempt to capture the full impacts of this
proposed rule. We frame the analyses we have performed for this rule as
``illustrative'' so as not to give the impression of comprehensive
estimates. These estimates are provided 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 illustrative
cost estimates. For example, there are many 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 volumes for which we have provided cost estimates are described
in Sections III and IV. In this section, we examine the illustrative
costs of two different cases. In the first case, we provide
illustrative cost estimates by comparing the proposed 2020 renewable
fuel volumes to 2020 statutory volumes. In the second case, we examine
the proposed 2020 renewable fuel volumes to the final 2019 renewable
fuel volumes to estimate changes in the annual costs of the proposed
2020 volumes in comparison to the 2019 volumes.\130\
---------------------------------------------------------------------------
\130\ This action imposes renewable fuel standards only for
2020. However, solely for E.O. 13771 purposes in this section, we
estimate the costs of the relevant volumes as though they applied in
future years as well. Therefore, we use the term ``annual costs'' in
this section.
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A. Illustrative Costs Analysis of 2020 Proposed Volumes Compared to the
2020 Statutory Volumes Baseline
In this section, EPA provides illustrative cost estimates that
compare the proposed 2020 cellulosic biofuel volume requirements to the
2020 cellulosic statutory volume that would be required absent the
exercise of our cellulosic waiver authority under CAA section
211(o)(7)(D)(i). As described in Section III, we are proposing a
cellulosic volume of 540 million gallons for 2020, using our cellulosic
waiver authority to waive the statutory cellulosic volume of 10.5
billion gallons by 9.96 billion gallons. Estimating the cost savings
from renewable fuel volumes that are not projected to be produced is
inherently challenging. EPA has taken the relatively straightforward
methodology of multiplying this waived cellulosic volume by the
wholesale per-gallon costs of cellulosic biofuel production relative to
the petroleum fuels they displace. Since the implied non-cellulosic
advanced biofuel and implied conventional renewable fuel volumes are
unchanged from the statutory implied volumes, there is no need to
estimate cost impacts for these volumes.
While there may be growth in other cellulosic renewable fuel
sources, we believe it is appropriate to use cellulosic ethanol
produced from corn kernel fiber at an existing corn starch ethanol
production facility as representative of all liquid cellulosic
renewable fuel. Even though there is no increase in liquid cellulosic
biofuels in this proposed annual 2020 RFS rule, we believe it is
appropriate to use these costs to estimate the cost savings from the
statutory volumes. The majority of liquid cellulosic biofuel in 2020 is
expected to be produced using this technology. In addition, as
explained in Section III, we believe that production of the major
alternative cellulosic biofuel--CNG/LNG derived from biogas--is limited
in 2020 due to a limitation in the number of vehicles capable of using
this form of fuel.\131\
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\131\ See Section III.C.2 for a further discussion of the
quantity of CNG/LNG projected to be used as transportation fuel in
2020.
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EPA uses a ``bottom-up'' engineering cost analysis to quantify the
costs of producing a gallon of cellulosic ethanol derived from corn
kernel fiber. There are multiple processes that could yield cellulosic
ethanol from corn kernel fiber. EPA assumes a cellulosic ethanol
production process that generates biofuel using distiller's grains, a
co-product of generating corn starch ethanol that is commonly dried and
sold into the feed market as distillers dried
[[Page 36790]]
grains with solubles (DDGS), as the renewable biomass feedstock. We
assume an enzymatic hydrolysis process with cellulosic enzymes to break
down the cellulosic components of the distiller's grains. This process
for generating cellulosic ethanol is similar to approaches currently
used by industry to generate cellulosic ethanol at a commercial scale,
and we believe these cost estimates are likely representative of the
range of different technology options being developed to produce
ethanol from corn kernel fiber. We then compare the per-gallon costs of
the cellulosic ethanol to the petroleum fuels that would be replaced at
the wholesale stage, since that is when the two are blended together.
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 society and are not additional costs
(e.g., RIN payments are one example of a transfer payment). 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 gasoline on
an energy-equivalent basis as compared to ethanol, since more ethanol
gallons must be consumed to travel the same distance as on gasoline due
to the ethanol's lower energy content.
Table VI.A-1 below presents the cellulosic fuel cost savings with
this proposed rule that are estimated using this approach.\132\ The
per-gallon cost difference estimates for cellulosic ethanol ranges from
$0.28-$3.28 per ethanol-equivalent gallon ($/EEG).\133\ Given that
commercial cellulosic ethanol production is at an early stage in its
deployment, these cost estimates have a significant range. Multiplying
the per-gallon cost differences by the amount of cellulosic biofuel
waived in this proposed rule results in approximately $2.8-$33 billion
in cost savings.
---------------------------------------------------------------------------
\132\ Details of the data and assumptions used can be found in a
Memorandum available in the docket entitled ``Cost Impacts of the
Proposed 2020 Annual Renewable Fuel Standards'', Memorandum from
Michael Shelby, Dallas Burkholder, and Aaron Sobel available in
docket EPA-HQ-OAR-2019-0136.
\133\ 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, since the changes in the
renewable fuel volume are relatively modest in comparison to the
quantity of fuel associated with the petroleum market. Rather, we
have simply used the wholesale price projections for gasoline and
diesel as reported in EIA's April 2019 STEO.
Table VI.A-1--Illustrative Costs Analysis of 2020 Proposed Volumes
Compared to the 2020 Statutory Volumes Baseline
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic Volume Required (Million Ethanol- 540
Equivalent Gallons)..............................
Change in Required Cellulosic Biofuel from 2020 (9,960)
Statutory Volume (Million Ethanol-Equivalent
Gallons).........................................
Cost Difference Between Cellulosic Corn Kernel $0.28-$3.28
Fiber Ethanol and Gasoline Per Gallon ($/Ethanol-
Equivalent Gallons) \134\ ($/EEG)................
Annual Change in Overall Costs (Million $) \135\.. $(2,800)-$(33,000)
------------------------------------------------------------------------
B. Illustrative Costs Analysis of the 2020 Proposed Volumes Compared to
the 2019 Volumes Baseline
---------------------------------------------------------------------------
\134\ For this table and all subsequent tables in this section,
approximate costs in per-gallon cost difference estimates are
rounded to the cents place.
\135\ For this table and all subsequent tables in this section,
approximate resulting costs (other than in per-gallon cost
difference estimates) are rounded to two significant figures.
---------------------------------------------------------------------------
In this section, we provide illustrative cost estimates for the
proposed 2020 volumes compared to the final 2019 RFS volumes. This
results in an increase in cellulosic volumes for the 2020 RFS of 126
gallons (ethanol-equivalent).\136\
---------------------------------------------------------------------------
\136\ The implied non-cellulosic advanced biofuel and
conventional renewable fuel volumes are the same for both years, so
we do not need to estimate cost impacts for these volumes.
---------------------------------------------------------------------------
Cellulosic Biofuel
We anticipate that the increase in the proposed 2020 cellulosic
biofuel volumes is composed of 126 million gallons of CNG/LNG derived
from landfill biogas. Unlike past RFS annual rulemakings, there is no
projected increase in liquid cellulosic biofuel in this proposed annual
2020 RFS rulemaking. Thus, we provide costs estimates for cellulosic
biofuel solely based upon the costs of using CNG/LNG-derived cellulosic
biogas.\137\ For CNG/LNG-derived cellulosic biogas, we provide
estimates of the cost of displacing natural gas with CNG/LNG derived
from landfill biogas to produce 126 million ethanol-equivalent gallons
of cellulosic fuel. To estimate the cost of production of CNG/LNG
derived from landfill gas (LFG), EPA uses Version 3.2 of the Landfill
Gas Energy Cost Model, or LFG cost-Web. EPA ran the financial cost
calculator for landfill projects with a design flow rate of 1,000 and
10,000 cubic feet per minute with the suggested default data. LFGcost-
Web assumes that larger projects will result in lower fuel production
costs, which in some cases are lower than the cost of fossil-fuel
derived natural gas that is displaced due to economies of scale. The
costs estimated for this analysis exclude any pipeline costs to
transport the pipeline quality gas, as well as any costs associated
with compressing the gas to CNG/LNG. These costs are not expected to
differ significantly between LFG or natural gas. In addition, the cost
estimates excluded the gas collection and control system infrastructure
at the landfill, as EPA expects that landfills that produce high BTU
gas in 2020 are likely to already have this infrastructure in
place.\138\
---------------------------------------------------------------------------
\137\ Although there is no increase for liquid cellulosic
biofuel in this proposed RFS annual 2020 rule, it is unknown if this
volume may change in the final rule. While we do not present
associated costs in this document, the methodology and assumptions
we would use to represent liquid cellulosic biofuel can be found in
a Memorandum available in the docket entitled, ``Cost Impacts of the
Proposed 2020 Annual Renewable Fuel Standards'', Memorandum from
Michael Shelby, Dallas Burkholder, and Aaron Sobel available in
docket EPA-HQ-OAR-2019-0136.
\138\ Details of the data and assumptions used can be found in a
Memorandum available in the docket entitled ``Cost Impacts of the
Proposed 2020 Annual Renewable Fuel Standards'', Memorandum from
Michael Shelby, Dallas Burkholder, and Aaron Sobel available in
docket EPA-HQ-OAR-2019-0136.
---------------------------------------------------------------------------
To estimate the illustrative cost impacts of the change in CNG/LNG
derived from LFG, we compared the cost of production of CNG/LNG derived
from LFG in each case to the projected price of natural gas in 2020 in
EIA's April 2019 STEO.\139\ Finally, we converted these costs to an
ethanol-equivalent gallon ($/EEG) basis. The resulting cost estimates
are shown in Table VI.B-1. The total costs of the proposed 2020
cellulosic volume compared to 2019 RFS cellulosic volume range from
$(3.2)-$10 million. The lower end of this range reflects a cost savings
due to the estimated costs
[[Page 36791]]
of producing 10,000 cubic feet per minute of CNG/LNG landfill gas being
lower than the projected cost of natural gas in EIA's STEO.
---------------------------------------------------------------------------
\139\ Henry Hub Spot price estimate for 2020. EIA, Short Term
Energy Outlook (STEO), April 2019, available in docket EPA-HQ-OAR-
2019-0136.
Table VI.B-1--Illustrative Costs Analysis of the 2020 Proposed Volumes
Compared to the 2019 Volumes Baseline
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic volume
------------------------------------------------------------------------
CNG/LNG Derived from Biogas Costs:
Cost Difference Between CNG/LNG Derived from $(0.03)-$0.08
Landfill Biogas and Natural Gas Per Gallon ($/
Ethanol-Equivalent Gallons) ($/EEG)...............
Change in Volume (Million Ethanol-Equivalent 126
Gallons)..........................................
Annual Increase in Overall Costs (Million $)....... $(3.2)-$10
Range of Annual Increase in Costs with Cellulosic $(3.2)-$10
Volume (Million $)....................................
------------------------------------------------------------------------
The annual volume-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, other than the estimates of costs of
producing a ``representative'' renewable fuel compared to cost of
petroleum fuel, EPA did not quantitatively assess other direct and
indirect costs or benefits of changes in renewable fuel volumes. These
direct and indirect costs and benefits may include infrastructure
costs, investment, climate change impacts, air quality impacts, and
energy security benefits, which all are to some degree affected by the
annual volumes. For example, we do not have a quantified estimate of
the lifecycle GHG or energy security benefits for a single year (e.g.,
2020). Also, there are impacts that are difficult to quantify, such as
rural economic development and employment changes from more diversified
fuel sources, that are not quantified in this rulemaking. 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 2020 volume requirements.\140\
---------------------------------------------------------------------------
\140\ RFS2 Regulatory Impact Analysis (RIA). U.S. EPA 2010,
Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis.
EPA-420-R-10-006. February 2010. Docket EPA-HQ-OAR-2009-0472-11332.
---------------------------------------------------------------------------
VII. Biomass-Based Diesel Volume for 2021
In this section we discuss the proposed BBD applicable volume for
2021. We are setting 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 proposing to set the BBD percentage
standards that would apply to obligated parties in 2021 but intend to
do so in late 2020, after receiving EIA's estimate of gasoline and
diesel consumption for 2021. At that time, we will also set the
percentage standards for the other renewable fuel types for 2021.
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 BBD
produced can be used to satisfy both of these other applicable volume
requirements, even beyond the mandated BBD volume.
A. Statutory Requirements
The statute establishes applicable volume targets for years through
2022 for cellulosic biofuel, advanced biofuel, and total renewable
fuel. For BBD, applicable volume targets are specified in the statute
only through 2012. For years after those for which volumes are
specified in the statute, EPA is required under CAA section
211(o)(2)(B)(ii) to determine the applicable volume of BBD, in
coordination with the Secretary of Energy and the Secretary of
Agriculture, based on a review of the implementation of the program
during calendar years for which the statute specifies the volumes and
an analysis of the following factors:
1. The impact of the production and use of renewable fuels on the
environment, including on air quality, climate change, conversion of
wetlands, ecosystems, wildlife habitat, water quality, and water
supply;
2. The impact of renewable fuels on the energy security of the
United States;
3. The expected annual rate of future commercial production of
renewable fuels, including advanced biofuels in each category
(cellulosic biofuel and BBD);
4. The impact of renewable fuels on the infrastructure of the
United States, including deliverability of materials, goods, and
products other than renewable fuel, and the sufficiency of
infrastructure to deliver and use renewable fuel;
5. The impact of the use of renewable fuels on the cost to
consumers of transportation fuel and on the cost to transport goods;
and
6. The impact of the use of renewable fuels on other factors,
including job creation, the price and supply of agricultural
commodities, rural economic development, and food prices.
The statute also specifies that the volume requirement for BBD
cannot be less than the applicable volume specified in the statute for
calendar year 2012, which is 1.0 billion gallons.\141\ The statute does
not, however, establish any other numeric criteria, and provides EPA
discretion over how to 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 numeric criteria, beyond the
1.0 billion gallon minimum, on the level at which BBD volumes should be
set.
---------------------------------------------------------------------------
\141\ See CAA section 211(o)(2)(B)(v).
---------------------------------------------------------------------------
In establishing the BBD and cellulosic standards as nested within
the advanced biofuel standard, Congress clearly intended to support
development of BBD and especially cellulosic biofuels, while also
providing an incentive for the growth of other non-specified types of
advanced biofuels. In general, the advanced biofuel standard provides
an opportunity for other advanced biofuels (advanced biofuels that do
not qualify as cellulosic biofuel or BBD) to compete with cellulosic
biofuel and BBD to satisfy the advanced biofuel standard after the
cellulosic biofuel and BBD standards have been met.
[[Page 36792]]
B. Review of Implementation of the Program and the 2021 Applicable
Volume of Biomass-Based Diesel
One of the considerations in determining the BBD volume for 2021 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,
distribute, and use BBD. It also helps us to understand what factors,
beyond the BBD standard, may incentivize the availability of BBD. In
reviewing the program, we assess numerous regulatory, economic, and
technical factors, including the availability of BBD in past years
relative to the BBD and advanced standards; the prices of BBD,
advanced, and conventional RINs; the competition between BBD and other
advanced biofuels in meeting the portion of the advanced standard not
required to be met by BBD or cellulosic RINs; the maturation of the BBD
industry over the course of the RFS program; and the effects of BBD
standard on the production and development of both BBD and other
advanced biofuels.
