
[Federal Register Volume 80, Number 239 (Monday, December 14, 2015)]
[Rules and Regulations]
[Pages 77419-77518]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30893]



[[Page 77419]]

Vol. 80

Monday,

No. 239

December 14, 2015

Part II





Environmental Protection Agency





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





40 CFR Part 80





Renewable Fuel Standard Program: Standards for 2014, 2015, and 2016 and 
Biomass-Based Diesel Volume for 2017; Final Rule

  Federal Register / Vol. 80 , No. 239 / Monday, December 14, 2015 / 
Rules and Regulations  

[[Page 77420]]


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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2015-0111; FRL-9939-72-OAR]
RIN 2060-AS22


Renewable Fuel Standard Program: Standards for 2014, 2015, and 
2016 and Biomass-Based Diesel Volume for 2017

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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

SUMMARY: Under section 211 of the Clean Air Act, the Environmental 
Protection Agency (EPA) is required to set renewable fuel percentage 
standards every year. This action establishes the annual percentage 
standards for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel that apply to all motor vehicle 
gasoline and diesel produced or imported in the years 2014, 2015, and 
2016. The EPA is establishing a cellulosic biofuel volume for all three 
years that is below the applicable volume specified in the Act, and is 
also rescinding the cellulosic biofuel standard for 2011. Relying on 
statutory waiver authorities, the EPA is adjusting the applicable 
volumes of advanced biofuel and total renewable fuel for all three 
years. The 2016 standards are expected to spur further progress in 
overcoming current constraints in renewable fuel distribution 
infrastructure, which in turn is expected to lead to substantial growth 
over time in the production and use of renewable fuels. In this action, 
we are also establishing the applicable volume of biomass-based diesel 
for 2017. Finally, we are setting the compliance and attest reporting 
deadlines for the years 2013, 2014, and 2015, as well as finalizing 
regulatory amendments to clarify the scope of the existing algal 
biofuel pathway.

DATES: This final rule is effective on February 12, 2016.

ADDRESSES: The EPA has established a docket for this action under 
Docket ID No. EPA-HQ-OAR-2015-0111. All documents in the docket are 
listed on the http://www.regulations.gov Web site. Although listed in 
the index, some information is not publicly available, e.g., CBI or 
other information whose disclosure is restricted by statute. Certain 
other material, such as copyrighted material, is not placed in the 
electronic docket and will be publicly available only in hard copy 
form. Publicly available docket materials are available electronically 
through http://www.regulations.gov.

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

SUPPLEMENTARY INFORMATION:

General Information

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

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

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your entity is regulated by this action, you should carefully examine 
the applicability criteria in 40 CFR part 80. If you have any questions 
regarding the applicability of this action to a particular entity, 
consult the person listed in the FOR FURTHER INFORMATION CONTACT 
section.

Table of Contents

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Final Approach To Setting Standards for 2014, 2015, and 2016
    2. Advanced Biofuel and Total Renewable Fuel
    3. Biomass-Based Diesel
    4. Cellulosic Biofuel
    5. Annual Percentage Standards
    6. Response to Requests for a Waiver of the 2014 Standards
    7. Changes to Regulations
    8. Assessment of Aggregate Compliance Approach
    C. Authority for Late Action and Applicability of the Standards
    D. Outlook for 2017 and Beyond
II. Advanced Biofuel and Total Renewable Fuel Volumes for 2014-2016
    A. Fulfilling Congressional Intent To Increase Use of Renewable 
Fuels
    B. Statutory Authorities for Reducing Volume Targets
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    3. Assessment of Past Versus Future Supply
    4. Combining Authorities for Reductions in Total Renewable Fuel
    5. Inability to Reach Statutory Volumes
    6. Inability to Reach Volumes Using Only the Cellulosic Waiver 
Authority
    C. 2014 Advanced Biofuel and Total Renewable Fuel Volume 
Requirements
    D. 2015 Advanced Biofuel and Total Renewable Fuel Volume 
Requirements
    E. Total Renewable Fuel Volume Requirement for 2016
    1. Renewable Fuel Market Challenges and Opportunities
    2. Projecting Ethanol Supply
    i. Ethanol Supply as E10 in 2016
    ii. The Impact of RIN Prices on E85 Retail Prices
    iii. Ethanol Supply as E85 in 2016
    iv. E0 Demand in 2016
    v. Ethanol Supply as E15 in 2016
    vi. Total Ethanol Supply in 2016
    3. Biodiesel and Renewable Diesel
    i. Feedstock Availability
    ii. Biodiesel and Renewable Diesel Production Capacity

[[Page 77421]]

    iii. Biodiesel and Renewable Diesel Import Capacity
    iv. Biodiesel and Renewable Diesel Distribution Capacity
    v. Biodiesel and Renewable Diesel Retail Infrastructure Capacity
    vi. Biodiesel and Renewable Diesel Consumption Capacity
    vii. Biodiesel and Renewable Diesel Consumer Response
    viii. Projected Supply of Biodiesel and Renewable Diesel in 2016
    4. Projecting the Supply of Other Renewable Fuels
    5. Total Renewable Fuel Supply in 2016
    F. Advanced Biofuel Volume Requirement for 2016
    G. Market Responses to the 2016 Advanced Biofuel and Total 
Renewable Fuel Volume Requirements
    H. Treatment of Carryover RINs
    1. Summary of Public Comments
    2. Updated Projection of Carryover RIN Volume
    3. EPA's Decision and Response to Comments
    i. Importance of Carryover RINs
    ii. Role of Carryover RINs Under the Waiver Authorities
    iii. Extent to Which the Current Bank of Carryover RINs Could Be 
Drawn Down Without Compromising the Beneficial Buffer They Provide
    iv. Whether Carryover RINs Will Be Used To Avoid Needed 
Investments
    v. Response to Other Comments
    4. Summary
    I. Impacts of Final Standards on Costs
III. Final Biomass-Based Diesel Volumes for 2014-2017
    A. Statutory Requirements
    B. BBD Production and Compliance Through 2013
    C. BBD Volumes for 2014
    D. Determination of Applicable Volume of Biomass-Based Diesel 
for 2015-2017
    1. Implication of Nested Standards
    2. Biomass-Based Diesel as a Fraction of Advanced Biofuel
    3. Ensuring Growth in Biomass-Based Diesel and Other Advanced 
Biofuel
    4. Final BBD Volume for 2015
    5. Final Volumes for 2016-2017
    E. Consideration of Statutory Factors for 2014-2017
    1. Assessment for 2014 and 2015 Biomass-Based Diesel Applicable 
Volume
    2. Primary and Supplementary Statutory Factors Assessment for 
2016 and 2017 Biomass-Based Diesel Applicable Volumes
IV. Final Cellulosic Biofuel Volume for 2014-2016
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Projection From the Energy Information Administration
    D. Cellulosic Biofuel Volume for 2014
    E. Cellulosic Biofuel Volume for 2015
    F. Cellulosic Biofuel Volume for 2016
    G. Rescission of the 2011 Cellulosic Biofuel Standards
V. Percentage Standards
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
    3. Final Standards
VI. Amendments to Regulations
    A. Changes to the Algal Biofuel Pathways
    B. Annual Compliance Reporting and Attest Engagement Deadlines 
Under the RFS Program
VII. Assessment of Aggregate Compliance
    A. Assessment of the Domestic Aggregate Compliance Approach
    B. Assessment of the Canadian Aggregate Compliance Approach
VIII. Public Participation
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act (PRA)
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act (UMRA)
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act (NTTAA)
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations, and Low-Income 
Populations
    K. Congressional Review Act (CRA)
X. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to 
the requirements in Clean Air Act (CAA) section 211(o) that were added 
through the Energy Policy Act of 2005 (EPAct). The statutory 
requirements for the RFS program were subsequently modified through the 
Energy Independence and Security Act of 2007 (EISA), resulting in the 
publication of major revisions to the regulatory requirements on March 
26, 2010.1 2 EISA's stated goals include moving the United 
States toward ``greater energy independence and security, to increase 
the production of clean renewable fuels.'' Since the initial 
promulgation of the RFS program regulations in 2007, domestic 
production and use of renewable fuel in the U.S. has increased 
substantially. According to the Energy Information Administration 
(EIA), fuel ethanol production in the U.S. more than doubled in volume 
from approximately 6.5 billion gallons in 2007 to about 14.3 billion 
gallons in 2014.\3\ Growth in biodiesel and renewable diesel production 
in the U.S. has increased more than two and a half times, from 
approximately 0.5 billion gallons in 2007 to 1.46 billion gallons in 
2014.\4\ Today, nearly all of the approximately 139 billion gallons of 
gasoline used for transportation purposes contains 10 percent ethanol 
(E10).
---------------------------------------------------------------------------

    \1\ 75 FR 14670, March 26, 2010.
    \2\ A full description of the statutory basis of the RFS program 
and EPA's actions to develop and implement the regulatory program 
are provided in a memorandum to the docket. See, ``Statutory basis 
of the RFS program and development of the regulatory program,'' 
memorandum from Madison Le to EPA docket EPA-HQ-OAR-2015-0111.
    \3\ EIA's Monthly Energy Review, April 2015, Table 10.3.
    \4\ 2007 volume represents biodiesel only, from EIA's Monthly 
Energy Review, April 2015, Table 10.4. 2014 volume represents 
biodiesel and renewable diesel domestic production from EMTS.
---------------------------------------------------------------------------

    The fundamental objective of the RFS provisions under the CAA is 
clear: To increase the use of renewable fuels in the U.S. 
transportation system every year through at least 2022 in order to 
reduce greenhouse gases (GHGs) and increase energy security. Further, 
renewable fuels from facilities that commenced construction after 2007 
must be better performing in terms of their greenhouse gas emissions, 
as compared on a lifecycle basis, to the petroleum based fuels they are 
replacing. Cellulosic biofuels are required to have 60 percent or 
greater greenhouse gas (GHG) emissions benefits on a lifecycle basis 
than the petroleum based fuels they replace; advanced biofuels 
(including biomass-based diesel) must have a 50 percent or greater 
benefit; and conventional biofuels (other than grandfathered 
facilities) must have a 20 percent or better benefit. Increased use of 
renewable fuels means less use of fossil fuels, which generally results 
in lower GHG emissions over time, especially when advanced biofuel 
production and use becomes more commonplace. By aiming to diversify the 
country's fuel supply, Congress also intended to increase the nation's 
energy security. Renewable fuels represent an opportunity for the U.S. 
to move away from fossil fuels towards a set of lower GHG 
transportation fuels, and a chance for a still-developing low GHG 
technology sector to grow. These lower GHG renewable fuels include corn 
starch ethanol, the predominant renewable fuel in use to date, but 
Congress envisioned the majority of growth over time to come from 
advanced biofuels, as the non-advanced (conventional) volumes remain 
constant in the statutory volume tables starting in

[[Page 77422]]

2015 while the advanced volumes continue to grow.\5\
---------------------------------------------------------------------------

    \5\ In this document we follow the common practice of using the 
term ``conventional'' renewable fuel to mean any renewable fuel that 
is not an advanced biofuel.
---------------------------------------------------------------------------

    The statute includes annual volume targets,\6\ and requires EPA to 
translate those volume targets (or alternative volume requirements 
established by EPA in accordance with statutory waiver authorities) 
into compliance obligations that refiners and importers must meet every 
year. In this action, EPA is establishing the annual percentage 
standards for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel that apply to all motor vehicle 
gasoline and diesel produced or imported in the years 2014, 2015, and 
2016. We are also establishing the applicable volume of biomass-based 
diesel for 2017.
---------------------------------------------------------------------------

    \6\ CAA section 211(o)(2)(B).
---------------------------------------------------------------------------

    In the June 10, 2015 notice of proposed rulemaking (NPRM), we 
proposed standards based on an approach that sought to achieve the 
Congressional intent of increasing renewable fuel use over time in 
order to address climate change and increase energy security, while at 
the same time accounting for the real-world challenges that have slowed 
progress toward such goals.\7\ Those challenges have made the volume 
targets established by Congress for 2014, 2015, and 2016 beyond reach. 
In the NPRM we proposed to use waiver mechanisms that Congress provided 
to allow for the volume targets to be reduced if necessary. The 
proposed volume requirements were lower than the statutory targets but 
set at a level that we believed would spur growth in renewable fuel 
use, consistent with Congressional intent.
---------------------------------------------------------------------------

    \7\ See 80 FR 33100.
---------------------------------------------------------------------------

    In this action, we are finalizing standards that make use of the 
statute's waiver provisions. The final standards differ from the 
proposed standards based on new information, consideration of public 
comments, and corrected calculations. Details of these changes are 
provided below. By finalizing the percentage standards for 2016 by 
November 30, 2015, we are returning to the statutory timeline for 
issuing standards under the RFS program.\8\
---------------------------------------------------------------------------

    \8\ We are also setting the BBD volume requirement for 2017 in 
this final rule. Under the statute, it was required to be set by 
November 1, 2015.
---------------------------------------------------------------------------

    We received a substantial number of comments on our proposed use of 
the statute's waiver authorities, with commenters both supporting and 
opposing our approach. In addition to comments on our proposed use of 
waiver authorities, we received comments on multiple other areas of the 
proposal, including our proposed treatment of carryover RINs, our 
proposed approach to determining the volume requirements, and other 
areas. We address these comments in this preamble as well as in a 
response-to-comment (RTC) document, which can be found in the docket 
for this action.
    While we are using the statutory waiver authorities in establishing 
final 2014, 2015, and 2016 standards for cellulosic biofuel, advanced 
biofuel, and total renewable fuel, as we proposed to do, the volumes we 
are finalizing differ from the proposed volumes in order to reflect 
updated and corrected information, and to provide year-to-year growth 
consistent with the statute's intent. Key corrections and updates 
include:
     Updating our assessment of volumes of renewable fuel that 
can be blended at various concentrations into petroleum fuel and our 
calculation of all of the percentage standards to take into account 
changes in EIA's projected gasoline and diesel demand for 2016.
     Correcting an error in determining actual volumes of 
ethanol supplied in 2014. EPA acknowledged this error in July 2015 by 
placing a memo in the docket.\9\ Correcting the error leads to a higher 
2014 total renewable fuel volume requirement than the level in the 
NPRM.
---------------------------------------------------------------------------

    \9\ See Docket Item No. EPA-HQ-OAR-2015-0111-1219.
---------------------------------------------------------------------------

     Accounting for higher than expected supply of biodiesel 
and renewable diesel in 2015, providing a basis for expecting similar 
growth in biodiesel and renewable diesel volumes in 2016.
    For 2016, we are finalizing volume requirements that are 
significantly higher than proposed, and that represent significant 
growth compared to actual renewable fuel use in 2015. While some 
stakeholders commented that reductions from the statutory targets would 
lead to a stagnation in growth, we disagree with this view. We proposed 
a 2016 volume requirement for total renewable fuel that was 1.1 billion 
gallons greater than the proposed 2015 volume requirement--a 
significant level of growth in one year. Our final 2016 volume 
requirements are also ambitious, with substantial growth in all four 
categories relative to 2015. We are also setting a final volume 
requirement for BBD for 2017 that continues the growth in that category 
of renewable fuel. The final volume requirements are shown in Table I-1 
below.

                                    Table I-1--Final Volume Requirements \a\
----------------------------------------------------------------------------------------------------------------
                                                       2014            2015            2016            2017
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel (million gallons)............           33             123             230                n/a
Biomass-based diesel (billion gallons)..........            1.63            1.73            1.90            2.00
Advanced biofuel (billion gallons)..............            2.67            2.88            3.61             n/a
Renewable fuel (billion gallons)................           16.28           16.93           18.11             n/a
----------------------------------------------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.

    Our decision to finalize volumes for total renewable fuel that rely 
on exercising the general waiver authority is based on the same 
fundamental reasoning we relied upon in the June 10, 2015 proposal. 
Despite significant increases in renewable fuel use in the United 
States, real-world constraints, such as the slower than expected 
development of the cellulosic biofuel industry and constraints in the 
marketplace needed to supply certain biofuels to consumers, have made 
the timeline laid out by Congress impossible to achieve. These 
challenges remain, even as we recognize the success of the RFS program 
over the past decade in boosting renewable fuel use, and the recent 
signs of progress towards development of increasing volumes of 
advanced, low GHG-emitting fuels, including cellulosic biofuels.
    We believe that the RFS program can and will drive renewable fuel 
use and, indeed, we have considered the ability of the market to 
respond to the standards we set when we assessed the

[[Page 77423]]

amount of renewable fuel that can be supplied. Therefore, while this 
final rule applies the tools Congress provided to make adjustments to 
the statutory volume targets in recognition of the constraints that 
exist today, we believe the standards we are finalizing today will 
drive growth in renewable fuels, particularly advanced biofuels which 
achieve the lowest lifecycle GHG emissions. In our view, while Congress 
recognized that supply challenges may exist as evidenced by the waiver 
provisions, it did not intend growth in the renewable fuels market to 
be stopped by those challenges, including those associated with the 
``E10 blendwall.'' \10\ The fact that Congress chose to mandate 
increasing and substantial amounts of renewable fuel clearly signals 
that it intended the RFS program to create incentives to increase 
renewable fuel supplies and overcome constraints in the market. The 
standards we are finalizing will provide those incentives.
---------------------------------------------------------------------------

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

    The final volume requirements will push the fuels sector to produce 
and blend more renewable fuels in 2016 in a manner that is consistent 
with the goals Congress envisioned. The final volumes are less than the 
statutory targets for 2016 but higher than what the market would 
produce and use in the absence of such market-driving standards. The 
2016 standards are expected to spur further progress in overcoming 
current challenges and lead to continued growth in the production and 
use of qualifying renewable fuels, including higher-level ethanol 
blends. In this regard the final standards are intended to fulfill the 
spirit and intent of Congress and provide guidance to market 
participants.
    Various commenters in the biofuels industry disagreed with our 
assessment that the approach described in the NPRM, in which we 
proposed to reduce the statutory targets using the available waiver 
authorities, would nevertheless support growth in renewable fuels. We 
address these comments throughout this document and the response to 
comments (RTC) document. We emphasize, however, that our fundamental 
goal is to implement the RFS program in such a way as to promote growth 
of renewable fuel use over time. We have conducted significant 
technical analysis, both in the proposed rule and in this final rule, 
to better understand and characterize the renewable fuels market and 
the RFS program, all in an effort to implement the program on a 
schedule that matches as nearly as possible that set forth in the 
statute.\11\ We believe the approach taken in this final rule--in which 
we use the general waiver authority only to the extent necessary in 
light of real world constraints to make the requirements reasonably 
achievable, and we use the cellulosic waiver authority for advanced 
biofuel in a manner that allows advanced biofuel to significantly 
backfill for missing volumes of cellulosic biofuel--will achieve that 
goal.
---------------------------------------------------------------------------

    \11\ See, for example, the supporting documents ``A Preliminary 
Assessment of RIN Market Dynamics, RIN Prices, and Their Effects,'' 
``An Assessment of the Impact of RIN Prices on the Retail Price of 
E85,'' and ``Correlating E85 consumption volumes with E85 price''. 
These documents discuss the expected impacts of the price of RINs on 
the transportation fuels and renewable fuels marketplace, the 
potential for the RFS program to incentivize additional production 
and use of renewable fuels, and the observed impacts of the RFS on 
the fuels market over the past several years.
---------------------------------------------------------------------------

    The RFS program can be thought of as a market forcing policy. The 
objective of the program is to introduce increasing volumes of 
renewable fuels, with a focus on cellulosic and other advanced 
renewable fuels, into the marketplace. Congress made the decision that 
this is an appropriate policy objective, and put in place a program to 
achieve that policy goal. A key issue in implementing any program 
designed to advance new technologies and increase use of existing 
technologies, however, is the question of lead time. Technologies are 
typically phased in over time--in many cases over many years--to allow 
for the development of the technology and the steady growth in 
penetration of that technology into the marketplace. New technologies 
do not typically start at 90 or 100 percent penetration rates; they can 
take time to overcome investment, technical, and market hurdles to 
their development, deployment and use. The greater the number and type 
of these challenges, the longer the lead time must be to achieve the 
desired policy goal. In establishing the RFS program, Congress not only 
recognized that biofuels would need to phase in over time, and thus 
established a ramp-up of renewable fuel volume targets over time, but 
also established provisions in the law allowing EPA to waive in whole 
or in part implementation of those targets under certain circumstances. 
Our exercising of those waiver authorities is not an attempt to 
undermine program growth, as some commenters argue, but rather a 
recognition of real world constraints that necessitate an adaptive 
approach to managing the program. Growth will, and must, continue under 
the law, but Congress recognized that in some cases, driving the 
introduction of a new technology requires an acknowledgment that new 
technologies can in some cases require longer lead times to achieve 
success. Trying to force growth at rates that prove infeasible would 
only undermine the certainty in the RFS program that is needed to 
sustain long-term growth.
    As stated in the NPRM, this final rule comes during a period of 
transition for the RFS program. In the program's early years, 
compliance with the advanced biofuel and total renewable volume 
requirements could be readily achieved in large part by blending 
increasing amounts of ethanol into gasoline and biodiesel into diesel 
fuel. As the program progresses, however, significantly increasing 
renewable fuel volumes will require pushing beyond current constraints 
on ethanol and biodiesel use and will require sustained growth in the 
development and use of advanced, non-ethanol renewable fuels, including 
drop-in renewable fuels. This final rule acknowledges this transition 
by finalizing volume requirements based not only on the volumes of 
renewable fuels that have already been achieved in 2014 and the months 
in 2015 leading up to this final action, but also on the volumes that 
can be supplied in 2016 as the market addresses infrastructure and 
other constraints. Our final rule includes volumes of renewable fuel 
that will require either ethanol use at levels significantly beyond the 
level of the E10 blendwall, or significantly greater use of non-ethanol 
renewable fuels, such as biodiesel and renewable diesel, than has 
occurred to date, depending on how the market responds to the standards 
we set. The standards we are finalizing are consistent with the purpose 
of the statute: to significantly increase the amount of renewable fuel 
used in the supply of transportation fuel over time, particularly 
renewable fuels with the lowest lifecycle GHG emissions.
    Since the amount of renewable fuel that can be produced and 
imported is larger than the volume that can be consumed due to limited 
demand for transportation fuel and constraints on supply of renewable 
fuels to vehicles and engines, there is necessarily competition among 
biofuels for retail consumption in the United States. In setting the 
biomass-based diesel volume requirement we have worked to achieve an 
appropriate and reasonable balance between setting a volume requirement 
that would provide support for the established BBD industry, while also 
providing opportunities under the

[[Page 77424]]

advanced biofuel volume requirement to incentivize continued 
development and production of emerging biofuels. The approach we have 
used to determine the final volumes is consistent with Congressional 
intent in establishing the RFS program in that it provides an 
opportunity for a diverse array of renewable fuel types to be used for 
compliance. Competition is good for market participants, including 
obligated parties and consumers, as it permits the market to determine 
the most efficient, lowest cost, best performing fuels for meeting the 
increasingly higher volume requirements anticipated over time under the 
program. However, it is also important to provide support to existing 
successful biofuels and to provide incentives for those fuels, 
especially advanced biofuels, which produce the greatest reductions in 
GHGs. To this end, as discussed in Section III, we are finalizing 
specific volume requirements for biomass-based diesel (BBD) through 
2017.
    As indicated in the NPRM, in establishing the standards for 2014, 
we must acknowledge that the compliance year has passed and any 
standard EPA sets for 2014 can no longer influence renewable fuel 
production or use in that year. Therefore, we are issuing a final rule 
for 2014 that reflects those volumes of renewable fuel that were 
actually supplied in 2014. Details regarding how we calculated the 
final ``actual'' volumes used in 2014 are discussed in Section II.C 
below.
    With regard to 2015, the proposed volume requirements were based in 
part on actual volumes supplied in the first part of the year, and in 
part based on a determination of growth that was possible (and which 
could be incentivized through the NPRM) in the balance of the year. 
Actual data on supply after release of the June 10, 2015 NPRM indicates 
that the market responded to the NPRM by increasing supply in 
comparison to the period prior to the release of the NPRM. The final 
standards for 2015 have been set based on updated production and 
consumption data available as of issuance of this final rule, and a 
projection of what is expected to be produced and used through the end 
of 2015, taking into account the inability of the market to respond to 
this final action in light of the little time remaining in the year.
    For 2016, our approach is to set final volumes that take into 
account both the constraints in the supplies that exist, and the 
ability of the RFS program to incentivize growth. Where appropriate we 
also take into consideration other factors such as the impact of the 
BBD standard on incentivizing the production and use of other advanced 
biofuels, and the benefits provided by advanced biofuels in backfilling 
some of the volume that Congress envisioned would be provided in 2016 
by cellulosic biofuels.
    This final rule represents EPA's commitment and continued support 
for steady growth in renewable fuel use. We recognize that the RFS 
standards are only one element among many that factor into the success 
of renewable fuel development and use over time. The standards that EPA 
sets each year are an important part of the overall picture, but this 
program is complemented and supported by programs managed by the U.S. 
Departments of Agriculture (USDA) and Energy (DOE), as well as myriad 
of efforts and initiatives at the regional and local level and within 
the private sector. DOE has invested considerable resources to help 
deploy the advanced technologies needed to achieve the statutory aims 
of lower carbon fuels, and has leveraged several billion dollars more 
in private support for development of advanced renewable fuels. USDA's 
Biofuel Infrastructure Partnership program will provide $100 million in 
grants for the expansion of renewable fuel infrastructure, and their 
Biorefinery Assistance Program has provided loan guarantees for the 
development and construction of commercial scale biorefineries with a 
number of the new projects focused on producing fuels other than 
ethanol. Greater GHG benefits are expected to be realized as the 
production and use of advanced biofuels accelerates, and the volume 
requirements that we are finalizing support this goal.

A. Purpose of This Action

    The national volume targets of renewable fuel that are intended to 
be achieved under the RFS program each year (absent an adjustment or 
waiver by EPA) are specified in CAA section 211(o)(2). The statutory 
volumes for 2014, 2015, and 2016 are shown in Table I.A-1. The 
cellulosic biofuel and BBD categories are nested within the advanced 
biofuel category, which is itself nested within the total renewable 
fuel category. This means, for example, that each gallon of cellulosic 
biofuel or BBD that is used to satisfy the individual volume 
requirements for those fuel types can also be used to satisfy the 
requirements for advanced biofuel and total renewable fuel.

                         Table I.A-1--Applicable Volumes Specified in the Clean Air Act
                                              [Billion gallons] \a\
----------------------------------------------------------------------------------------------------------------
                                                                      2014             2015            2016
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.............................................            1.75              3.0            4.25
Biomass-based diesel...........................................          >=1.0             >=1.0          >=1.0
Advanced biofuel...............................................            3.75              5.5            7.25
Renewable fuel.................................................           18.15             20.5           22.25
----------------------------------------------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except values for BBD which are given in
  actual gallons.