Table VII.B.1-1 shows, for 2011-2018, the number of BBD RINs
generated, the number of RINs retired due to export, the number of RINs
retired for reasons other than compliance with the annual BBD
standards, and the consequent number of available BBD RINs; for 2011-
2019, the BBD and advanced biofuel standards; and for 2020, the
proposed advanced biofuel standard, and the BBD standard.
Table VII.B.1-1--Biomass-Based Diesel (D4) RIN Generation and Advanced Biofuel and Biomass-Based Diesel Standards in 2011-2019
[Million RINs or gallons] \142\
--------------------------------------------------------------------------------------------------------------------------------------------------------
BBD RINs
retired, Available BBD BBD Advanced
BBD RINs Exported non- BBD RINs standard standard biofuel
generated BBD (RINs) compliance \a\ (gallons) (RINs) \b\ standard
reasons \b\ (RINs) \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011......................................................... 1,692 72 98 1,522 800 1,200 1,350
2012......................................................... 1,737 102 90 1,545 1,000 1,500 2,000
2013......................................................... 2,740 125 93 2,523 1,280 1,920 2,750
2014......................................................... 2,710 134 93 2,483 1,630 \c\ 2,490 2,670
2015......................................................... 2,796 143 30 2,622 1,730 \c\ 2,655 2,880
2016......................................................... 4,009 202 51 3,756 1,900 2,850 3,610
2017......................................................... 3,849 257 35 3,557 2,000 3,000 4,280
2018......................................................... 3,860 245 39 3,576 2,100 3,150 4,290
2019......................................................... N/A N/A N/A N/A 2,100 3,150 4,920
2020......................................................... N/A N/A N/A N/A 2,430 3,645 5,010
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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\ The volumes for each year are those used as the basis for calculating the percentage standards in the final rule. They have not been retroactively
adjusted for subsequent events, such as differences between projected and actual gasoline and diesel use and exempted small refinery volumes.
\c\ 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, but generally has an equivalence value of 1.7. While some fuels that qualify as BBD generate more than 1.5 RINs per gallon,
EPA multiplies the required volume of BBD by 1.5 in calculating the percent standard per 80.1405(c). In 2014 and 2015 however, 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, rather than by
multiplying the required volume of BBD by 1.5. Some of the volume used to meet the BBD standard in these years was renewable diesel, with an
equivalence value higher than 1.5.
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, 2016 and 2017,
and 2018. 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,\143\ and various other State and local incentives and mandates
allowing for 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 and EPA's intent at that time was
to set the standards for 2014 and 2015 to reflect actual BBD use.\144\
In 2016, with RFS standards established prior to the beginning of the
year and the blenders tax credit in place, available BBD RINs exceeded
the volume required by the BBD standard by 906 million RINs (32
percent), and exceeded the volume required by the advanced biofuel
standard. In 2017, the RFS standards were established prior to the
beginning of the year, and the blenders tax credit was only applied
retroactively; even without the certainty of a tax credit, the
available BBD RINs exceeded the volume required by the BBD standard by
557 million RINs (19 percent). In 2018, the RFS standards were again
established prior to the beginning of the year, and the blenders tax
credit was not in place; even without a tax credit, the available BBD
RINs exceed the volume required by the BBD standard by 426 million RINs
(14 percent). In the table VII.B.1-1, we excluded exported BBD RINs
from the calculation of ``available RINs.'' \145\ This indicates that
in certain circumstances there is demand for BBD
[[Page 36793]]
beyond the required volume of BBD. While EPA has consistently
established the required volume in such a way as to allow non-BBD fuels
to compete for market share in the advanced biofuel category, since
2016 the vast majority of non-cellulosic advanced biofuel used to
satisfy the advanced biofuel obligations has been BBD.
---------------------------------------------------------------------------
\142\ Available BBD RINs Generated, Exported BBD RINs, and BBD
RINs Retired for Non-Compliance Reasons information from EMTS.
\143\ 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
retroactively for all of 2015 as well as through the end of 2016. In
February 2018 the biodiesel tax credit was authorized and applied
retroactively for all of 2017. The biodiesel tax credit is not
currently in place for 2018 or 2019.
\144\ See 80 FR 77490-92, 77495 (December 14, 2015).
\145\ We have done so even though the exported RINs could have
been used for compliance prior to export.
---------------------------------------------------------------------------
The prices paid for advanced biofuel and BBD RINs beginning in
early 2013 through December 2018 also support the conclusion that the
advanced biofuel, and in some periods the total renewable fuel
standards, provide a sufficient incentive for additional biodiesel
volume beyond what is required by the BBD standard. Because the BBD
standard is nested within the advanced biofuel and total renewable fuel
standards, and therefore can help to satisfy three RVOs, we would
expect the price of BBD RINs to exceed that of advanced and
conventional renewable RINs.\146\ If, however, BBD RINs are being used
(or are expected to be used) by obligated parties to satisfy their
advanced biofuel obligations, above and beyond the BBD standard, we
would expect the prices of advanced biofuel and BBD RINs to
converge.\147\ Further, if BBD RINs are being used (or are expected to
be used) to satisfy obligated parties' total renewable fuel obligation,
above and beyond their BBD and advanced biofuel requirements, we would
expect the price for all three RIN types to converge.
---------------------------------------------------------------------------
\146\ This is because when an obligated party retires a BBD RIN
(D4) to help satisfy their BBD obligation, the nested nature of the
BBD standard means that this RIN also counts towards satisfying
their advanced and total renewable fuel obligations. Advanced RINs
(D5) count towards both the advanced and total renewable fuel
obligations, while conventional RINs (D6) count towards only the
total renewable fuel obligation.
\147\ We would still expect D4 RINs to be valued at a slight
premium to D5 and D6 RINs in this case (and D5 RINs at a slight
premium to D6 RINs) to reflect the greater flexibility of the D4
RINs to be used towards the BBD, advanced biofuel, and total
renewable fuel standard. This pricing has been observed over the
past several years.
---------------------------------------------------------------------------
When examining RIN price data from 2011 through December 2018,
shown in Figure VI.B.2-1, we see that beginning in early 2013 and
through December 2018 the advanced RIN (D5) price and BBD (D4) RIN
prices were approximately equal. Similarly, from early 2013 through
late 2016 the conventional renewable fuel (D6) RIN and BBD RIN prices
were approximately equal. This suggests that the advanced biofuel
standard, and in some periods the total renewable fuel standard, are
capable of incentivizing increased BBD volumes beyond the BBD standard.
The advanced biofuel standard has incentivized additional volumes of
BBD since 2013, while the total standard had incentivized additional
volumes of BBD from 2013 through 2016.\148\ While final standards were
not in place throughout 2014 and most of 2015, EPA had issued proposed
rules for both of these years.\149\ In each year, the market response
was to supply volumes of BBD that exceeded the proposed BBD standard in
order to help satisfy the proposed advanced and total biofuel
standards.\150\ Additionally, the RIN prices in these years strongly
suggests that obligated parties and other market participants
anticipated the need for BBD RINs to meet their advanced and total
biofuel obligations, and responded by purchasing advanced biofuel and
BBD RINs at approximately equal prices. We do note, however, that in
2011-2012 the BBD RIN price was significantly higher than both the
advanced biofuel and conventional renewable fuel RIN prices. At this
time, the E10 blendwall had not yet been reached, and it was likely
more cost effective for most obligated parties to satisfy the portion
of the advanced biofuel requirement that exceeded the BBD and
cellulosic biofuel requirements with advanced ethanol.
---------------------------------------------------------------------------
\148\ Although we did not issue a rule establishing the final
2013 standards until August of 2013, we believe that the market
anticipated the final standards, based on EPA's July 2011 proposal
and the volume targets for advanced and total renewable fuel
established in the statute. (76 FR 38844, 38843 July 1, 2011).
\149\ See 80 FR 33100 (2014-16 standards proposed June 10,
2015); 78 FR 71732 (2014 standards proposed Nov. 29, 2013).
\150\ EPA proposed a BBD standard of 1.28 billion gallons (1.92
billion RINs) for 2014 in our November 2013 proposed rule. The
number of BBD RINs available in 2014 was 2.48 billion. EPA proposed
a BBD standard of 1.70 billion gallons (2.55 billion RINs) for 2015
in our June 2015 proposed rule. The number of BBD RINs available in
2015 was 2.62 billion.
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[[Page 36794]]
[GRAPHIC] [TIFF OMITTED] TP29JY19.009
In raising the 2013 BBD volume above the 1 billion gallon minimum
mandated by the statute, the EPA sought to ``create greater certainty
for both producers of BBD and obligated parties'' while also
acknowledging that, ``the potential for somewhat increased costs is
appropriate in light of the additional certainty of GHG reductions and
enhanced energy security provided by the advanced biofuel volume
requirement of 2.75 billion gallons.'' \151\ Unknown at that time was
the degree to which the required volumes of advanced biofuel and total
renewable fuel could incentivize volumes of BBD that exceeded the BBD
standard. In 2012 the available supply of BBD RINs exceeded the
required volume of BBD by a very small margin (1,545 million BBD RINs
were made available for compliance towards meeting the BBD requirement
of 1,500 million BBD RINs). The remainder of the 2.0 billion-gallon
advanced biofuel requirement was satisfied with advanced ethanol, which
was largely imported from Brazil.\152\ From 2012 to 2013 the statutory
advanced biofuel requirement increased by 750 million gallons. If EPA
had not increased the required volume of BBD for 2013, and the advanced
biofuel standard had proved insufficient to increase the supply of BBD
beyond the statutory minimum of 1.0 billion gallons, an additional 750
million gallons of non-BBD advanced biofuels beyond the BBD standard
would have been needed to meet the advanced biofuel volume requirement.
---------------------------------------------------------------------------
\151\ 77 FR 59458, 59462 (September 27, 2012).
\152\ 594 million advanced ethanol RINs were generated in 2012.
---------------------------------------------------------------------------
The only advanced biofuel other than BBD available in appreciable
quantities in 2012 and 2013 was advanced ethanol, the vast majority of
which was imported sugarcane ethanol. We had significant concerns as to
whether or not the supply of advanced ethanol could increase this
significantly (750 million gallons) in a single year. These concerns
were heightened by the approaching E10 blendwall, which had the
potential to increase the challenges associated with supplying
increasing volumes of ethanol to the U.S. If neither BBD volumes nor
advanced ethanol volumes increased sufficiently, we were concerned that
some obligated parties might be unable to acquire the advanced biofuel
RINs necessary to demonstrate compliance with their RVOs in 2013.
Therefore, as discussed above, we increased the volume requirement for
BBD in 2013 to help create greater certainty for BBD producers (by
ensuring demand for their product above the 1.0 billion gallon
statutory minimum) and obligated parties (by ensuring that sufficient
RINs would be available to satisfy their advanced biofuel RVOs). Since
2013, however, we have gained significant experience implementing the
RFS program. As discussed above, RIN generation data has consistently
demonstrated that the advanced biofuel volume requirement, and in some
circumstances the total renewable fuel volume requirement, are capable
of incentivizing the supply of BBD above and beyond the BBD volume
requirement. The RIN generation data also show that while we have
consistently preserved the opportunity for fuels other that BBD to
contribute towards satisfying the required volume of advanced biofuel,
these other advanced biofuels have not been supplied in significant
quantities since 2013.
[[Page 36795]]
Table VII.B.1-2--Opportunity for and RIN Generation of ``Other'' Advanced Biofuels
[Million RINs]
----------------------------------------------------------------------------------------------------------------
Available BBD
Opportunity (D4) RINs in
for ``Other'' Available excess of the
advanced advanced (D5) BBD
biofuels \a\ RINs requirement
\b\
----------------------------------------------------------------------------------------------------------------
2011............................................................ 150 225 322
2012............................................................ 500 597 45
2013............................................................ 829 552 603
2014 \c\........................................................ 192 143 -7
2015 \c\........................................................ 162 147 -33
2016............................................................ 530 98 906
2017............................................................ 969 144 557
2018............................................................ 852 178 426
----------------------------------------------------------------------------------------------------------------
\a\ The opportunity for ``other'' advanced biofuel is calculated by subtracting the number of cellulosic biofuel
and BBD RINs required each year from the number of advanced biofuel RINs required. This portion of the
advanced standard can be satisfied by advanced (D5) RINs, BBD RINs in excess of those required by the BBD
standard, or cellulosic RINs in excess of those required by the cellulosic standard.
\b\ The available BBD (D4) RINs in excess of the BBD requirement is calculated by subtracting the required BBD
volume (multiplied by 1.5 to account for the equivalence value of biodiesel) required each year from the
number of BBD RINs available for compliance in that year. This number does not include carryover RINs, nor do
we account for factors that may impact the number of BBD RINs that must be retired for compliance, such as
differences between the projected and actual volume of obligated gasoline and diesel. The required BBD volume
has not been retroactively adjusted for subsequent events, such as differences between projected and actual
gasoline and diesel use and exempted small refinery volumes.
\c\ The 2014 and 2015 volume requirements were established in November 2015 and were set equal to the number of
RINs projected to be available for each year.
In 2014 and 2015, we set the BBD and advanced standards at actual
RIN generation, and thus the space between the advanced biofuel
standard and the biodiesel standard was unlikely to provide an
incentive for ``other'' advanced biofuels. For 2016-2018, the gap
between the BBD standard and the advanced biofuel provided an
opportunity for ``other'' advanced biofuels to be generated to satisfy
the advanced biofuel standard. While the RFS volumes created the
opportunity for up to 530 million, 969 million, and 852 million gallons
of ``other'' advanced for 2016, 2017, and 2018 respectively to be used
to satisfy the advanced biofuel obligation, only 97 million, 144
million, and 178 million gallons of ``other'' advanced biofuels were
generated. This is significantly less than the volumes of ``other''
advanced available in 2012-2013. Despite creating space within the
advanced biofuel standard for ``other'' advanced, in recent years, only
a small fraction of that space has been filled with ``other'' advanced,
and BBD continues to fill most of the gap between the BBD standard and
the advanced standard.
Thus, while the advanced biofuel standard is sufficient to drive
biodiesel volume separate and apart from the BBD standard, there does
not appear to be a compelling reason to increase the ``space''
maintained for ``other'' advanced biofuel volumes. The overall volume
of non-cellulosic advanced biofuel increased by 500 million gallons for
2019. We determined that it was appropriate to also increase the BBD
volume by the same amount as it would preserve the space already
available for other advanced biofuels to compete in 2018 (850 million
RINs). This space is nearly six times the amount of other advanced
biofuels used in 2017, and over eight times that used in 2016. Even in
an optimistic scenario, we do not believe that the use of other
advanced biofuels will approach such amounts by 2021. We recognize,
however, the dynamic nature of the fuels marketplace, and the impact
that the BBD blender's tax credit can have on the relative economics of
BBD versus other advanced biofuels, so going forward we intend to
assess the appropriate space for other advanced biofuels in subsequent
rules setting BBD volumes. The volume of non-cellulosic advanced
biofuel remains the same (4.5 billion gallons) in 2019-2021, and
therefore, increasing the 2021 BBD volume to maintain space is not
necessary in this action.
At the same time, the rationale for preserving the ``space'' for
``other'' advanced biofuels remains. We note that the BBD industry in
the U.S. and abroad has matured since EPA first increased the required
volume of BBD beyond the statutory minimum in 2013. To assess the
maturity of the biodiesel industry, EPA compared information on BBD RIN
generation by company in 2012 and 2018 (the most recent year for which
complete RIN generation by company is available). In 2012, the annual
average RIN generation per company producing BBD was about 11 million
RINs (about 7.3 million gallons) with approximately 50 percent of
companies producing less than 1 million gallons of BBD a year.\153\ The
agency heard from multiple commenters during the 2012 and 2013
rulemakings that higher volume requirements for BBD would provide
greater certainty for the emerging BBD industry and encourage further
investment. Since that time, the BBD industry has matured in a number
of critical areas, including growth in the size of companies, the
consolidation of the industry, and more stable funding and access to
capital. In 2012, the BBD industry was characterized by smaller
companies with dispersed market share. By 2018, the average BBD RIN
generation per company had climbed to over 36 million RINs (23.7
million gallons) annually, more than a 3-fold increase. Only 20 percent
of the companies produced less than 1 million gallons of BBD in
2017.\154\
---------------------------------------------------------------------------
\153\ ``BBD RIN Generation by Company in 2012 and 2018,''
available in EPA docket EPA-HQ-OAR-2019-0136.
\154\ Id.
---------------------------------------------------------------------------
We are conscious of public comments claiming that BBD volume
requirements that are a significant portion of the advanced volume
requirements effectively disincentivize the future development of other
promising advanced biofuel pathways.\155\ A variety of different types
of advanced biofuels, rather than a single type such as BBD, would
increase energy security (e.g., by increasing the diversity of
feedstock
[[Page 36796]]
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.\156\
---------------------------------------------------------------------------
\155\ See, e.g., Comments from Advanced Biofuel Association,
available in EPA docket EPA-HQ-OAR-2018-0167-1277.
\156\ All types of advanced biofuel, including BBD, must achieve
lifecycle GHG reductions of at least 50 percent. See CAA section
211(o)(1)(B)(i), (D).
---------------------------------------------------------------------------
We recognize that the space for other advanced biofuels in 2021
will ultimately depend on the 2021 advanced biofuel volume. While EPA
is not establishing the advanced biofuel volume for 2021 in this
action, we anticipate that the non-cellulosic advanced biofuel volume
for 2021, when established, will be greater than 3.65 billion gallons
(equivalent to 2.43 billion gallons of BBD, after applying the 1.5
equivalence ratio). This expectation is consistent with our actions in
previous years. Accordingly, we expect that the 2021 advanced biofuel
volume, together with the 2021 BBD volume proposed today, will continue
to preserve a considerable portion of the advanced biofuel volume that
could be satisfied by either additional gallons of BBD or by other
unspecified and potentially less costly types of qualifying advanced
biofuels.
C. Consideration of Statutory Factors Set Forth in CAA Section
211(o)(2)(B)(ii)(I)-(VI) for 2021 and Determination of the 2021
Biomass-Based Diesel Volume
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.\157\ This means
that any BBD produced can be used to satisfy both these other
applicable volume requirements even beyond the mandated BBD volume. The
result is that in considering the statutory factors we must consider
the potential impacts of increasing or decreasing BBD in comparison to
other advanced biofuels.\158\ 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. We are proposing to maintain the BBD
volume for 2021 at 2.43 billion gallons based on our review of the
statutory factors and the other considerations noted above and in the
Draft Statutory Factors Assessment for Proposed 2021 BBD Docket
Memorandum. This volume would preserve a gap for ``other'' advanced
biofuels, that is the difference between the advanced biofuel volume
and the sum of the cellulosic biofuel and BBD volumes. This would allow
other advanced biofuels to continue to compete with excess volumes of
BBD for market share under the advanced biofuel standard, while also
supporting further growth in the BBD industry.
---------------------------------------------------------------------------
\157\ See CAA section 211(o)(2)(B)(i)(IV), (II).
\158\ While excess BBD production could also displace
conventional renewable fuel under the total renewable standard, as
long as the BBD applicable volume is 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 is expected to displace other
advanced biofuels. We acknowledge, however, that under certain
market conditions excess volumes of BBD may also be used to displace
conventional biofuels as may have been the case in 2013-16 when the
prices of BBD, advanced, and conventional RINs converged. We have
not, however, observed similar market dynamics in more recent years,
and we think it is unlikely that BBD RINs will become the marginal
biofuel used to meet the total renewable fuel standard in subsequent
years. Rather, conventional biodiesel and renewable diesel have and
will likely continue to play that role.
---------------------------------------------------------------------------
Consistent with our approach in setting the final BBD volume
requirement for 2020, our primary assessment of the statutory factors
for the 2021 BBD applicable volume is that because the BBD requirement
is nested within the advanced biofuel volume requirement, we expect
that the 2021 advanced volume requirement, when set next year, will
determine the level of BBD use, production, and imports that occur in
2021. Therefore, we continue to believe that approximately the same
overall volume of BBD would likely be supplied in 2021 even if we were
to mandate a somewhat lower or higher BBD volume for 2021. Thus, we do
not expect our 2021 BBD volume requirement to result in a significant
difference in the factors we consider pursuant to CAA section
211(o)(2)(B)(ii)(I)-(VI) in 2021.
We also considered long-term impacts of the 2021 BBD volume.\159\
We find that while BBD volumes and resulting impact on the statutory
factors in 211(o)(2)(B)(ii) will not likely be significantly impacted
by the 2021 BBD volume in the short term, leaving room for growth of
other advanced biofuels could have a beneficial impact on certain
statutory factors in the long term. Notably, this incentivizes the
development of other advanced biofuels with potentially superior cost,
climate, environmental, and other characteristics, relative to BBD.
---------------------------------------------------------------------------
\159\ ``Memorandum to docket: Draft Statutory Factors Assessment
for the 2021 Biomass-Based Diesel (BBD) Applicable Volumes.'' See
Docket EPA-HQ-OAR-2019-0136.
---------------------------------------------------------------------------
With the considerations discussed above in mind, as well as our
analysis of the factors specified in the statute, we are proposing to
set the applicable volume of BBD at 2.43 billion gallons for 2021. This
volume would continue to preserve a significant gap between the
advanced biofuel volume and the sum of the cellulosic biofuel and BBD
volumes. This would allow other advanced biofuels to continue to
compete with excess volumes of BBD for market share under the advanced
biofuel standard. This would allow some long term certainty for
investments on other advanced biofuels that over time could compete
with BBD to fill the advanced biofuel standard. We believe this volume
sets the appropriate floor for BBD, and that the volume of advanced
biodiesel and renewable diesel actually used in 2021 will be driven by
the level of the advanced biofuel and potentially the total renewable
fuel standards that the Agency will establish for 2021. It also
recognizes that while maintaining an opportunity for other advanced
biofuels is important, the vast majority of the advanced biofuel used
to comply with the advanced biofuel standard in recent years has been
BBD. Based on information now available from recent years, despite
providing a significant degree of space for ``other'' advanced
biofuels, smaller volumes of ``other'' advanced have been utilized to
meet the advanced standard. EPA believes that the BBD standard we are
proposing today still provides sufficient incentive to producers of
``other'' advanced biofuels, while also acknowledging that the advanced
standard has been met predominantly with biomass-based diesel. Our
assessment of the required statutory factors and the implementation of
the program supports a proposed volume of 2.43 billion gallons.
VIII. Percentage Standards for 2020
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.
Sections II through IV provide our rationale and basis for the
proposed
[[Page 36797]]
volume requirements for 2020.\160\ The volumes used to determine the
proposed percentage standards are shown in Table VIII-1.
---------------------------------------------------------------------------
\160\ The 2020 volume requirement for BBD was established in the
2019 standards final rule (83 FR 63704, December 11, 2018).
Table VIII-1--Volumes for Use in Determining the Proposed 2020
Applicable Percentage Standards
[Billion gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel...................................... 0.54
Biomass-based diesel.................................... 2.43
Advanced biofuel........................................ 5.04
Renewable fuel.......................................... 20.04
------------------------------------------------------------------------
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. In past years we have used three
decimal places for cellulosic biofuel 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 group of cellulosic
biofuel producers (see Section III for a further discussion of the
proposed methodology for projecting cellulosic biofuel production and
our decision to round the projected volume of cellulosic biofuel to the
nearest 10 million gallons). However, the volume requirements for
cellulosic biofuel have increased over time, and today's proposed
volume requirements are the highest ever. We propose that volume
requirements and percentage standards for cellulosic biofuel use two
decimal places.
A. Calculation of Percentage Standards
To calculate the percentage standards, we are following the same
methodology for 2020 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 40 CFR 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 biomass-based diesel used in transportation fuel. Since the
percentage standards apply only to the non-renewable gasoline and
diesel produced or imported, the volumes of renewable fuel 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
under 40 CFR 80.1407.
As specified in the RFS2 final rule,\161\ 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 in order to calculate a percentage
standard that is on the same basis (i.e., ethanol-equivalent) as the
other three standards. However, BBD often contains some renewable
diesel, and a gallon of renewable diesel typically generates 1.7
RINs.\162\ 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 assessment of 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 and 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 VII.B of the
2019 standards final rule, we do not expect the BBD standard to be
binding in 2020.\163\ That is, we expect that actual supply of BBD, as
well as supply of conventional biodiesel and renewable diesel, will be
driven by the advanced biofuel and total renewable fuel standards.
---------------------------------------------------------------------------
\161\ See 75 FR 14670 (March 26, 2010).
\162\ Under 40 CFR 80.1415(b)(4), renewable diesel with a lower
heating value of at least 123,500 Btu/gallon is assigned an
equivalence value of 1.7. A minority of renewable diesel has a lower
heating value below 123,500 BTU/gallon and is therefore assigned an
equivalence value of 1.5 or 1.6 based on applications submitted
under 40 CFR 80.1415(c)(2).
\163\ 83 FR 63704, December 11, 2018.
---------------------------------------------------------------------------
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 \164\
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,
determines whether the small refinery has demonstrated disproportionate
economic hardship and may grant refineries exemptions upon such
demonstration.
---------------------------------------------------------------------------
\164\ 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.
However, at this time no exemptions have been approved for 2020, and
therefore we have calculated the percentage standards for 2020 without
any adjustment for exempted volumes. We are maintaining our approach
that any exemptions for 2020 that are granted after the final rule is
released will not be reflected in the percentage standards that apply
to all gasoline and diesel produced or imported in 2020.\165\
---------------------------------------------------------------------------
\165\ We are not reopening this policy or any other aspect of
the formula at 40 CFR 80.1405(c). Any comments received on such
issues will be deemed beyond the scope of this rulemaking.
---------------------------------------------------------------------------
C. Proposed Standards
The formulas in 40 CFR 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
[[Page 36798]]
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 projected
gasoline and diesel volumes from exempt small refineries. The values of
all the variables used for this final rule are shown in Table VIII.C-
1.\166\
---------------------------------------------------------------------------
\166\ To determine the 49-state values for gasoline and diesel,
the amount of these fuels used in Alaska is subtracted from the
totals provided by EIA because petroleum based fuels used in Alaska
do not incur RFS obligations. The Alaska fractions are determined
from the June 29, 2018 EIA State Energy Data System (SEDS), Energy
Consumption Estimates.
Table VIII.C-1--Values for Terms in Calculation of the Proposed 2020
Standards \167\
[Billion gallons]
------------------------------------------------------------------------
Term Description Value
------------------------------------------------------------------------
RFVCB.......................... Required volume of 0.54
cellulosic biofuel.
RFVBBD......................... Required volume of 2.43
biomass-based diesel.
RFVAB.......................... Required volume of 5.04
advanced biofuel.
RFVRF.......................... Required volume of 20.04
renewable fuel.
G.............................. Projected volume of 143.49
gasoline.
D.............................. Projected volume of 57.06
diesel.
RG............................. Projected volume of 14.62
renewables in gasoline.
RD............................. Projected volume of 2.48
renewables in diesel.
GS............................. Projected volume of 0
gasoline for opt-in
areas.
RGS............................ Projected volume of 0
renewables in gasoline
for opt-in areas.
DS............................. Projected volume of 0
diesel for opt-in
areas.
RDS............................ Projected volume of 0
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 derived from values in the April 2019
version of EIA's Short-Term Energy Outlook. An estimate of fuel
consumed in Alaska, derived from the June 29, 2018 release of EIA's
State Energy Data System (SEDS) and based on the 2016 volumes contained
therein, was subtracted from the nationwide volumes.
---------------------------------------------------------------------------
\167\ See ``Calculation of proposed % standards for 2020'' in
docket EPA-HQ-OAR-2019-0136.
---------------------------------------------------------------------------
Using the volumes shown in Table VIII.C-1, we have calculated the
proposed percentage standards for 2020 as shown in Table VIII.C-2.
Table VIII.C-2--Proposed Percentage Standards for 2020
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Cellulosic biofuel...................................... 0.29
Biomass-based diesel.................................... 1.99
Advanced biofuel........................................ 2.75
Renewable fuel.......................................... 10.92
------------------------------------------------------------------------
IX. Amendments to the RFS Program Regulations
In implementing the RFS program, we have identified several changes
to the program that would assist with implementation in future years.
These proposed regulatory changes comprise clarification of diesel RVO
calculations, pathway petition conditions, a biodiesel esterification
pathway, distillers corn oil and distillers sorghum oil pathways, and
renewable fuel exporter provisions. These regulatory changes are
described in this section. In addition, as stated in Section I.A.8, we
are considering finalizing certain provisions of the proposed REGS rule
with the final 2020 RVO rule.\168\
---------------------------------------------------------------------------
\168\ Any comments received on REGS provisions beyond the
specific provisions listed in Section I.A.8 will be deemed beyond
the scope of this rulemaking.
---------------------------------------------------------------------------
A. Clarification of Diesel RVO Calculations
Historically, home heating oil (HO) and diesel fuel were virtually
indistinguishable because both contained the same distillation range of
hydrocarbons and high level of sulfur. EPA's diesel fuel sulfur
regulations forced a distinction in the marketplace beginning in the
1990s and concluding in 2010 with the phase-in of the ultra-low sulfur
diesel regulations for diesel fuel used in motor vehicles and motor
vehicle engines (MV diesel fuel). Similarly, beginning in 2004, EPA
promulgated requirements for diesel fuel used in nonroad, locomotive,
and marine vehicles and engines (NRLM diesel fuel) that concluded
phasing in at the end of 2014. Thus, all diesel fuel for use in motor
vehicles and motor vehicle engines, and nonroad, locomotive, and marine
vehicles and engines, is currently required to meet a 15 ppm sulfur
per-gallon standard, under regulations set out in 40 CFR part 80,
subpart I \169\ (For purposes of subpart I, such diesel fuel is also
now collectively known as MVNRLM diesel fuel). We did not set standards
for HO under subpart I, with the result that it remained high in sulfur
content and cost less to produce than MVNRLM diesel fuel. As such,
subpart I also requires all parties in the distribution system to
ensure that diesel fuel containing 15 ppm sulfur or less (referred to
as 15 ppm diesel fuel, ultra-low sulfur diesel fuel, or ULSD) remains
segregated from higher sulfur fuels and to take measures to prevent
sulfur contamination of ULSD.
---------------------------------------------------------------------------
\169\ Subpart I includes an exception to this requirement that
allows diesel fuel used in locomotive or marine engines to meet a
500 ppm sulfur standard if the fuel is produced from transmix
processors and distributed under an approved compliance plan.