    Under the RFS program, EPA is required to determine and publish 
annual percentage standards for each compliance year. The percentage 
standards are calculated to ensure use in transportation fuel of the 
national ``applicable volumes'' of the four types of biofuel 
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel) 
that are set forth in the statute or established by EPA in accordance 
with the Act's requirements. The percentage standards are used by 
obligated parties (generally, producers and importers of gasoline and 
diesel fuel) to calculate their individual compliance obligations. Each 
of the four percentage standards is applied to the volume of non-
renewable gasoline and diesel that each obligated party produces or 
imports during the specified calendar year to determine their 
individual volume obligations with respect to the four renewable fuel 
types. The individual volume obligations determine the number of RINs 
of each renewable fuel type that each obligated party must acquire and 
retire to demonstrate compliance.
    Today EPA is establishing the annual applicable volume requirements 
for cellulosic biofuel, advanced biofuel, and total renewable fuel for 
2014, 2015, and 2016, and for BBD for 2014, 2015, 2016,

[[Page 77425]]

and 2017. Table I.A-2 lists the statutory provisions and associated 
criteria relevant to determining the national applicable volumes used 
to set the percentage standards in this final rule.

    Table I.A-2--Statutory Provisions for Determination of Applicable
                                 Volumes
------------------------------------------------------------------------
                                                    Criteria provided in
                                  Clean Air Act         statute for
      Applicable volumes            reference         determination of
                                                     applicable volume
------------------------------------------------------------------------
Cellulosic biofuel............  211(o)(7)(D)(i)..  Required volume must
                                                    be lesser of volume
                                                    specified in CAA
                                                    section
                                                    211(o)(2)(B)(i)(III)
                                                    or EPA's projected
                                                    volume in
                                                    coordination with
                                                    other federal
                                                    agencies.
                                211(o)(7)(A).....  EPA may waive the
                                                    statutory volume in
                                                    whole or in part if
                                                    implementation would
                                                    severely harm the
                                                    economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Biomass-based diesel \12\.....  211(o)(2)(B)(ii)   Required volume for
                                 and (v).           years after 2012
                                                    must be at least 1.0
                                                    billion gallons, and
                                                    must be based on a
                                                    review of
                                                    implementation of
                                                    the program,
                                                    coordination with
                                                    other federal
                                                    agencies, and an
                                                    analysis of
                                                    specified factors.
                                211(o)(7)(A).....  EPA may waive the
                                                    statutory volume in
                                                    whole or in part if
                                                    implementation would
                                                    severely harm the
                                                    economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Advanced biofuel..............  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    section
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA may waive the
                                                    statutory volume in
                                                    whole or in part if
                                                    implementation would
                                                    severely harm the
                                                    economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Total renewable fuel..........  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    section
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA may waive the
                                                    statutory volume in
                                                    whole or in part if
                                                    implementation would
                                                    severely harm the
                                                    economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
------------------------------------------------------------------------

    By\\ re-proposing the 2014 standards along with a proposed rule for 
the 2015 and 2016 standards, we were not only able to formulate a 
proposed rule for public comment that takes into account the fact that 
2014 is over, but we were also able to coordinate the treatment of 2014 
with the treatment of 2015, where part of the year has likewise already 
passed. We therefore withdrew the November 29, 2013, NPRM,\13\ and the 
June 10, 2015, NPRM replaced and superseded that earlier proposed rule. 
The timing of this final rule is being issued consistent with terms of 
a final consent decree entered into by the EPA on April 10, 2015. This 
consent decree resolves pending litigation concerning EPA's failure to 
establish standards for 2014 and 2015 by the statutory deadlines and 
includes a requirement for EPA to promulgate final standards for 2014 
and 2015 by November 30, 2015.\14\
---------------------------------------------------------------------------

    \12\ Section 211(o)(7)(E) also authorizes EPA to issue a 
temporary waiver of applicable volumes of BBD where EPA determines 
that there is a significant feedstock disruption or other market 
circumstance that would make the price of BBD fuel increase 
significantly.
    \13\ See 78 FR 71732 (November 29, 2013) and 79 FR 73007 
(December 9, 2014).
    \14\ See American Fuel and Petrochemical Manuf. et al. v. EPA 
(No. 15-cv-394, D.D.C.). The consent decree also requires that EPA 
respond by November 30, 2015 to the plaintiffs' petition seeking a 
waiver in part of the 2014 statutory volume targets.
---------------------------------------------------------------------------

    As shown in Table I.A-2, the statutory authorities that provide 
direction to EPA for how to modify or set the applicable standards 
differ for the four categories of renewable fuel. Under the statute, 
EPA must annually determine the projected volume of cellulosic biofuel 
production for the following year. If the projected volume of 
cellulosic biofuel production is less than the applicable volume 
specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must 
lower the applicable volume used to set the annual cellulosic biofuel 
percentage standard to the projected volume of production during the 
year. In Section IV of this final rule, we present our analysis of 
cellulosic biofuel production and the final applicable volumes for 
2014, 2015, and 2016. This analysis is based on an assessment of actual 
cellulosic biofuel supply in 2014 and parts of 2015, estimates from 
EIA, an evaluation of producers' production plans and progress to date 
following discussions with cellulosic biofuel producers, and review of 
comments we received in response to the NPRM.
    With regard to BBD, CAA section 211(o)(2)(B) specifies the 
applicable volumes of BBD to be used in the RFS program only through 
year 2012. For subsequent years the statute sets a minimum volume of 1 
billion gallons, and directs EPA to set the required volume after 
review of the renewable fuels program, consultation with USDA and DOE 
as well as consideration of a number of factors. In Section III of this 
preamble we discuss our assessment of statutory and other relevant 
factors and our final volume requirements for BBD for 2014, 2015, 2016, 
and 2017. We are finalizing growth in the required volume of BBD in 
such a way that both the BBD market and other advanced biofuels will 
grow.
    Regarding advanced biofuel and total renewable fuel, Congress 
provided several mechanisms through which

[[Page 77426]]

those volumes could be reduced if necessary. If we lower the applicable 
volume of cellulosic biofuel below the volume specified in CAA section 
211(o)(2)(B)(i)(III), we also have the authority to reduce the 
applicable volumes of advanced biofuel and total renewable fuel by the 
same or a lesser amount. We refer to this as the ``cellulosic waiver 
authority.'' We may also reduce the applicable volumes of any of the 
four renewable fuel types under the ``general waiver authority'' 
provided at CAA section 211(o)(7)(A) if EPA finds that implementation 
of the statutory volumes would severely harm the economy or environment 
of a State, region, or the United States, or if there is inadequate 
domestic supply. Section II of this final rule describes our use of the 
cellulosic waiver authority to reduce volumes of advanced biofuel and 
total renewable fuel and the general waiver authority to further reduce 
volumes of total renewable fuel. Exercise of our waiver authorities is 
necessary to address important realities, including:
     Substantial limitations in the supply of cellulosic 
biofuel,
     Insufficient supply of other advanced biofuel to offset 
the shortfall in cellulosic biofuel, and
     Practical and legal constraints on the ability of the 
market to supply renewable fuels to the vehicles that can use them.
    We believe these realities justify the exercise of the authorities 
Congress provided us to waive the statutory volumes. At the same time, 
we are mindful that the primary objective of the statute is to increase 
renewable fuel use over time. For the total renewable fuel requirement 
in this rule, we are using the waiver authorities only to the extent 
necessary to derive applicable volumes that reflect the maximum supply 
that can reasonably be expected to be produced and consumed by a market 
that is responsive to the RFS standards. This is a very challenging 
task not only in light of the myriad complexities of the fuels market 
and how individual aspects of the industry might change in the future, 
but also because we cannot precisely predict how the market will 
respond to the volume-driving provisions of the RFS program. Thus the 
determination of the final total renewable fuel volume requirement is 
one that we believe necessarily involves considerable exercise of 
judgment. Based on our assessment of available renewable fuel supply, 
and after consultation with the Departments of Agriculture and Energy, 
we believe that adjustments to the statutory targets for total 
renewable fuel are warranted for 2014, 2015, and 2016. While the final 
volume requirements for 2014 and 2015 are either equal to actual supply 
or (for 2015) a projection from actual supply, the volume requirement 
for 2016 will lead to growth in supply beyond the levels achieved in 
the past, based on the expectation that the market can and will respond 
to the standards we set.
    For the advanced biofuel volume requirements, we are using the 
cellulosic waiver authority to derive a volume requirement for 2014 
that is based on actual supply; a volume requirement for 2015 that is 
based on actual supply during months for which data are available, and 
a projection from those levels for the remaining months in the year; 
and a volume requirement for 2016 that is reasonably attainable and 
which to a significant extent will result in backfilling the shortfall 
in cellulosic biofuel volumes with other advanced biofuels that also 
provide substantial GHG emission reductions.\15\
---------------------------------------------------------------------------

    \15\ As discussed in Section II.B.1, EPA has considerable 
discretion in exercising the cellulosic waiver authority, and is not 
constrained to consider any particular factor or list of factors in 
doing so.
---------------------------------------------------------------------------

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this final 
rule. We are establishing applicable volume requirements for cellulosic 
biofuel, BBD, advanced biofuel, and total renewable fuel for 2014, 
2015, and 2016, as well as the applicable volume requirement for BBD 
for 2017. This action also includes a final response to several 
requests we received in 2013 for a waiver of the 2014 standards. We are 
also finalizing an amendment to the regulations designed to clarify the 
scope of the algal biofuel pathway. Finally, we are establishing new 
deadlines for annual compliance reporting and attest reporting for the 
2013, 2014 and 2015 compliance years.
1. Final Approach to Setting Standards for 2014, 2015, and 2016
    Because 2014 has passed, this final rule cannot alter the volumes 
of renewable fuel produced and consumed during 2014. We believe it is 
appropriate, therefore, that the standards we establish for 2014 
reflect the actual supply of renewable fuel in 2014. Although we 
believe that the standards we set for advanced biofuel and total 
renewable fuel must be ambitious to be consistent with the intent of 
Congress in establishing the RFS program, we also recognize that the 
final standards we set cannot affect the past. Therefore, in this 
action we are basing the applicable volume requirements for 2014 on 
actual renewable fuel use, as determined by data on the number of 
Renewable Identification Numbers (RINs) generated from the EPA-
Moderated Transaction System (EMTS), minus the number of RINs retired 
to account for renewable fuel export as reported by the Census Bureau, 
or retired for other purposes unrelated to demonstrating compliance 
with the annual standards as reported through EMTS.\16\ While this 
approach would result in exactly the number of 2014 RINs available for 
compliance that would be needed for compliance with the 2014 standards, 
we recognize that it does not guarantee that every individual obligated 
party will have the exact number of 2014 RINs needed for compliance 
with its individual RVOs. Thus there may be some cost associated with 
the reallocation of 2014 RINs to those obligated parties that need 
them. However, such variations in RIN holdings between obligated 
parties can occur in any year. We do not believe it would be 
appropriate to exercise our waiver authority to reduce the 2014 
standards below the number of 2014 RINs that were generated and are 
available for compliance. Rather, we believe that we should rely on the 
market to sort out the distribution of RINs among obligated parties as 
was the intent in establishing the RIN trading mechanism. We are 
revising the deadline for obligated parties to demonstrate compliance 
with the RFS standards to afford obligated parties additional time to 
engage in transactions to acquire the RINs they need for 
compliance.\17\
---------------------------------------------------------------------------

    \16\ A RIN is a unique number generated by the producer and 
assigned to each gallon of a qualifying renewable fuel under the RFS 
program, and is used by refiners and importers to demonstrate 
compliance with the volume requirements under the program. RINs may 
be retired for a number of reasons, including to account for 
renewable fuel spills or to correct for RIN generation errors.
    \17\ Other compliance flexibilities also exist, including use of 
carryover RINs and the ability for parties that do not have a 2013 
compliance deficit to carry a 2014 deficit forward into 2015.
---------------------------------------------------------------------------

    For the 2015 standards, we proposed volume requirements in the June 
10, 2015 NPRM that projected growth in renewable fuel use over the 
calendar year, even though the proposed volume requirements were issued 
mid-way through the year. The market appears to have responded to the 
proposal as monthly supply after the NPRM was about 5% higher than 
monthly supply before the NPRM. We believe that the final rule, 
however, will be issued too late in the year to have any further effect 
on supply in 2015. Therefore, in deriving the final 2015 volume 
requirements we used the data on actual

[[Page 77427]]

supply that is available to us (through September 2015), along with a 
projection of supply for the remaining months of 2015 based on actual 
supply in the months for which we have data and historical trends 
regarding seasonal renewable fuel supply. In other words, the 2015 
volume requirements are based on a combination of actual volumes 
supplied and an extrapolation of likely volumes for the remainder of 
the year that assumes that our final standards are issued too late in 
the year to have further influence on the renewable fuel supply.
    For 2016, our final volume requirements are issued on the statutory 
schedule, allowing the full compliance year for obligated parties and 
the market to react to the standards we set. Therefore, we assume that 
the standards can influence greater renewable fuel use than would be 
the case in the absence of the standards. For advanced biofuel and 
total renewable fuel, our assessment of 2016 supply simultaneously 
reflects the statute's purpose to drive growth in renewable fuels, 
while also accounting for constraints in the market that make the 
volume targets specified in the statute beyond reach, as described more 
fully in Section II. Our determination regarding the BBD volume 
requirement has been based on consultation with USDA and DOE and an 
analysis of a set of factors stipulated in CAA section 
211(o)(2)(B)(ii), as described in more detail in Section III. Finally, 
as described in Section IV, the cellulosic biofuel volume requirement 
is based on a projection of production in 2016 that reflects a neutral 
aim at accuracy.
2. Advanced Biofuel and Total Renewable Fuel
    Since the EISA-amended RFS program began in 2010, we have reduced 
the applicable volume of cellulosic biofuel each year in the context of 
our annual RFS standards rulemakings to the projected production 
levels, and we have considered whether to also reduce the advanced 
biofuel and total renewable fuel statutory volumes pursuant to the 
waiver authority in section 211(o)(7)(D)(i). In the past we have 
determined that reductions in the statutory targets for advanced 
biofuel and total renewable fuel were not necessary. However, for 2014 
and later years this is not the case. For 2014, this final rulemaking 
is too late to influence the market, and renewable fuel supply must 
necessarily be determined based on historical data. This is also 
largely the case for 2015, though we have included a projection for the 
latter part of the year for which data on actual use is not available. 
For both of these years, the supply of advanced and total renewable 
fuels was insufficient to satisfy the statutory targets.
    For 2016 we have determined that the volume of ethanol in the form 
of E10 or higher ethanol blends that can be supplied to vehicles, 
together with the volume of non-ethanol renewable fuels that can be 
supplied to vehicles, is insufficient to attain the statutory targets 
for both total renewable fuel and advanced biofuel. As a result, we are 
using the waiver authorities provided in CAA section 211(o)(7) to set 
lower volume requirements for these renewable fuel categories in 2016. 
We expect future standards to both reflect and anticipate progress of 
the industry and market in providing for continued expansion of the 
supply of renewable fuels.
    Our determination in this final rule that the required volumes of 
advanced biofuel and total renewable fuel should be reduced from the 
statutory targets is based on a consideration of the ability of the 
market to supply such fuels through domestic production or import; the 
ability of available renewable fuels to be used as transportation fuel, 
heating oil, or jet fuel; and the ability of the standards to bring 
about market changes in the time available.\18\ Increasing renewable 
fuel supply requires all aspects of the market to be in place to 
support those increased volumes. Yet the renewable fuel marketplace is 
very complex, and includes such diverse elements as feedstock (e.g. 
corn, soybeans) production and transport, renewable fuel production and 
import facilities, distribution capacity (e.g., pipeline, rail, barge, 
and tank truck), terminal storage, facilities at terminals to blend 
renewable fuel into gasoline and diesel, vehicles/engines designed to 
use renewable fuel, and consumer fuel consumption. Compounding this 
complexity is the fact that these elements are typically under the 
control of different entities, making coordinated investment decisions 
more difficult. A constraint anywhere in this system can lead to 
shortfalls in renewable fuel supply in comparison to the statutory 
targets. As described in more detail in Section II.B, we believe that 
the availability of qualifying renewable fuels and constraints on their 
supply to vehicles that can use them are valid considerations under 
both the cellulosic waiver authority under section 211(o)(7)(D)(i) and 
the general waiver authority under section 211(o)(7)(A). We are using 
the waiver authorities in a limited way that reflects our understanding 
of how to reconcile real marketplace constraints with Congress' intent 
to cause growth in renewable fuel use over time.
---------------------------------------------------------------------------

    \18\ While the fuels that are subject to the percentage 
standards are currently only non-renewable gasoline and diesel, 
renewable fuels that are valid for compliance with the standards 
include those used as transportation fuel, heating oil, or jet fuel.
---------------------------------------------------------------------------

    We have established applicable volumes for advanced biofuel and 
total renewable fuel for 2016 that would result in significant volume 
growth over the levels supplied in previous years. Moreover, the 2016 
volume requirement for total renewable fuel is, in our judgment, as 
ambitious as can reasonably be justified, and reflects the growth rates 
that can be attained under a program explicitly designed to compel the 
market to respond. The advanced biofuel volume requirement is set at a 
level that will allow reasonably attainable volumes of advanced biofuel 
to backfill for missing cellulosic biofuel volumes.
3. Biomass-Based Diesel
    As for advanced and total renewable fuel in 2014 and 2015, we 
believe that it is appropriate to establish the 2014 and 2015 volume 
requirements of BBD to reflect actual supply (including a projection 
for the latter part of 2015 that is primarily based on supply in the 
earlier part of the year for which data is available). For 2016 and 
2017, to preserve the important role that BBD plays in the RFS program, 
as well as to support the volume requirements for advanced biofuel, we 
believe that it is appropriate to increase the BBD volume requirement 
for each year. However, we also believe that it is of ongoing 
importance that opportunities for other types of advanced biofuel, such 
as renewable diesel co-processed with petroleum, renewable gasoline 
blendstocks, and renewable heating oil, as well as others that are 
under development be incentivized and expanded. Thus, based on a review 
of the implementation of the program to date and all the factors 
required under the statute, we are not only finalizing the 2014 and 
2015 BBD volume requirement at the actual volumes of 1.63 and 1.73 
billion gallons,\19\ respectively, but we are also finalizing increases 
in the applicable volume of BBD to 1.9 and 2.0 billion gallons for 
years 2016 and 2017, respectively. We believe that these increases 
support the overall goals of the program while also maintaining the 
incentive for development and growth in production

[[Page 77428]]

of other advanced biofuels. We believe establishing the volumes at 
these levels will encourage BBD producers to manufacture higher volumes 
of fuel that will contribute to the advanced biofuel and total 
renewable fuel requirements, while also leaving considerable 
opportunity within the advanced biofuel mandate for investment in and 
growth in production of other types of advanced biofuel with comparable 
or potentially superior environmental or other attributes.
---------------------------------------------------------------------------

    \19\ The 2015 BBD standard is based on actual data for the first 
9 months of 2015 and a projection for the latter part of the year 
for which data on actual use is not available.
---------------------------------------------------------------------------

4. Cellulosic Biofuel
    The cellulosic biofuel industry continues to transition from 
research and development (R&D) and pilot scale operations to commercial 
scale facilities, leading to significant increases in production 
capacity. RIN generation from the first commercial scale cellulosic 
biofuel facility began in March 2013. Cellulosic biofuel production 
increased substantially in 2014, with over 33 million gallons in that 
year. This volume included a significant number of cellulosic biofuel 
RINs generated for cellulosic CNG/LNG from biogas through a new pathway 
approved by EPA in 2014.\20\ For 2014 we are finalizing a cellulosic 
biofuel standard of 33 million gallons, consistent with the total 
number for RINs generated in 2014 that may be used toward satisfying an 
obligated party's cellulosic biofuel obligation (both cellulosic 
biofuel (D3) and cellulosic diesel (D7) RINs). We are also finalizing a 
cellulosic biofuel standard of 123 million ethanol-equivalent gallons 
for 2015 and 230 million ethanol-equivalent gallons in 2016 based on 
the information we have received regarding individual facilities' 
capacities, production start dates and biofuel production plans, as 
well as input from other government agencies, and EPA's own engineering 
judgment.
---------------------------------------------------------------------------

    \20\ See 79 FR 42128 (July 18, 2014).
---------------------------------------------------------------------------

    As part of estimating the volume of cellulosic biofuel that will be 
made available in the U.S. in 2015 and 2016, we researched all 
potential production sources by company and facility. This included 
sources still in the planning stages, facilities under construction, 
facilities in the commissioning or start-up phases, and facilities 
already producing some volume of cellulosic biofuel. Facilities 
primarily focused on R&D were not the focus of our assessment, as 
production from these facilities represents very small volumes of 
cellulosic biofuel, and these facilities typically have not generated 
RINs for the fuel they have produced. From this universe of potential 
cellulosic biofuel sources, we identified the subset that is expected 
to produce commercial volumes of qualifying cellulosic biofuel for use 
as transportation fuel, heating oil, or jet fuel by the end of 2016. To 
arrive at projected volumes, we collected relevant information on each 
facility. We then developed projected production ranges based on 
factors such as the current and expected state of funding, the status 
of the technology being used, progress towards construction and 
production goals, facility registration status, production volumes 
achieved, and other significant factors that could potentially impact 
fuel production or the ability of the produced fuel to qualify for 
cellulosic biofuel RINs. We also used this information to group these 
companies based on production history and to select a value within the 
aggregated projected production ranges that we believe best represents 
the most likely production volumes from each group for each year. EPA 
also received a projection of liquid cellulosic biofuel production in 
2016 from EIA, which helped form the basis of our production for these 
types of cellulosic biofuels. Further discussion of these factors and 
the way they were used to determine our final cellulosic biofuel 
projections for 2014, 2015, and 2016 can be found in Section IV.
5. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage 
and are used by each producer and importer of fossil-based gasoline or 
diesel to determine their renewable fuel volume obligations. The 
percentage standards are set so that if each obligated party meets the 
standards, and if EIA projections of gasoline and diesel use for the 
coming year prove to be accurate, then the amount of renewable fuel, 
cellulosic biofuel, BBD, and advanced biofuel actually used will meet 
the volumes required on a nationwide basis.
    Four separate percentage standards are required under the RFS 
program, corresponding to the four separate renewable fuel categories 
shown in Table I.A-1. The specific formulas we use in calculating the 
renewable fuel percentage standards are contained in the regulations at 
40 CFR 80.1405 and repeated in Section V.B.1. The percentage standards 
represent the ratio of renewable fuel volume to projected non-renewable 
gasoline and diesel volume. The volume of transportation gasoline and 
diesel used to calculate the final percentage standards was provided by 
EIA. The final percentage standards for 2014, 2015, and 2016 are shown 
in Table I.B.5-1. Detailed calculations can be found in Section V, 
including the projected gasoline and diesel volumes used.

                                    Table I.B.5-1--Final Percentage Standards
----------------------------------------------------------------------------------------------------------------
                                                                     2014 (%)        2015 (%)        2016 (%)
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel..............................................           0.019           0.069           0.128
Biomass-based diesel............................................           1.41            1.49            1.59
Advanced biofuel................................................           1.51            1.62            2.01
Renewable fuel..................................................           9.19            9.52           10.10
----------------------------------------------------------------------------------------------------------------

6. Response to Requests for a Waiver of the 2014 Standards
    Concurrently with the November 29, 2013, proposed rule for 2014 RFS 
standards, we also published a separate Federal Register Notice \21\ 
indicating that the American Petroleum Institute (API) and the American 
Fuel & Petrochemical Manufacturers (AFPM) had submitted a joint 
petition requesting a partial waiver of the 2014 applicable RFS 
volumes, and that several individual refining companies had also 
submitted similar petitions. We noted that any additional similar 
requests would also be docketed and considered together with requests 
already received. EPA has subsequently received additional waiver 
petitions, including those submitted by eight Governors.\22\
---------------------------------------------------------------------------

    \21\ 78 FR 71732 (November 29, 2013) and 78 FR 71607 (November 
19, 2013), respectively.
    \22\ EPA has received, to date, waiver petitions from Governors 
Deal (GA), Fallin (OK), Perry (TX), Otter (ID), LePage (ME), 
Martinez (NM), Herbert (UT), and Haley (SC). In addition to the 
waiver petition from API/AFPM, EPA has also received waiver 
petitions from the following companies: Delek, ExxonMobil, Holly 
Frontier, Lion Oil Petroleum, Marathon Oil, NCRA, PBF Holding 
Company, Phillips 66, and Tesoro.