---------------------------------------------------------------------------
The RFS regulations, which place a renewable fuel obligation (RVO)
on the production and importation of diesel transportation fuel, but
not on the production or importation of HO, were promulgated in 2010
and, similar to subpart I regulations, made the same presumption that
HO and MVNRLM diesel fuel would be segregated. The RFS regulations did
not anticipate that these fuels would become indistinguishable, have
the same value in the marketplace, and be commingled in the fuel
distribution system. For example, 40 CFR 80.1407 set forth requirements
for obligated parties to include all products meeting the definition of
MVNRLM diesel fuel, collectively called ``diesel fuel,'' at 40 CFR
80.2(qqq) that are produced or imported during a compliance period in
the volume used to calculate their RVOs
[[Page 36799]]
unless the diesel fuel is not transportation fuel.\170\ The definitions
of MV and NRLM diesel fuel state that these products include fuel that
is ``made available'' for use in motor vehicles and motor vehicle
engines, and nonroad, locomotive, or marine vehicles and engines.\171\
---------------------------------------------------------------------------
\170\ See 40 CFR 80.1407(e) and (f).
\171\ See 40 CFR 80.2(y) and (nnn).
---------------------------------------------------------------------------
When the RFS regulations were promulgated in 2010, the lower
production cost of HO relative to diesel fuel provided economic
incentive for refiners, pipelines, and terminals to produce and
distribute HO separately from diesel fuel. After we promulgated the RFS
regulations, however, many states began implementing programs designed
to reduce the sulfur content of HO to 15 ppm or less (15 ppm HO).
Currently, the majority of HO is required to meet a 15 ppm sulfur
standard under numerous state and city programs in the Northeast and
Mid-Atlantic,\172\ making HO once again indistinguishable from ULSD and
of the same economic value as MVNRLM diesel fuel.\173\ Further, in
2015, additional regulations became effective that required marine
diesel fuel used in Emissions Control Areas (ECA marine fuel) to
contain 1,000 ppm sulfur or less.\174\ In response, many companies have
opted to produce and distribute ECA marine fuel containing 15 ppm
sulfur or less (15 ppm ECA marine fuel) fungibly with 15 ppm diesel
fuel, rather than invest in infrastructure to distribute and segregate
higher-sulfur ECA marine fuel. Since HO, ECA marine fuel, and other
non-transportation fuels that meet a 15 ppm sulfur standard are
essentially identical in the marketplace, we believe that some parties
in the fuel distribution system are distributing them together--i.e.,
commingling MVNRLM diesel fuel with 15 ppm HO and 15 ppm ECA marine
fuel.
---------------------------------------------------------------------------
\172\ Connecticut, Delaware, Maine, Massachusetts, New
Hampshire, New Jersey, New York, Rhode Island, Vermont, the District
of Columbia, and the city of Philadelphia.
\173\ See the New England Fuel Institute's (NEFI) ``State Sulfur
& Bioheat Requirements for No. 2 Heating Oil in the Northeast & Mid-
Atlantic States,'' available in the docket for this action.
\174\ ECA marine fuel is not transportation fuel under the RFS
regulations. Therefore, refiners and importers do not incur an RVO
for ECA marine fuel that they produce or import.
---------------------------------------------------------------------------
The regulations in 40 CFR part 80, subpart I, do not prohibit
parties from commingling MVNRLM diesel fuel with other 15 ppm
distillate fuel that is designated for non-transportation purposes.
However, commingled fuel must meet all of the applicable requirements
in subpart I because the resulting fuel is ``made available'' for use
in motor vehicles, or nonroad, locomotive, or marine vehicles and
engines.\175\ This means that any refiner or importer that produces or
imports 15 ppm distillate fuel that is designated for non-
transportation purposes and is commingled with MVNRLM diesel fuel must
also certify the fuel as meeting the sampling, testing, reporting, and
recordkeeping requirements in subpart I.\176\
---------------------------------------------------------------------------
\175\ See 40 CFR 80.2(y) and (nnn).
\176\ We have received requests from a number of regulated
parties asking the agency to amend the fuels regulations to allow
parties to more easily mix and fungibly ship HO, ECA marine fuel,
and MVNRLM fuel that meet the 15 ppm sulfur standard. In a separate
action, we intend to propose additional amendments that would
significantly streamline these regulations (see RIN 2061-AT31 in
EPA's Regulatory Agenda).
---------------------------------------------------------------------------
Although this approach does not create compliance issues relating
to subpart I requirements, we are concerned that some obligated parties
(e.g., refiners and importers) under the RFS program may be calculating
RVOs without accounting for all of their 15 ppm distillate fuel (i.e.,
distillate fuel that contains 15 ppm sulfur or less) that is ultimately
sold for use as MVNRLM diesel fuel. Specifically, we are concerned that
obligated parties may be excluding 15 ppm HO or 15 ppm ECA marine fuel
from their RVO calculations, and that a downstream party may be re-
designating this fuel as MVNRLM diesel fuel and not incurring an
RVO.\177\
---------------------------------------------------------------------------
\177\ A similar situation exists with respect to #1 diesel fuel
which is used/blended in the winter due to cold temperature
constraints and its often-identical counterparts of kerosene and jet
fuel.
---------------------------------------------------------------------------
With the convergence of the MVNRLM diesel fuel, HO, and ECA marine
fuel sulfur standards, some stakeholders have expressed confusion to
EPA on accounting for 15 ppm distillate fuel that leaves the obligated
party's gate designated as HO, ECA marine fuel, or other non-
transportation fuels, but is subsequently re-designated as either
MVNRLM diesel fuel or ultimately used as MVNRLM diesel fuel by a
downstream entity. Specifically, some obligated parties have asked
whether they are required to add re-designated MVNRLM diesel fuel back
to their RVO calculations while some downstream entities have asked
whether they are required to incur an RVO for MVNRLM diesel fuel they
re-designate from non-transportation fuel to transportation fuel.
We intended for any diesel fuel not used as transportation fuel,
such as HO or ECA marine fuel, to be excluded from RVO calculations in
keeping with statutory requirements.\178\ We also intended for all
diesel fuel ultimately used as transportation fuel to incur an RVO,
even 15 ppm distillate fuel that is initially designated as non-
transportation fuel and subsequently re-designated as transportation
fuel by downstream parties.\179\ Thus, existing regulations allow
downstream parties who are registered as refiners and who comply with
all sampling, testing, recordkeeping, and other refiner requirements to
``produce'' MVNRLM diesel fuel from HO, ECA marine fuel, and other non-
transportation fuels. These refiners incur RVOs for all MVNRLM diesel
fuel that they ``produce'' from the non-transportation fuel. However,
we believe that stakeholder confusion over who should account for re-
designated fuel in their RVO may be causing the omission of some re-
designated MVNRLM diesel fuel from RVO calculations altogether.
Therefore, we are proposing to revise the RFS regulations to more
clearly specify how volumes of re-designated MVNRLM diesel fuel are
accounted for in obligated parties' RVO calculations in order to ensure
that the RFS mandates continue to be met.
---------------------------------------------------------------------------
\178\ See 40 CFR 80.1407(f)(8).
\179\ With the other exceptions listed in 40 CFR part
80.1407(f).
---------------------------------------------------------------------------
We are proposing to clarify the requirement for refiners and
importers to include distillate fuel in their RVO compliance
calculations by providing exceptions for the following three additional
categories of fuel:
Distillate fuel, such as HO or ECA marine fuel, with a
sulfur content greater than 15 ppm that is clearly designated for a use
other than transportation fuel.
Distillate fuel that meets 15 ppm sulfur standard, is
designated for non-transportation use, and that remains completely
segregated from MVNRLM diesel fuel from the point of production through
to the point of use for a non-transportation purpose.
Distillate fuel that that meets the 15 ppm diesel sulfur
standard, that is ultimately used for non-transportation purposes, and
that does not remain completely segregated from MVNRLM diesel fuel.
Since the first two categories of distillate fuel above are
completely segregated from MVNRLM diesel fuel, we are not concerned
about them being used as a transportation fuel and are therefore not
proposing any additional requirements for these fuels to be excluded
from a refiner or importer's RVO compliance calculations. However,
because the third category of distillate fuel is not completely
segregated and is indistinguishable from MVNRLM diesel
[[Page 36800]]
fuel, we are proposing additional requirements for this type of
distillate fuel to be excluded from a refiner or importer's RVO
compliance calculations. Our proposed approach is described in Section
IX.A.1; however, we are also seeking comment on two alternative
approaches, which are described in Sections IX.A.2 and 3. We encourage
stakeholders to comment on all three approaches because there is a
reasonable likelihood that the agency may choose to finalize one of the
alternative approaches.
1. Downstream Re-Designation of Certified Non-Transportation 15 ppm
Distillate Fuel to MVNRLM Diesel Fuel
In order to allow refiners and importers to exclude distillate fuel
that that meets the 15 ppm diesel sulfur standard, is ultimately used
for non-transportation purposes, and does not remain completely
segregated from MVNRLM diesel fuel from their RVO calculations, we are
proposing to define a new category of distillate fuel: Certified non-
transportation 15 ppm distillate fuel (``certified NTDF''). We are
proposing to define certified NTDF as distillate fuel that meets all of
the following requirements:
The fuel is certified as complying with the 15 ppm sulfur
standard, cetane/aromatics standard, and all applicable sampling,
testing, and recordkeeping requirements of 40 CFR part 80, subpart I.
The fuel is designated on the product transfer document as
15 ppm HO, 15 ppm ECA marine fuel, or other non-transportation fuel
(e.g., jet fuel, kerosene, No. 4 fuel, or distillate fuel for export
only) with a notation that the fuel ``Meets all MVNRLM diesel fuel
standards,'' with no designation as MVNRLM diesel fuel.
Additionally, in order for a refiner or exporter to exclude
certified NTDF from their RVO calculations, they must also have a
reasonable expectation that the fuel will be used as HO, ECA marine
fuel, or another non-transportation purpose. This requirement is
designed to prevent refiners and importers from circumventing the
requirement to incur an RVO for all transportation fuel by simply
designating transportation fuel as non-transportation fuel. While we
recognize that the complexity of the fuel distribution system makes it
difficult for refiners and importers to ensure in all situations that
the fuel they produce and exclude from their RVO calculations will be
used for non-transportation purposes, we are nonetheless proposing
criteria that refiners or importers would need to meet to demonstrate
that they have a reasonable expectation that certified NTDF will not be
used as transportation fuel:
The refiner or importer supplies areas that use HO, ECA
marine fuel, or 15 ppm distillate fuel for non-transportation purposes
in the quantities being supplied by the refiner or importer.
The refiner or importer has entered into a contractual
arrangement that prohibits the buyer from selling the fuel as MVNRLM
diesel fuel.
The volume of fuel designated as HO, ECA marine fuel, or
other non-transportation purposes is consistent with the refiner's or
importer's past practices or reflect changed market conditions.
In addition, EPA may consider any other relevant information in
assessing whether a refiner or importer has a reasonable expectation
that the fuel was used for non-transportation purposes. We seek comment
on whether these criteria are appropriate to determine that a refiner
or importer has a reasonable expectation that their fuel will be used
for non-transportation purposes.
Our intent is to ensure that all fuel ultimately used as MVNRLM
diesel fuel incurs an RVO. In order to achieve this goal, we are
proposing requirements that would allow parties in the fuel
distribution system (e.g., downstream of the original refinery or
import facility) to sell certified NTDF as MVNRLM diesel fuel without
incurring an RVO if the total volume of MVNRLM diesel fuel delivered
during each compliance period does not exceed the amount of MVNRLM
diesel fuel received during that compliance period. Parties who re-
designate certified NTDF as MVNRLM diesel fuel would be a refiner for
purposes of the RFS program and would therefore be required to register
as a refiner. They would also be required to maintain a running balance
of MVNRLM diesel fuel that they deliver and ensure that it does not
exceed the volume of MVNRLM diesel fuel that they receive during the
compliance period. If downstream parties deliver a volume of MVNRLM
diesel fuel that exceeds the volume of MVNRLM diesel fuel they received
in that compliance period, however, they would treat the difference as
diesel fuel that they ``produced'' and incur an RVO on this volume.
This will properly account for the aggregate volume of non-
transportation fuel that is re-designated as MVNRLM diesel fuel under
the RFS program. This one-sided test allows MVNRLM diesel fuel to be
sold as HO or ECA marine fuel but prevents the erosion of the renewable
fuel mandate. These parties would also be subject to recordkeeping
requirements to ensure the enforceability of this program.
We are also proposing corresponding revisions to the RFS program
reporting requirements, including requiring refiners and importers to
report the volume of MVNRLM diesel fuel they produce or import, the
volume of distillate fuel they produce or import that is not
transportation fuel, and the volume of distillate fuel they produce or
import that is certified NTDF. We are also proposing to require
downstream parties who redesignate NTDF as MVNRLM diesel fuel to submit
reports to EPA identifying the volume of MVNRLM diesel fuel received,
the volume of MVNRLM diesel fuel discharged, the volume of fuel re-
designated from certified NTDF to MVNRLM diesel fuel, and the volume of
MVNRLM diesel fuel redesignated to non-transportation use. Further, for
purposes of evaluating compliance, we are also proposing to:
Require parties who re-designate certified NTDF to MVNRLM
diesel fuel to keep all records relating to these transactions.
Prohibit a party from exceeding its balance requirements
without incurring an RVO.
Ensure that the attest auditors review relevant
information to ensure compliance with applicable RFS program
requirements.
2. Presumptive Inclusion of 15 ppm Sulfur Diesel Fuel
Under this alternative approach, refiners and importers would
assume that any 15 ppm distillate fuel they produce or import is
ultimately used as transportation fuel and would include this fuel in
their RVO calculations regardless of its designation, unless a
downstream party informs the refiner or importer that certain volumes
of their 15 ppm distillate fuel were not used as transportation fuel.
Under this approach, we would require a downstream party that sold any
15 ppm distillate fuel for purposes other than transportation fuel to
notify the original refiner or importer of a 15 ppm distillate fuel's
non-transportation use. We would also allow the upstream party to
subtract the non-transportation volume from its RVO calculations upon
notification from a downstream entity. We seek comment on whether
terminals or other downstream parties could feasibly trace a volume of
fuel that was sold for a non-transportation use to the original refiner
and, if so, how.
Under this alternative approach, we would require refiners to
report the total volume of 15 ppm diesel fuel they produce and the
volume that they
[[Page 36801]]
subtracted from their compliance calculations for fuel that was not
used at transportation fuel. We would also require refiners and
importers who exclude 15 ppm distillate fuel from their RVO calculation
to obtain statements from downstream parties who sell the fuel
certifying that it was used for a purpose other than transportation
fuel. The downstream parties would also need to maintain sales records,
contracts, or other documentation demonstrating that they sold the fuel
to be used for a purpose other than transportation fuel. We would also
prohibit a party from violating any of these new requirements and
require that the attest auditor reviews relevant information to ensure
compliance with applicable RFS regulations.
3. Presumptive Exclusion of 15 ppm Sulfur Diesel Fuel
Under this alternative approach, we would propose that a refiner or
importer could exclude certified NTDF from its obligated volume of
transportation fuel if it has a reasonable expectation that the fuel
will not be used as transportation fuel, unless a downstream party
notifies the refiner or importer that the certified NTDF was re-
designated as transportation fuel. Under this alternative approach, we
would require the downstream party to notify the refiner or importer
prior to the downstream party's re-designation of the non-
transportation fuel as transportation fuel.\180\ We would require a
refiner or importer to include any non-transportation fuel in their
obligated volume of transportation fuel if they are notified by a
downstream party that the non-transportation fuel was redesignated and
sold as transportation fuel. Under this approach, downstream parties
would only be allowed to sell certified NTDF as MVNRLM diesel fuel if
they are able to trace the redesignated fuel back to the refiner or
importer who excluded the fuel from their RVO. We seek comment on
whether such tracking would in fact be possible, including what types
of transaction structures might be less complex to track than others.