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

[[Page 77429]]

    The petitions generally asserted that for 2014 there is an 
inadequate domestic supply of renewable fuel and therefore RINs, due 
both to the E10 blendwall and constraints on the supply of higher-level 
ethanol blends, and of non-ethanol renewable fuels. Many of the 
petitioners argued that this inadequate supply of renewable fuel (and 
RINs) will lead to an inadequate supply of gasoline and diesel, because 
refiners and importers, faced with a shortage of RINs, will reduce 
their production of gasoline and diesel for the domestic market. They 
argued that this will in turn severely harm the economy.
    As calendar year 2014 has passed, we believe it is appropriate to 
set the applicable volume requirements at the volumes that were 
actually supplied in 2014. We do not believe that use of 2014 renewable 
fuel volumes severely harmed the economy, and we believe that it is 
straightforward to conclude that there was an adequate supply of the 
volumes of renewable fuel that were actually used in 2014. For total 
renewable fuel, cellulosic biofuel and advanced biofuels, this approach 
results in volume requirements as close to the statutory volume targets 
as possible absent using the availability of carryover RINs as a 
justification for setting higher requirements. We considered that 
option, but, as described in detail in Section II.H., we do not 
interpret carryover RINs to be part of the ``supply'' of renewable fuel 
for purposes of assessing whether an inadequate domestic supply exists 
to justify a waiver under section 211(o)(7)(A) and, although they are a 
relevant consideration in determining whether or not we should exercise 
our discretion to grant a waiver under either the general waiver 
authority or the cellulosic waiver authority, we have determined that 
the current bank of carryover RINs serves important program functions, 
and that the requirements for 2014-2016 should not be intentionally set 
at levels that would require a draw-down in the current bank of 
carryover RINs. We also considered, given the late nature of this 
rulemaking with respect to 2014, the possibility of setting the 2014 
requirements at the levels originally proposed in November 2013, as 
suggested by some obligated party commenters that asserted that they 
used those proposed levels for planning purposes. However, we do not 
believe it would have been reasonable for obligated parties to assume 
that the November 2013 proposed volumes would be finalized unchanged. 
The statutory volume targets for cellulosic biofuel, advanced biofuel 
and total renewable fuel, as well as NPRM preamble statements for these 
fuels and biomass-based diesel, clearly provided notice to obligated 
parties that the final volume requirements could be substantially 
different than proposed. Nevertheless, we have extended the 2014 
compliance demonstration deadline to allow such parties additional time 
to acquire the RINs needed for compliance. In light of all of these 
considerations, we have determined that it is appropriate to establish 
volume requirements for 2014 that reflect actual renewable fuel supply 
in that year.
    To the extent that EPA's independent action to reduce statutory 
volumes satisfies the petition requests, those requests are now moot 
and EPA is taking no further action with respect to them. EPA is 
denying the waiver petitions to the extent they seek differing 
reductions in applicable volumes than are set forth in this final rule. 
We believe it is unnecessary to evaluate concerns raised by certain 
petitioners that implementation of the statutory applicable volumes 
would cause severe economic harm, since such concerns were predicated 
on underlying concerns of inadequate domestic supply and such supply 
concerns are directly addressed by this final rule.
7. Changes to Regulations
    In addition to finalizing the aforementioned volume requirements 
and associated percentage standards, we are also finalizing amendments 
to the RFS requirements to address two issues. First, we are finalizing 
changes with respect to the previously-approved algal oil pathways in 
Table 1 to 40 CFR 80.1426 to clarify that only biofuels produced from 
oil from algae grown photosynthetically qualify for the RFS program 
under the algal oil pathways in Table 1 to 40 CFR 80.1426. Since EPA 
assumed that algae would be grown photosynthetically when it evaluated 
the lifecycle greenhouse gas emissions associated with the existing 
algal oil pathways, we are clarifying the regulatory description of 
these pathways to align with EPA's technical assessment and 
interpretation of the scope of the pathways.
    We are aware of companies that plan to produce biofuels from algae 
that use non-photosynthetic types of metabolism. Companies wishing to 
produce biofuels from algae grown with a non-photosynthetic stage of 
growth must apply to EPA for approval of their pathway pursuant to 40 
CFR 80.1416. EPA has not conducted a full lifecycle GHG analysis of 
emissions associated with biofuel produced using non-photosynthetic 
algae. Such analysis would need to be completed in order to determine 
whether fuels produced using these microorganisms meet the lifecycle 
GHG threshold for advanced biofuels.
    We are also finalizing revisions to the annual compliance reporting 
deadlines for obligated parties and renewable fuel exporters, and the 
attest engagement reporting deadlines for obligated parties, RIN-
generating renewable fuel producers and importers, other parties 
holding RINs, renewable fuel exporters, and independent third-party 
auditors for the 2013, 2014, and 2015 compliance years. The deadlines 
vary for each of these parties depending on the applicable compliance 
period, and some parties will be required to submit partial annual 
reports representing a portion of the 2014 compliance year. A detailed 
description of our changes to reporting deadlines can be found in 
Section VI.B.
8. Assessment of Aggregate Compliance Approach
    By November 30 of each year we are required to assess the status of 
the aggregate compliance approach to land-use restrictions under the 
definition of renewable biomass for both the U.S. and Canada. In 
today's action we are providing the final announcements for these 
administrative actions.
    As part of the RFS regulations, EPA established an aggregate 
compliance approach for renewable fuel producers who use planted crops 
and crop residue from U.S. agricultural land. This compliance approach 
relieved such producers (and importers of such fuel) of the individual 
recordkeeping and reporting requirements otherwise required of 
producers and importers to verify that such feedstocks used in the 
production of renewable fuel meet the definition of renewable biomass. 
EPA determined that 402 million acres of U.S. agricultural land was 
available in 2007 (the year of EISA enactment) for production of crops 
and crop residue that would meet the definition of renewable biomass, 
and determined that as long as this total number of acres is not 
exceeded, it is unlikely that new land has been devoted to crop 
production based on historical trends and economic considerations. We 
indicated that we would conduct an annual evaluation of total U.S. 
acreage that is cropland, pastureland, or conservation reserve program 
land, and that if the value exceed 402 million

[[Page 77430]]

acres, producers using domestically grown crops or crop residue to 
produce renewable fuel would be subject to individual recordkeeping and 
reporting to verify that their feedstocks meet the definition of 
renewable biomass. As described in Section VII.A, based on data 
provided by the USDA, we have estimated that U.S. agricultural land did 
not exceed the 2007 baseline acreage in 2013, 2014, or 2015. This 
assessment means that the aggregate compliance provision can continue 
to be used in the U.S. for calendar years 2014, 2015, and 2016.
    On September 29, 2011, EPA approved the use of a similar aggregate 
compliance approach for planted crops and crop residue grown in Canada. 
The Government of Canada utilized several types of land use data to 
demonstrate that the land included in their 124 million acre baseline 
is cropland, pastureland or land equivalent to U.S. Conservation 
Reserve Program land that was cleared or cultivated prior to December 
19, 2007, and was actively managed or fallow and non-forested on that 
date (and is therefore RFS2 qualifying land). As described in Section 
VII.B, based on data provided by Canada, we have estimated that 
Canadian agricultural land did not exceed the 2007 baseline acreage in 
2013, 2014, or 2015. This assessment means that the aggregate 
compliance provision can continue to be used in Canada for calendar 
years 2014, 2015, and 2016.

C. Authority for Late Action and Applicability of the Standards

    Under CAA section 211(o)(3)(B)(i), EPA must determine and publish 
the annual percentage standards by November 30 of the preceding year, 
and under CAA section 211(o)(3)(B)(ii) it must establish applicable 
volumes for biomass-based diesel 14 months in advance of the 
corresponding compliance year. EPA did not meet these statutory 
deadlines for the 2014 and 2015 percentage standards, or for the BBD 
applicable volumes established in this rule. Nevertheless, the 
percentage standards established through this rulemaking will apply to 
all gasoline and diesel produced or imported in calendar years 2014, 
2015, or 2016 as applicable, and the 2017 applicable volume will form 
the basis for the BBD percentage standard that is required by statute 
to be established by November 30, 2016, that will apply to all 
biodiesel produced or imported in 2017.
    We acknowledge that this rule is being finalized later than the 
statutory deadlines noted above. However, the statute requires that EPA 
established percentage standards applicable to each calendar year, and 
applicable volumes for BBD, and we do not believe we are relieved of 
these obligations by missing the statutory deadlines. Moreover, parties 
have been producing and using renewable fuels, and generating and 
acquiring RINs for compliance even in the absence of the annual 
standards being in place, with the expectation that the requirements 
would ultimately be finalized. We believe it is important not to upset 
these reasonable expectations, both for the parties involved and for 
the long-term integrity of the RFS program. The delay does not deprive 
EPA of authority to issue applicable volumes and standards for these 
calendar years. The United States Court of Appeals for the District of 
Columbia Circuit upheld the 2013 RFS standards even though they were 
issued more than eight months after statutory deadline. Monroe Energy 
v. EPA, 750 F.3.d 909 (D.C. Cir. 2014). The court noted that it had 
resolved the question of EPA's authority to issue RFS standards after 
the statutory deadline for issuing the annual RFS standards in NPRM v. 
EPA, 630 F.3d 145 (D.C. Cir. 2010). In that case, the court explained 
that courts have declined to treat a statutory direction that an agency 
``shall'' act within a specified time period as a jurisdictional limit 
that precludes action later. Id. at 154 (citing Barnhart v. Peabody 
Coal, 537 U.S. 149, 158 (2003)). Moreover, the court noted that the 
statute here requires that EPA regulations ``ensure'' that 
transportation fuel sold or introduced into commerce ``on an annual 
average basis, contains at least the volumes of renewable fuel'' that 
are required pursuant to the statute. Id. at 152-153. This statutory 
directive requires EPA action, even if late. Therefore EPA believes it 
has authority to issue RFS standards for calendar years 2014 and 2015, 
and BBD applicable volumes for 2014-2017, notwithstanding EPA's delay.
    EPA is exercising its authority to issue standards applicable to 
past time periods in a reasonable way. Thus, for 2014, EPA is 
establishing renewable fuel obligations that reflect actual renewable 
fuel used as transportation fuel, heating oil, or jet fuel during that 
time period, and the final August 1, 2016 compliance deadline for 2014 
(which is two months later than proposed) will allow time for obligated 
parties to complete necessary transactions to meet obligations. For 
2015 we are similarly taking into account actual renewable fuel use 
during the time that has already passed in 2015, and establishing an 
extended compliance demonstration deadline of December 1, 2016--a full 
year after signature of today's rule, and 11 months after the close of 
the 2015 compliance period. Renewable fuel producers generated RINs 
throughout 2014, and have also been generating 2015 RINs since the 
beginning of the calendar year. To varying degrees, obligated parties 
have been acquiring RINs since the beginning of 2014 in anticipation of 
the final volume requirements and standards. While we acknowledge the 
uncertainty that the market has experienced due to the delay, our final 
rule bases the applicable volume requirements for 2014 and 2015 on an 
assessment of past production. As a result, there will be an adequate 
quantity of RINs available to satisfy those portions of the final 
requirements. In addition, there are a number of program flexibilities 
that will facilitate compliance. There is a bank of carryover RINs that 
will make the RIN market more fluid, and facilitate the acquisition of 
RINs that can be used to comply with the 2014 RVOs. That same bank of 
carryover RINs can be rolled forward to assist in compliance with 2015 
and 2016 requirements. We acknowledge that there is a theoretical 
possibility that parties that accumulate RINs through their own 
blending activities could decide to bank the maximum quantity of RINs 
for their own future use or for future sale, and that if this practice 
were widespread that there could be a shortfall in available RINs for 
parties who do not engage in renewable fuel blending activities 
themselves and have not entered into sufficient contracts with blenders 
or other parties to acquire sufficient RINs. Such practices are 
possibilities in any year, and in any competitive marketplace, and we 
believe that obligated parties have had sufficient experience with the 
RFS program to have learned to take appropriate precautionary measures 
to avoid such results. Even where they have not done so, and find 
compliance with a given year's standards infeasible, they may avail 
themselves of the option of carrying a compliance deficit forward for 
that compliance year to the next. Some commenters asserted that BBD 
volume requirements for 2014 and 2015 should be set at the level 
proposed in November, 2013, rather than levels actually supplied in 
those years. Some commenters suggested that all 2014 volume 
requirements should be set equal to those proposed in 2013. As 
described in Section III, EPA disagrees with these commenters that 
obligated parties lacked notice that EPA could set final volume 
requirements for these

[[Page 77431]]

years higher than proposed in 2013, or that setting the requirements to 
reflect actual supply would pose an unreasonable burden on obligated 
parties, particularly in light of the nested nature of the standards. 
Sufficient RINs were generated in these years to allow compliance, and 
carryover RINs, deficit carryforwards and delayed compliance 
demonstration deadlines are all in place to facilitate compliance. In 
sum, we believe that EPA's final approach is authorized and reasonable, 
though late.

D. Outlook for 2017 and Beyond

    We recognize the important public policy goals at the heart of the 
RFS program, and we acknowledge that a number of challenges must be 
overcome in order to fully realize the potential for greater use of 
renewable fuels in the United States. We also recognize that the RFS 
program plays a central role in creating the incentives for realizing 
that potential. The standards being finalized today require that 
significant progress is made in overcoming those challenges. We expect 
future standards to both reflect and anticipate progress of the 
industry and market in providing for continued expansion in the supply 
of renewable fuels, and we intend to set standards in future years that 
continue to capitalize on the market's ability to respond to those 
standards with expansions in production and infrastructure.
    We believe that the supply of renewable fuels can continue to 
increase in the coming years despite the constraints associated with 
shortfalls in cellulosic biofuel production and other advanced 
biofuels, and constraints associated with supplying renewable fuels to 
the vehicles and engines that can use them. As described in Section 
II.E, we believe that the market is capable of responding to ambitious 
standards by expanding all segments of the market needed to increase 
renewable fuel supply and modify fuel pricing to provide incentives for 
the production and use of renewable fuels.
    In future years, we would expect to use the most up-to-date 
information available to project the growth that can realistically be 
achieved considering the ability of the RFS program to spur growth in 
the volume of ethanol, biodiesel, and other renewable fuels that can be 
supplied and consumed by vehicles as we have for the 2016 volumes in 
this rule. In particular we will focus on the emergence of advanced 
biofuels including cellulosic biofuel consistent with the statute. Many 
companies are continuing to invest in efforts ranging from research and 
development to the construction of commercial-scale facilities to 
increase the production potential of next generation biofuels. We will 
continue to evaluate new pathways especially for advanced biofuels and 
respond to petitions, expanding the availability of feedstocks, 
production technologies, and fuel types eligible under the RFS program.
    We also intend to take additional steps to facilitate the 
development and use of advanced biofuels. In particular, we will be 
initiating action to allow the production of renewable fuels to occur 
in steps at more than one facility. Partial conversion of a renewable 
feedstock into a so-called ``biointermediate'' at remote facilities for 
subsequent final processing into renewable biofuel at the primary 
production facility has been identified by several industry members as 
an important option to reduce the cost and enhance the availability of 
cellulosic and other advanced biofuels. However, under the existing RFS 
regulations, renewable fuels must generally be produced from renewable 
feedstocks at a single facility in order to be eligible to generate 
RINs. We are currently working on a rulemaking that would propose 
amendments to the RFS program to allow for more favorable treatment of 
such biointermediates. We believe a rulemaking is necessary to provide 
clarity for stakeholders and for proper compliance and enforcement 
oversight.
    We believe that the use of biointermediates to produce renewable 
fuels holds considerable promise for the future growth in production of 
the cellulosic and advanced biofuels required under the RFS program. 
While near-term production may be modest, significant potential for 
further growth in the long-term exists, as these technologies can lower 
the cost of utilizing cellulosic and other feedstocks for the 
production of renewable fuels by reducing the storage and 
transportation costs associated with cellulosic biomass and taking 
advantage of existing ethanol and petroleum refinery assets to convert 
the biomass to renewable fuel. This makes biointermediates a critical 
component of the growth of the RFS program in the future and in 
particular the growth of cellulosic biofuel volumes.
    In addition to ongoing efforts to evaluate new pathways for 
advanced biofuel production, we are aware that other actions can also 
play a role in improving incentives provided by the RFS program to 
overcome challenges that limit the potential for increased volumes of 
renewable fuels. A number of commenters provided ideas in this regard, 
including suggestions that EPA take regulatory action to modify the 
administration of the cellulosic waiver credit (CWC) program to better 
provide stronger support for actual volume purchases, and to change the 
RFS program's point of obligation from its current focus on producers 
and importers of gasoline and diesel. Both of these issues are beyond 
the scope of this rulemaking. However, we will continue to actively 
monitor the functioning of the market, assess all relevant data, and 
review our options as necessary.

II. Advanced Biofuel and Total Renewable Fuel Volumes for 2014-2016

    The national volume targets of 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). However, two statutory provisions 
authorize EPA to reduce these volumes under certain circumstances. EPA 
may reduce these volumes to the extent that we reduce the applicable 
volume for cellulosic biofuel pursuant to CAA section 211(o)(7)(D), or 
if the criteria are met for use of the general waiver authority under 
CAA section 211(o)(7)(A). We have evaluated the capabilities of the 
market and have concluded that the volumes for advanced biofuel and 
total renewable fuel specified in the statute cannot be achieved in 
2014, 2015, or 2016. As a result we are exercising our discretion under 
these statutory provisions to reduce the applicable volumes of advanced 
biofuel and total renewable fuel to reflect the fact that this final 
rule cannot have an impact on renewable fuel use in the past, and to 
address constraints on the supply of renewable fuels in the future that 
are driven by both limitations in production or importation of these 
fuels and factors that limit supplying them to vehicles that can 
consume them.
    While we are using our waiver authorities under the law to reduce 
applicable volumes from the statutory levels, we are setting the final 
volume requirements at levels that are intended to drive significant 
growth in renewable fuel use beyond what would occur in the absence of 
such requirements, as Congress intended. The final volume requirements 
recognize the ability of the market to respond to the standards we set 
while staying within the limits of feasibility. The net impact of these 
final volume requirements is that the necessary volumes of both 
advanced biofuel and conventional (non-advanced) renewable fuel would 
significantly increase over levels used in the past. The volumes that 
we are finalizing today are shown below.

[[Page 77432]]



                                      Table II-1--Final Volume Requirements
                                                [Billion gallons]
----------------------------------------------------------------------------------------------------------------
                                                                       2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Advanced biofuel................................................            2.67            2.88            3.61
Total renewable fuel............................................           16.28           16.93           18.11
----------------------------------------------------------------------------------------------------------------

A. Fulfilling Congressional Intent To Increase Use of Renewable Fuels

    Although there is scant legislative history for the Energy 
Independence and Security Act (EISA) to confirm the facts that were 
considered by Congress at the time of enactment, we believe that when 
Congress specified the renewable fuel volume targets that the RFS 
program was to attain, that it likely was with the understanding that 
the growth reflected in the statutory tables of applicable volumes 
would be well beyond any previously demonstrated ability of the 
industry to produce, distribute, and consume renewable fuels. For 
example, the annual average growth reflected in the statutory volumes 
for the time period between 2009 and 2022 is 1.6 billion gallons per 
year for advanced biofuel and 1.9 billion gallons per year for total 
renewable fuel. However, in the period 2001 to 2007 leading up to 
enactment of EISA, annual average supply growth rates were far lower: 
0.8 billion gallons per year for ethanol (what has to date been the 
principal non-advanced renewable fuel under the RFS program), and 0.07 
billion gallons per year for biodiesel (the principal advanced biofuel 
to date under the RFS program).\23\ The supply of other renewable fuels 
during this timeframe was close to zero. In other words, Congress set 
targets that envisioned growth at a pace that far exceeded historical 
growth and prioritized that growth as occurring principally in advanced 
biofuels (contrary to historical growth patterns). Congressional intent 
is evident in the fact that the non-advanced volumes remain at a 
constant 15 billion gallons in the statutory volume tables starting in 
2015 while the advanced volumes continue to grow through 2022 to a 
total of 21 billion gallon. It is apparent, therefore, that Congress 
intended changes in the extent and pace of growth of renewable fuel use 
that would be unlikely to occur absent the new program.
---------------------------------------------------------------------------

    \23\ Based on data from the Energy Information Administration.
---------------------------------------------------------------------------

    Moreover, it is highly unlikely that Congress expected the very 
high volumes that it specified in the statute to be reached only 
through the consumption of E10; indeed the statute does not explicitly 
require the use of ethanol at all. At the time EISA was passed in 2007, 
EIA's Annual Energy Outlook for 2007 (AEO 2007) projected that 17.3 
billion gallons of ethanol was the maximum that could be consumed in 
2022 if all gasoline contained E10 and there was no E0, E15, or 
E85.\24\ Furthermore, the AEO 2007 did not reflect the fuel economy 
standards that were also enacted in EISA, which has further reduced the 
amount of gasoline consumed based on more strict vehicle fuel economy 
and efficiency standards. However, 17.3 billion gallons is far less 
than the 36 billion gallons of renewable fuel that Congress targeted 
for use in 2022.\25\ Thus, if the statutory targets for 2022 were to be 
achieved, 18.7 billion gallons of renewable fuel would need to be 
consumed in 2022 either as higher level ethanol blends (E11-E85), or as 
non-ethanol fuels. Such levels were far beyond the industry's abilities 
at the time of EISA's enactment, strongly suggesting that Congress 
expected the RFS program to drive substantial market changes in a 
relatively short period of time.
---------------------------------------------------------------------------

    \24\ Assumes that AEO2007's 2022 demand for gasoline energy was 
fulfilled entirely by E10. AEO2007 however, projected that 
considerably less gasoline used in 2022 would be E10. We have 
converted the projected 2022 gasoline energy demand into an 
equivalent volume of E10 to determine the maximum volume of ethanol 
that could have been consumed in 2022, based on the AEO2007, if all 
gasoline was E10.
    \25\ Congress specified that a minimum of 1 billion gallons of 
the 2022 total would be biomass-based diesel, but did not otherwise 
specify what specific fuel types would comprise the total. For 
example, although Congress envisioned substantial growth in 
cellulosic biofuels, that fuel category is defined by reference to 
the feedstock used and the GHG reductions obtained; finished 
cellulosic biofuels could include such diverse products as ethanol, 
renewable gasoline, naphtha, compressed natural gas, or electricity.
---------------------------------------------------------------------------

    Some commenters stated that EPA would be acting in a manner 
inconsistent with Congressional intent to increase renewable fuel use 
if we finalized volumes below the statutory volume targets. These 
commenters believed Congress set these targets at a level that would 
help incentivize investments such as building out new and existing 
capacity, installing storage/distribution infrastructure and advancing 
technology--all of which would help to increase volumes and achieve the 
targets within the specified timeframe in the statute. We agree that 
Congress set ambitious volume targets as a mechanism to push renewable 
fuel volume growth under the RFS program. However, Congress also 
provided EPA with waiver authority, in part to address the situation 
where supply of renewable fuel does not match these ambitious target 
levels. As a result we disagree with commenters who asserted that any 
EPA action to lower applicable volumes is not aligned with 
Congressional intent. The final volume requirements are set consistent 
with the Congressionally-established waiver authorities. The volumes 
required by this rule are ambitious and to attain them will require new 
investments and a responsive market.
    Congress did not explicitly indicate, in EISA or in any other 
document associated with the legislation, the sort of changes that may 
have been expected to occur to reach 36 billion gallons by 2022. Today 
we know that possible approaches to significantly expand renewable fuel 
use fall into a number of areas, such as:
     Increased use of E15 in model year 2001 and later 
vehicles,
     Increased use of E85 or other higher level ethanol blends 
in flex-fuel vehicles (FFVs),
     Increased production and/or importation of non-ethanol 
biofuels (e.g., biodiesel, renewable diesel, renewable gasoline, and 
butanol) for use in conventional vehicles and engines,
     Increased use of biogas in CNG vehicles,
     Increased use of renewable jet fuel and heating oil,
     Increased use of cellulosic and other non-food based 
feedstocks, and
     Co-development of new technology vehicles and engines 
optimized for new fuels.

Some commenters stated that the changes in these areas (which were also 
noted in the NPRM) cannot help to achieve growth in renewable fuel use 
within the timeframe necessary to help meet the 2015 and 2016 volumes 
requirements. Commenters further stated that some of these ideas should 
not be supported at all, such as increasing imports of biofuels because

[[Page 77433]]

doing so would be inconsistent with Congressional intent to increase 
energy security through domestic biofuels. We agree with commenters 
that we will not see dramatic changes in every area we highlighted in 
the timeframe necessary to increase renewable fuel supply through 2016, 
but we believe that developments in some of these areas have been and 
will continue to occur, and that such changes will contribute to 
attaining the volumes finalized in this rule. We disagree with 
commenters that supporting imports of biofuels is inconsistent with 
Congressional intent. The statute does not discriminate between 
domestically-produced and imported biofuels and an increased diversity 
of fuels, including those imported from a variety of countries, helps 
improve energy security. For further discussion of imports, see 
Sections II.E.3.iii and II.F.
    In the near term we expect that increases in E85 and biodiesel will 
dominate efforts to increase the use of renewable fuel, with smaller 
roles played by other renewable fuels (e.g., increased E15 use and 
other non-ethanol renewable fuels such as naphtha). In the longer term, 
sustained ambitious volume requirements are necessary to provide the 
certainty of a guaranteed future market that is needed by investors; 
the development of new technology won't occur unless there is clear 
profit potential, and it requires multiple years to build new 
production, distribution, and consumption capacity. We believe that the 
approach we take to setting the standards must be consistent with 
Congress' clear goal of ambitiously increasing the use of renewable 
fuel over time. To this end, the approach presented in this action 
makes use of the statutory waiver authorities only to the degree 
necessary.
    We believe that over time use of both higher level ethanol blends 
and non-ethanol biofuels can and will increase, consistent with 
Congress' intent in enacting EPAct and EISA. As stated above, while 
Congress provided waiver authority to account for supply and other 
challenges, we do not believe that Congress intended that the E10 
blendwall or any other particular limitation would present a barrier to 
the expansion of renewable fuels. The fact that Congress set volume 
targets reflecting increasing and substantial amounts of renewable fuel 
use clearly signals that it intended the RFS program to create 
incentives to increase renewable fuel supplies and overcome supply 
limitations. Notwithstanding these facts, Congress also authorized EPA 
to adjust statutory volumes as necessary to reflect situations where 
only partial progress had been made towards eliminating supply 
limitations, as well as to address situations involving unexpected 
severe economic or environmental harm resulting from program 
implementation.

B. Statutory Authorities for Reducing Volume Targets

    Congress specified increasing annual volume targets in the statute 
for total renewable fuel, advanced biofuel, and cellulosic biofuel for 
every year through 2022, and for biomass-based diesel (BBD) through 
2012, and authorized EPA to set volume requirements for subsequent 
years after consideration of several specified factors. However, 
Congress recognized that circumstances could arise that might require a 
reduction in the volume targets specified in the statute as evidenced 
by the waiver provisions in CAA section 211(o)(7). As described below, 
we believe that limitations in production and importation of cellulosic 
biofuels provide EPA with authority to waive volumes of cellulosic 
biofuel, total renewable fuel, and advanced biofuel volumes pursuant to 
section 211(o)(7)(D). In addition, limitations in the production and 
importation of qualifying renewable fuels, along with factors that 
limit supplying those fuels to the vehicles that can consume them 
constitute circumstances that warrant a waiver of the total renewable 
fuel requirement under section 211(o)(7)(A).
    With regard to ethanol, a number of market factors combine to place 
significant restrictions on the continued growth in the volume of 
ethanol that can be supplied to vehicles at the present time. The 
maximum amount of ethanol that can be consumed if all gasoline was E10, 
the limited number and limited geographic distribution of retail 
stations that offer higher ethanol blends such as E15 and E85, and the 
limited number of FFVs that have access to E85. Additionally, available 
information indicates that biodiesel also faces marketplace constraints 
in the rate at which it can grow, not only in the past (e.g., 2013 when 
despite rapid growth it was still insufficient to achieve the total and 
advanced standards) but also in the future. These constraints on the 
availability of biodiesel to U.S. consumers include a combination of 
competing uses for feedstocks, international competition for biodiesel, 
the inconsistent nature of the biodiesel tax credit, limited 
investments to ensure quantity and quality of biodiesel product, 
limited infrastructure to distribute and blend biodiesel, and the 
limited ability of the market to consume biodiesel. Based on our 
assessment of the maximum amount of renewable fuel that can be supplied 
in 2014, 2015 and 2016 in light of these constraints, we believe that 
circumstances exist that warrant a reduction in the statutory 
applicable volumes of total renewable fuel and advanced biofuel for 
2014, 2015 and 2016.
    EPA is separately using two complementary legal authorities to set 
required volumes of advanced biofuel and total renewable fuel at levels 
below the volume targets provided in the statute: The cellulosic waiver 
authority under CAA section 211(o)(7)(D)(i), and the general waiver 
authority under CAA section 211(o)(7)(A). This section discusses both 
of these statutory authorities and briefly describes how we have used 
them to determine appropriate reductions in advanced biofuel and total 
renewable fuel in comparison to the statutory volumes.
1. Cellulosic Waiver Authority
    Under CAA section 211(o)(7)(D)(i), if EPA determines that the 
projected volume of cellulosic biofuel production for the following 
year is less than the applicable volume provided in the statute, then 
EPA must reduce the applicable volume of cellulosic biofuel to the 
projected volume available during that calendar year. We refer to this 
provision as the agency's ``cellulosic wavier authority'' under the 
statute.
    Section 211(o)(7)(D)(i) also provides that ``[f]or any calendar 
year in which the Administrator makes such a reduction, the 
Administrator may also reduce the applicable volume of renewable fuel 
and advanced biofuels requirement established under paragraph (2)(B) by 
the same or a lesser volume.'' Using this authority, the reductions in 
total renewable fuel and advanced biofuel can be less than or equal to, 
but no more than, the amount of reduction in the cellulosic biofuel 
volume. In prior actions EPA has interpreted this provision as 
authorizing EPA to reduce both total renewable fuel and advanced 
biofuel, by the same amount, if EPA reduces the volume of cellulosic 
biofuel.
    The cellulosic waiver provision was discussed by the United States 
Court of Appeals for the District of Columbia Circuit, in the context 
of its review of EPA's 2013 annual RFS rule. As the Court explained,

    [T]he Clean Air Act provides that if EPA reduces the cellulosic 
biofuel requirement, as it did here, then it ``may also reduce'' the 
advanced biofuel and total renewable fuel quotas ``by the same or a 
lesser volume.'' 42 U.S.C. 7545(o)(7)(D)(i). There is no requirement 
to reduce these latter quotas, nor

[[Page 77434]]

does the statute prescribe any factors that EPA must consider in 
making its decision. See id. In the absence of any express or 
implied statutory directive to consider particular factors, EPA 
reasonably concluded that it enjoys broad discretion regarding 
whether and in what circumstances to reduce the advanced biofuel and 
total renewable fuel volumes under the cellulosic biofuel waiver 
provision. Monroe v. EPA, 750 F.3d 909, 915 (D.C. Cir. 2014).

For the 2013 RFS rule, the Court determined that EPA had reasonably 
declined to use the cellulosic waiver authority to reduce the advanced 
and total renewable fuel statutory applicable volumes by analyzing 
``the availability of renewable fuels that would qualify as advanced 
biofuel and renewable fuel, the ability of those fuels to be consumed, 
and carryover RINs from 2012.'' Id. at 916.
    Some stakeholders commented that EPA may only exercise the 
cellulosic waiver authority to reduce total and advanced volumes in 
circumstances described in section 211(o)(7)(A) (that is, where there 
is inadequate domestic supply or severe harm to the environment or 
economy), or that it must in considering use of the cellulosic waiver 
authority consider the factors specified in section 211(o)(2)(B)(ii) 
that are required considerations when EPA sets applicable volumes for 
years in which the statute does not do so. Contrary to these comments, 
the D.C. Circuit found in Monroe that the statute does not prescribe 
any factors that EPA must consider in making its decision; EPA has 
broad discretion under section 211(o)(7)(D)(i) to determine when and 
under what circumstances to reduce the advanced and total renewable 
fuel volumes when it reduces the statutory applicable volume of 
cellulosic biofuel.
    In general, we do not believe that it would be consistent with the 
energy security and greenhouse gas reduction goals of the statute to 
reduce the applicable volumes of renewable fuel set forth in the 
statute absent a substantial justification for doing so. When using the 
cellulosic waiver authority, we believe that there would be a 
substantial justification to exercise our discretion to lower volumes 
of total and advanced renewable fuels in circumstances where there is 
inadequate projected production or import of potentially qualifying 
renewable fuels, or where constraints exist that limit the ability of 
those biofuels to be used for purposes specified in the Act (i.e., in 
transportation fuel, heating oil or jet fuel). In particular, we 
believe that the cellulosic waiver authority is appropriately used to 
provide adequate lead time and a sufficient ramp-up period for non-
cellulosic biofuels to be produced and constraints on their use for 
qualifying purposes eliminated, so they can fill the gap presented by a 
shortfall in cellulosic biofuels. As discussed in Section IV, we are 
reducing the applicable volume of cellulosic biofuel for 2014, 2015, 
and 2016, and thus are authorized to reduce the required volumes of 
advanced biofuel and total biofuel by the same or a lesser amount under 
the provisions of section 211(o)(7)(D)(i).\26\ For this rulemaking, we 
have ascertained the availability of other advanced biofuel to satisfy 
some of the cellulosic biofuel volume shortfall, taking into 
consideration the constraints (including distribution and 
infrastructure constraints) that limit the use of non-cellulosic 
advanced biofuels to completely fill the cellulosic volume shortfall 
and are exercising our cellulosic waiver authority to reduce the 
advanced biofuel applicable volume to a level we have determined to be 
reasonably attainable.\27\
---------------------------------------------------------------------------

    \26\ EPA had proposed to use both the cellulosic waiver 
authority and the general waiver authority as a basis for reducing 
the advanced biofuel applicable volume. However, such an approach is 
unnecessary given that the reductions in advanced biofuel volumes in 
2014, 2015 and 2016 are less than the reductions in cellulosic 
biofuel applicable volumes in those years. Thus, for the final rule, 
EPA is relying only on the cellulosic waiver authority in section 
211(o)(7)(D) as a basis for its reductions in the advanced biofuel 
applicable volumes.
    \27\ We have considered the possible role of carryover RINs in 
avoiding the need to reduce the statutory applicable volumes, as we 
did in setting the 2013 RFS standards. However, we have determined 
that the current volume of the carryover RIN bank is needed as a 
program buffer to ensure flexibility to address unforeseen 
circumstances, and provide RIN market liquidity, and so should not 
be used as a basis for setting volume requirements higher than can 
be achieved through renewable fuel production and use. For further 
discussion of our assessment of the use of carryover RINs, see 
Section II.H.
---------------------------------------------------------------------------

    We are also using this authority to reduce total renewable volumes 
by the same amount. In past actions we have interpreted the cellulosic 
waiver authority as requiring equal reductions in advanced and total 
renewable fuel, based on concerns that EPA waiver decisions should not 
allow non-advanced biofuels to backfill volumes intended by Congress to 
be satisfied by advanced biofuels. In addition to this consideration, 
the equal reduction in total renewable fuel is justifiable under the 
cellulosic waiver authority based on an assessment of volumes that can 
be produced and imported, and consideration of the extent to which 
those volumes can be distributed and used as specified in the Act. 
However, this level of reduction is insufficient to address all of the 
supply limitations associated with total renewable fuel. Therefore, we 
are also using the general waiver authority as justification for 
further reductions in total renewable fuel volumes, as discussed in the 
next section.\28\
---------------------------------------------------------------------------

    \28\ The volume reduction for advanced biofuels is not larger 
than the final reduction in the applicable volume of cellulosic 
biofuel, thus, EPA could rely on the cellulosic waiver authority 
alone for its final action with respect to advanced biofuel.
---------------------------------------------------------------------------

    Some commenters argued that to the extent volume reductions are 
needed at all, EPA could rely solely on the cellulosic waiver authority 
to provide such reductions.\29\ These commenters suggested that a 
reduction of the total renewable fuel and advanced biofuel volumes by 
the full amount of the waiver of cellulosic biofuel targets would 
result in volumes that are ``reasonably achievable,'' and that 
consequently additional reductions under the general waiver authority 
would be unnecessary. However, commenters' interpretation of a 
``reasonably achievable'' volume assumed that a large number of 
carryover RINs would be used, and largely ignored the practical and 
legal constraints on the consumption of renewable fuel. As discussed in 
Section II.E, we have determined that we should not set standards for 
the 2014-2016 time period so as to intentionally draw down the current 
bank of carryover RINs. We also present a detailed discussion of the 
constraints on renewable fuel supply in this and subsequent sections. 
Additionally, we believe that a reduction of the advanced biofuel 
volume by the full amount of the waiver of cellulosic biofuels is not 
necessary; higher advanced volumes can be attained by substituting 
other advanced biofuels for the shortfall in cellulosic biofuel, and 
moreover requiring their use at higher levels furthers the GHG 
reduction objectives of the Act. What commenters suggested would result 
in increased volumes of conventional renewable fuel, and decreased 
volumes of advanced fuels as compared to the levels EPA is finalizing 
today. Given the superior GHG performance of advanced biofuels, and the 
important role of the current volume of carryover RINs to RFS program 
operation, EPA does not believe that the commenters' suggested approach 
would be either an appropriate exercise of its waiver authorities or be 
in the best interest of the RFS program.
---------------------------------------------------------------------------

    \29\ See, e.g., Comments from Growth Energy, RFA, POET, 
Novozymes, The Andersons, ACORE.
---------------------------------------------------------------------------

2. General Waiver Authority
    CAA section 211(o)(7)(A) provides that EPA, in consultation with 
the Secretary of Agriculture (USDA) and the

[[Page 77435]]

Secretary of Energy (DOE), may waive the applicable volume 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 her own motion. Such a waiver must be based on a 
determination by the Administrator, after public notice and opportunity 
for comment, that:
     Implementation of the requirement would severely harm the 
economy or the environment of a State, a region, or the United States; 
or
     There is an inadequate domestic supply.

In today's final action, we are using the general waiver authority 
based on the statute's authorization for the Administrator to act on 
her own motion on a finding of inadequate domestic supply.\30\ As 
required by statute, we have consulted with both USDA and DOE in taking 
this action. We are using this authority to provide an additional 
increment of volume reduction for total renewable fuel beyond the 
reduction accomplished through the use of the cellulosic waiver 
authority.
---------------------------------------------------------------------------

    \30\ We note that there are also pending requests pursuant to 
CAA section 211(o)(7(A) from a number of parties for EPA to exercise 
its waiver authorities to reduce applicable volumes for 2014. While 
the Administrator is acting on her own motion, she also resolves 
those petitions through and/or consistent with this final rule 
establishing 2014 volume requirements.
---------------------------------------------------------------------------

    Because the general waiver provision provides EPA the discretion to 
waive the volume requirements of the Act ``in whole or in part,'' we 
interpret this section as granting EPA authority to waive any or all of 
the four applicable volume requirements in appropriate circumstances. 
Thus, for example, unlike the cellulosic waiver authority, a reduction 
in total renewable fuel pursuant to the general waiver authority is not 
limited to the reduction in cellulosic biofuel.
    EPA has had only limited opportunity to date to interpret and apply 
the waiver provision in CAA section 211(o)(7)(A)(ii) related to 
``inadequate domestic supply,''has never before done so in the context 
of deriving an appropriate annual RFS standard.\31\ As explained in 
greater detail below, we believe that this undefined ambiguous 
provision is reasonably and best interpreted to encompass the full 
range of constraints that could result in an inadequate supply of 
renewable fuel to the ultimate consumers, including fuel infrastructure 
and other constraints. This would include, for instance, factors 
affecting the ability to produce or import qualifying renewable fuels 
as well as factors affecting the ability to distribute, blend, 
dispense, and consume those renewable fuels in vehicles.
---------------------------------------------------------------------------

    \31\ Some commenters referred to EPA's 2010 RFS2 rule, 75 at 
14698, where we stated that ``. . . it is ultimately the 
availability of qualifying renewable fuel, as determined in party by 
the number of RINs in the marketplace, that will determine the 
extent to which EPA should issue a waiver of RFS requirements on the 
basic of inadequate domestic supply,'' as indicating that EPA had 
previously determined that carryover RINs must be counted as part of 
``supply.'' We disagree. The quoted language makes no explicit 
reference to carryover RINs, and the content indicates that the 
point of passage was to explain that it is in the interest of 
biofuel producers to generate RINs for all qualifying biofuel to 
avoid or minimize the possibity that EPA would grant waivers. The 
commenter attempts to make too much of this generally-worded 
sentence; it does not specify in what way the EPA will consider the 
``RINs in the marketplace'' as ``part'' of its assessment of the 
availability of renewable fuels. Indeed, contrary to the commenters' 
suggestion, the focus on the ``availability of renewable fuels'' in 
this sentence could suggest that only those RINs in the marketplace 
representing liquid volumes used in the compliance year (and not 
carryover RINs representing historic volumes) should be taken into 
considertion. In any case, this sentence is entirely consistent with 
the approach we are taking today to interpret ``supply'' to refer to 
the volume of biofuels that is available and which can be expected 
to satify all of the definitional requirements to be renewable fuel 
(including ultimate use as transportation fuel, heating oil or jet 
fuel). To the extent we find inadequate supply of such fuels, we 
then determine whether or not we should exercise our discretion to 
issue a waiver, and we explicitly consider the availability of 
carryover RINs as part of that assessment. To extent the 
interpretation of general waiver authority we are asserting in this 
final rule appears inconsistent with our statement in 2010, or 
inconsistent with any other past statement made at a time when we 
were not actually exercising the authority, we intend for the 
interpretation we are clearly setting forth today to be 
clarification/modification of such prior statements.
---------------------------------------------------------------------------

    The waiver provision at CAA section 211(o)(7)(A)(ii) is ambiguous 
in several respects. First, it does not specify what the general term 
``supply'' refers to. The common understanding of this term is an 
amount of a resource or product that is available for use by the person 
or place at issue.\32\ Hence the evaluation of the supply of renewable 
transportation fuel, a product, is best understood in terms of the 
person or place using the product. In the RFS program, various parties 
interact across several industries to make renewable transportation 
fuel available for use by the ultimate consumers in transportation 
fuel. Supplying biofuel to obligated parties and terminal blenders is 
one part of this process, while supplying renewable fuel to the 
ultimate consumer as part of their transportation fuel is a different 
and later aspect of this process. For example, the biofuels ethanol and 
biodiesel are typically supplied to obligated parties or blenders as a 
neat fuel, but in almost all cases are supplied to the consumer as a 
blend with conventional fuel (ethanol blended in gasoline or biodiesel 
blended in diesel). The waiver provision does not specify what product 
is at issue (for example, neat biofuel or renewable fuel that is 
blended with transportation fuel) or the person or place at issue (for 
example, obligated party, blender or ultimate consumer), in determining 
whether there is an ``inadequate domestic supply.''
---------------------------------------------------------------------------

    \32\ For example, see http://oxforddictionaries.com/us/definition/american_english/supply (a stock of a resource from which 
a person or place can be provided with the necessary amount of that 
resource: ``There were fears that the drought would limit the 
exhibition's water supply.''); http://www.macmillandictionary.com/us/dictionary/american/supply (``A limited oil supply has made gas 
prices rise.'' and ``Aquarium fish need a constant supply of 
oxygen.'').
---------------------------------------------------------------------------

    We believe that our interpretation is consistent with the language 
of section 211(o), and Congressional intent in enacting the program. It 
is evident from section 211(o) that Congress's intent was not simply to 
increase production of biofuel, but rather to provide that certain 
volumes of biofuel be used by the ultimate consumer as a replacement 
for the use of fossil-based fuel in the United States. The very 
definition of ``renewable fuel'' requires that the fuel be ``used to 
replace or reduce the quantity of fossil fuel present in a 
transportation fuel.'' CAA section 211(o)(1)(J). In addition the 
definition of ``additional renewable fuel'' specifies that it is fuel 
that is ``used to replace or reduce the quantity of fossil fuel present 
in home heating oil or jet fuel.'' CAA section 211(o)(1)(A.). Thus, 
there is no ``renewable fuel'' and the RFS program does not achieve the 
desired benefits of the program unless biofuels like ethanol and 
biodiesel are actually used to replace fossil-based transportation 
fuels, heating oil or jet fuel in the United States.\33\ For example, 
the greenhouse gas reductions and energy security benefits that 
Congress sought to promote through this program are realized only 
through the use by consumers of renewable fuels that reduce or replace 
fossil fuels present in transportation fuel, heating oil or jet fuel in 
the United States. Imposing RFS volume

[[Page 77436]]

requirements on obligated parties without consideration of the ability 
of the obligated parties and other parties to deliver the biofuel to 
the ultimate consumers would achieve no such benefits and would fail to 
account for the complexities of the fuel system that delivers 
qualifying fuels to consumers. We do not believe it would be 
appropriate to interpret the RFS general waiver provision in such a 
narrow way. We are thus interpreting ``inadequate domestic supply'' in 
light of the definitions of ``renewable fuel'' and ``additional 
renewable fuel'' and the requirements of CAA section 211(o)(2)(A)(i) 
that requires that the fuel be ``used to replace or reduce the quantity 
of fossil fuel present in a transportation fuel'' or in ``home heating 
oil or jet fuel'' in the United States.
---------------------------------------------------------------------------

    \33\ For this reason, EPA's implementing regulations specify 
that RINs may not be generated for biofuels with multiple possible 
end uses, such as biogas or electricity, absent a demonstration that 
they will be used by the ultimate consumers as transportation fuel. 
See 40 CFR 80.1426(f)(10)(ii)(B), (f)(11)(i)(B) and (f)(11)(ii)(B). 
Similarly, although RINs are generated upon production for biofuels 
like denatured ethanol that do not have uses other than as 
transportation fuel, our regulations require the retirement of RINs 
for any volumes of such fuels that are exported, since exported 
biofuels are not used as transportation fuel in the U.S. See 72 FR 
23909 col 2-3; 40 CFR 80.1430. See also Sec. Sec.  80.1460(c)(2), 
and 80.1460(g), specifying that use of RINs representing fuel used 
for non-qualifying purposes for compliance with RVOs is a prohibited 
act.
---------------------------------------------------------------------------

    In determining whether ``supply'' is adequate, we believe that we 
should consider only those volumes of biofuel that are expected to 
satisfy all of the relevant statutory definitions and requirements. 
There are two principal components to the definition of renewable fuel 
and additional renewable fuel: That it be made from renewable biomass 
and that it be used in transportation fuel. CAA section 211(o)(1)(J); 
CAA section 211(o)(1)(A). Ignoring the extent to which a fuel can 
actually be used in transportation fuel (or in heating oil or jet fuel) 
in the inadequate domestic supply inquiry would involve ignoring a 
critical element of the definition, and begs the question of whether in 
assessing ``supply'' EPA should also ignore the renewable biomass 
component of the definition of renewable fuel or other requirements 
specified in the Act such as the requirement that transportation fuel 
containing renewable fuel be used in the United States and that sub-
categories of renewable fuel achieve specified levels of GHG reduction. 
We believe that ignoring any component of the definition of renewable 
fuel or the other provisions of the Act that affect the types of 
renewable fuels that qualify under the Act would be inconsistent with 
the objective of the waiver provision, which is to determine if 
sufficient qualifying fuels are present. For example, if there was 
abundant production of biofuel that was not made from renewable biomass 
(and therefore did not qualify as renewable fuel under the Act), but 
insufficient volumes of fuel that was made from renewable biomass and 
met other requirements, we believe that EPA would be authorized to 
grant a waiver on the basis of inadequate domestic supply since 
compliance would not be possible notwithstanding the abundance of non-
qualifying biofuel. This situation is directly comparable to the one we 
are experiencing at present where an abundance of biofuels are produced 
that cannot actually be used in transportation fuel, heating oil or jet 
fuel in the United States. The biofuels that cannot actually be used 
for qualifying uses, due to constraints discussed in Sections II.E and 
II.F, are not ``renewable fuels'' and, we believe, are appropriately 
excluded from our assessment of ``supply.''
    The waiver provision also does not specify what factors are 
relevant in determining the adequacy of the supply. Adequacy of the 
supply would logically be understood in terms of the parties who use 
the supply of renewable qualifying fuels. Adequacy of supply could 
affect various parties, including obligated parties, blenders, and 
consumers. Adequacy of the renewable fuel supply with respect to the 
consumer might well involve consideration of factors different from 
those involved when considering adequacy of the upstream supply of 
biofuels to the obligated parties. We believe that interpreting this 
waiver provision as authorizing EPA to consider the adequacy of supply 
of renewable fuel to the ultimate consumer appropriately allows 
consideration of upstream supply constraints to all of the relevant 
parties, including the adequacy of supply of biofuels to obligated 
parties and blenders, as well as the ability to deliver qualifying 
renewable fuels to the consumer. This is particularly appropriate in 
the context of a fuel program that is aimed at increasing the use of 
renewable fuel by consumers in transportation fuel, heating oil or jet 
fuel. In our view, this is the most reasonable and appropriate 
construction of this ambiguous language in light of the overall policy 
goals of the RFS program.
    EPA has reviewed other fuel related provisions of the Clean Air Act 
with somewhat similar waiver authorities, and they highlight both the 
ambiguity of the RFS general waiver authority and the reasonableness of 
applying it broadly to include adequacy of supply to the ultimate 
consumer of qualifying fuels. For example, CAA section 211(k)(6) 
provides EPA with authority for EPA to defer the application of 
reformulated gasoline (RFG) in states seeking to opt-in to the program. 
There are two categories of states that may opt-in: Those with 
nonattainment classifications indicating a more serious and/or 
longstanding air quality problem (leading to classification as a 
Marginal, Moderate, Serious or Severe nonattainment area) and those 
that do not have such serious concerns, but which are nevertheless 
within the ``ozone transport region'' established by CAA section 
184(a). For the states with more serious problems that seek to opt-in 
to the RFS program, section 211(k)(6)(A)(ii) allows EPA to defer 
application of RFG requirements if EPA determines that ``there is 
insufficient domestic capacity to produce reformulated gasoline.'' 
(Emphasis added.) However, for states with less serious ozone 
nonattainment concerns that are part of the ozone transport region, EPA 
may defer application of RFG requirements if EPA finds that there is 
``insufficient capacity to supply reformulated gasoline.'' (Emphasis 
added.) We believe Congress likely intended the ``capacity to supply'' 
RFG as being broader in scope than the ``capacity to produce'' RFG. 
This is consistent with the common understanding of the word ``supply'' 
noted above as the amount of a resource or product that is available 
for use by the person or place at issue. Thus, while a source can have 
a ``capacity to produce,'' regardless of whether it has a market for 
its product, the concept of ``supply'' carries with it an implication 
that there is a person intending to make use of the product. The term 
``capacity to supply'' would therefore be expected to include 
consideration of the infrastructure needed to deliver RFG to vehicles 
in the state within the ozone transport region that is seeking to opt 
in to the program. This distinction in the context of CAA section 
211(k)(6) is logical, since Congress can be expected to have put a 
higher premium on use of RFG in states with the more serious ozone 
nonattainment issues, thereby constraining EPA discretion to defer RFG 
requirements to the limited situation where there is ``insufficient 
capacity to produce'' RFG. For states with less serious problems, it 
would be logical for Congress to have provided EPA with somewhat more 
latitude to defer application of RFG, and Congress referred to this 
broader set of circumstances as situations where there is an 
``insufficient capacity to supply'' RFG. The language of the RFS 
general waiver provision, in comparison, involves use of a single 
ambiguous phrase, ``inadequate domestic supply,'' without elaboration 
or clarification as to whether it refers solely to production capacity 
or also includes additional factors relevant to the ability to supply 
the renewable fuel in transportation fuel, heating oil or jet fuel to 
the ultimate consumer. As in the RFG provision, however, the adequacy 
of

[[Page 77437]]

supply referred to in the RFS general waiver provision can logically--
and we believe should--be read to include factors beyond capacity to 
produce that impact the ability of consumers to use the fuel for a 
qualifying purpose.\34\ This would be consistent with Congress's 
apparent intent in using the term ``supply'' in the context of the RFG 
provision.
---------------------------------------------------------------------------

    \34\ The reasons why we believe the statute should be 
interpreted in this way can be illustrated by examining the 
differences between the RFG opt-in situation and the RFS program. 
Limiting EPA's consideration to ``capacity to produce'' in the 
context of deferring RFG implementation in a state with serious air 
quality concerns is not likely to cause implementation problems 
because: (1) Infrastructure upgrades necessary to shift from use of 
conventional gasoline to RFG are relatively modest, (2) the statute 
provides for up to one year between EPA's receipt of an opt-in 
request and the effective date of a rule requiring use of RFG, 
allowing time for the needed infrastructure upgrades, and (3) opt-
ins typically occur one state at a time, allowing available 
infrastructure expansion resources to be focused in a relatively 
small geographic area. In contrast allowing RFS waivers only where 
there is insufficient ``capacity to produce'' renewable fuel would 
be extremely problematic because: (1) The ethanol industry has the 
ability to produce far more ethanol than can currently be 
distributed and consumed in the U.S., (2) ethanol is already being 
supplied at E10 levels, and any further growth in ethanol use 
requires the time consuming installation of costly new E15 or E85 
pumps and tanks, (3) the number of vehicles that can use higher 
ethanol bends is limited, (4) the statute envisions only one month 
between establishment of annual standards and the start of a 
compliance year, allowing limited time for infrastructure 
enhancements, and (5) the RFS is a nationwide program, and 
infrastructure improvements would be needed throughout the country 
at the same time to increase the nation's ability to consume 
renewable fuels at levels corresponding with production capacity. An 
analogous situation applies for biodiesel as discussed in section 
II.E.3.
---------------------------------------------------------------------------

    CAA section 211(c)(4)(C)(ii) provides EPA with waiver authority to 
address ``extreme and unusual fuel or fuel additive supply 
circumstances . . . which prevent the distribution of an adequate 
supply of the fuel or fuel additive to consumers.'' The supply 
circumstances must be the result of a natural disaster, an Act of God, 
a pipeline or refinery equipment failure or another event that could 
not reasonably have been foreseen, and granting the waiver must be ``in 
the public interest.'' In this case, Congress clearly specified that 
the adequacy of the supply is judged in terms of the availability of 
the fuel or fuel additive to the ultimate consumer, and includes 
consideration of the ability to distribute the required fuel or fuel 
additive to the ultimate consumer. The RFS waiver provision does not 
contain any such explicit clarification from Congress, thus its broad 
and ambiguous wording provides EPA the discretion to reasonably 
interpret the scope of the RFS waiver provision as relating to supply 
of renewable fuel to the ultimate consumer.
    CAA section 211(m)(3)(C) allows EPA to delay the effective date of 
oxygenated gasoline requirements for certain carbon monoxide 
nonattainment areas if EPA finds ``an inadequate domestic supply of, or 
distribution capacity for, oxygenated gasoline . . . or fuel 
additives'' needed to make oxygenated gasoline. Here, Congress chose to 
expressly differentiate between ``domestic supply'' and ``distribution 
capacity,'' indicating that each of these elements was to be considered 
separately. This would indicate that the term inadequate supply, 
although ambiguous for the reasons discussed above, could in 
appropriate circumstances be read as more limited in scope. In contrast 
to the RFS waiver provision, the section 211(m) waiver provision 
includes additional text that makes clear that EPA's authority includes 
consideration of distribution capacity--reducing the ambiguity inherent 
in using just the general phrase ``inadequate domestic supply.'' 
Presumably this avoids a situation where ambiguity would result in an 
overly narrow administrative interpretation. The oxygenated gasoline 
waiver provision is also instructive in that it clarifies that it 
applies separately to both finished oxygenated fuel and to oxygenated 
fuel blending components. That is, there could be an adequate supply of 
the oxygenate, such as ethanol, but not an adequate supply of the 
blended fuel which is sold to the consumer. The RFS waiver provision 
employs the phrase ``inadequate domestic supply'' without further 
specification or clarification, thus providing EPA the discretion to 
determine whether the adequacy of the supply of renewable fuel can 
reasonably be judged in terms of availability for use by the ultimate 
consumer, including consideration of the capacity to distribute the 
product to the ultimate consumer. In contrast to the section 211(m) 
waiver provision, Congress arguably did not mandate that the RFS waiver 
provision be interpreted as providing authority to address problems 
affecting the supply of renewable fuel to the ultimate consumer. 
However, given the ambiguity of the RFS provision, we believe that it 
does provide EPA the discretion to adopt such an interpretation, 
resulting in a policy approach consistent with that required by the 
less ambiguous section 211(m) waiver provision.\35\
---------------------------------------------------------------------------