For example, a transaction between a refiner and a direct user of HO
may be a relatively simple transaction to trace. We seek comment on
what type of documentation could serve as the notification to the
original refiner or importer of re-designation, as well as timing of
notification. Under this approach, we would also revise the reporting,
recordkeeping, prohibited acts, and attest engagement requirements that
have been discussed in the other approaches above.
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\180\ This requirement would be consistent with the prohibition
in 40 CFR 80.1460(c) (``[n]o person shall cause another person to
commit an act in violation of any prohibited act under this
section.'').
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4. Potential Expansion of Scope of Proposed Clarification to Gasoline
While this proposed clarification is designed specifically to
address the issue of the redesignation of 15 ppm diesel fuel, this type
of situation may also arise for gasoline. We have received inquiries
from stakeholders asking whether obligated parties could use a similar
volume balancing approach to exclude exported volumes of gasoline from
their RVO calculations. Since the gasoline benzene and sulfur programs
require refiners and importers to account for specific levels of
benzene and sulfur in each batch of gasoline, we have required parties
to keep gasoline designated for export segregated from gasoline
included in their compliance calculations. We have expected that
obligated parties follow similar procedures to exclude gasoline exports
from incurring an RVO under the RFS program. However, we recognize that
it is much more challenging to identify specific sulfur and benzene
levels for exported fuels versus simply tracking volumes exported.
Therefore, we seek comment on whether we should broaden the scope of
this action to cover gasoline exports or potentially other scenarios
that may arise for the production and distribution of gasoline. We
believe that any of the discussed options above for diesel fuel could
apply to gasoline exports and the proposed regulations could be made
applicable to gasoline, if finalized.
B. Pathway Petition Conditions
We are proposing to clarify our authority to enforce conditions
created by requirements included in an approved pathway petition
submitted under 40 CFR 80.1416. Since December 2010, we have approved
over 115 pathway petitions. To qualify for the generation of RINs under
an approved petition, the fuel must meet the conditions and associated
regulatory provisions specified in EPA's petition approval document and
the other definitional and regulatory requirements for renewable fuel
specified in the CAA and EPA implementing regulations, including for
RIN generation, registration, reporting, and recordkeeping. Common
conditions include, but are not limited to, compliance monitoring plans
detailing how parties will accurately and reliably measure and record
the energy and material inputs and outputs required to ensure the
lifecycle analysis, process flow diagrams showing the energy used for
feedstock, fuel, and co-product operations, and certifications signed
by responsible corporate officers.
We have authority to bring an enforcement action of these
conditions under 40 CFR 80.1460(a), which prohibits producing or
importing a renewable fuel without complying with the RIN generation
and assignment requirements. The RFS regulations provide that RINs may
only be generated if the fuel qualifies for a D code pursuant to 40 CFR
80.1426(f) or an approved petition submitted under 40 CFR 80.1416.\181\
If any of the conditions required by an approved petition are not met,
then the fuel does not qualify for a D code, and RINs may not be
generated. These conditions are also enforceable under 40 CFR
80.1460(b)(2), which prohibits creating a RIN that is invalid; a RIN is
invalid if it was improperly generated.\182\ As stated above, a RIN is
improperly generated if the fuel representing the RIN does not qualify
for a D code, and by not following the all required conditions the fuel
does not qualify for a D code.
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\181\ See 40 CFR 80.1426(a)(1)(i).
\182\ See 40 CFR 80.1431(a)(ix).
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We propose to modify the RFS regulations to clarify that renewable
fuel must be produced in compliance with all conditions set forth in an
approved petition submitted under 40 CFR 80.1416 (in addition to the
applicable requirements of subpart M). We also propose to add a
prohibited act for generating a RIN for fuel that fails to meet all the
conditions set forth in an approved petition submitted under 40 CFR
80.1416 in order to provide more clarity regarding our ability to bring
enforcement actions for failure to meet such conditions. We seek
comment on these proposed clarifications.
C. Esterification Pathway
Table 1 to 40 CFR 80.1426 includes pathways for the production of
biodiesel using specified feedstocks and the production process
transesterification. Transesterification is the most commonly used
method to produce biodiesel and involves reacting triglycerides with
methanol, typically under the presence of a base catalyst.\183\ While
the main component of oils, fats, and grease feedstocks are typically
triglycerides, other components, such as free fatty acids (FFAs), can
also exist. Removal or conversion of the FFAs is important where the
traditional base-
[[Page 36802]]
catalyzed transesterification production process is used; if they are
not removed or converted prior to this process, FFAs will react with
base catalysts to produce soaps that inhibit the transesterification
reaction.
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\183\ Commonly used base catalysts include sodium hydroxide
(NaOH), potassium hydroxide (KOH) and sodium methoxide
(NaOCH3).
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One of the most widely used methods for treating biodiesel
feedstocks with a higher FFA content is acid catalysis. Acid catalysis
typically uses a strong acid, such as sulfuric acid, to catalyze the
esterification of the FFAs prior to the transesterification of the
triglycerides as a pre-treatment step. Acid esterification can be
applied to feedstocks with FFA contents above 5% to produce biodiesel.
Because the transesterification of triglycerides is slow under acid
catalysis, a technique commonly used to overcome the reaction rate
issue is to first convert the FFAs through an acid esterification (also
known as an acid ``pretreatment'' step), and then follow-up with the
traditional base-catalyzed transesterification of triglycerides.
Under the RFS2 final rule, biodiesel from biogenic waste oils/fats/
greases qualifies for D-codes 4 and 5 using a transesterification
process. This conclusion was based on the analysis of yellow grease as
a feedstock, where there was an acid pretreatment of the FFAs contained
in the feedstock. In fact, one of the material inputs assumed in the
modeling for the final RFS2 rule yellow grease pathway was sulfuric
acid, which is the catalyst commonly used for acid esterification. As
we had not stipulated transesterification with esterification
pretreatment as a qualified production process in rows F and H to Table
1 to 40 CFR 80.1426, we are proposing to revise these entries to
include esterification as a pretreatment step to
transesterification.\184\
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\184\ In 2012, we issued a direct final rule and a parallel
proposed rule (see 77 FR 700 and 77 FR 462, respectively; January 5,
2012) that would have determined that, among other regulatory
changes, biodiesel produced from esterification met the GHG
reduction requirements. Because we received adverse comment, we
withdrew the direct final rule in its entirety (see 77 FR 13009,
March 5, 2012). In the 2013 final rule based on the parallel
proposal (78 FR 14190, March 5, 2013), we decided not to finalize a
determination at that time on biodiesel produced from esterification
and noted that we would instead make a final determination at a
later time.
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Further, there are feedstocks that may contain higher levels of
FFAs compared to those included in the modeling for the RFS2 final rule
from which FFAs could be seperated and processed into biodiesel through
esterification.\185\ In the modeling analysis, we evaluated the key
variables associated with these high levels of FFAs to determine
whether they might cause the biodiesel produced from these high-FFA
feedstocks via esterification or transesterification with
esterification pretreatment to exceed the lifecycle GHG threshold of
50%. The National Biodiesel Board (NBB) conducted a comprehensive
survey of the actual energy used by commercial biodiesel production
plants in the U.S.\186\ The survey depicts the amount of energy and
incidental process materials such as acids used to produce a gallon of
biodiesel. The survey data returned represents 37% of the surveyed 230
NBB biodiesel members in 2008 and includes producers using a variety of
virgin oils and recycled or reclaimed fats and oils. While there is no
specific data on the FFA content of the feedstocks used, the feedstocks
did include reclaimed greases, which represent the feedstocks which
typically have the highest FFA content. As the data is partially
aggregated, we used the maximum surveyed electricity and natural gas
used at the facilities and a high estimate of ``materials used'' based
on a sum of industry averages for all process materials for calculating
potential GHG emissions.\187\ Even though some of the facilities might
be processing feedstocks with relatively low FFA content, we believe
that using these maximum observed inputs for energy used plus a high
estimate for process materials used will result in the highest GHG
emissions profile estimate for biodiesel production GHG emissions.
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\185\ EPA. 2010. RFS Program (RFS2) Regulatory Impact Analysis,
February 2010, EPA-420-R-10-006, Chapter 2 (Lifecycle GHG analysis),
Section 2.4.7.3.3.
\186\ National Biodiesel Board, Comprehensive Survey on Energy
Use for Biodiesel Production (2008) http://www.biodiesel.org/news/RFS/rfs2docs/NBB%20Energy%20Use%20Survey%20FINAL.pdf.
\187\ According to the survey, the maximum electricity use for a
producer reached as high as 3,071 Btu per gallon biodiesel. This is
about 5 times higher than the industry average. The maximum natural
gas usage for a producer reached as high as 12,324 Btu per gallon
biodiesel, which is about 3.5 times higher than the industry
average. For ``materials used'' only an industry average for each
material was provided in the survey. Therefore, as a conservative
estimate, we totaled all the average material inputs to equal 0.51
kg/gal biodiesel even though not all facilities are likely to use
each and every one of the process materials listed in the survey
(e.g., we totaled all the acids used even though a facility is not
likely to use each different acid).
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Using the same methodology as was used for the yellow grease
modeling under the RFS2 final rule, but using the high energy and
materials use assumptions per the above discussion and omitting any
glycerin co-product credit, we estimate the emissions from biodiesel
processing via esterification at 23,708 grams carbon dioxide-equivalent
per million British Thermal Units (gCO2eq per mmBtu) of biodiesel. The
estimated GHG emissions reduction for the entire process is a 71%
reduction relative to the petroleum diesel baseline. Since the GHG
threshold is a 50% reduction for biomass-based diesel and advanced
biofuel, we believe that there is a large enough margin in the results
to reasonably conclude that biodiesel using esterification of specified
feedstocks with any level of FFA content meets the biomass-based diesel
and advanced biofuel 50% lifecycle GHG reduction threshold. Since the
biodiesel modeling completed for the final RFS2 rule includes
esterification upstream of the transesterification process, and since,
as described below even using worst case assumptions the biodiesel
produced from these feedstocks will still qualify as advanced biofuel
with the inclusion of the esterification process step, we again propose
that it is appropriate to revise Table 1 to 40 CFR 80.1426 to include
esterification as a qualified process under which biodiesel can be
produced from the feedstocks currently listed in rows F and H. This
includes processes that produce biodiesel through esterification with
no subsequent transesterification of the output from the esterification
process.
This addition of an esterification process will allow parties who
have processing units that can take high-FFA feedstocks listed in rows
F and H of Table 1 to 40 CFR 80.1426 and separate the FFAs and
triglycerides for chemical processing in separate standalone
esterification and transesterification units to generate RINs for the
biodiesel produced. It is important to note that while this proposal
would allow the separation of FFAs and triglycerides in qualified high-
FFA feedstocks at the facility producing the biodiesel through these
processes, we have determined that regulatory amendments would be
needed to address situations where this separation takes place at a
facility other than the ultimate renewable fuel production facility. In
the Renewables Enhancement and Growth Support (REGS) rule, we proposed
amendments to the RFS regulations to provide an appropriate regulatory
structure for the generation of RINs for renewable fuel produced from a
biointermediate,\188\ but those regulations have not been finalized.
Therefore, any FFAs separated from triglycerides in a feedstock at a
location other than the biodiesel production facility would be
considered a biointermediate from which RINs cannot currently be
generated.
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\188\ See 81 FR 80828 (November 16, 2018).
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[[Page 36803]]
Therefore, we are proposing to revise rows F and H of Table 1 to 40
CFR 80.1426 by changing the existing process ``Trans-Esterification''
to be ``Transesterification with or without esterification
pretreatment'' and adding ``esterification'' as approved production
process. We are proposing these revisions to rows F and H without
modifying the feedstocks listed in those rows, as these changes not
intended to make any additional feedstocks eligible beyond those
already listed in rows F and H.
D. Distillers Corn Oil and Distillers Sorghum Oil Pathways
We are proposing to add distillers corn oil and commingled
distillers corn oil and sorghum oil as feedstocks to row I of Table 1
to 40 CFR 80.1426. While the lifecycle GHG emissions associated with
using a very similar feedstock--distillers sorghum oil--as part of this
pathway were evaluated in the grain sorghum oil pathway final rule
(``sorghum oil rule''),\189\ these two feedstocks were not added to row
I as part of that rulemaking. This section discusses the proposal to
add distillers corn oil and commingled distillers corn oil and sorghum
oil as feedstocks to row I and presents the lifecycle GHG emissions
associated with these proposed pathways. We also explain why the most
likely effect of adding these pathways will be to reduce the number of
petitions submitted pursuant to 40 CFR 80.1416.
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\189\ See 83 FR 37735 (August 2, 2018).
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The March 2010 RFS2 rule included pathways for biodiesel and
renewable diesel produced from non-food grade corn oil. The March 2013
Pathways I rule added pathways for heating oil and jet fuel from non-
food grade corn oil in rows F and H of Table 1 to 40 CFR 80.1426, and
added pathways for naphtha and LPG from Camelina sativa oil in row
I.\190\ The sorghum oil rule amended the RFS regulations to add a new
definition of distillers sorghum oil and to replace existing references
to non-food grade corn oil with the newly defined term distillers corn
oil. That rule also added a number of pathways to rows F and H of Table
1 to 40 CFR 80.1426 for biodiesel, renewable diesel, jet fuel, and
heating oil produced from distillers sorghum oil and commingled
distillers sorghum and corn oil. Pathways for naphtha and LPG produced
from distillers sorghum oil via a hydrotreating process were also added
to row I of Table 1 to 40 CFR 80.1426.
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\190\ See 78 FR 14190 (March 5, 2013).
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Commingled distillers corn oil and sorghum oil was added as a
feedstock to rows F and H of Table 1 to 40 CFR 80.1426 because
distillers sorghum oil is often co-produced with distillers corn oil at
ethanol plants using a combination of grain sorghum and corn as
feedstocks for ethanol production. Due to the recovery process of the
oils from the distillers grains and solubles (DGS), where the ethanol
plant is using a feedstock that combines grain sorghum and corn, it is
not possible to physically separate the distillers sorghum and corn
oils into two streams, nor is it possible to account for the volume of
sorghum oil or corn oil in this mixture. For these and other
reasons,\191\ after concluding that distillers sorghum oil satisfies
the 50% GHG reduction threshold required for the advanced biofuel and
biomass-based diesel, we added both distillers sorghum oil and
``commingled distillers corn oil and sorghum oil'' to rows F and H of
Table 1 to 40 CFR 80.1426 in the sorghum oil rule. However, unlike rows
F and H, row I did not include a pathway using ``non-food grade corn
oil'' prior to that final rule, nor did we propose to add ``distillers
corn oil'' to that row in the December 2017 sorghum oil proposed
rule.\192\ Thus, in the absence of an assessment of lifecycle emissions
showing that distillers corn oil also meets the GHG reduction threshold
required for the pathways therein, in sorghum oil rule we decided ``it
would be premature for EPA to add either distillers corn oil or
commingled distillers corn and sorghum oil as feedstocks in row I.''