    \35\ In CAA section 211(h)(5)(C)(ii), Congress authorized EPA to 
delay the effective date of certain changes to the federal 
requirements for Reid vapor pressure in summertime gasoline, if the 
changes would result in an ``insufficient supply of gasoline'' in 
the affected area. As with the RFS general waiver provision, 
Congress did not specify what considerations would warrant a 
determination of insufficient supply. EPA has not been called upon 
to apply this provision to date and has not interpreted it.
---------------------------------------------------------------------------

    As the above review of various waiver provisions in Title II of the 
Clean Air Act makes clear, Congress has used the terms ``supply'' and 
``inadequate supply'' in different waiver provisions. In the RFS 
general waiver provision, Congress spoke in general terms and did not 
address the scope of activities or persons or places that are the focus 
in determining the adequacy of supply. In other cases, Congress 
provided, to varying degrees, more explicit direction. Overall, the 
various waiver provisions lend support to the view that it is 
permissible, where Congress has used just the ambiguous phrase 
``inadequate domestic supply'' in the general waiver provision, to 
consider supply in terms of distribution of renewable transportation 
fuel, heating oil and jet fuel in the United States and use by the 
ultimate consumer, and that the term ``inadequate supply'' of a fuel 
need not be read as referring to just the capacity to produce biofuels 
or the capacity to supply biofuels to obligated parties and blenders.
    We are aware, as a number of commenters pointed out, that prior to 
final adoption of the Energy Independence and Security Act of 2007, 
Congress had before it bills that would have provided for a waiver in 
situations where there was ``inadequate domestic supply or distribution 
capacity to meet the requirement.'' \36\ EPA is not aware of any 
conference or committee reports, or other legislative history, 
explaining why Congress ultimately enacted the language in EISA in lieu 
of this alternative formulation. There is no discussion, for example, 
of whether Congress did or did not want EPA to consider distribution 
capacity, whether Congress believed the phrase ``inadequate domestic 
supply'' was sufficiently broad or the definition of renewable fuel 
sufficiently clear that a reference to distribution capacity would be 
unnecessary or superfluous, or whether Congress considered the 
alternative language as too limiting, since it might suggest that 
constraints other than ``distribution capacity'' on delivering 
renewable fuel to the ultimate consumer should not be considered for 
purposes of granting a

[[Page 77438]]

waiver.\37\ Given the lack of interpretive value typically given to a 
failure to adopt a legislative provision, and the lack of explanation 
in this case, we find the legislative history to be uninformative with 
regard to Congressional intent on this issue. It does not change the 
fact that the text adopted by Congress, whether viewed by itself or in 
the context of other fuel waiver provisions, is ambiguous.
---------------------------------------------------------------------------

    \36\ H.R. 6 and S. 606 as reported by Senate Envt. & Public 
Works in Senate Report 109-74.
    \37\ There are, for example, legal constraints on the amount of 
certain renewable fuels that may be blended into transportation 
fuels. These are discussed in Section II.E.1.
---------------------------------------------------------------------------

    We believe that it is permissible under the statute to interpret 
the term ``inadequate domestic supply'' to authorize EPA to consider 
the full range of constraints, including legal, fuel infrastructure and 
other constraints, that could result in an inadequate supply of 
qualifying renewable fuels to consumers in the United States in the 
form of transportation fuel, heating oil or jet fuel. Under this 
interpretation, we do not limit ourselves to consideration of the 
capacity to produce or import biofuels but also consider practical and 
legal constraints affecting the volume of qualifying renewable fuel 
supplied to the ultimate consumer in the United States.
    As described in more detail in Section II.E. below, although at 
least for 2014 and possibly 2015 and 2016, there is sufficient capacity 
to produce and import biofuels such as ethanol to meet the statutory 
applicable volume of total renewable fuel, there are practical and 
legal constraints on the ability of sufficient volumes to be delivered 
to and used in transportation fuel by vehicles in the United States, or 
in jet fuel or heating oil. 10% ethanol blends (E10) can legally be 
used in all gasoline vehicles, but only some subsets of vehicles and 
nonroad equipment can legally use up to either 15% ethanol (for 2001 
and newer light-duty vehicles, which represent about 85% of the in-use 
fleet) or up to 85% ethanol (for flex fuel vehicles, which represent 
about 6% of all light-duty cars and trucks).\38\ Similarly, according 
to ASTM standards diesel fuel blends up to 5% biodiesel (B5) are simply 
considered to be diesel fuel, but only a subset of diesel vehicles and 
engines have been designed and warranted to use higher concentrations. 
In addition there are marketplace and infrastructure constraints, 
including access to limited numbers of retail fuel pumps, that limit 
the use of higher level (>10%) ethanol blends. These considerations 
prevent the fuel market from supplying vehicles and engines with the 
volumes of qualifying ethanol and other renewable fuels needed to meet 
the statutory level of total renewable fuel, and as such they result in 
an inadequate domestic supply of qualifying renewable fuel, since 
insufficient renewable fuel can actually be delivered to consumers and 
used in transportation fuel, heating oil or jet fuel in the United 
States. We have evaluated this situation, and in this final rule are 
using the general waiver authority to address this inadequate domestic 
supply situation.
---------------------------------------------------------------------------

    \38\ See, e.g., EPA partial waiver decisions at 75 FR 68094 
(Nov. 4, 2010) and 76 FR 4662 (Jan. 26, 2011).
---------------------------------------------------------------------------

    A number of stakeholders disagreed that a review of other CAA 
waiver authorities supports the conclusion that the term ``inadequate 
domestic supply'' is ambiguous, and that it can be interpreted to 
include consideration of infrastructure and other constraints related 
to the delivery to and use of renewable fuel by vehicles. They argued 
that inadequate domestic supply unambiguously refers to the production 
capacity of biofuels that could become renewable fuel if put to 
qualifying uses. Commenters also focused on section 211(m)(3)(C)(i), 
which provides for a waiver of the requirement to use oxygenated 
gasoline in certain carbon monoxide nonattainment areas where there is 
``an inadequate domestic supply of, or distribution capacity for, 
oxygenated gasoline.'' They argued that this provision demonstrates 
that infrastructure considerations are distinct from supply, and that 
Congress would have used similar language in section 211(o)(7)(A) if it 
intended EPA to consider infrastructure and other constraints as a 
basis for an RFS waiver. These stakeholders asserted that there can be 
no inadequate domestic supply if there is sufficient biofuels produced 
and available for purchase by obligated parties and, consequently, that 
any difficulty that obligated parties may experience in delivering 
renewable fuels to consumers is irrelevant under CAA section 
211(o)(7)(A). However, these stakeholders' analysis is clearly not 
persuasive when sections 211(m)(3)(C)(i) and 211(o)(7)(A) are 
considered together with all of the CAA provisions containing similar 
waiver provisions. For example, as discussed above, in section 
211(k)(6) Congress used the term ``capacity to produce'' in one RFG 
waiver context for opt-in states and ``capacity to supply'' in another 
context. This suggests that the term ``supply'' does not unambiguously 
mean the same thing as ``produce,'' as these commenters argue. The term 
``supply'' can mean something different, and logically does in the 
context of section 211(k)(6) where the two waiver provisions at issue 
use these different terms and apply in different contexts, to states 
with considerably different levels of air quality concern. The 
different ways that the term ``supply'' is used in the various CAA 
provisions indicates that in section 211(o)(7)(A) the word ``supply'' 
is ambiguous and may reasonably be interpreted consistent with the 
Act's objectives.
    Some stakeholders have asserted that interpreting the general 
waiver authority to allow consideration of all constraints on the use 
of ethanol by the ultimate consumer would amount to focusing on 
``demand'' rather than ``supply'' and would, therefore, be 
impermissible under the Act. EPA does not agree that a broad 
consideration of such factors as physical limitations in infrastructure 
(e.g., availability of E15 and E85 pumps), legal barriers to use of 
renewable fuel, or ability of vehicles to use renewable fuel at varying 
concentrations, represent consideration of ``demand'' rather than 
``supply.'' These factors operate as practical and legal limits to how 
much biofuel can be distributed to and used by consumers in the United 
States, and therefore clearly relate to how much biofuel can be 
``supplied'' to them as renewable fuel. Although there may be some 
element of consumer preference (i.e., demand) reflected in the historic 
growth patterns of renewable fuel infrastructure and the current status 
of the infrastructure, it is nevertheless the case as of today that 
there are a limited number of fueling stations selling high-ethanol 
blends (approximately 3,000 retail stations), and as a result, the 
number of stations operates as a constraint on how much ethanol can be 
delivered. Similarly, only flex fuel vehicles (FFVs) can legally use 
fuel with ethanol concentrations greater than 15 percent. The 
population of FFVs has grown considerably in recent years, but is still 
only a small fraction of the passenger vehicle fleet and there is an 
even smaller number of FFVs that have ready access to an E85 retail 
outlet. As a result, the number of FFVs with access to E85 also 
operates as a constraint on how much ethanol can be delivered. These 
constraints limit the supply of ethanol to vehicles in the 2014-2016 
time period and, we believe, are appropriately considered in evaluating 
the need for an RFS waiver under section 211(o)(7)(A).
    Some stakeholders have stated that even if the term ``inadequate 
domestic supply,'' were ambiguous, EPA's final interpretation is not 
reasonable because it would either reward obligated parties for their 
intransigence in planning to

[[Page 77439]]

supply the volumes set forth in the statute, or because EPA's 
interpretation would effectively enshrine the status quo, and would 
prevent the growth in renewable fuel use that Congress sought to 
achieve in establishing the program. We agree that obligated parties 
have had years to plan for the E10 blendwall and that there clearly are 
steps that obligated parties could take to increase investments needed 
to increase renewable fuel use above current levels, as we have noted 
in prior actions, and note in Section II.B.5.\39\ We also note, 
however, that biofuel producers could also have taken appropriate 
measures, and that nothing precludes biofuel producers from 
independently marketing E85 or increasing the production of non-ethanol 
renewable fuels. The regulatory structure created in the RFS1 program 
places the responsibility on producers and importers to ensure that 
transportation fuel sold or introduced into commerce contains the 
required volumes of renewable fuel, but does not require obligated 
parties to take specific actions other than acquiring RINs. EPA agrees 
that its approach to interpreting the term `inadequate domestic supply' 
should be consistent with the objectives of the statute to grow 
renewable fuel use over time by placing appropriate pressure on all 
stakeholders to act within their spheres of influence to increase 
biofuel production and use of renewable fuels, while also providing the 
relief to obligated parties that was intended through the statutory 
waiver authorities to address supply difficulties that cannot be 
remedied in the time period over which a waiver would apply. We believe 
that our final action appropriately reflects these concepts.
---------------------------------------------------------------------------

    \39\ See, for instance, 77 FR 70773 (November 27, 2012), column 
1.
---------------------------------------------------------------------------

3. Assessment of Past Versus Future Supply
    EPA is taking somewhat different approaches for its assessment of 
renewable fuel supply for past time periods covered by this rule as 
compared to future time periods. For 2014 and most of 2015, our 
assessment of the ``supply'' available for RFS compliance must 
necessarily focus on the number of RINs actually generated that are 
available for compliance with the applicable standards because this 
final rule cannot influence the volumes of renewable fuel produced and 
consumed in the past. To set the volume requirements at a higher level 
would require either noncompliance, which EPA deems an unreasonable 
approach, or the drawdown of the bank of carryover RINs. Although the 
availability of carryover RINs is a relevant consideration in 
determining the extent to which a waiver is justified, see Monroe 750 
F.3d at 917, we believe that the current bank of carryover RINs serves 
an important function under the program, including providing a means of 
compliance in the event of natural disasters and other unforeseen 
circumstances, and that in the present circumstances EPA should not set 
the annual standards at levels that would clearly necessitate a 
reduction in the current bank of carryover RINs. See Section II.H for 
further discussion of our consideration of carryover RINs in this final 
rule.
    For 2014, we have set the volume requirements for renewable fuel as 
equal to the number of RINs generated that are available for 
compliance. With respect to 2015, because this final rule is being 
signed at the end of November, it cannot influence renewable fuel use 
during prior months, and, given lead-time considerations cannot 
reasonably be expected to influence renewable fuel use in the remaining 
month of the year. Accordingly, we have assessed the supply of total 
renewable fuel in 2015 by determining the number of RINs generated and 
available for compliance in the part of 2015 for which data are 
available and projecting that renewable fuel will be used at the same 
rate for the remainder of the year.\40\
---------------------------------------------------------------------------

    \40\ We projected that our NPRM would incentivize some growth in 
renewable fuel use during the latter half of 2015, and available 
data indicates that indeed the monthly average supply after the NPRM 
was released was about 5% higher than the monthly average supply in 
the first half of the year.
---------------------------------------------------------------------------

    In the context of a forward-looking annual RFS standards rulemaking 
issued consistent with the statutory schedule, such as for 2016 in this 
rule, we believe that the evaluation of ``supply'' for purposes of 
determining the appropriate volume reduction of total renewable fuel 
under section 211(o)(7)(A) should compare the statutory targets, and 
the ability of the market to both produce and consume renewable fuels, 
in the context of a market that is responsive to the standards that we 
set. In the context of this assessment, while we have examined the 
circumstances and issues related to individual sources of renewable 
fuel, our determination of the final volume requirements is based on an 
assessment of overall volumes that can be achieved given the 
interactions that occur between individual sources under the influence 
of the standards we set.
4. Combining Authorities for Reductions in Total Renewable Fuel
    EPA is reducing the applicable volumes of total renewable fuel for 
2014, 2015 and 2016 using two separate authorities. We are making 
initial reductions in total renewable fuel for these years that are 
equal to the volume reductions in advanced biofuel, using the 
cellulosic waiver authority.\41\ We are also further reducing total 
renewable fuel volumes based on a determination of inadequate domestic 
supply, including consideration of both the limitations in the 
production and import of biofuels and factors that constrain supplying 
available volumes for the qualifying uses (as transportation fuel, 
heating oil or jet fuel) specified in the Act. These considerations are 
relevant to an assessment of inadequate domestic supply. We believe 
that using the general waiver authority to reduce the applicable 
volumes of total renewable biofuel in these years is an appropriate 
response to these circumstances. We are using the cellulosic biofuel 
waiver authority to reduce the statutory volumes for total renewable 
fuel by an initial increment of 1.08 billion gallons in 2014, 2.62 
billion gallons in 2015 and 3.64 billion gallons in 2016. In addition, 
as the volume reduction required to address supply limitations for 
total renewable fuel is greater than can be achieved using the 
cellulosic waiver authority, we are using the general waiver authority 
exclusively as the basis for further reducing the applicable volume of 
total renewable fuel by an additional 0.79 billion gallons in 2014, 
0.95 billion gallons in 2015 and 0.50 billion gallons in 2016.
---------------------------------------------------------------------------

    \41\ In the final rule we are only using our cellulosic waiver 
authority to make the initial reduction in the total renewable fuel 
volume, but note that this reduction could also be justified under 
the general waiver authority due to inadequate domestic supply.

[[Page 77440]]



                                 Table II.B.4-1--Final Total Volume Requirements
                                                [Billion gallons]
----------------------------------------------------------------------------------------------------------------
                                                                       2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Statutory Applicable Volumes....................................           18.15           20.5            22.25
Initial Use of Cellulosic Waiver Authorities....................           17.07           17.88           18.61
Use of General Waiver Authority.................................           16.28           16.93           18.11
----------------------------------------------------------------------------------------------------------------

5. Inability To Reach Statutory Volumes
    In order to use the general waiver authority in CAA section 
211(o)(7)(A) to reduce the applicable volumes of total renewable fuel, 
we must make a determination that there is either ``inadequate domestic 
supply'' or that implementation of the statutory volumes would severely 
harm the economy or environment of a State, a region or the United 
States. This section summarizes our determination that there is an 
inadequate domestic supply of total renewable fuel in the time period 
2014-2016, and thus that the statutory volume targets are not 
achievable with volumes supplied in these three years. Additionally, 
this determination that the statutory volume targets are not achievable 
with volumes supplied also supports our use of the cellulosic waiver 
authority under CAA section 211(o)(7)(D) to reduce the applicable 
volumes of advanced and total renewable fuel.
    As described in Section II.C below, actual supply of renewable fuel 
in 2014, determined by an assessment of RINs generated minus RINs 
retired for non-compliance reasons such as exports of renewable fuel or 
spills, was below the applicable volume targets in the statute. For 
total renewable fuel, actual supply was 1.87 billion gallons below the 
statutory volume target of 18.15 billion gallons, while for advanced 
biofuel, actual supply was 1.08 billion gallons below the statutory 
volume target of 3.75 billion gallons. As we noted in the NPRM, the 
requirements we establish at this time for 2014 cannot change what 
occurred in the past, and as a result our assessment of the ``supply'' 
available for RFS compliance during 2014 must necessarily focus on 
actual renewable fuel use. While many stakeholders agreed with this 
position, some did not. Those that disagreed generally pointed to the 
bank of carryover RINs as additional ``supply'' that could be used to 
increase the 2014 standards above actual wet gallon supply in 2014, or 
to the fact that renewable fuel volumes that were exported in 2014 
would have been available for compliance purposes if EPA had set the 
2014 standards by the statutory deadline of November 30, 2013. As 
described in Section II.H, we do not believe it would be appropriate to 
intentionally reduce the current bank of carryover RINs to increase the 
applicable 2014 volume requirements above the supply of wet gallons to 
consumers in 2014. Regarding exports of renewable fuels, many of those 
volumes were produced specifically for the purpose of export rather 
than being produced for general domestic distribution. Stakeholders who 
suggested that they would have been used for compliance purposes 
provided no evidence that they would have been available for compliance 
given export agreements and/or contracts. Furthermore, as discussed in 
Section II.E.1, legal and practical constraints on the domestic use of 
renewable fuel are operating in the 2014-2016 time period to limit 
renewable fuels that have been produced from actually being supplied to 
consumers. Finally, regardless of any possibility that they could have 
been used if EPA had acted by the statutory deadline to establish RFS 
requirements for 2014, it is undisputed that RINs representing fuel 
exported in 2014 are not currently available for compliance, and it is 
the current circumstances that are relevant in determining what the 
applicable volume requirements for 2014 should be. Thus, we do not 
believe that these arguments warrant an increase in the applicable 2014 
volume requirements above the volume of wet gallons actually supplied 
to consumers in 2014. In sum, we have determined that there was a 1.87 
billion gallon shortfall in the supply of total renewable fuel in 2014, 
and that a waiver of the 2014 statutory target for total renewable fuel 
is therefore warranted pursuant to section 211(o)(7)(A) on the basis of 
inadequate domestic supply. In addition, we believe the same set of 
facts support a waiver of the total renewable fuel applicable volume 
using the cellulosic waiver authority in section 211(o)(7)(D), and we 
are also asserting that waiver authority in support of 1.08 billion 
gallons of this volume reduction (which is equal to the reduction in 
the advanced biofuel volume using the cellulosic waiver authority, as 
described below).
    Because this final rulemaking is being released after almost all of 
2015 has passed, the factual situation for 2015 is essentially the same 
as it is for 2014: the requirements we establish at this time for 2015 
cannot change what occurred in the past, and in addition it is being 
issued too late to influence the fuels market in the remaining month of 
the year. Therefore, our assessment of the ``supply'' available for RFS 
compliance during 2015 is based on actual renewable fuel use for the 
months for which data are available, together with a projection for the 
remainder of the year. In sum, we have concluded that the statutory 
volumes for 2015 cannot be met with available supply, and that a waiver 
is justified.
    The statute sets a target of 22.25 billion gallons of total 
renewable fuel in 2016. We have determined that this volume cannot be 
achieved under even the most optimistic assumptions given current and 
near-future circumstances. To make this determination, we first assumed 
that every gallon of gasoline would contain 10% ethanol, and also 
assumed production and use of BBD \42\ volumes at the highest annual 
historical level, which occurred in 2014. When these supplies of 
renewable fuel are taken into account, a significant additional volume 
of renewable fuel would still be needed for the statutory volume 
targets to be met.
---------------------------------------------------------------------------

    \42\ BBD includes both advanced biodiesel and advanced renewable 
diesel.

   Table II.B.5-1--Additional Volumes Needed in 2016 To Meet Statutory
                     Target for Total Renewable Fuel
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory target for total renewable fuel....................     22,250
Maximum ethanol consumption as E10 \a\.......................    -14,000
Historical maximum biomass-based diesel supply \b\...........     -2,490
Additional volumes needed....................................      5,760
------------------------------------------------------------------------
\a\ Derived from projected gasoline energy demand from EIA's Short-Term
  Energy Outlook (STEO) from October 2015.
\b\ Represents the 1.63 billion gallons of biodiesel and renewable
  diesel supplied in 2014.


[[Page 77441]]

    Based on the current and near-future capabilities of the industry, 
we expect that only a relatively small portion of the additional 
volumes needed would come from non-ethanol cellulosic biofuel, non-
ethanol advanced biofuels other than BBD, and non-ethanol conventional 
renewable fuels; non-ethanol supply other than BBD was 237 million 
gallons in 2013, 165 million gallons in 2014, and 323 million gallons 
in 2015. In total these sources could account for several hundred 
million gallons, as demonstrated by supply of these sources in previous 
years.\43\ Aside from these relatively small sources, renewable fuel 
that could fulfill the need for 5.76 billion gallons in 2016 would be 
ethanol or BBD. As discussed below, we do not believe that these fuels 
could be produced and used in sufficient quantities to attain this 
volume.
---------------------------------------------------------------------------

    \43\ Details of actual supply in 2013, 2014, and 2015 can be 
found in the docket.
---------------------------------------------------------------------------

    If all of the additional volumes needed were biodiesel, the 
industry would need to supply a total of about 5.5 billion physical 
gallons in 2016. As described more fully in Section II.D, actual supply 
of biodiesel through the end of 2015 is expected to be about 1.73 
billion gallons. While this final rule will be released before 2016, we 
nevertheless do not believe that the market could supply 5.5 billion 
gallons of biodiesel in 2016; as described more fully in Section II.E.3 
below, the constraints on biodiesel supply are such that 5.5 billion 
gallons is beyond reach. For instance, there currently exist only about 
2.7 billion gallons of registered biodiesel production capacity in the 
U.S. In addition to expanding the registered production capacity, the 
industry would need to restart all idled facilities, secure sufficient 
feedstocks including diverting them from current uses, implement 
significantly expanded distribution, blending, and retail sales 
infrastructure, and establish new contracts for distribution and sales.
    Just as importantly, biodiesel volumes on the order of 5.5 billion 
physical gallons in 2016 are far in excess of what could actually be 
consumed in this short timeframe. This volume of BBD would constitute 
about 10% of the diesel pool in 2016.\44\ Although most medium and 
heavy-duty engine manufacturers now warrant the use of blends up to B20 
in their more recent models, the largest of these manufacturers does 
not, and neither do some light-duty engine manufacturers. Furthermore, 
much of the in-use fleet is made up of highway and nonroad diesel 
engines that were produced in the past and are warranted for no more 
than 5% biodiesel.\45\ Also, as pointed out by CountryMark Cooperative 
Holding Corporation, biodiesel concentrations in the winter months are 
sometimes kept to lower levels by engine owners due to cold weather 
operability and storage concerns, and some parties avoid selling 
biodiesel at all during winter months. Constraints on the use of 
biodiesel at concentrations above 5% due to engine warranty 
limitations, plus resistance on the part of some parties to using 
biodiesel in winter months, means that a nationwide average of 10% 
biodiesel in the diesel pool, for an entire calendar year, is not 
reasonably achievable in 2016. We acknowledge that the National 
Biodiesel Board has extensive efforts underway working with the vehicle 
and engine manufacturers to continue to expand product offerings 
capable of operating on B20, working with their membership to improve 
fuel quality, expanding infrastructure to address cold temperature 
issues, and working with dealers and technicians to clear away 
obstacles standing in the way of expanding biodiesel acceptance in the 
marketplace.\46\ There are also efforts to increase the use of 
biodiesel in heating oil. These will continue to bear fruit, allowing 
the biodiesel volume to continue to rise over time, but not to the 
levels that would be needed in 2016 if 5.5 billion gallons of biodiesel 
were to be required.
---------------------------------------------------------------------------

    \44\ Based on EIA's October 2015 Short-Term Energy Outlook 
(online interactive table), nationwide diesel consumption is 
projected to be 56.3 bill gal in 2015 and 57.7 bill gal in 2016.
    \45\ While some stakeholders provided information on when 
certain manufacturers began permitting the use of biodiesel blends 
higher than B5 in their engines, stakeholders provided no data on 
which models or model years were affected, nor did any stakeholder 
provide an analysis of the fraction of the current in-use fleet 
whose warranties specifically permit the use of B5 versus higher 
blend levels. Based on the fact that engine manufacturers have only 
been warranting their new engines for B20 for the last five years or 
so, and heavy-duty engines typically have a long lifespan, a 
significant fraction of the in-use fleet must be warranted for no 
more than B5. See further discussion of this issue in Section 
II.E.3.
    \46\ ``NBB Technical Update for EPA, April 30, 2015'' in docket 
EPA-HQ-OAR-2015-0111. See also comments submitted by NBB in response 
to the June 10, 2015 NPRM.
---------------------------------------------------------------------------

    Alternatively, if all of the additional volumes shown in Table 
II.B.5-1 were ethanol, the U.S. would need to consume volumes of E85 
far higher, in our estimation, than the market is capable of supplying: 
In 2016 it would need to be about 8.7 billion gallons.47 48 
These volumes are about 60 times higher than actual E85 consumption in 
2014, and would require many of those FFVs that do not have an E85 
retail outlet anywhere close by (due to the fact that only 2% of retail 
stations currently offer E85) to use it.\49\
---------------------------------------------------------------------------

    \47\ In general when discussing efforts to increase the use of 
ethanol beyond the blendwall we focus on the volume of E85 that is 
consumed, since volumes of E15 are likely to be small by comparison. 
See additional discussion of this issue in Section II.E.2.iv below.
    \48\ Due to relative ethanol content (74% versus 10%) and the 
fact that E85 displaces some E10, each gallon of ethanol above the 
E10 blendwall requires the use of 1.51 gallons of E85.
    \49\ Further discussion of E85 can be found in Section II.E.2.v.
---------------------------------------------------------------------------

    The additional volume of 5.76 billion gallons in 2016 could also be 
satisfied through production and use of a combination of BBD and E85. 
However, even in this case the volumes are untenable. For instance, one 
possible combination for 2016 would be 4.4 billion gallons of E85 and 
3.6 billion gallons of biodiesel. While both of these volumes are 
considerably less than the maximums that would be required if the 
market supplied only one or the other, both levels are beyond the reach 
of the market under current circumstances.\50\ Based on this 
assessment, we do not believe that the statutory volumes for advanced 
biofuel and total renewable fuel can be met in 2016.
---------------------------------------------------------------------------

    \50\ See further discussion of E85 in Section II.E.2.v and 
further discussion of biodiesel in II.E.3.
---------------------------------------------------------------------------

    In response to the NPRM, some parties said that EPA had not 
sufficiently described why the statutory target for advanced biofuel 
cannot be reached in 2016. In the NPRM we did point out that more than 
70% of the additional ethanol-equivalent volumes that would be needed 
to reach the statutory targets would need to be advanced biofuel, and 
discussed the impracticability of attaining those volumes. After a 
consideration of comments received, we have determined that for our 
final volume requirements for 2016, about 80% of the 5.76 billion 
gallons of additional volumes would need to be advanced biofuel in 
order to reach the statutory target of 7.25 billion gallons of advanced 
biofuel.\51\ However, we agree that it is appropriate to elaborate on 
the limitations in the supply of advanced biofuel that have led us to 
conclude that the statutory target for advanced biofuel cannot be 
reached in 2016. A more detailed discussion of constraints on supply of 
advanced biofuel can be found in Section II.F.
---------------------------------------------------------------------------

    \51\ Assumes that all ethanol consumed as E10 in Table II.B.5-1 
is conventional (non-advanced).
---------------------------------------------------------------------------

    The RINs available for meeting the advanced biofuel standard 
include all cellulosic biofuel RINs, all biomass-based diesel RINs, and 
all advanced biofuel RINs. Cellulosic biofuel that is expected to be 
available, including all

[[Page 77442]]

biogas, is accounted for within the context of the determination of the 
cellulosic biofuel standard as discussed in Section IV. While there are 
some opportunities for moderate growth through the end of 2016 in such 
advanced biofuels as domestically-produced ethanol, heating oil, 
naphtha, and renewable diesel, it is possible that only about a hundred 
million gallons will be available from these sources.\52\ Thus the 
primary sources of advanced biofuel that are in a position to help meet 
the advanced biofuel standard are imported sugarcane ethanol and 
biomass-based diesel.
---------------------------------------------------------------------------

    \52\ The total ethanol-equivalent volume of advanced biofuel 
other than imported sugarcane ethanol was 87 mill gal in 2013, 79 
mill gal in 2014, and projected to be 53 mill gal in 2015. We expect 
some growth in the industries providing these fuels, such that 
supply is likely to be somewhat higher in 2016 than it was in the 
recent past.
---------------------------------------------------------------------------

    The statutory target for advanced biofuel in 2016 is 7.25 billion 
gallons. After accounting for cellulosic biofuel, the BBD volume 
requirement, and potential other domestically-produced advanced 
biofuels, the total volume of advanced biofuel that would be needed to 
meet the statutory target of 7.25 billion gallons is 4.07 billion 
gallons.

 Table II.B.5-2--Additional Volumes Needed To Meet Statutory Targets for
                        Advanced Biofuel in 2016
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory target for advanced biofuel........................      7,250
Requirement for cellulosic biofuel...........................        230
Requirement for biomass-based diesel.........................  \a\ 2,850
Potential other advanced (ethanol and non-ethanol)...........        100
Additional volumes needed....................................      4,070
------------------------------------------------------------------------
\a\ Represents 1.9 bill gal of biodiesel.

    We do not believe that 4.07 billion gallons of additional advanced 
biofuel can be supplied in 2016, even if the burden of meeting this 
requirement were shared between biomass-based diesel and imports of 
sugarcane ethanol. For instance, if sugarcane ethanol imports reached 
1.5 billion gallons in 2016, the total volume of BBD would need to be 
3.6 billion gallons.\53\ We do not believe that either of these levels 
is achievable in 2016. Notwithstanding UNICA's comments to the contrary 
as discussed in Section II.F, imports of sugarcane ethanol have been 
highly variable in the past and appear to be highly dependent on 
factors others than the RFS program. Moreover, as explained in the 
NPRM, the highest volume of sugarcane ethanol that has ever been 
imported to the U.S. was 680 million gallons in 2006, and since that 
time international demand has increased substantially.\54\ Similarly, 
we do not believe that 3.6 billion gallons of BBD are possible in 2016. 
The total amount of domestic biodiesel production capacity in the U.S. 
that is registered under the RFS program is about 2.7 billion 
gallons.\55\ Not only would the market need to supply 900 million 
gallons more than existing registered capacity, but substantial 
feedstocks would need to be diverted from the current uses to the 
production of biodiesel. Even if some portion of the increase were 
supplied from imports, the total volume of biodiesel supplied to diesel 
engines would more than double in comparison to that supplied in 2014, 
requiring that distribution, blending, storage, and dispensing routes 
would need to be expanded in an extremely short period.\56\ We do not 
believe that this is possible in 2016. As a result, we do not believe 
that the statutory target for advanced biofuel can be met in 2016.\57\
---------------------------------------------------------------------------

    \53\ (4.07 bill gal needed - 1.5 bill gal sugarcane ethanol)/1.5 
= 1.71 bill gal biodiesel + 1.9 bill gal BBD requirement = 3.6 bill 
gal biodiesel needed. The 1.5 factor used in this equation 
represents the equivalence value of biodiesel.
    \54\ ``Global ethanol consumption 2006-2012,'' docket EPA-HQ-
OAR-2015-0111.
    \55\ See ``Registered biodiesel production capacity as of 8-24-
15'' in EPA docket EPA-HQ-OAR-2015-0111.
    \56\ Supply of biodiesel and renewable diesel in 2015 is 
projected to be 1.8 bill gal. The current infrastructure is 
sufficient to manage this level, and is likely to be capable of 
managing volumes above 2.0 bill gal. However, 3.6 bill gal of 
biodiesel is far larger than the current infrastructure is prepared 
to manage.
    \57\ We note that if an obligated party could not be attain 
compliance in 2016, it could carry a deficit into 2017 if it did not 
carry a deficit into 2016, and that deficit would need to be 
satisfied in 2017 along with the 2017 requirements. However, 
establishing the 2016 total renewable fuel volume requirement at the 
statutory volume target would result in massive deficits among many 
parties, and would likely only defer for one year the need for a 
substantial waiver of the total renewable fuel volume requirements. 
Accordingly, we do not believe that the flexibility offered by 
deficit carryovers is a valid basis for setting the 2016 volume 
requirements at the statutory targets.
---------------------------------------------------------------------------

    In response to the NPRM, a number of stakeholders placed the blame 
for the market's inability to meet the statutory targets on both the 
EPA for not meeting the statutory deadlines for setting standards and 
obligated parties for not investing sufficiently in the required 
infrastructure. While we agree that the delay in setting standards has 
created some uncertainty and could have led to a slowdown in investment 
in both production capacity and infrastructure for blending and 
dispensing renewable transportation fuels, we do not believe that the 
statutory targets could have been met in 2014, 2015, and 2016 if only 
EPA had established the applicable standards on the statutory schedule. 
Stakeholders who took the position that the statutory targets were 
achievable in 2014 and 2015 generally based that position on the 
potential for a substantial draw-down in the bank of carryover RINs. As 
described in the NPRM and in Section II.H, we believe that it would be 
inappropriate to intentionally drawn down the current bank of carryover 
RINs in order to raise the applicable volume requirements above the 
levels that could be met with RINs generated for actual renewable fuel 
supplied in 2014, 2015, and 2016. Many of these same stakeholders also 
argued that the statutory targets could be met if the EPA merely set 
the standards at the statutory levels. They argued, in essence, that 
the market's ability to respond to the standards EPA sets is 
effectively unlimited and that the market will rise to meet the 
expectations placed upon it. As described in Section II.E.1, we believe 
that the market is in fact limited in its ability to respond to the 
standards that EPA sets for 2016. Setting the volume requirements at 
the statutory targets would not compel the market to respond with 
sufficient changes in production levels, infrastructure, and fuel 
pricing at retail to result in the statutory volumes actually being 
consumed in 2016, but would instead lead to noncompliance and/or 
additional petitions for a waiver of the standards.
    Many stakeholders also decried obligated parties' failure to invest 
in the infrastructure needed to permit expanded use of higher ethanol 
blends such as E15 and E85. They argued that EPA should not reward 
obligated parties for their recalcitrance by reducing the applicable 
volume requirements below the statutory targets. In taking these 
positions, stakeholders cited both the statutory requirement that 
obligations be placed on ``refineries, blenders, and importers, as 
appropriate'' and EPA's regulations which (with limited exceptions) 
further narrow the applicability of the obligations to producers and 
importers of gasoline and diesel. Suggestions in the NPRM that 
renewable fuel producers could contribute to efforts to expand 
infrastructure were generally met by these commenters with references 
to the statutory language and their belief that all responsibility for 
investing in expanded infrastructure rests on obligated parties.
    We agree that the statutory language, in combination with the 
regulatory structure, generally places the

[[Page 77443]]

responsibility on producers and importers of gasoline and diesel to 
ensure that transportation fuel sold or introduced into commerce 
contains the required volumes of renewable fuel. Obligated parties have 
a variety of options available to them, both to increase volumes in the 
near term (i.e. through the period being addressed by this final rule) 
and the longer term. The standards that we are establishing today 
reflect both the responsibility placed on obligated parties as well as 
the short-term activities available to them, and we expect obligated 
parties to be taking actions now that will help to increase renewable 
fuel volumes in future years. However, this general responsibility does 
not require obligated parties to take actions specific to E15 and/or 
E85 infrastructure, as the RFS program does not require ethanol 
specifically. Moreover, we do not believe the statute should be 
interpreted to require that refiners and importers change the nature of 
their businesses so as to comply with RFS requirements, as this would 
be a far-reaching result that Congress can be expected to have clearly 
specified if it was intended. For example, to the extent that 
commenters imply that refiners should be required to build or purchase 
renewable fuel production facilities, take ownership of retail 
stations, produce or sell cars capable of using high-ethanol blends, or 
plant cropland to provide feedstock for increased renewable fuel 
production, we would disagree. Rather, if other parties engaged in 
these activities fail to adjust those activities to allow the statutory 
volume targets to be met, we believe the result is an inadequate 
domestic supply of renewable fuel that justifies granting a waiver 
pursuant to section 211(o)(7)(A). The primary role that obligated 
parties play in the RFS program is to acquire RINs, and it is this 
demand for RINs that in turn drives demand for renewable fuel and which 
should stimulate other parties to increase their activities to supply 
it.
    Nevertheless, there are actions that obligated parties can take 
that are more directly related to their roles as importers and 
refiners, such as investing in or otherwise influencing business 
practices in such a way as to promote increases in renewable fuel use. 
We noted several ways in which this could happen in the NPRM.\58\ In 
response, obligated parties described why the suggestions were not 
practical or would not provide any benefits for 2016. We disagree. 
There are actions that obligated parties can take in the near-term to 
increase renewable fuel use and which are consistent with their current 
businesses. These could include modifying their requirements for 
branded retail stations to make it easier to offer and advertise sales 
of E15, E85, and biodiesel, creating a consortium to pool funds for 
investment in infrastructure at retail, and coprocessing renewable 
biomass with fossil fuel in their existing facilities to produce a fuel 
that is partly renewable. These are certainly not the only options 
available to obligated parties, and we expect them to make ongoing 
efforts to further the goals of the RFS program. It would also be in 
the interests of renewable fuel producers to take similar, related, 
and/or complementary steps to increase the ability of the marketplace 
to supply their products to the vehicles and engines that can use them, 
notwithstanding the fact that the legal and regulatory responsibility 
for the purchase of RINs rests upon obligated parties.
---------------------------------------------------------------------------

    \58\ See third column of page 33129 of the June 10, 2015 NPRM.
---------------------------------------------------------------------------

6. Inability To Reach Volumes Using Only the Cellulosic Waiver 
Authority
    In the NPRM we proposed that for each of years 2014, 2015, and 2016 
we would reduce both the advanced biofuel and total renewable fuel 
volumes by the same amount using the cellulosic waiver authority, and 
then further reduce the total renewable fuel volumes using just the 
general waiver authority. However, we requested comment on whether it 
would be appropriate in the final rule to use the cellulosic waiver 
authority alone. In response to the NPRM, a number of parties agreed 
that some reductions from the statutory targets are warranted, but, 
they suggested that reductions under the cellulosic waiver authority 
would be sufficient, and that the market would be capable of meeting 
the applicable volume requirements using this approach with the use of 
carryover RINs to meet any shortfalls in actual renewable fuel supply. 
Stakeholders who suggested this approach included Growth Energy and the 
Renewable Fuels Association, among others.
    We continue to believe that the applicable standards should be 
based on available information on actual renewable fuel supplied in 
2014 and 2015, as described more fully in Sections II.C and II.D below. 
Today's rule cannot influence renewable fuel use in either year. 
Furthermore, we do not believe it would be appropriate to intentionally 
draw down the bank of carryover RINs as a means for increasing the 
applicable volume requirements for 2014, 2015, and 2016 beyond the 
actual renewable fuel supply, since we believe that the current bank of 
carryover RINs provides important program benefits, as discussed in 
Section II.H. Even if we were to use the availability of carryover RINs 
as a basis for setting the standards for 2014 and 2015 at the statutory 
targets instead of setting them at actual renewable fuel supply, then, 
assuming we entered the 2014 compliance year with 1.74 billion 
carryover RINs, the amount of carryover RINs available for 2016 would 
only be on the order of 0.1 billion RINs. This would be insufficient to 
maintain the statutory volumes for 2016 contrary to the commenter's 
claims. Since the appropriate volume reductions in total renewable fuel 
(to levels representing actual renewable fuel supply) can only be 
achieved through the use of the general waiver authority, we continue 
to believe that it would be inappropriate to use only the cellulosic 
waiver authority.
    With regard to 2016 specifically, stakeholders that supported the 
use of the cellulosic waiver authority alone differed in whether the 
advanced biofuel and total renewable fuel requirements ought to be 
reduced by the full amount permitted under the cellulosic waiver 
authority, or instead only the amount needed to bring the advanced 
biofuel volume requirement to a level consistent with projected supply. 
Those supporting the former view pointed out that advanced biofuels in 
excess of the advanced biofuel standard can be used to meet the non-
advanced portion of the total renewable fuel standards. While we agree 
that this is the case, explicitly and intentionally establishing a 
volume requirement for advanced biofuel that is below the level that we 
believe is reasonably attainable would be inconsistent with the goals 
of the RFS program. Since advanced biofuels have significantly superior 
GHG reduction performance, we believe we should structure our decision 
so as to promote the production and use of advanced biofuel volumes 
that can be reasonably supplied. Therefore, our assessment of the use 
of the cellulosic waiver authority alone focused on a case in which 
advanced biofuel and total renewable fuel are both reduced only to the 
degree necessary to yield an appropriate volume of advanced biofuel 
(i.e., both are reduced by a lesser amount than the reduction in 
cellulosic biofuel). Furthermore, for the reasons described in Section 
II.H, the scenario does not envision a draw-down in the bank of 
carryover RINs.
    Using the advanced biofuel volume requirement of 3.61 billion 
gallons that we have determined to be reasonably attainable in 2016, 
and which we are finalizing today, represents a volume

[[Page 77444]]

reduction of 3.64 billion gallons in comparison to the statutory target 
of 7.25 billion gallons. A corresponding reduction in the statutory 
target for total renewable fuel would result in a total volume of 18.6 
billion gallons.

  Table II.B.6-1--Hypothetical 2016 Volume Requirements Using Only the
                       Cellulosic Waiver Authority
                            [Billion gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Advanced biofuel:
  Volume Requirement.........................................       3.61
  Statutory Target...........................................       7.25
  Reduction..................................................       3.64
Total renewable fuel:
  Volume Requirement.........................................      18.61
  Statutory Target...........................................      22.25
  Reduction..................................................       3.64
------------------------------------------------------------------------

Using only the cellulosic waiver authority, the need for non-advanced 
(conventional) renewable fuel would be 15.0 billion gallons (18.61-
3.61). If only ethanol was used in 2016 to supply this volume of 
conventional renewable, more than 1.6 billion gallons of E85 would be 
required.\59\ This level is in excess of what we believe is possible in 
2016 under even the most optimistic assumptions as described more fully 
in Section II.E.2.iii. Accounting for expected 2016 volumes of 
cellulosic ethanol and other advanced ethanol would make it even more 
difficult for 15 billion gallons of conventional ethanol to be used.
---------------------------------------------------------------------------

    \59\ It is also possible that the use of E15 could rise to help 
provide a means for consuming 15.0 bill gal of ethanol. However, as 
described in Section II.E.2.v, it is highly unlikely that increases 
in E15 could rise high enough to significantly reduce the amount of 
E85 needed.
---------------------------------------------------------------------------

    Under a hypothetical scenario wherein reductions were made only 
under the cellulosic waiver authority, the required volumes of non-
ethanol renewable fuel would be in excess of the levels we believe can 
be achieved in 2016. Even in the unlikely event that E85 volumes 
reached 400 million gallons,\60\ a very high but perhaps possible 
level, there would need to be 385 million ethanol-equivalent gallons of 
non-ethanol supplied, equivalent to about 250 million gallons of 
biodiesel (the predominant source of non-ethanol renewable fuel, which 
in this case could be either advanced biofuel or conventional renewable 
fuel).
---------------------------------------------------------------------------

    \60\ As discussed in a memorandum to the docket, 400 mill gal of 
E85 in 2016 would likely require significant and unprecedented 
reductions in the retail price of E85 compared to E10 and increases 
in the number of service stations offering E85. See ``Correlating 
E85 consumption volumes with E85 price,'' memorandum from David 
Korotney to docket EPA-HQ-OAR-2015-0111. See also further discussion 
of E85 in Section II.E.2.iii.

 Table II.B.6-2--Inability Under Even Highly Unlikely Supply Conditions
 To Meet an 18.61 Billion Gallon Requirement for Total Renewable Fuel in
                                  2016
                            [Million gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
E10..........................................................        \a\
                                                                 139,688
E85..........................................................    \b\ 400
Total ethanol................................................     14,265
Non-ethanol cellulosic biofuel...............................        210
Advanced and conventional biodiesel and renewable diesel.....  \c\ 3,750
Total renewable fuel.........................................     18,225
Shortfall in comparison to the 18.61 bill gal needed under           385
 the cellulosic waiver authority.............................
------------------------------------------------------------------------
\a\ This level is less than the amount of ethanol that can be used as
  E10 in all 2016 gasoline, because some of that gasoline is used in
  this scenario to make E85.
\b\ Assumed to contain 74% denatured ethanol.
\c\ Represents 2.5 billion gallons, the maximum supply that is
  reasonably achievable as described in Section II.E.3.

    When added to the 2.5 billion gallons of biodiesel and renewable 
diesel (3.75 billion RINs) that, as discussed in Section II.E.3, is the 
maximum we believe can reasonably be achieved in 2016, the total volume 
of 2.75 billion gallons of biodiesel and renewable diesel is beyond the 
reach of a responsive market. Attaining a total of 2.75 billion gallons 
of biodiesel and renewable diesel in 2016 would require that all of the 
idled registered biodiesel capacity in the U.S. be brought into 
production at the beginning of 2016, with the attendant hiring of 
workers, arranging for feedstock purchases including diverting many 
feedstocks from existing uses, and arranging routes for distribution, 
blending, and sale of the finished product. In combination with other 
challenges as described in Section II.E.3, it is highly unlikely that 
2.75 billion gallons of biodiesel supply could be achieved in 2016. 
Especially when combined with the fact that 400 million gallons of E85 
is highly unlikely, we do not believe that this scenario is tenable.
    A number of stakeholders said that using the cellulosic waiver 
authority alone would ensure that 15 billion gallons of corn-ethanol 
would be used in the U.S. in 2016. Although the implied requirement for 
conventional renewable fuel would be 15 billion gallons under this 
scenario, domestic use of corn-ethanol would be essentially no 
different than it would be under the volume requirements we are 
finalizing today using both the cellulosic waiver authority and the 
general waiver authority. This is due to the fact that the legal and 
practical constraints on the supply of ethanol to consumers are not 
likely to be relieved to a greater extent with higher standards than 
they are with the standards we are adopting today, as described more 
fully in Section II.E.2 below. While the supply of renewable fuel, 
including ethanol, can increase over time under the influence of the 
standards we set, the volume requirements for 2016 would not be 
achievable if only the cellulosic waiver authority were used. Thus we 
believe that using the cellulosic waiver authority alone would provide 
no practical advantage to the corn-ethanol industry, but instead would 
simply lead to a draw-down in the bank of carryover RINs and/or 
noncompliance.

C. 2014 Advanced Biofuel and Total Renewable Fuel Volume Requirements

    In the NPRM, we proposed to base the applicable volume requirements 
for 2014 on the number of RINs supplied in 2014 that are expected to be 
available for use in complying with the standards. We based this 
approach on the notion that the standards we set cannot affect actual 
supply of renewable fuel in 2014, and that consequently the only result 
of setting a higher standard would be to require a draw-down in the 
bank of carryover RINs, which we explained would not be in the best 
interests of the program.
    While many stakeholders agreed with our proposed approach, some did 
not. The primary objection was that carryover RINs should be counted as 
part of the ``supply'' available for compliance with the 2014 standards 
and, therefore, that the 2014 statutory volume targets cannot or should 
not be waived so long as the existing supply of RINs in 2014 that are 
available for compliance plus carryover RINs is sufficient to attain 
the statutory targets. As described in Section II.H below, we continue 
to believe that it would be imprudent and contrary to the long term 
objectives of the program to intentionally set renewable fuel volume 
requirements at a level higher than the estimated supply of renewable 
fuel based on an intentional draw down of the current bank of carryover 
RINs to achieve compliance. The statute does not define the term 
``supply,'' and it is logical to interpret the term to mean the supply 
of actual renewable fuel to the vehicles that can use it. However, in 
assessing whether this supply is ``inadequate,'' and whether EPA should 
use its discretion to waive the statutory targets, it is appropriate to 
consider the extent to which the available bank of

[[Page 77445]]

carryover RINs can be drawn down without negatively impacting program 
operation.\61\ Thus, we do not interpret carryover RINs to be part of 
the ``supply'' referenced in the term ``inadequate domestic supply,'' 
but we do consider them as a factor that may influence our discretion 
regarding whether or not to issue a waiver when we have found that an 
inadequate supply of renewable fuel exists. However, as described in 
detail in Section II.H, we have assessed the number of carryover RINs 
available at the current time, and have determined that this bank of 
carryover RINs should not be intentionally drawn down by setting volume 
requirements at a level higher than the supply of renewable fuel in the 
2014-2016 time period. In other words, for purposes of this rule, we 
have determined that the availability of carryover RINs does not 
provide a good basis for EPA to either decline to exercise its 
discretion to reduce volumes under the general waiver authority in CAA 
section 211(o)(7)(A), or to use that authority in a manner that would 
result in volume requirements for total renewable fuel at a level 
higher than the supply of renewable fuel in 2014.\62\
---------------------------------------------------------------------------

    \61\ The statute provides that EPA ``may'' waive the statutory 
volume targets if it finds inadequate domestic supply or other 
conditions justifying a waiver under CAA section 211(o)(7)(A). Thus, 
exercise of the waiver authority is discretionary.
    \62\ For the same reasons, EPA has not assumed a draw-down in 
the current bank of carryover RINs in deciding the extent to which 
it should exercise its discretion under CAA section 211(o)(7)(D) to 
reduce the statutory targets for advanced biofuel and total 
renewable fuel.
---------------------------------------------------------------------------

    A secondary objection to setting the 2014 volume requirements at 
the level of actual supply focused on our proposed calculation of the 
number of RINs generated in 2014 that would actually be available for 
compliance with the standards. Specifically, some parties argued that 
all RINs generated in 2014 should be counted as being available for 
compliance regardless of whether some were retired for purposes other 
than compliance with the annual percentage standards by obligated 
parties. In addition to exports, such ``non-compliance'' RIN 
retirements could occur for a variety of reasons, such as:

 Spills
 Contaminated or spoiled fuel
 Enforcement obligation
 Fuel not used as transportation fuel, heating oil, or jet fuel
 Improperly generated or otherwise invalid RINs
 Volume corrections
 RINs generated by foreign producers for volumes exported to 
other countries

Parties taking this position argued that, had the 2014 standards been 
in place by the statutory deadline of November 30, 2013, at least some 
of the RINs retired for non-compliance reasons would instead have been 
used for compliance purposes. We disagree. The earlier issuance of 2014 
standards would not have changed events such as spills, improperly 
generated RINs, or enforcement obligations, and is very unlikely to 
have resulted in fuel being used in transportation fuel, heating oil, 
or jet fuel rather than for some non-qualifying use. It is 
theoretically possible that qualifying renewable fuel that was exported 
in 2014 might instead have been used in the U.S. had the applicable 
standards been in place and had been at a level that discouraged 
exports. However, even if this were so, it would nevertheless be 
inappropriate to identify exported renewable fuel as being available 
for compliance since the standards that we set now cannot cause a 
change in 2014 exports. If we were to include exported renewable fuel 
in the volume available for compliance with the 2014 standards, 
obligated parties would be forced to draw down the bank of carryover 
RINs to account for those exports. As described above and in Section 
II.H, we do not believe this would be appropriate.
    Some stakeholders who argued for the consideration of carryover 
RINs in setting the 2014 standards did so recognizing that 2014 supply 
of renewable fuel would be unaffected, but said that doing so might 
actually increase supply in 2015 or 2016 above levels that would occur 
otherwise. More specifically, these stakeholders expressed concern that 
obligated parties would respond to increasing volume requirements in 
2015 and 2016 by using carryover RINs rather than entering into 
contracts or other arrangements to increase the actual supply of 
renewable fuel. Given the value of carryover RINs to obligated parties 
as a compliance flexibility tool that is available to address 
unforeseen RIN shortfalls such as those that may be caused by natural 
disasters and other supply problems, and considering that obligated 
parties are likely to consider that increasing RFS requirements in the 
future could make compliance more difficult in coming years, we do not 
believe it is likely that obligated parties would intentionally draw 
down their carryover RIN banks as an alternative to purchasing RINs 
generated from increasing supplies of renewable fuel. As described 
further below, we are setting the applicable volume requirements for 
2014, 2015, and 2016 at levels that we believe can be supplied by 
actual gallons of renewable fuel used in those years, without the need 
for carryover RINs.
    In the NPRM, we explained that the total number of RINs that will 
be retired to cover exports of renewable fuel in 2014 will only be 
recorded in EMTS after the compliance demonstration deadline for 2014 
has passed. As described in Section VI.B, we are amending the current 
rules in this action to specify March 1, 2016 as the deadline for 
renewable fuel exporters to demonstrate compliance with those 2014 RVOs 
not already satisfied. Since we recognized in the NPRM that the 
compliance deadline for all 2014 RIN exports would not have passed by 
the time we issued the final 2014 standards, we proposed to estimate 
likely RIN retirements for renewable fuel exports by using renewable 
fuel export information from EIA. Ethanol export data reported by EIA 
is derived from surveys collected by the Census Bureau. These surveys 
distinguish between ethanol that is denatured and ethanol that is 
undenatured, with approximately 460 million gallons being described as 
denatured and approximately 350 million gallons being described as 
undenatured for 2014. In the NPRM we assumed that all 810 million 
gallons of ethanol exported in 2014 had been denatured in the United 
States. We based this approach on the expectation that ethanol 
producers had an incentive to denature all ethanol for tax purposes, 
and thus would only sell undenatured ethanol if it was contractually 
designated for export. Because denatured ethanol meets the regulatory 
definition of renewable fuel, we assumed that RINs had been generated 
for this entire volume, and that an equal number of RINs would need to 
be retired by the exporters of this renewable fuel. RINs retired for 
exported renewable fuel are not available for use by obligated parties 
in complying with their 2014 obligations. Thus we calculated the supply 
of renewable fuel for 2014 by subtracting the exported volumes 
represented by both categories of ethanol from the amount of RINs 
generated for domestic production or imports of renewable fuel in 2014.
    In response to the NPRM, some stakeholders indicated that they 
believed we had erred in assuming that all exported ethanol was 
denatured in the U.S., and had RINs generated for it prior to export. 
Based on these comments and further investigation into

[[Page 77446]]

the manner in which the Census Bureau data are collected, we believe 
that the Census Bureau survey data are likely to be more reliable than 
we previously believed with regards to whether exported batches were 
denatured or undenatured. That is, we believe the Census Bureau data 
provides the best information available on the amount of denatured 
versus undenatured ethanol that was exported in 2014. Therefore, the 
volume of undenatured ethanol the Census Bureau reported as exported in 
2014 should not be subtracted from the total number of RINs generated 
for fuel ethanol in 2014 for purposes of calculating the available 
supply of renewable fuel for 2014. We have made this correction to the 
calculation of 2014 supply by only subtracting the approximately 460 
million gallons of exported denatured ethanol from those generated in 
2014, rather than the full volume of about 810 million gallons of 
denatured and undenatured ethanol exported.
    Several stakeholders raised a similar issue with respect to 
biodiesel exports, contending that producers never generated RINs for 
some biodiesel that was exported, and thus all biodiesel exports should 
not have been subtracted from the number of biodiesel RINs generated in 
2014 in assessing the 2014 domestic supply of biodiesel. These parties 
based their argument on comparisons between EIA export data and 
biodiesel RINs separated from biodiesel intended for export as recorded 
in EMTS for previous years. As pointed out by these stakeholders, a 
comparison of data from EMTS and EIA for 2011 through 2013 does appear 
to suggest incongruous measurements of biodiesel exports.