\193\ Currently, in order to generate D-code 5 RINs for naphtha and/or
LPG produced from distillers corn oil and/or commingled distillers corn
and sorghum oil, a fuel producer would first need to petition EPA
pursuant to 40 CFR 80.1416, have EPA review and approve their requested
pathway, and then submit and have EPA accept the registration for the
new pathway. Adding these feedstocks to row I would eliminate the need
for these petitions.
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\191\ For the other reasons discussed in the sorghum oil rule
preamble, see 83 FR 37737-39 (August 2, 2018).
\192\ See 82 FR 61205 (December 27, 2017).
\193\ See 83 FR 37738 (August 2, 2018).
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Table IX.D-1 shows the lifecycle GHG emissions associated with
renewable diesel, jet fuel, naphtha, and LPG produced from distillers
sorghum oil. These results are based on the analysis completed for the
sorghum oil rule.\194\ The lifecycle GHG emissions associated with the
statutory baseline fuels, 2005 average diesel and gasoline, are shown
for comparison. Based on these results, we are proposing that naphtha
and LPG produced from distillers corn oil and commingled distillers
corn and sorghum oil satisfy the 50% lifecycle GHG reduction
requirement at CAA section 211(o)(1)(B), relative to the statutory
petroleum baseline, to be eligible for advanced biofuel RINs.
---------------------------------------------------------------------------
\194\ See Table III.4 of the sorghum oil rule preamble (83 FR
37743, August 2, 2018).
Table IX.D-1--Lifecycle GHG Emissions Associated With Biofuels Produced From Distillers Sorghum Oil (kgCO2-eq/
mmBtu)
----------------------------------------------------------------------------------------------------------------
Renewable
Fuel diesel, jet Naphtha LPG 2005 Diesel 2005 Gasoline
fuel baseline baseline
----------------------------------------------------------------------------------------------------------------
Production Process.............. Hydrotreating
Refining
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Livestock Sector Impacts........ 19.4 19.4 19.4
Feedstock Production............ 6.2 6.2 6.2 18.0 19.2
Feedstock Transport............. 0.3 0.3 0.3
Feedstock Pretreatment.......... 0.0 0.0 0.0
Fuel Production................. 8.0 8.0 8.0
Fuel Distribution............... 0.8 0.8 0.8
Fuel Use........................ 0.7 1.7 1.5 79.0 79.0
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Total....................... 35.4 36.4 36.2 97.0 98.2
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[[Page 36804]]
Percent Reduction........... 64% 63% 63%
----------------------------------------------------------------------------------------------------------------
Although the lifecycle GHG analysis for the sorghum oil rule
focused on distillers sorghum oil, we believe it is also applicable to
distillers corn oil for purposes of determining whether the distillers
corn oil pathways under consideration satisfy the 50% GHG reduction
requirement. For the sorghum oil rule, we estimated the livestock
sector impacts associated with distillers sorghum oil based on a set of
assumptions about the type of feed that would need to backfill for the
reduction in mass of de-oiled DGS as compared to full-oil DGS. For that
analysis we calculated a substitution rate for how much corn would be
needed to backfill in livestock feed for every pound of grain sorghum
oil diverted to biofuel production, by livestock type. The amounts of
corn needed to replace each pound of extracted sorghum oil were largely
based on studies that evaluated the nutritional values of regular and
reduced-oil distillers grains produced as a co-product of corn starch
ethanol.\195\ Given that the underlying data for our distillers sorghum
oil assessment was largely based on studies conducted on corn ethanol
co-products, we believe it is appropriate to apply the same results to
similar proposed pathways using distillers corn oil feedstock.
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\195\ See Table III.2 (Full-Oil and Reduced-Oil Sorghum
Distillers Grains with Solubles Displacement Ratios) of the sorghum
oil rule (83 FR 37741, August 2, 2018) and accompanying footnote
number 36, which lists the sources for the data in that table.
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One difference between distillers corn oil and sorghum oil is the
rate of oil recovered per pound of corn versus grain sorghum processed.
The distillers sorghum oil petition submitted by the National Sorghum
Producers reported that 0.67 pounds of distillers sorghum oil are
recovered per bushel of grain sorghum processed to ethanol, whereas
0.84 pounds of distillers corn oil is extracted per bushel of
corn.\196\ Adjusting for this difference results in slightly lower
livestock sector GHG emissions associated with naphtha and LPG produced
from distillers corn oil.\197\ Based on this adjustment the results in
Table IX.D-1 change from a 63% GHG reduction for naphtha and LPG
produced from distillers sorghum oil to a 64% reduction for naphtha and
LPG production from distillers corn oil. We therefore believe it is
appropriate to conclude that these pathways satisfy the 50% GHG
reduction requirement to qualify as advanced biofuel under the RFS
program.
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\196\ See Table 4 of ``Grain Sorghum Oil Pathway Petition,''
Docket Item No. EPA-HQ-OAR-2017-0655-0005.
\197\ The source of the difference is the amount of corn needed
to replace one pound of full-oil versus reduced-oiled DDGS in beef
cattle diets. In our analysis for the sorghum oil rule, we assumed,
based on the best available data provided by NSP, USDA and
commenters, that reduced-oil DDGS are replaced at a lower rate
(1.173 lbs corn per lbs DDGS) than full-oil DDGS (1.196 lbs corn per
lbs DDGS). Increasing the rate of oil extraction produces less de-
oiled DDGS and requires corn replacement at the lower rate of 1.173.
Thus, all else equal, higher rates of oil extraction result in lower
GHG emissions per pound of oil extracted. It's possible this effect
would disappear if we had higher resolution data on corn
displacement ratios for DDGS with different oil contents, but such
data are currently not available.
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E. Clarification of the Definition of Renewable Fuel Exporter and
Associated Provisions
We propose to clarify our definition of exporters of renewable fuel
to ensure appropriate flexibility for market participants and to deter
sham transactions. The current RFS regulations require an exporter of
renewable fuel to acquire sufficient RINs to comply with all applicable
RVOs incurred from the volumes of the renewable fuel exported.\198\
Exporter of renewable fuel is currently defined in 40 CFR 80.1401 as:
``(1) A person that transfers any renewable fuel from a location within
the contiguous 48 states or Hawaii to a location outside the contiguous
48 states and Hawaii; and (2) A person that transfers any renewable
fuel from a location in the contiguous 48 states or Hawaii to Alaska or
a United States territory, unless that state or territory has received
an approval from the Administrator to opt in to the renewable fuel
program pursuant to Sec. 80.1443.'' During implementation of the RFS
program, we have observed contract structuring that may erode
compliance assurance. For example, we have observed instances of export
transactions in which parties have sold renewable fuel for export to
entities purporting to accept RIN retirement obligations that were then
not fulfilled by the buyer. We believe that these instances are related
to potential ambiguity in the definition of ``exporter of renewable
fuel'' as to what parties ``transfer'' fuel out of RFS program areas.
Therefore, we are proposing an update to the definition language in
this action to resolve the potential ambiguity and clarify the parties
who may, and may not, be liable for exporter obligations. We have also
observed that this language could be construed to include parties who
transfer renewable fuel from the contiguous 48 states and Hawaii, to an
area (either Alaska or a U.S. territory) that has received an approval
to opt in to the RFS program. We did not intend to impose a RIN
retirement obligation on these parties and are further proposing to
clarify that exporting renewable fuel to opt-in areas does not incur an
exporter renewable volume obligation as detailed below.
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\198\ We are not reconsidering or seeking comment on our well-
settled policy of exporter RVOs. Exporters of renewable fuel must
continue to acquire sufficient RINs to comply with all applicable
RVOs, and as such we are not making any substantive changes to the
relevant provisions at 40 CFR 80.1430(a) or (b). Any comments on the
legality or propriety of the exporter renewable volume obligations,
or the substance of 40 CFR 80.1430(a) or (b), are beyond the scope
of this action.
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We considered whether to amend the RFS program regulations to be
consistent with concepts from the Foreign Trade Regulations (FTR) and
other federal export-related regulations, such as United States
Principal Party in Interest (USPPI) and Foreign Principal Party in
Interest (FPPI).\199\ However, the FTR and other export-related
obligations in other federal programs use a traditional definition of
``export'' where exported goods leave the U.S. The RFS program
addresses obligations incurred through the transfer of renewable fuel
from areas covered by the program to both domestic and foreign areas
not covered by the program. For instance, the transport of goods from
Oregon to Alaska would not qualify as export under most federal export
regulations, but the transport of biofuel from Oregon, a covered area,
to Alaska, an uncovered
[[Page 36805]]
area (unless Alaska chooses to opt in), would qualify as export under
the RFS program. In addition, if we only adopted the FTR approach to
allow allocation of exporter obligations among parties to an export
transaction, we have concerns that a party that is insolvent or lacking
assets in the United States could undertake those obligations and
enforcement efforts could become overly resource intensive where the
fuel has left the country. Given our concerns along with the
inconsistency between the RFS program requirements and other export
regulations, we do not believe it would be appropriate to amend the RFS
program regulations to define an exporter as the USPPI or the FPPI.
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\199\ See, e.g., 15 CFR 772.1 (defining exporter as ``[t]he
person in the United States who has the authority of a principal
party in interest to determine and control the sending of items out
of the United States'').
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In reviewing the FTR, we also considered the concept of routed
export transactions and the associated flexibility for parties to an
export transaction to structure that transaction to place some
responsibilities with an FPPI.\200\ We believe that this framework is
reflective of market custom, practice, and capability to contractually
allocate liabilities and indemnities among parties to a commercial
transaction. We prefer regulations that accommodate these
flexibilities, while also balancing the need to protect RFS program
integrity. Specifically, we want to allow parties to an export
transaction to allocate RFS program exporter obligations as they see
fit among themselves but protect against contract structuring that may
erode compliance assurance.
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\200\ Routed export transaction is the term used to describe an
export transaction in which an FPPI directs the movement of goods
out of the U.S. and authorizes a U.S. agent to file certain
information required by the FTR.
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Therefore, we are proposing to revise the definition of exporter of
renewable fuel to clarify that it is ``all buyers, sellers, and owners
of the renewable fuel in a transaction that results in renewable fuel
being transferred from a covered location to a destination outside of
any covered location.'' In conjunction with this proposed revision, we
are proposing a definition of covered location as ``the contiguous 48
states, Hawaii, and any state or territory that has received an
approval from the Administrator to opt-in to the RFS program pursuant
to Sec. 80.1443.'' As described above, we believe that this revised
definition improves clarity on what constitutes an ``export'' under the
RFS program (e.g., how transfers to and from the contiguous 48 states
and Hawaii relate to Alaska and U.S. territories). Our proposed
regulations seek to permit contract flexibilities frequently employed
in export transactions with respect to export obligations under other
regulatory programs, such as the FTR, while providing compliance
assurance so as to maintain a level playing field among would-be
exporters and ensure RIN retirement so as to maintain the integrity of
that market in accordance with the regulatory requirements.
Under the proposed definition, multiple parties may meet the
definition of an exporter of renewable fuel. For instance, a person
holding title to renewable fuel in the U.S. may sell renewable fuel to
another person (either inside or outside of the covered areas) and
cause the renewable fuel to leave the covered areas. Further, that
buyer and seller may have a third party hold title to the renewable
fuel during transit out of the covered areas. In this case, the buyer
and the seller, both of whom are also owners of the renewable fuel, and
the third-party holding company, as another owner of the renewable fuel
in the transaction, would be jointly-and-severally liable for complying
with the exporter provisions.\201\
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\201\ This example is meant to be a stylized illustration of how
our proposed regulations could apply. It is not meant to
exhaustively detail the entities that could meet the definition of
exporter of renewable fuel in this type of transaction. To the
extent that other parties meet the definition of exporter of
renewable fuel, they would also be subject to the exporter
provisions.
---------------------------------------------------------------------------
EPA does not consider a person to be an exporter of renewable fuel
if that person does not know or have reason to know that the renewable
fuel will be exported. For instance, a renewable fuel producer who
produces a batch of fuel, generates RINs, and sells the renewable fuel
with attached RINs into the fungible fuel distribution system would not
be considered an exporter of renewable fuel under the proposed
definition unless they know or have reason to know that the batch of
fuel would be exported. That is, the mere fact that a producer
introduces renewable fuels into the stream of commerce, coupled with
the fact that a significant portion of the overall biofuel is exported,
does not make the producer an exporter of renewable fuel.
Our proposed regulations create broad flexibility for parties to
assign responsibilities as they see fit among themselves in structuring
an export transaction. These parties may contractually allocate RIN
retirement, and associated registration, reporting, and attest
engagement obligations, to any one of the parties that meets the
definition of an exporter of renewable fuel. The party undertaking
these requirements would then register as an exporter of renewable fuel
as set forth in 40 CFR 80.1450(a). This approach is also consistent
with our approach to the term ``refiner,'' under which multiple parties
could be considered the refiner of a batch of fuel. In such instances,
we have stated that each party meeting the definition of refiner will
be held jointly-and-severally liable for refiner requirements, and we
are proposing to adopt that approach for exporters of renewable
fuel.\202\
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\202\ See ``Consolidated List of Reformulated Gasoline and Anti-
Dumping Questions and Answers: July 1, 1994 through November 10,
1997,'' EPA420-R-03-009, at 256 (July 2003) (discussing a scenario
in which two parties would be considered refiners and would be
independently responsible for all refinery requirements, which would
only need to be met once).
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We believe that the proposed amendments clarifying the definition
of exporter of renewable fuel will provide flexibility to all parties
in transactions that result in the transfer of renewable fuel from a
covered location to locations outside of any covered location to
contractually allocate RFS program obligations, indemnities, and
pricing as they see fit in light of the regulatory requirements.
Further, the existing RFS regulations provide that ``[n]o person shall
cause another person to commit an act in violation of any prohibited
act under this section.'' \203\ We believe that this prohibition will
deter parties from engaging in sham transactions to evade RIN
retirement obligations by transferring ownership to undercapitalized
entities that do not meet their RIN retirement obligations. We are
soliciting comment on this clarification, including any ambiguities
that may persist in the proposed revised definition.
---------------------------------------------------------------------------
\203\ See 40 CFR 80.1460(c).
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Finally, we are proposing to make changes throughout the RFS
regulations to more consistently use the term ``exporter of renewable
fuel'' rather than the term ``exporter.'' These clarifying edits
reflect that the ``exporter of renewable fuel'' may be different than
the ``exporter'' under other state and federal regulatory programs.
X. Public Participation
Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2019-
0136, at https://www.regulations.gov (our preferred method), or the
other methods identified in the ADDRESSES section. Once submitted,
comments cannot be edited or removed from the docket. 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
[[Page 36806]]
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. 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.
XI. 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 a 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. EPA prepared an analysis of illustrative costs associated with
this action. This analysis is presented in Section VI.
B. Executive Order 13771: Reducing Regulations and Controlling
Regulatory Costs
This action is expected to be an Executive Order 13771 regulatory
action. Details on the estimated costs of this proposed rule can be
found in EPA's analysis of the illustrative costs associated with this
action. This analysis is presented in Section VI.