                                         Table II.C-1--Biodiesel Exports
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                                       2011            2012            2013
----------------------------------------------------------------------------------------------------------------
EMTS (based on RINs separated from exported biodiesel)..........              15              46             106
EIA.............................................................              73             128             196
Difference......................................................              58              82              91
----------------------------------------------------------------------------------------------------------------

As a preliminary matter, we note that the discrepancy between EMTS data 
on biodiesel RINs separated for biodiesel intended for export and EIA 
data on biodiesel exports is much smaller for 2014 than it was for 
previous years--the difference is only 10 million gallons.\63\ However, 
we do not believe that these discrepancies between EIA and EMTS data 
can credibly be used to suggest that EPA's approach to assessing 
biodiesel supply in 2014 was flawed. Since exporters can receive 
biodiesel without assigned RINs and can retire RINs to address exports 
of renewable fuel using RINs acquired on the open RIN market, the EMTS 
data on the number of RINs separated from biodiesel as shown in the 
table above is likely to underestimate the actual number of RINs 
retired for exports. We also note that almost all biodiesel that is 
produced in the U.S. qualifies for RIN generation, unlike the situation 
for ethanol where RINs may be generated for denatured ethanol, but not 
for undenatured ethanol. Finally, since October of 2014 renewable fuel 
exporters have been required to retire RINs for all exported renewable 
fuel within 30 days of the exportation. As a result, we were able to 
compare RINs retired for exports that occurred in 2015 (not merely RINs 
separated from exported renewable fuel) to renewable fuel exports as 
reported by the International Trade Commission (ITC).\64\ We determined 
that exports as recorded in EMTS are nearly identical to exports as 
recorded by ITC.\65\ In sum, we conclude that it is reasonable to 
assume that RINs were generated and then retired for essentially all of 
the exported biodiesel, and that it continues to be appropriate to use 
unmodified export volume data from EIA in estimating RIN supply in 
2014.
---------------------------------------------------------------------------

    \63\ Because exporters of renewable fuel can separate RINs 
immediately from fuels that are exported, this estimate is unlikely 
to change by the time that they submit their compliance 
demonstrations for 2014.
    \64\ EIA uses the data collected by Census on exports.
    \65\ ``Comparison of export data between EMTS and ITC for 
2015,'' docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Finally, some parties argued that their operations for 2014 vis-a-
vis acquisition of RINs were based on the standards that were proposed 
in the November 29, 2013 NPRM, and that it would be inappropriate for 
EPA to set applicable percentage standards for advanced biofuel and 
total renewable fuel for 2014 that are more stringent than those 
proposed in November 2013. We disagree. First, the statutory table of 
applicable volumes has long provided notice to obligated parties that 
EPA could establish requirements at least that high, and many 
commenters on the November 2013 NPRM urged EPA to set standards that 
would require use of those volumes. In addition, it is well understood 
that requirements in a final rule can differ significantly from those 
that are proposed. Also, the November 2013 NPRM explicitly provided 
both a range of possible volume requirements for advanced biofuel and 
total renewable fuel as well as an indication that the final volume 
requirements could include a modification of those ranges. For example:

``However, we request comment on whether it would be more 
appropriate to utilize either the mode or median (50th percentile), 
or some other value in the appropriate range shown in Table IV.B.4-3 
that best reflects renewable fuel volumes that could reasonably be 
supplied under this program.'' (78 FR 71770)
``However, we request comment on whether one of the alternative 
values shown in Table IV.C.2.c-2, or some other approach, would be 
more appropriate as the basis for the required volume of advanced 
biofuel in the final rule.'' (78 FR 71777)
``With regard to the mean, we request comment on whether it is the 
most appropriate way to determine the volume within each of the 
ranges that we would require in the final rule, or whether instead 
one of the alternatives shown in Tables IV.B.4-3 or IV.C.2.c-2, or 
some other approach, would be more appropriate.'' (78 FR 71777)

While we proposed volumes representing the mean within the ranges, we 
also took comment on alternative approaches to selecting final values 
from within those ranges. More importantly, we are setting the 
applicable volume requirements for 2014 at levels consistent with the 
number of RINs generated in 2014 that are available for compliance. 
While it is true that the 2014 RINs available for compliance may not 
currently be distributed among obligated parties according to their 
individual compliance obligations, they are nevertheless available for 
compliance, and obligated parties can buy and sell RINs in order to 
ensure compliance. This process is exactly how the RIN

[[Page 77447]]

system was designed to operate when originally established in 2007. 
Obligated parties have had since at least the time of publication of 
the June 10, 2015 NPRM to understand with greater certainty their 
likely obligations under today's final rule, and this period should 
have been sufficient for obligated parties to ready themselves for 
compliance. To the extent individual obligated parties may still have 
difficulty acquiring sufficient RINs for compliance, they can avail 
themselves of the deficit carry-forward provision in the 
regulations.\66\ In addition, we note that the availability of 
carryover RINs should help to render the RIN market fluid. Finally, we 
note that we have extended the compliance demonstration deadline for 
obligated parties for the 2013 standards by one month, and the 
compliance demonstration deadline for the 2014 standards by two months, 
as compared to the proposed dates. These extensions will allow 
obligated parties additional time to engage in needed RIN transactions 
to come into compliance with 2014 requirements.
---------------------------------------------------------------------------

    \66\ Although the deficit carry-forward provision would not be 
available for parties who carried forward a deficit from 2013, such 
parties have known well in advance that they would be required to 
satisfy both their 2013 and 2014 obligations in 2014, so should have 
planned early to acquire a sufficient volume of RINs to cover all 
contingencies regarding possible 2014 requirements. Any excess 2014 
RINs purchased could be banked for use in complying with 2015 
requirements.
---------------------------------------------------------------------------

    The total number of RINs generated in 2014 that are available for 
compliance includes those that were generated for renewable fuel 
produced or imported in 2014 as recorded in the EPA-Moderated 
Transaction System (EMTS), minus any RINs that have already been 
retired for non-compliance reasons or would be expected to be retired 
to cover exports of renewable fuels. As described in the NPRM, the 
total number of RINs actually retired to cover exports of renewable 
fuel in 2014 will only be recorded in EMTS after the compliance 
demonstration deadline for 2014 has passed. Since the compliance 
deadline for all 2014 RIN exports has not yet passed, we have based our 
estimate of RIN retirements for renewable exports on renewable fuel 
export information from EIA.\67\
---------------------------------------------------------------------------

    \67\ http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_m.htm.
---------------------------------------------------------------------------

    Actual supply in 2014 is shown in Table II.C-2 below. Further 
details are provided in a memorandum to the docket.\68\ Since EIA does 
not distinguish exports by D code, we assumed that all ethanol exports 
represent D6 ethanol, and all biodiesel exports represent D4 BBD, since 
the vast majority of ethanol available for export was produced from 
corn and the vast majority of biodiesel available for export was 
produced to meet the requirements of advanced biofuel. As a result, we 
expect that any errors introduced by these assumptions will be very 
small.
---------------------------------------------------------------------------

    \68\ ``2014 RIN Supply,'' docket EPA-HQ-OAR-2015-0111.

                                        Table II.C-2--2014 Actual Supply
                                                 [Million RINs]
----------------------------------------------------------------------------------------------------------------
                                  Domestic
           D code a             production c      Imports c     Adjustments b c       Exports       Net supply
----------------------------------------------------------------------------------------------------------------
3 & 7........................              33               0                  0               0              33
4............................           2,214             496                 92             126           2,492
5............................              79              64                  0               0             143
6............................          14,017             336                287             457          13,609
All advanced biofuel                    2,326             560                 92             126           2,669
 (D3+D4+D5+D7)...............
All Renewable fuel                     16,344             897                380             582          16,278
 (D3+D4+D5+D6+D7)............
----------------------------------------------------------------------------------------------------------------
\a\ D3 and D7 represent cellulosic biofuel. D4 represents biomass-based diesel. D5 represents advanced biofuel
  that is not cellulosic biofuel or biomass-based diesel. D6 represents non-advanced (conventional) renewable
  fuel.
\b\ As described earlier in this section, adjustments represent spills, enforcement obligations, etc.
\c\ Values in this table differ from those in the NPRM due to ongoing retrospective corrections that are made to
  data recorded in EMTS.

Based on these volumes, we are setting the applicable volume 
requirements for advanced biofuel and total renewable fuel for 2014, as 
shown in Table II.C-3 below. Additional discussion of the final 
cellulosic biofuel and BBD volume requirements for 2014 can be found in 
Sections IV.D and III.C, respectively.

            Table II.C-3--Final Volume Requirements for 2014
                            [Billion gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Advanced biofuel.............................................       2.67
Total renewable fuel.........................................      16.28
------------------------------------------------------------------------

D. 2015 Advanced Biofuel and Total Renewable Fuel Volume Requirements

    In the NPRM, we said that we expected that the market could achieve 
some growth in 2015 in comparison to 2014 volumes despite the fact that 
the proposal was being released well into 2015. Our proposed volumes 
for 2015 represented moderate growth in supplies of both advanced 
biofuel and total renewable fuel deemed possible based on annual growth 
in previous years, but tempered by the fact that the market would not 
have the lead-time envisioned by the statute. Although the proposed 
volumes could not be construed as requirements, we believed that they 
would provide signals to the market concerning the levels that EPA 
believed were achievable, and that the market would respond to these 
signals. In fact this appears to have been the case, as monthly supply 
in the months following release of the NPRM was higher than monthly 
supply prior to the NPRM.
    This final rule is being released after 11 months of the year has 
passed. As was the case for 2014, the final standards that we set for 
2015 cannot affect supply that occurred over the previous 11 months, 
and there is insufficient lead time available to impact renewable fuel 
use in the remaining one month. Thus we believe that the basic approach 
we have taken in this final rule to establishing 2014 requirements 
should also be applied to 2015, with differences only to account for 
there being an incomplete data set for 2015. The more general issues 
(e.g., consideration of carryover RINs, determination of export 
volumes, etc.) that were raised by stakeholders for the determination 
of the 2014 volume requirements, and our assessment of those issues, 
also apply to 2015. As for 2014, the final volume requirements for 2015 
for advanced biofuel and total renewable fuel effectively represent 
what the market actually achieved (for months for which data are 
available) and a projection of supply based on historical information 
for the remaining

[[Page 77448]]

months where data were not yet available.
    While this final rule is being released after 11 months of the year 
has passed, the data for determining actual supply was only available 
for the first 8 to 9 months of the year. EMTS data on RIN generation 
and various adjustments for RINs that cannot be used for obligated 
party compliance was available through September, while data on 
renewable fuel exports from the Census Bureau was available through 
August.\69\ In order to determine total supply for 2015, it was 
necessary to estimate supply for the remaining months of the year using 
the data on actual supply that is available for 2015 and supply trends 
from 2013 and 2014. These supply trends were used to identify seasonal 
variations in supply that allowed us to project supply in those months 
in 2015 for which actual supply data are not available. Details of this 
assessment are provided in the docket, and are summarized below.\70\
---------------------------------------------------------------------------

    \69\ We determined that using records from EMTS on 2015 RINs 
retired for exports would provide an inaccurate estimate of actual 
2015 RINs retired for export in specific months. Exporters can 
record their RIN retirements at any time within the 30 days 
following an export of renewable fuel. As a result, exports that 
occurred in August 2015 may be recorded in EMTS in August or 
September, and exports that occurred in September 2015 may be 
recorded in EMTS in September or October. Given this, we believe 
that the Census Bureau data on exports provided a more accurate 
estimate of exports in specific months.
    \70\ ``Projection of annual renewable fuel supply in 2015,'' 
memorandum from David Korotney to docket EPA-HQ-OAR-2015-0111.

                                     Table II.D-1--Projected Supply for 2015
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                       RINs
                                                     generated      Adjustments       Exports       Net supply
----------------------------------------------------------------------------------------------------------------
Advanced biofuel................................           3,121              92             145           2,884
Total renewable fuel............................          17,815             379             504          16,931
----------------------------------------------------------------------------------------------------------------

    In the NPRM we requested comment on whether the volume requirements 
that we were proposing for 2015 appropriately reflected challenges 
associated with the marketplace increasing renewable fuel supply in 
response to the rulemaking in the time available. Parties that believed 
we should set the applicable volume requirements for 2014 at the 
statutory targets typically said the same for the 2015 volume 
requirements, arguing that carryover RINs could meet any shortfall in 
the supply of renewable fuel. Others agreed that the proposed 2015 
volume requirements were reasonable and pointed to the fact that the 
situation for 2015 was essentially the same as for 2014 in that the 
standards would be set after most of the year had passed and beyond a 
date where the final rule could influence renewable fuel use.
    In general, it is our assessment that comments provided by 
stakeholders did not include any compelling arguments or information 
that would lead us to believe that the final volume requirements for 
2015 should be set higher than actual supply (including a projection of 
actual supply for months where data are not available). While some 
stakeholders expressed a belief that higher standards can influence 
market dynamics in 2015, we do not believe that this is the case given 
that this final rule is being released after 11 months of the year has 
passed. The only possible basis for setting the final volume 
requirements higher than actual supply would be the availability of 
carryover RINs, which as described in Section II.H we believe should 
not be intentionally drawn down in the context of standard-setting at 
this time.
    Some obligated parties argued that the final percentage standards 
for 2015 should be set at the proposed levels since they were using the 
proposed percentage standards to guide their acquisition of RINs in the 
second half of the year. These parties made a similar argument 
regarding the 2014 percentage standards. However, all regulated parties 
were aware that the final standards could differ from those we proposed 
based on comments we received, new information that became available, 
and new or different EPA analysis. Moreover, the statutory volume 
targets (which a number of commenters argued should be the basis for 
the final 2014 standards) provided notice of the maximum volumes that 
EPA could require in finalizing the rule. As with 2014, we are using 
the cellulosic waiver authority as the basis for reductions in advanced 
biofuel, and for an equal reduction in the total renewable fuel volume 
requirement. For total renewable fuel, we are also using the general 
waiver authority, based on a determination of inadequate domestic 
supply, to provide an additional increment of volume reduction to 
result in a volume requirement equal to our assessment of RINs 
generated in 2015 that will be available for compliance.

            Table II.D.2--Final Volume Requirements for 2015
                            [Billion gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Advanced biofuel.............................................       2.88
Renewable fuel...............................................      16.93
------------------------------------------------------------------------

E. Total Renewable Fuel Volume Requirement for 2016

    The proposed 2016 volume requirement of 17.40 billion gallons was 
intended to represent the total supply of renewable fuel for use in 
transportation fuel in the United States, including both domestic 
production and imports of renewable fuel, in light of a policy that is 
intended to induce significant change. In determining the proposed 2016 
volume requirements, we targeted substantial growth compared to 2014 
and 2015, consistent with the fact that they are being set 
prospectively, on the schedule contemplated by Congress, and therefore 
can be expected to influence the increased production and use of 
renewable fuels in 2016.
    Responses to the proposed 2016 volume requirement for total 
renewable fuel were mixed. Some stakeholders, such as The American 
Council on Renewable Energy and Trestle Energy, indicated that the 
proposed volumes appeared to be reasonable given the challenges 
associated with increasing supply. Stakeholders who were obligated 
parties, petroleum marketers and retailers, livestock owners, or engine 
owners typically said that the proposed volumes were too high. These 
stakeholders typically pointed to expected high costs, adverse impacts 
on vehicles or engines, or a general inability of the market to supply 
the proposed volumes. Many treated the constraints associated with the 
E10 blendwall as representing a firm barrier that could not or should 
not be crossed. In contrast, renewable fuel producers and farmers 
generally believed the

[[Page 77449]]

proposed volumes to be too low. These stakeholders typically pointed to 
production capacity and available feedstocks to support their views, 
and often argued that the power of the market to respond to the 
standards EPA sets is essentially unlimited in its ability to overcome 
any potential constraints on supply.
    In general, we did not find arguments for reducing the volume 
requirements below the proposed levels compelling. Our response to 
comments associated with the E10 blendwall, demand for E0, and the use 
of higher ethanol blends such as E15 and E85 are discussed in more 
detail in Section II.E.2 below. In short, stakeholders provided no 
compelling evidence that a nationwide average ethanol concentration in 
gasoline cannot exceed 10.0% in 2016. Moreover, the RFS program will 
not force consumers to use E15 in engines where compatibility may be a 
concern, such as nonroad engines or vehicles manufactured before 2001, 
as some commenters suggested. The flexibility inherent in the program 
will also continue to permit the use of E0 if there is demand for it, 
addressing concerns about misfueling with higher ethanol blends. 
Further discussion of these issues can be found in the Response to 
Comments document.
    While we do not believe that the total renewable fuel volume 
requirement for 2016 should be reduced below the proposed level, we 
continue to believe that challenges associated with growth in the 
supply of renewable fuels precludes attainment of the statutory volumes 
in 2016. Constraints including but not limited to the E10 blendwall, 
are real and can only be partially overcome by a responsive market in 
the near term. We acknowledged in the NPRM that the market would need 
to respond by increasing domestic production and/or imports of those 
biofuels that have fewer marketplace constraints, by expanding the 
infrastructure for distributing and consuming renewable fuel, and by 
improving the relative pricing of renewable fuels and conventional 
transportation fuels at the retail level to ensure that they are 
attractive to consumers. However, we also stated our belief in the NPRM 
that the market is not unlimited in its ability to respond to the 
standards we set, particularly over the relevant timeframe. Thus while 
there can be significant growth in renewable fuel supply from 2015 
levels in 2016, we continue to believe that the statutory target for 
total renewable fuel cannot be reached in 2016.
    In making a determination to exercise our authority to waive 
volumes, our objective is to exercise the general waiver authority only 
to the extent necessary to address the inadequacy in 
supply.71 72 As explained in the NPRM, we are seeking to 
determine the ``maximum'' volumes of renewable fuel that are reasonably 
achievable in light of supply constraints. To clarify, we are not 
aiming to identify the absolute maximum domestic supply that could be 
available in an ideal or unrealistic situation, or a level that might 
be anticipated under conditions that are possible, but unlikely to 
occur. Rather, we are attempting to identify what we think is the most 
likely maximum volume that can be made available under real world 
conditions, taking into account the ability of the standards we set to 
cause a market response and result in increases in the supply of 
renewable fuels. This is a very challenging task not only in light of 
the myriad complexities of the fuels market and how individual aspects 
of the industry might change in the future, but also because we cannot 
precisely predict how the market will respond to the volume-driving 
provisions of the RFS program. Thus the determination is one that we 
believe is not given to precise measurement and necessarily involves 
considerable exercise of judgment. To this end, we are setting 
achievable volumes of total renewable fuel in this package that reflect 
our best judgment as to the domestic supply of renewable fuels in 2016. 
There are a number of indications, described below, that the volumes we 
are finalizing today represent a reasonable estimate of this level.
---------------------------------------------------------------------------

    \71\ Section 211(o)(7)(A) says, ``The Administrator . . . may 
waive the requirements . . .'' [emphasis added].
    \72\ As discussed in Section II.B.1, EPA has considerable 
discretion in exercising the cellulosic waiver authority, and is not 
constrained to consider any particular factor or list of factors in 
doing so.
---------------------------------------------------------------------------

    In the NPRM we explained that our approach to determining the 
applicable volumes of total renewable fuel included estimating the 
market potential for overcoming the various constraints at play. This 
approach was based on consideration of the potential future 
contributions from sources of renewable fuel, including ethanol, 
biodiesel and renewable diesel, and other types of renewable fuels, in 
the aggregate rather than individually, and in the context of a market 
that is responsive to the standards that we set. We explained that we 
believed this approach to be more straightforward and more likely to 
provide a correct projection of the available domestic supply of 
renewable fuels in 2016 than the proposed approach we described in the 
November 29, 2013 proposal for the 2014 standards.
    In response to the NPRM, many parties presented alternative 
suggestions for volume requirements for total renewable fuel in 2016, 
either higher or lower than the 17.40 billion gallons that we proposed, 
and generally based these suggestions on an approach more akin to that 
used in our November 29, 2013 proposal. That is, they made their own 
estimates of the achievable levels of various types of renewable fuels 
that could be produced or renewable fuel blends that could be consumed 
and used these estimates as the basis for suggesting higher or lower 
volume requirements. We recognize that an assessment of the 
contribution that individual sources can make to the total can be 
valuable in demonstrating both the achievability of the volume 
requirements and the extent to which they represent the supply of 
renewable fuels in 2016. In the November 2013 proposal we took a very 
granular approach to assessing the potential supply of renewable fuels 
by assessing the potential for growth of individual renewable fuels, 
quantifying the uncertainty around each assessment, and using a Monte 
Carlo simulation to assimilate the individual assessments. In our June 
2015 proposal we took a much more holistic approach to assessing 
renewable fuel supply, recognizing that the individual components of 
the supply are interconnected and do not operate in isolation. We 
received many comments suggesting that the holistic approach was too 
broad, that the methodology EPA used in deriving the volume 
requirements was not sufficiently clear, and that EPA should more 
closely evaluate potential for growth in the use of individual fuel 
types as part of its analysis. We continue to believe that because of 
the complexities of the fuels market, the structure of the standards, 
and the inherent difficulties associated with predicting which of the 
many possible scenarios the market will choose to meet any given 
standard, a very granular approach is not likely to produce an accurate 
representation of the maximum volume that can reasonably be achieved. 
At the same time, we recognize the value in better identifying the 
information on which our technical judgements are based in making an 
overall assessment of the volume of renewable fuel that can be supplied 
in 2016.
    For the final rule, therefore, we are individually analyzing the 
potential for growth in broad categories of renewable fuel: Ethanol, 
biodiesel, and other types of renewable fuels. We believe that

[[Page 77450]]

these assessments have helped us to better estimate the most likely 
maximum achievable volume of renewable fuel that can be supplied in 
2016 and, as described below, the revised approach, together with 
technical corrections, has led to a final volume for total renewable 
fuel that is somewhat larger than the volume in our proposed rule. The 
following sections discuss the state of the renewable fuel market in 
general, our evaluation of the supply of broad categories of renewable 
fuel in 2016, and our conclusions regarding the most likely maximum 
achievable supply of renewable fuel in 2016.
1. Renewable Fuel Market Challenges and Opportunities
    The fuels marketplace in the United States is large, diverse, and 
complex, made up of many different players with different, and often 
competing, interests. Substantial growth in the renewable fuel volumes 
beyond current levels in 2016 and beyond will require action by many 
different parts of the fuel market, and a constraint in any one part of 
the market can limit the growth in renewable fuel supply. Whether the 
primary constraint is in the technology development and 
commercialization stage, as has been the case with cellulosic biofuels, 
or instead related to the infrastructure build out and fuel 
consumption, as is recently the case with ethanol in the United States, 
the end result is that these constraints limit the available supply of 
renewable fuel.
    The constraints on supply to vehicles and engines range from legal 
limitations on the ethanol concentration that can be used in different 
types of gasoline-powered vehicles to market-based constraints 
associated with production, distribution, and use of renewable fuels 
and the ability for these fuels to compete with traditional petroleum-
based fuels. A list of the many factors that affect the growth of 
renewable fuel supply in the United States in 2016 and beyond is shown 
in Table II.E.1-1 below.