C. Paperwork Reduction Act (PRA)
The existing Information Collection Request (ICR) covering the RFS
program is entitled ``Recordkeeping and Reporting for the Renewable
Fuel Standard Program,'' EPA ICR No. 2546.01, OMB Control Number 2060-
NEW; it is currently under OMB review. The existing RFS ICR covers
registration, recordkeeping, and reporting requirements currently in 40
CFR part 80, subpart M. The changes affecting RVO calculations will not
change the recordkeeping and reporting burdens vis-[agrave]-vis the
existing collection. Certain of the proposed amendments in this action
would result in an additional burden. The information collection
activities related to the proposed amendments to the RFS regulations in
this proposed rule have been submitted for approval to the Office of
Management and Budget (OMB) under the PRA. You can find a copy of the
ICR in the docket for this rule, identified by EPA ICR Number 2595.01,
OMB Control Number 2060-NEW, and it is briefly summarized here. The
parties for whom we anticipate an increase in burden are generally
described as RIN generators (specifically, those who are producers of
renewable fuel) due the proposed amendments related to pathways, and
those who are generally described as obligated parties (specifically,
those who are refiners and importers) due to the proposed provisions
for certified NTDF. The supporting statement clearly indicates the
proposed amendments and includes detailed tables with regulatory burden
laid out by type of party, regulatory citation, description of
information to be collected, estimated burden in hours and dollars, and
reporting form or format. The following summarizes the burden:
Respondents/affected entities: The respondents to this information
collection fall into the following general industry categories:
Petroleum refineries, ethyl alcohol manufacturers, other basic organic
chemical manufacturing, chemical and allied products merchant
wholesalers, petroleum bulk stations and terminals, petroleum and
petroleum products merchant wholesalers, gasoline service stations, and
marine service stations.
Respondent's obligation to respond: Mandatory.
Estimated number of respondents: 6,323.
Total number of responses: 357,826.
Frequency of response: Quarterly, annually, and occasionally.
Total estimated burden: 28,902 hours (per year). Burden is defined
at 5 CFR 1320.3(b).
Total estimated cost: $3,162,321 (per year).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR part 9.
Submit your comments on the Agency's need for this information, the
accuracy of the provided burden estimates and any suggested methods for
minimizing respondent burden to EPA using the docket identified at the
beginning of this rule. You may also send your ICR-related comments to
OMB's Office of Information and Regulatory Affairs via email to
[email protected], Attention: Desk Officer for EPA. Since OMB
is required to make a decision concerning the ICR between 30 and 60
days after receipt, OMB must receive comments no later than August 28,
2019. EPA will respond to any ICR-related comments in the final rule.
D. 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. With respect to the
proposed amendments to the RFS regulations, this action will not impose
any requirements on small entities that were not already considered
under the final RFS2 regulations. This action makes relatively minor
corrections and modifications to those regulations, and we do not
anticipate that there will be any significant costs or cost savings
associated with these proposed revisions.
With respect to the proposed 2020 percentage standards, we have
evaluated the impacts on small entities from two perspectives: As if
the 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 that established the
RFS2 program, the standards could be viewed as increasing the
cellulosic biofuel, advanced biofuel, and total renewable fuel volume
requirements by 120 million gallons between 2019 and 2020. To evaluate
the impacts of the volume requirements on small entities relative to
2019, we have conducted a screening analysis \204\ to assess whether we
should make a finding that this action will 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 will not be significant. We have reviewed
and assessed the available information, which shows that obligated
parties,
[[Page 36807]]
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.\205\ 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
was not recovered by obligated parties, and we used the maximum values
of the costs discussed in Section VI and the gasoline and diesel fuel
volume projections and wholesale prices from the April, 2019 version of
EIA's Short Term Energy Outlook, along with current wholesale biofuel
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.
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\204\ ``Screening Analysis for the Proposed Renewable Fuel
Standards for 2020,'' memorandum from Dallas Burkholder and Nick
Parsons to EPA Air Docket EPA-HQ-OAR-2018-0205.
\205\ For a further discussion of the ability of obligated
parties to recover the cost of RINs see ``Denial of Petitions for
Rulemaking to Change the RFS Point of Obligation,'' EPA-420-R-17-
008, November 2017.
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While the screening analysis described above supports a
certification that this rule will 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 our 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, which was the rule that implemented
the entire program as required by EISA 2007.\206\ 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.
---------------------------------------------------------------------------
\206\ 75 FR 14670 (March 26, 2010).
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For the SBREFA process for the RFS2 final rule, we 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, we estimated
that all directly regulated small entities would have compliance costs
that are less than one percent of their sales over the life of the
program (75 FR 14862, March 26, 2010).
We have determined that this proposed rule will not impose any
additional requirements on small entities beyond those already
analyzed, since the impacts of this 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 to increase the 2020 cellulosic biofuel,
advanced biofuel, and total renewable fuel volume requirements by 120
million gallons relative to the 2019 volume requirements, but those
volumes remain significantly below the statutory volume targets
analyzed in the RFS2 final rule. Compared to the burden that would be
imposed under the volumes that we assessed in the screening analysis
for the RFS2 final rule (i.e., the volumes specified in the Clean Air
Act), the volume requirements proposed in this rule reduce burden on
small entities. Regarding the BBD standard, we are proposing to
maintain the volume requirement for 2020 at the same level as 2019.
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 VII, the BBD volume
requirement is below what is anticipated to be produced and used to
satisfy the 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 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, 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.\207\
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 the refinery is 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)). We have currently identified a total of
9 small refiners that own 11 refineries subject to the RFS program, all
of which are also small refineries.
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\207\ See CAA section 211(o)(9)(B).
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We evaluate 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, we consult with the U.S.
Department of Energy and consider the findings of DOE's 2011 Small
Refinery Study and other economic factors. To date, EPA has adjudicated
petitions for exemption from 35 small refineries for the 2017 RFS
standards (10 of which are owned by a small refiner).\208\
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\208\ EPA is currently evaluating 1 additional 2017 petition and
39 2018 petitions (10 of which are owned by a small refiner). More
information on Small Refinery Exemptions is available on EPA's
public website at: https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rfs-small-refinery-exemptions.
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In sum, this proposed rule will not change the compliance
flexibilities currently offered to small entities under the RFS program
(including the small refinery hardship provisions we continue to
implement) and available information shows that the impact on small
entities from implementation of this rule will 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 will have no net regulatory burden for directly regulated small
entities.
[[Page 36808]]
E. 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.
F. 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.
G. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
This action does not have tribal implications as specified in
Executive Order 13175. This action will be implemented at the Federal
level and affects transportation fuel refiners, blenders, marketers,
distributors, importers, exporters, and renewable fuel producers and
importers. Tribal governments will be affected only to the extent they
produce, purchase, or use regulated fuels. Thus, Executive Order 13175
does not apply to this action.
H. Executive Order 13045: Protection of Children From Environmental
Health Risks and Safety Risks
EPA interprets Executive Order 13045 as applying only to those
regulatory actions that concern environmental health or safety risks
that 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.
I. 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 the required
renewable fuel content of the transportation fuel supply for 2020,
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 security and lowering lifecycle GHG emissions of
transportation fuel.
J. National Technology Transfer and Advancement Act (NTTAA)
This rulemaking does not involve technical standards.
K. Executive Order 12898: Federal Actions To Address Environmental
Justice in Minority Populations and Low-Income Populations
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 regulatory action 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.
XII. Statutory Authority
Statutory authority for this action comes from sections 114, 203-
05, 208, 211, and 301 of the Clean Air Act, 42 U.S.C. 7414, 7522-24,
7542, 7545, and 7601.
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, 2019.
Andrew R. Wheeler,
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 80.1401 is amended by adding in alphabetical order
definitions for ``Certified non-transportation 15 ppm distillate fuel
or certified NTDF'' and ``Covered location'' and revising the
definition of ``Exporter of renewable fuel'' to read as follows:
Sec. 80.1401 Definitions.
* * * * *
Certified non-transportation 15 ppm distillate fuel or certified
NTDF means distillate fuel that meets all of the following:
(1) It has been certified as complying with the 15 ppm sulfur
standard, cetane/aromatics standard, and all applicable sampling,
testing, and recordkeeping requirements of subpart I of this part.
(2) It has been designated as 15 ppm heating oil, 15 ppm ECA marine
fuel, or other non-transportation fuel (e.g., jet fuel, kerosene, No. 4
fuel, or distillate fuel for export only) on its product transfer
document and has not been designated as MVNRLM diesel fuel.
(3) The PTD for the distillate fuel meets the requirements in Sec.
80.1453(e).
* * * * *
Covered location means the contiguous 48 states, Hawaii, and any
state or territory that has received an approval from the Administrator
to opt-in to the renewable fuel program pursuant to Sec. 80.1443.
* * * * *
Exporter of renewable fuel means all buyers, sellers, and owners of
the renewable fuel in a transaction that results in renewable fuel
being transferred from a covered location to a destination outside of
the covered locations.
* * * * *
0
3. Section 80.1405 is amended by adding paragraph (a)(11) to read as
follows:
Sec. 80.1405 What are the Renewable Fuel Standards?
(a) * * *
(11) Renewable Fuel Standards for 2020.
(i) The value of the cellulosic biofuel standard for 2020 shall be
0.29 percent.
(ii) The value of the biomass-based diesel standard for 2020 shall
be 1.99 percent.
(iii) The value of the advanced biofuel standard for 2020 shall be
2.75 percent.
(iv) The value of the renewable fuel standard for 2020 shall be
10.92 percent.
* * * * *
0
4. Section 80.1407 is amended by adding paragraphs (f)(9) through (11)
to read as follows:
Sec. 80.1407 How are the Renewable Volume Obligations calculated?
* * * * *
(f) * * *
(9) Distillate fuel with a sulfur content greater than 15 ppm that
is clearly
[[Page 36809]]
designated for a use other than transportation fuel, such as heating
oil or ECA marine fuel.
(10) Distillate fuel that meets a 15 ppm sulfur standard, is
designated for non-transportation use, and that remains completely
segregated from MVNRLM diesel fuel from the point of production through
to the point of use for a non-transportation purpose, such as heating
oil or ECA marine fuel.
(11) Certified NTDF, if the refiner or importer has a reasonable
expectation that the fuel will be used for non-transportation purposes.
To establish a reasonable expectation that the fuel will be used for
non-transportation purposes, a refiner or importer must, at a minimum,
do the following:
(i) Demonstrate that the refiner or importer supplies areas that
use heating oil, ECA marine fuel, or 15 ppm distillate fuel for non-
transportation purposes in the quantities being supplied by the refiner
or importer.
(ii) Demonstrate that the refiner or importer has entered into a
contractual arrangement that prohibits the buyer from selling the fuel
as MVNRLM diesel fuel.
(iii) Demonstrate that the volume of fuel designated as heating
oil, ECA marine fuel, or other non-transportation purposes is
consistent with the refiner's or importer's past practices or reflect
changed market conditions.
(iv) EPA may consider any other relevant information in assessing
whether a refiner or importer has a reasonable expectation that the
fuel was used for non-transportation purposes.
0
5. Section 80.1408 is added to read as follows:
Sec. 80.1408 What are the requirements for parties that redesignate
certified NTDF as MVNRLM diesel fuel?
(a) Parties that redesignate certified NTDF as MVNRLM diesel fuel
must meet all of the following requirements:
(1) Register as a refiner under Sec. 80.76 and as an obligated
party under Sec. 80.1450(a).
(2) Maintain a running balance of MVNRLM diesel fuel that they
discharge and receive.
(i) Parties whose annual running balance at the end of the
compliance period shows that the volume of MVNRLM diesel fuel
discharged exceeds the volume of MVNRLM diesel fuel received incur an
RVO for the volume of MVNRLM diesel fuel discharged above the volume of
MVNRLM diesel fuel received during the compliance period. The volume of
MVNRLM diesel fuel discharged above the volume of MVNRLM diesel fuel
received is considered diesel fuel pursuant to Sec. 80.1407(e) and
contributes towards the party's annual RVO calculations.
(ii) Parties whose running balance for the compliance period shows
that the volume of MVNRLM diesel fuel discharged did not exceed the
volume of MVNRLM diesel fuel received do not incur an RVO on the MVNRLM
diesel fuel for the compliance period.
(3) Comply with the reporting requirements of Sec.
80.1451(a)(1)(xix) and (a)(3)(i).
(4) Comply with the recordkeeping requirements of Sec. 80.1454(t).
(5) Comply with the attest engagement requirements of Sec. Sec.
80.1464 and 80.1475, as applicable.
(b) Parties that incur an RVO under paragraph (a)(2)(i) of this
section must comply with all applicable requirements for obligated
parties under this subpart.
0
6. Section 80.1426 is amended by:
0
a. Revising paragraph (a)(1)(iii); and
0
b. Revising table 1 in paragraph (f)(1) the entries ``F'', ``H'', and
``I''.
The revisions read as follows:
Sec. 80.1426 How are RINs generated and assigned to batches of
renewable fuel by renewable fuel producers or importers?
(a) * * *
(1) * * *
(iii) The fuel was produced in compliance with the registration
requirements of Sec. 80.1450, the reporting requirements of Sec.
80.1451, the recordkeeping requirements of Sec. 80.1454, all
conditions set forth in an approved petition submitted under Sec.
80.1416, and all other applicable regulations of this subpart M.
* * * * *
(f) * * *
(1) * * *
Table 1 to Sec. 80.1426--Applicable D Codes for Each Fuel Pathway for Use in Generating RINs
----------------------------------------------------------------------------------------------------------------
Production process
Fuel type Feedstock requirements D-code
----------------------------------------------------------------------------------------------------------------
* * * * * * *
F.................. Biodiesel, renewable Soy bean oil; Oil from One of the following: 4
diesel, jet fuel and annual covercrops; Oil Transesterification with
heating oil. from algae grown or without esterification
photosynthetically; pre-treatment,
Biogenic waste oils/fats/ Esterification, or
greases; Camelina sativa Hydrotreating; excludes
oil; Distillers corn oil; processes that co-process
Distillers sorghum oil; renewable biomass and
Commingled distillers corn petroleum.
oil and sorghum oil.
* * * * * * *
H.................. Biodiesel, renewable Soy bean oil; Oil from One of the following: 5
diesel, jet fuel and annual covercrops; Oil Transesterification with
heating oil. from algae grown or without esterification
photosynthetically; pre-treatment,
Biogenic waste oils/fats/ Esterification, or
greases; Camelina sativa Hydrotreating; includes
oil; Distillers corn oil; only processes that co-
Distillers sorghum oil; process renewable biomass
Commingled distillers corn and petroleum.
oil and sorghum oil.
I.................. Naphtha, LPG.......... Camelina sativa oil; Hydrotreating.............. 5
Distillers sorghum oil;
Distillers corn oil;
Commingled distillers corn
oil and distillers sorghum
oil.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
0
7. Section 80.1427 is amended by:
0
a. Revising in paragraph (b)(2) the definition of ``RVOi'';
and
0
b. Revising paragraph (c)(2).
The revisions read as follows:
Sec. 80.1427 How are RINs used to demonstrate compliance?
* * * * *
(b) * * *
[[Page 36810]]
(2) * * *
RVOi = The Renewable Volume Obligation for the obligated
party or exporter of renewable fuel for calendar year i, in gallons.
* * * * *
(c) * * *
(2) In fulfillment of its ERVOs, each exporter of renewable fuel is
subject to the provisions of paragraphs (a)(2), (a)(3), (a)(6), and
(a)(8) of this section.
* * * * *
0
8. Section 80.1429 is amended by revising paragraph (b)(3) to read as
follows:
Sec. 80.1429 Requirements for separating RINs from volumes of
renewable fuel.
* * * * *
(b) * * *
(3) Any exporter of renewable fuel must separate any RINs that have
been assigned to the exported renewable fuel volume. An exporter of
renewable fuel may separate up to 2.5 RINs per gallon of exported
renewable fuel.
* * * * *
0
9. Section 80.1430 is amended by:
0
a. Revising paragraph (a);
0
b. Revising in paragraph (b)(1) the definition of ``k'';
0
c. Revising paragraphs (c), (d)(1), and (e) introductory text; and
0
d. Adding paragraph (h).
The revisions and addition read as follows:
Sec. 80.1430 Requirements for exporters of renewable fuels.
(a) Any exporter of renewable fuel, whether in its neat form or
blended shall acquire sufficient RINs to comply with all applicable
Renewable Volume Obligations under paragraphs (b) through (e) of this
section representing the exported renewable fuel. No provision of this
section applies to renewable fuel purchased directly from the renewable
fuel producer and for which the exporter of renewable fuel can
demonstrate that no RINs were generated through the recordkeeping
requirements of Sec. 80.1454(a)(6).
(b) * * *
(1) * * *
k = A discrete volume of renewable fuel that the exporter of
renewable fuel knows or has reason to know is cellulosic biofuel that
is exported in a single shipment.
* * * * *
(c) If the exporter of renewable fuel knows or has reason to know
that a volume of exported renewable fuel is cellulosic diesel, the
exporter of renewable fuel must treat the exported volume as either
cellulosic biofuel or biomass-based diesel when determining his
Renewable Volume Obligations pursuant to paragraph (b) of this section.
(d) * * *
(1) If the equivalence value for a volume of exported renewable
fuel can be determined pursuant to Sec. 80.1415 based on its
composition, then the appropriate equivalence value shall be used in
the calculation of the exporter of renewable fuel's Renewable Volume
Obligations under paragraph (b) of this section.
* * * * *
(e) For renewable fuels that are in the form of a blend at the time
of export, the exporter of renewable fuel shall determine the volume of
exported renewable fuel based on one of the following:
* * * * *
(h) Each person meeting the definition of exporter of renewable
fuel for a particular export transaction is jointly and severally
liable for completion of the requirements of this section and all
associated RIN retirement demonstration, registration, reporting, and
attest engagement obligations under this subpart. However, these
requirements for exporters of renewable fuel must be met only once for
any export transaction.
0
10. Section 80.1431 is amended by revising paragraph (b)(2) to read as
follows:
Sec. 80.1431 Treatment of invalid RINs.
* * * * *
(b) * * *
(2) Invalid RINs cannot be used to achieve compliance with the
Renewable Volume Obligations of an obligated party or exporter of
renewable fuel, regardless of the party's good faith belief that the
RINs were valid at the time they were acquired.
* * * * *
0
11. Section 80.1451 is amended by:
0
a. Revising paragraphs (a)(1)(i) and (v);
0
b. Adding paragraphs (a)(1)(xix), (a)(3)(i) and (ii); and
0
c. Revising paragraph (a)(4).
The revisions and additions read as follows:
Sec. 80.1451 What are the reporting requirements under the RFS
program?
(a) * * *
(1) * * *
(i) The obligated party's or exporter of renewable fuel's name.
* * * * *
(v) Separately, the production volume and import volume for the
reporting year of all of the following:
(A) All of the gasoline products listed in Sec. 80.1407(c).
(B) All of the MVNRLM diesel fuel products listed in Sec.
80.1407(e).
(C) The combined production volume of all gasoline products and
MVNRLM diesel fuel.
(D) Distillate fuel that is not transportation fuel.
(E) Distillate fuel that is certified NTDF.
* * * * *
(xix) For parties that redesignate certified NTDF as MVNRLM diesel
fuel at any time in the compliance period pursuant to Sec. 80.1408,
all of the following:
(A) The volume of MVNRLM diesel fuel received during the compliance
period.
(B) The volume of MVNRLM diesel fuel discharged during the
compliance period.
(C) The volume of certified NTDF redesignated to MVNRLM diesel fuel
during the compliance period.
(D) The volume of MVNRLM diesel fuel redesignated to non-
transportation use during the compliance period.
* * * * *
(3) * * *
(i) For obligated parties that redesignate certified NTDF as MVNRLM
diesel fuel for any quarter in the compliance period pursuant to Sec.
80.1408, all of the following:
(A) The volume of MVNRLM diesel fuel received during the quarter.
(B) The volume of MVNRLM diesel fuel discharged during the quarter.
(C) The volume of certified NTDF redesignated to MVNRLM diesel fuel
during the quarter.
(D) The volume of MVNRLM diesel fuel redesignated to non-
transportation use during the quarter.
(ii) [Reserved]
(4) Reports required under this paragraph (a) must be signed and
certified as meeting all the applicable requirements of this subpart by
the owner or a responsible corporate officer of the obligated party or
exporter of renewable fuel.
* * * * *
0
12. Section 80.1453 is amended by:
0
a. Revising paragraph (b); and
0
b. Adding paragraph (e).
The revision and addition read as follows:
Sec. 80.1453 What are the product transfer document (PTD)
requirements for the RFS program?
* * * * *
(b) Except for transfers to truck carriers, retailers, or wholesale
purchaser-consumers, product codes may be used to convey the
information required under paragraphs (a)(1)
[[Page 36811]]
through (a)(11) and (e) of this section if such codes are clearly
understood by each transferee.
* * * * *
(e) On each occasion when any party transfers custody or ownership
of certified NTDF, except when such fuel is dispensed into motor
vehicles or nonroad vehicles, engines, or equipment, the transferor
must provide to the transferee documents that include all the following
information, as applicable:
(1) The transferrer of certified NTDF must list all applicable
required information as specified at Sec. 80.590 and, if the
distillate fuel contains renewable fuel, all applicable required
information in paragraphs (a), (b), and (d) of this section.
(2) The transferrer must include the following statement on the
PTD: ``This fuel meets all MVNRLM diesel fuel standards.''
0
13. Section 80.1454 is amended by:
0
a. Revising paragraphs (a) introductory text, (a)(1), and (n);
0
b. Redesignating paragraph (t) as paragraph (u); and
0
c. Adding new paragraph (t). The revisions and addition reads as
follows:
Sec. 80.1454 What are the recordkeeping requirements under the RFS
program?
(a) Requirements for obligated parties and exporters of renewable
fuel. Beginning July 1, 2010, any obligated party (as described at
Sec. 80.1406) or exporter of renewable fuel (as described at Sec.
80.1430) must keep all of the following records:
(1) Product transfer documents consistent with Sec. 80.1453 and
associated with the obligated party's or exporter of renewable fuel's
activity, if any, as transferor or transferee of renewable fuel or
separated RINs.
* * * * *
(n) The records required under paragraphs (a) through (d), (f)
through (l), and (t) of this section and under Sec. 80.1453 shall be
kept for five years from the date they were created, except that
records related to transactions involving RINs shall be kept for five
years from the date of the RIN transaction.
* * * * *
(t) Requirements for parties that redesignate certified NTDF as
MVNRLM diesel fuel. Parties that redesignate certified NTDF as MVNRLM
diesel fuel must keep all of the following additional records:
(1) Records related to all transactions in which certified NTDF is
redesignated as MVNRLM diesel fuel.
(2) Records related to all transactions in which MVNRLM diesel fuel
is redesignated to a non-transportation use.
(3) Records related to the volume of MVNRLM diesel fuel received.
(4) Records related to the volume of MVNRLM diesel fuel discharged.
(5) Records related to the volume of certified NTDF received.
(6) Records related to the volume of certified NTDF discharged.
* * * * *
0
14. Section 80.1460 is amended by adding paragraphs (b)(7) and (j) to
read as follows:
Sec. 80.1460 What acts are prohibited under the RFS program?
* * * * *
(b) * * *
(7) Generate a RIN for fuel that fails to meet all the conditions
set forth in an approved petition submitted under Sec. 80.1416.
* * * * *
(j) Redesignation violations. No person may exceed the balance
requirements at Sec. 80.1408(a)(2)(i) without incurring an RVO.
0
15. Section 80.1461 is amended by revising paragraphs (a)(1) and (2) to
read as follows:
Sec. 80.1461 Who is liable for violations under the RFS program?
(a) * * *
(1) Any person who violates a prohibition under Sec. 80.1460(a)
through (d) or Sec. 80.1460(g) through (j) is liable for the violation
of that prohibition.
(2) Any person who causes another person to violate a prohibition
under Sec. 80.1460(a) through (d) or Sec. 80.1460(g) through (j) is
liable for a violation of Sec. 80.1460(e).
* * * * *
0
16. Section 80.1463 is amended by revising paragraph (d) to read as
follows:
Sec. 80.1463 What penalties apply under the RFS program?
* * * * *
(d) Any person liable under Sec. 80.1461(a) for a violation of
Sec. 80.1460(b)(1) through (4), (b)(6), or (b)(7) is subject to a
separate day of violation for each day that an invalid RIN remains
available for an obligated party or exporter of renewable fuel to
demonstrate compliance with the RFS program.
0
17. Section 80.1464 is amended by:
0
a. Revising paragraphs (a) introductory text, (a)(1)(i)(A),
(a)(1)(iii), (a)(1)(iv) introductory text, (a)(1)(iv)(A),
(a)(1)(iv)(D), and (a)(1)(v); and
0
b. Adding paragraph (a)(1)(vii). The revisions and addition read as
follows:
Sec. 80.1464 What are the attest engagement requirements under the
RFS program?
* * * * *
(a) Obligated parties and exporters of renewable fuel. The
following attest procedures shall be completed for any obligated party
(as described at Sec. 80.1406(a)) or exporter of renewable fuel (as
described at Sec. 80.1430):
(1) * * *
(i) * * *
(A) The obligated party's volume of all products listed in Sec.
80.1407(c) and (e), or the exporter of renewable fuel's volume of each
category of exported renewable fuel identified in Sec. 80.1430(b)(1)
through (b)(4).
* * * * *
(iii) For obligated parties, compare the volumes of products listed
in Sec. 80.1407(c), (e), and (f) reported to EPA in the report
required under Sec. 80.1451(a)(1) with the volumes, excluding any
renewable fuel volumes, contained in the inventory reconciliation
analysis under Sec. 80.133 and the volume of non-renewable diesel
produced or imported. Verify that the volumes reported to EPA agree
with the volumes in the inventory reconciliation analysis and the
volumes of non-renewable diesel produced or imported, and report as a
finding any exception.
(iv) For exporters of renewable fuel, perform all of the following:
(A) Obtain the database, spreadsheet, or other documentation that
the exporter of renewable fuel maintains for all exported renewable
fuel.
* * * * *
(D) Select sample batches in accordance with the guidelines in
Sec. 80.127 from each separate category of renewable fuel exported and
identified in Sec. 80.1451(a); obtain invoices, bills of lading and
other documentation for the representative samples; state whether any
of these documents refer to the exported fuel as advanced biofuel or
cellulosic biofuel; and report as a finding whether or not the exporter
of renewable fuel calculated an advanced biofuel or cellulosic biofuel
RVO for these fuels pursuant to Sec. 80.1430(b)(1) or Sec.
80.1430(b)(3).
(v) Compute and report as a finding the obligated party's or
exporter of renewable fuel's RVOs, and any deficit RVOs carried over
from the previous year or carried into the subsequent year, and verify
that the values agree with the values reported to EPA.
* * * * *
(vii) For obligated parties that incur an RVO under Sec.
80.1408(a)(2)(i), perform the additional attest engagement procedures
described at Sec. 80.1475 and report any findings in the
[[Page 36812]]
report described in paragraph (d) of this section.
* * * * *
0
18. Section 80.1475 is added as follows:
Sec. 80.1475 What are the attest engagement requirements for parties
that redesignate certified NTDF as MVNRLM diesel fuel?
(a)(1) In addition to the attest engagement requirements under
Sec. 80.1464, all parties that redesignate certified NTDF as MVNRLM
diesel fuel pursuant to Sec. 80.1408 must arrange for an annual attest
engagement conducted by an auditor using the minimum attest procedures
specified in this section.
(2) All applicable requirements and procedures outlined in
Sec. Sec. 80.125 through 80.127 and Sec. 80.130 apply to the auditors
and attest engagement procedures specified in this section.
(3) Obligated parties must include any additional information
required under this section in the attest engagement report under Sec.
80.1464(d).
(4) Report as a finding if the party failed to either incur or
satisfy an RVO if required.
(b) EPA reports. Auditors must perform the following:
(1) Obtain and read a copy of the obligated party's reports filed
with EPA as required by Sec. 80.1451(a)(1)(xix) for the reporting
period.
(2) In the case of an obligated party's report to EPA that
represents aggregate calculations for more than one facility, obtain
the facility-specific volume and property information that was used by
the refiner to prepare the aggregate report. Foot and crossfoot the
facility-specific totals and agree to the values in the aggregate
report. The procedures in paragraphs (b) and (c) of this section are
then performed separately for each facility.
(3) Obtain a written representation from a company representative
that the report copies are complete and accurate copies of the reports
filed with EPA.
(4) Identify, and report as a finding, the name of the commercial
computer program used by the refiner or importer to track the data
required by the regulations in this part, if any.
(c) Inventory reconciliation analysis. Auditors must perform the
following:
(1) Obtain an inventory reconciliation analysis for the facility
for the reporting period for each of the following and perform the
procedures at paragraphs (c)(2) through (4) of this section separately
for each of the following products:
(i) The volume of certified NTDF that was redesignated as MVNRLM
diesel fuel.
(ii) The volume of MVNRLM diesel fuel that was redesignated to a
non-transportation use.
(iii) The volume of MVNRLM diesel fuel received.
(iv) The volume of MVNRLM diesel fuel discharged.
(v) The volume of certified NTDF received.
(vi) The volume of certified NTDF discharged.
(2) Foot and crossfoot the volume totals reflected in the analysis.
(3) Agree the beginning and ending inventory amounts in the
analysis to the facility's inventory records.
(4) If the obligated party discharged more MVNRLM diesel fuel than
received, agree the annual balance with the reports obtained at Sec.
80.1475(b)(1) and verify whether the obligated party incurred and
satisfied its RVO under Sec. 80.1408(a)(2)(i).
(5) Report as a finding each of the volume totals along with any
discrepancies.
(d) Listing of tenders. Auditors must perform the following:
(1) For each of the volumes listed in paragraphs (b)(1)(iii)
through (b)(1)(vi) of this section, obtain a separate listing of all
tenders from the refiner or importer for the reporting period. Each
listing should provide for each tender the volume shipped and other
information as needed to distinguish tenders.
(2) Foot to the volume totals per the listings.
(3) Agree the volume totals on the listing to the tender volume
total in the inventory reconciliation analysis obtained in paragraph
(b) of this section.
(4) For each of the listings select a representative sample of the
tenders in accordance with the guidelines in Sec. 80.127, and for each
tender selected perform the following:
(i) Obtain product transfer documents associated with the tender
and agree the volume on the tender listing to the volume on the product
transfer documents.
(ii) Note whether the product transfer documents include the
information required by Sec. 80.590 and, for tenders involving the
transfer of certified NTDF, the information required by Sec.
80.1453(e).
(5) Report as a finding any discrepancies.
[FR Doc. 2019-15423 Filed 7-26-19; 8:45 am]
BILLING CODE 6560-50-P