[[Page 77451]]

[GRAPHIC] [TIFF OMITTED] TR14DE15.000


[[Page 77452]]


[GRAPHIC] [TIFF OMITTED] TR14DE15.001

    None of the market components listed in Table II.E.1-1 are in and 
of themselves an insurmountable barrier to growth of renewable fuels. 
Rather, they are challenges that can be overcome in a responsive 
marketplace given enough time and in many cases with considerable 
investment. In this regard the key question is not whether renewable 
fuel volumes can increase, but rather how quickly. Moreover, the speed 
with which the market can engage in actions to overcome these 
constraints is a function of whether and how effectively parties 
involved in the many diverse aspects of the renewable fuel marketplace 
respond to the incentives provided by the RFS and other programs 
designed to incentivize renewable fuel use.
    To a certain degree, the RFS standards themselves can help provide 
certainty and help drive the necessary investments up and down the 
supply chain by creating expectation for what overall demand will be. 
However, the RFS standards are still limited in this regard in that 
they are issued on an annual basis immediately prior to the compliance 
year (thus offering little lead-time) and provide only an indirect 
signal to the various components of the marketplace. In order for 
volumes of many of the renewable fuels to grow it requires a rather 
complicated series of investments decisions and actions by a wide range 
of independent businesses in the marketplace, often by companies that 
are in direct competition with one another. This can make it difficult 
for the market to increase supply quickly. The significant fluctuations 
in the price of oil since 2010 further complicates the investment 
decisions necessary to enable further growth in the supply of renewable 
fuels.
    Fuels that are or have been more easily integrated into the 
marketplace (e.g., ethanol at 10 volume percent or renewable diesel 
that is fungible with diesel fuel) face fewer challenges to overcome to 
increase their supply and thus have generally been more attractive to 
investors than those that might require new and unique changes to the 
fuel distribution infrastructure and/or vehicle fleet. The greater 
market certainty associated with these more easily integrated fuels has 
allowed them to increase relatively quickly. This is consistent with 
our past experience under the RFS program where we saw rapid growth in 
E10 ethanol blends, low level biodiesel blends, and more recently CNG/
LNG derived from biogas. However, introducing new types of biofuels and 
higher biofuel concentrations into the marketplace requires new 
production technology, new vehicles, new retail and distribution system 
infrastructure, and/or new retail-level incentives, and thus have been 
slower to expand.
    Also, the signal from the RFS standard is for the general 
categories of cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuels. The standards are not specific to a 
fuel type (e.g., ethanol, biodiesel, renewable diesel, biobutanol, 
biogas, etc.), feedstock (e.g., corn, soy oil, wood

[[Page 77453]]

chips), or technology (e.g., biochemical vs thermochemical). This is a 
strength of the RFS program, as it lets the market, rather than EPA, 
decide which fuel hold the most promise for future growth. As a result, 
however, the market is still left to determine which fuels to invest 
in, requiring action by multiple parties involved in fuel supply to 
ensure growth. We believe that the market can and will make these 
decisions, particularly as the picture as to which fuels and 
technologies hold the greatest potential for growth becomes clearer, 
but it will take time.
    In addition to the market needing time to sort out its investment 
decisions, it should also be emphasized that it takes time for the 
market to implement investment decisions it has already made. Each 
market segment has a certain degree of implementation time associated 
with it. For instance, diverting relatively small amounts of feedstocks 
from existing uses could potentially occur in a matter of weeks in some 
cases and months in others, whereas diverting larger amounts or 
bringing some new feedstocks to market (e.g., energy crops such as 
switchgrass) could require years. Restarting existing biofuel 
production facilities could likewise occur relatively quickly, while 
developing a new renewable fuel production technology (e.g., cellulosic 
ethanol) takes years, and once developed it takes years more to produce 
commercial volumes of renewable fuel from them. Displacing some fuels 
with others in distribution and storage can often occur in a matter of 
weeks, but adding new distribution and storage capacity can take months 
or years. Using compatible fuels in the existing fleet of vehicles can 
occur almost seamlessly, but developing and expanding a new fleet of 
purpose-built vehicles will take years. Since this final rulemaking 
establishes standards for 2016 that will apply to gasoline and diesel 
fuel produced just one month from the signature of this rule, we do not 
believe that there is sufficient time for the 2016 standards to lead to 
dramatic changes in renewable fuel supply that are not already 
underway. But we do believe that the 2016 standards can drive some 
growth in the near term while setting the stage for greater growth in 
the longer term. As a result, the best opportunity for market growth is 
likely to be for those fuels where the market is already taking action 
to address any relevant constraints listed in Table II.E.1-1 above.
    Cellulosic biofuel provides an example. Growth in cellulosic 
biofuel volumes and their contribution to the advanced biofuel standard 
has been limited, and certainly less than Congress envisioned, since 
the outset of the RFS program due to challenges related to technology 
development and commercialization. Despite a number of years and 
billions of dollars spent in research and development of cellulosic 
biofuel technologies, and several attempts at commercializing these 
technologies, deriving liquid fuels from cellulosic feedstocks has 
lagged well behind not only the statutory targets, but also our annual 
projections. These technologies are just now beginning to introduce 
significant volumes of liquid cellulosic biofuels to the market as 
described in Section IV. In contrast, more rapid growth has occurred 
with CNG/LNG derived from biogas, which was recategorized as a 
cellulosic biofuel in 2014. Biogas did not face the same renewable fuel 
production challenges as liquid biofuels, and since it could also 
utilize the existing natural gas distribution, vehicle, and refueling 
infrastructure use of cellulosic CNG/LNG derived from biogas as 
transportation fuel has increased rapidly since 2014. The inclusion of 
cellulosic biogas in our projections has allowed total cellulosic 
biofuel volumes to grow rapidly through 2015 and into 2016. However, 
even this significant and short term growth will become limited as 
cellulosic biogas will soon face constraints associated with sufficient 
consumption capacity since the fleet of natural gas vehicles that use 
CNG/LNG derived from biogas as a transportation fuel is currently 
limited, and it will likely take time for it to grow.
    Even with the RFS standards in place to drive growth, the market 
itself still has considerable uncertainty in terms of how it will 
respond to those standards and whether and to what degree it can 
overcome the various constraints within the next year. These facts make 
it challenging for the Agency to project the supply of renewable fuel 
in 2016, as we cannot predict with precision the progress that can be 
made for every component in the market for all the different fuels, or 
for the renewable fuel supply as a whole. Every existing and potential 
renewable fuel is impacted by a number of factors that may limit the 
renewable fuel's growth potential over the coming year. If EPA were to 
establish standards that cannot be achieved it would likely result in a 
significant increase in renewable fuel and RIN prices, and obligated 
parties would be forced into RIN deficits or even non-compliance. This 
could serve to erode the certainty and stability for renewable fuel 
volume growth that the RFS standards are intended to provide. At the 
same time, there are also reasons for optimism that significant 
progress can be made in overcoming some of the constraints on renewable 
fuel use in the coming year. We do not think it would be appropriate to 
ignore either the potential for growth, or potential challenges on 
growth, in making our assessment of potential volumes. Because the RFS 
program allows for a variety of different paths to contribute to 
overall compliance with the standards, significant growth overall is 
possible in the coming year even if there is less certainty that 
individual paths might be able to grow significantly.
    In the NPRM we discussed the fact that renewable fuel supply in 
2013 \73\ and 2014 fell short of the statutory targets, and that we 
believed that the constraints on supply that contributed to those 
shortfalls were very likely to continue in 2015 and 2016. Indeed supply 
in the first half of 2015 has also fallen short of what would be 
required on an annualized basis to meet the statutory targets, though 
it was larger than supply in 2014. In response, many stakeholders 
suggested that the only reason the statutory targets were not reached 
in 2013 and 2014 was because EPA missed the statutory deadlines for 
setting RFS standards for those years. They also cited the November 29, 
2013 NPRM as establishing an expectation among regulated parties that 
EPA would not require the statutory targets to be met in 2014 and 2015, 
and that the market merely responded in the manner of a self-fulfilling 
prophecy.
---------------------------------------------------------------------------

    \73\ Although EPA did not waive any renewable fuel requirements 
in 2013, EPA estimates that obligated parties will only be able to 
achieve compliance through substantial reliance on carryover RINs.
---------------------------------------------------------------------------

    In providing these comments, these stakeholders took the view that 
the market is essentially unlimited in its ability to respond to the 
standards that EPA sets. That is, if EPA were to establish the 
applicable volume requirements at the statutory targets and by the 
statutory deadlines, the market would be able to meet those volume 
requirements. We disagree. The constraints discussed above, and in 
greater detail in the following sections, are both real and are 
expected to continue for at least the next several years, even as 
volumes produced and used are expected to grow. Our investigations 
clearly demonstrate that the market is not unlimited in its ability to 
respond to the standards that we set.
    A review of the market response to the RFS standards in 2013 
demonstrates that constraints on supply are real. In 2013 EPA had never 
used its waiver

[[Page 77454]]

authorities to lower the statutory advanced and total renewable fuel 
volumes, and had not proposed to do so in its NPRM for the 2013 
standards published on February 7, 2013. The market could have 
reasonably anticipated that EPA would maintain the statutory applicable 
volumes for calendar year 2013. Indeed, EPA's final rule, published in 
August of 2013, maintained the proposed approach, and set percentage 
standards requiring the use of the statutory applicable volumes of 
advanced and total renewable fuel. Furthermore, unlike some other years 
when the biodiesel tax credit has been enacted late in a calendar year, 
and made retroactive to fuel produced in that year, in 2013 the tax 
credit was enacted in January 2013 and, therefore, was in place to 
incentivize the production of biodiesel throughout the calendar 
year.\74\ Thus, in 2013, both tax policy and RFS signals were in place 
to incentivize large growth in renewable fuel use. As shown in the 
figures below, there was no sudden increase in supply after the 2013 
standards were released on August 15, 2013, consistent with the 
indications that the market expected EPA to finalize standards 
requiring use of the statutory applicable volumes. There was a moderate 
increase in the supply of BBD at the end of 2013, which we believe 
reflected both market anticipation of the expiration of the biodiesel 
tax credit at the end of 2013 and the end of the 2013 RFS compliance 
year. Supply of ethanol (the predominate source of D6 RINs) was 
essentially no different after August than it was before, and the 
supply of D5 RINs actually decreased after August. In short, the market 
had an opportunity to increase supply in order to reach the applicable 
2013 standards, but did not do so in the timeframe that was 
available.\75\ We believe this indicates that the market was operating 
at a peak level, and was constrained from accomplishing more.
---------------------------------------------------------------------------

    \74\ Public Law 112-240.
    \75\ We have considered the possibility that the market did not 
fully respond to the 2013 RFS standards despite the availability of 
the biodiesel tax credit in 2013 because of the availability of 
carryover RINs. We believe that the benefit to obligated parties of 
maintaining their banks of carryover RINs in 2013--especially in 
light of ever-increasing RFS volume requirements in future years and 
uncertainty regarding how EPA may interpret its waiver authorities--
would have led obligated parties to strongly favor use of 2013 RINs 
over banked carryover RINs. We also considered the more limited corn 
stocks available for much of 2013 due to the 2012 drought. However, 
we note that ethanol exports were still occurring in 2013 even 
though ethanol imports increased substantially during this period. 
Thus, we do not believe that the availability of 2013 carryover RINs 
nor the historic 2012 drought in the United States undermines our 
conclusion that the renewable fuel market was constrained in 2013.

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

[[Page 77455]]

[GRAPHIC] [TIFF OMITTED] TR14DE15.002

    Some stakeholders said that the volume requirements for 2014, 2015, 
and 2016 that we proposed in the June 2015 NPRM reflected EPA's view 
that the various constraints represent absolute barriers to the 
expanded use of

[[Page 77456]]

ethanol specifically or renewable fuel in general. This was not the 
view we expressed in the NPRM and it is not our view now. Instead, 
these constraints mean that increasing the supply of renewable fuel 
will require time, and that the statutory volumes cannot be met 
according to the schedule reflected in the statute. As stated in the 
NPRM, we do believe that markets have a demonstrated ability to 
overcome some constraints with the appropriate policy drivers in place 
given sufficient time, and that the RFS program can drive renewable 
fuel use. However, the market's ability to overcome constraints is not 
unlimited, nor do we think change can be instantaneous, and thus it is 
appropriate to consider both the potential of the market to respond to 
the standards we set when we assess the amount of renewable fuel 
consumption that can be achieved, and the limitations in that potential 
in 2016. Thus, we are setting the total renewable fuel volume 
requirement for 2016 at a level that takes into account both the 
constraints on supply and the ability of the RFS program to incentivize 
RFS stakeholders to overcome those constraints.
    The following sections discuss in further detail our assessment of 
broad categories of renewable fuel expected to contribute to the total 
supply of renewable fuel in 2016. We also discuss the particular 
constraints that we expect will be relevant in projecting the supply of 
these renewable fuels in 2016.
2. Projecting Ethanol Supply
    Ethanol is the most widely produced and consumed biofuel, both 
domestically and globally. Since the beginning of the RFS program, the 
total volume of renewable fuel produced and consumed in the United 
States has grown substantially each year, primarily due to the 
increased production and use of corn ethanol. Prior to 2013 the primary 
constraints to the supply of ethanol were the amount of ethanol that 
could be produced and imported into the United States, and the ability 
of the market to distribute the ethanol across the country. Virtually 
all existing retail infrastructure and vehicles were compatible with 
gasoline containing up to 10% ethanol, and therefore the ethanol supply 
grew with the production capacity of the domestic ethanol industry and 
the rapid build-out of the ethanol distribution and terminal blending 
capacity to supply E10. A combination of factors, including the demand 
certainty provided by the RFS and the ability to profitably market 
ethanol in E10 blends due to relatively high gasoline prices, 
relatively low corn prices, and the blenders tax credit (available 
through 2011), provided the economic incentive for the investment that 
led to rapid increases in ethanol production and distribution capacity, 
dramatically increasing the total supply of ethanol to vehicles.
    However, as the gasoline market became saturated with E10 in 2013 
and 2014, the constraints on the supply of ethanol began to change. The 
supply of ethanol depends on the overall demand for gasoline as well as 
the percentage of ethanol blended into gasoline. In order for the 
supply of ethanol to increase it now needs to be sold in higher level 
blends, such as E15 or E85. These fuels are not compatible with much of 
the existing retail infrastructure and cannot be used in all vehicles 
and engines. The low number of retail stations selling these higher 
level ethanol blends, along with poor price advantages for these higher 
level blends compared to E10, a limited number of FFVs, and ineffective 
marketing of these fuels represent the biggest challenges to the 
continued growth of the supply of ethanol as a transportation fuel in 
the United States. As can be seen in Figure II.E.2-1 below, the rate of 
growth in the use of ethanol as a percentage of the motor gasoline 
market decreased dramatically as it approached an average concentration 
of 10% nationwide.
[GRAPHIC] [TIFF OMITTED] TR14DE15.004


[[Page 77457]]


    Since 2013, the number of FFVs in the fleet and the number of 
retail stations offering E15 and E85 have grown, and we believe that 
this growth has been influenced in part by the RFS program. However, 
this growth has been very modest. The number of retail stations 
offering E85 was about 3,000 by the end of 2014, representing only 
about 2% of stations nationwide.\76\ There were about 14 million FFVs 
in the fleet in 2014, representing about 6% of all light-duty cars and 
trucks. However, with only about 2% of retail stations offering E85 
only a minority of those FFVs had an E85 refueling station nearby. 
Additionally, with E85 almost always priced higher than E10 on a cost 
per mile basis, only a fraction of the FFV owners with access to a 
refueling station offering E85 chose to purchase this fuel.\77\ These 
constraints are unlikely to change significantly in 2016, though we do 
expect some growth in each of these areas under the influence of the 
standards we set under the RFS program, and as a result of a recent 
USDA program that will provide $100 million to develop infrastructure 
for higher ethanol blends, as discussed in Section II.E.2.v.
---------------------------------------------------------------------------

    \76\ Source: DOE's Alternative Fuels Data Center.
    \77\ E85 would need to be priced at least 22% below E10 to be 
equivalent on a cost per mile basis. Instead, E85 price discounts 
have been less than 18% for the last several years according to 
E85prices.com.
---------------------------------------------------------------------------

    While the price of the RIN that is generated and assigned to a 
gallon of ethanol theoretically should allow E85 to be priced at a 
level to encourage consumers to purchase these fuel blends when 
available (cheaper than E10 on a per mile basis), data that EPA has 
reviewed suggest this is unlikely in 2016. In the sections that follow 
we first discuss the data supporting our conclusion that the RIN is 
currently an inefficient mechanism for reducing the price for higher 
level ethanol blends at retail, and therefore unlikely to be able to 
significantly impact the supply of ethanol in the United States in 
2016. We then discuss in detail our projected supply of E0 (which 
impacts the supply of ethanol by reducing the gasoline pool into which 
ethanol can be blended), E10, E15, and E85. We note that throughout 
this discussion we do not differentiate between ethanol produced from 
corn, sugarcane, or any other feedstock. This is because we believe 
that the supply of ethanol in 2016 will not be limited by the amount or 
types of ethanol produced, but rather by other constraints as discussed 
below. Therefore, in projecting the ethanol supply for the purpose of 
setting the total renewable fuel volume requirement, the feedstocks 
used to produce the ethanol and any particular constraints related to 
these individual feedstocks are not relevant considerations.
i. Ethanol Supply as E10 in 2016
    Based on comments received in response to the NPRM, it is clear 
that the E10 blendwall is viewed differently by different stakeholders. 
Some stakeholders, most notably refiners, expressed the belief that the 
constraints on sales of higher ethanol blends such as E15 and E85 are 
so substantial, and the time available to address those constraints for 
2016 is so limited, that exceeding a pool-wide ethanol content of 10% 
is either unattainable or could occur only at great cost with 
corresponding increases in fuel prices and disruption to fuel supplies. 
Other stakeholders, primarily ethanol proponents, instead argued that 
substantially higher volumes of E15 and/or E85 can be reached in 2016 
with available infrastructure, despite insufficient efforts in the past 
to expand infrastructure for E15 and E85. These stakeholders generally 
argued that higher standards would result in higher RIN prices, which 
in turn would result in greater price discounting for E15 and E85 in 
comparison to E10 and thus higher sales of those higher level ethanol 
blends. They further argued that higher RIN prices, even if 
significant, would not result in higher fuel prices to consumers.
    Our view of the E10 blendwall falls between these two viewpoints. 
We believe that there are real constraints on the ability of the market 
to exceed a pool-wide ethanol content of 10%. However, these 
constraints do not have the same significance at all levels above 10% 
ethanol. Instead, for the state of infrastructure that can be available 
in 2016, the constraints represent a continuum of mild resistance to 
growth at the first increments above 10% ethanol and evolve to 
significant obstacles at higher levels of ethanol. This gradual nature 
of the impacts of the constraints is due to the fact that small 
increases in ethanol volumes above 10% are likely to be possible with 
changes in RIN prices, while larger increases are only possible with 
changes to infrastructure that cannot occur as quickly. The transition 
from mild resistance to significant obstacles occurs by degrees rather 
than all at once, and overcoming the constraints will likely require 
different solutions over different time periods. It is difficult to 
identify the precise boundary between volumes that can be achieved with 
mild difficulty in 2016 and those that likely cannot realistically be 
achieved over the next year. Ultimately the market will determine the 
extent to which compliance with the annual standards is achieved 
through the use of greater volumes of ethanol or other, non-ethanol 
renewable fuels.
    The volume requirements that we are setting today, particularly for 
2016, are intended to result in pressure on the market to exceed the 
E10 blendwall, but we do not believe the 2016 standards are capable of 
overcoming all constraints. Whether the market will respond to the 
standards we set by increasing the use of E15-E85 is unclear, as it is 
a function of actions taken by various fuel market participants, 
including obligated parties, renewable fuel producers, distributors and 
marketers, gasoline and diesel retailers, and consumers. Nevertheless, 
the standards we are setting acknowledge that opportunities exist to 
exceed the E10 blendwall as described more fully in Section II.G below.
    Many stakeholders, regardless of their views on whether the E10 
blendwall can or should be a consideration in the determination of 
applicable volume requirements, made the implicit assumption in their 
comments that the total volume of ethanol that would be used was 
identical to the volume of non-advanced (i.e., conventional) renewable 
fuel that would be necessary. Not only is this assumption incorrect, 
but it oversimplifies the true nature of the standards and the process 
of determining appropriate levels for those standards. While the 
portion of the 2016 cellulosic biofuel standard that we expect to be 
ethanol is only 20 million gallons, significantly larger volumes of 
ethanol may be used to meet the advanced biofuel volume requirement. As 
discussed in Section II.F, total volumes of advanced ethanol can 
reasonably be expected to reach 200 hundred million gallons. It is also 
likely that a portion of the conventional renewable fuel pool will be 
non-ethanol as evidenced by production and imports of conventional 
biodiesel and renewable diesel in the past.
    The amount of ethanol associated with the E10 blendwall (the volume 
of ethanol that could be consumed if all gasoline was E10) is driven by 
the total demand for gasoline, and thus, if all other considerations 
are equal, ethanol consumption will tend to increase if gasoline 
consumption increases and ethanol consumption will tend to decrease if 
gasoline consumption decreases. In the NPRM we used a projection of 
2016 gasoline demand from the May, 2015 version of EIA's Short-Term 
Energy Outlook (STEO), as

[[Page 77458]]

this was the most recent version available at that time. For this final 
rule we have used the October, 2015 version of the STEO, again because 
it is the most recent data available.\78\ As shown in the table below, 
projected 2016 gasoline demand increased by about 1.4% between May and 
October, most likely driven by lower crude oil prices.
---------------------------------------------------------------------------

    \78\ We received 2015 and 2016 transportation fuel demand 
projections from EIA's Adam Sieminski on September 16, 2015, which 
included gasoline demand projections from the September 2015 STEO. 
However, we believe it is more appropriate to use gasoline demand 
projections from the more recent October 2015 STEO. Using the most 
up to date EIA data on projected gasoline and diesel demand allows 
our assessment of 2016 supply, and calculation of percentage 
standards, to be as accurate as possible.

                     Table II.E.2.i-1--Projected 2016 Gasoline Demand and the E10 Blendwall
----------------------------------------------------------------------------------------------------------------
                                                                     May, 2015     October, 2015    Difference
----------------------------------------------------------------------------------------------------------------
Demand for gasoline energy (Quad Btu)...........................          16.617          16.852          +0.235
Equivalent volume of E10 (bill gal).............................         138,045         140,004          +1,959
E10 Blendwall (bill gal)........................................          13,805          14,000            +195
----------------------------------------------------------------------------------------------------------------
Source: Calculated from volume projections in EIA's Short-Term Energy Outlook for the indicated months, which
  can be found at http://www.eia.gov/forecasts/steo/outlook.cfm. Assumes 3.558 mill Btu/barrel for denatured
  ethanol and 5.222 mill Btu/barrel for gasoline without ethanol.

    In response to our proposed intention to use gasoline projections 
from EIA, several stakeholders indicated that EIA's projections of 
gasoline demand have historically tended to be lower than actual 
demand. They requested that we make an adjustment to EIA's projections 
to ensure that they are as accurate as possible. We investigated this 
issue and determined that by and large EIA's projections of gasoline 
demand have not, in fact, been lower than actual demand. As described 
in a memorandum to the docket, projected gasoline demand has more often 
been higher than actual demand, though the errors in demand projections 
were highly variable.\79\ Even so, we do not believe it would be 
appropriate for EPA to make adjustments to EIA projections to account 
for potential over- or underestimation of projected gasoline demand. 
EIA staff are the experts in the analyses required for these particular 
projections, and EPA does not have the data or expertise necessary to 
suggest changes to them.
---------------------------------------------------------------------------

    \79\ ``Analysis of historical errors in projections of gasoline 
and distillate demand from EIA,'' David Korotney, memorandum to EPA 
docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

ii. The Impact of RIN Prices on E85 Retail Prices
    The RIN system is the mechanism established by EPA for obligated 
parties to demonstrate compliance with the standards, and is designed 
to provide obligated parties flexibility in the means they use to 
achieve compliance. The RFS program, acting through the mechanism of 
the RIN system, also operates to provide an incentive for renewable 
fuel producers to increase the production of renewable fuels by, in 
effect, increasing the price blenders and obligated parties are willing 
to pay for renewable fuels.\80\ Under the RFS program, renewable fuel 
producers sell not only the fuels they produce, such as ethanol or 
biodiesel, but also the RINs that are ``assigned'' to the renewable 
fuel. As the demand for RINs increases based on the obligations 
applicable to producers and importers of gasoline and diesel, the 
willingness of the market to pay for renewable fuels and the RINs 
assigned to them also increases. When working efficiently, this system 
allows renewable fuel producers to continue to profitably market 
renewable fuel at times that would otherwise result in negative 
margins, such as when the price of feedstock and other inputs to 
renewable fuel production are unusually high, the price of the 
petroleum fuels that renewable fuels replace is unusually low, or when 
market demand for renewable fuel is low. In this way the RFS program, 
through the RIN system, also assists renewable fuel producers seeking 
to finance the construction of new facilities, especially facilities 
capable of producing cellulosic or advanced biofuels, by providing 
certainty that there will be a market for increasing volumes of 
renewable fuels.
---------------------------------------------------------------------------

    \80\ This is the case for years when the RFS standards are 
binding, or causing the market to consume renewable fuels in volumes 
beyond what they would otherwise choose to use, such as 2013. In 
years prior to 2013 where the RFS standard for total renewable fuel 
were not binding, the RINs generally reflect transaction costs.
---------------------------------------------------------------------------

    The RIN system should also incentivize the development of the 
renewable fuel distribution infrastructure by helping to decrease the 
net cost of renewable fuels. As mentioned above, when fuel blenders or 
obligated parties purchase renewable fuel directly from renewable fuel 
producers this fuel generally comes with an assigned RIN. When a fuel 
blender blends the renewable fuel with petroleum-based fuel to create 
finished transportation fuel, the blender is able to separate and sell 
the RIN that was previously assigned to the renewable fuel. Whatever 
price the fuel blender or obligated party receives when they sell the 
separated RIN can be thought of as reducing the net purchase price of 
the renewable fuel. For example, if a fuel blender purchases a gallon 
of ethanol with an attached RIN for $1.50 and, after blending the 
ethanol to create transportation fuel, sells the RIN for $0.50, the 
blender has effectively paid $1.00 for the gallon of ethanol without 
the RIN. The higher the price received for the RIN, the lower the 
effective cost of the renewable fuel compared to the petroleum fuel it 
displaces (and the higher the price of the petroleum fuel or blendstock 
necessary for the obligated party to recoup the cost of the RIN). 
Higher RIN prices therefore enable fuel blenders to market finished 
fuels that contain renewable fuel components at lower prices by 
allowing them to purchase renewable fuels for a lower effective price. 
A fuel blender can choose not to reduce the price of the blended fuel 
and keep the value associated with the RIN as profit, or they can 
attempt to increase their sales volumes and market share by passing 
along the lower effective purchase price of the renewable fuel to the 
customers in the price of their fuel blends.\81\ If the blender retains 
all, or a significant portion, of the RIN value, the ability for the 
RIN to impact the retail prices and sales volumes of E85 (or other 
renewable fuels) will be reduced. By increasing the potential 
profitability of blending renewable fuels, however, higher RIN prices 
can incentivize the build out of the infrastructure necessary to blend 
and distribute renewable fuel

[[Page 77459]]

blends as parties seek to enter or expand their position within this 
market.\82\
---------------------------------------------------------------------------

    \81\ In competitive markets, such as the market for E10, fuel 
blenders must reflect the lower effective prices of renewable fuel 
(ethanol) in the price of the E10. For emerging markets, such as 
E85, there may be greater opportunities for fuel blenders to 
withhold profit due to a lack of market competition until such a 
time as other parties enter the E85 market.
    \82\ For further background information on EPA's understanding 
of the RIN and renewable fuel market dynamics see ``A Preliminary 
Assessment of RIN Market Dynamics, RIN Prices, and Their Effects,'' 
Dallas Burkholder, Office of Transportation and Air Quality, US EPA. 
May 14, 2015, EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Finally, the RFS program, operating through the RIN system should 
also increase the consumption of renewable fuels by ultimately 
decreasing the cost of renewable fuel blends to consumers relative to 
the cost of fuel blends that do not contain renewable fuels. RIN prices 
can be used by blenders to decrease the effective cost of renewable 
fuel used to create transportation fuel. As more market participants 
enter the renewable fuel blending and distribution marketplace, and 
consumers learn to accurately compare the cost of E10 and other higher-
level ethanol blends, over some period of time the competition among 
renewable fuel blenders and distributors should result in a greater 
portion of the reduced effective cost of renewable fuel blends enabled 
by the sale of the RIN to be passed on to fuel consumers. Retail prices 
for transportation fuel that contains renewable fuels should then 
reflect these cost reductions relative to transportation fuel 
containing lower volumes of renewable fuel (or no renewable fuel) in 
proportion to their renewable fuel content; transportation fuel 
containing a greater percentage of renewable fuels should be priced 
lower than transportation fuel containing a lesser percentage of 
renewable fuel. Motivated by the lower fuel prices for transportation 
fuel containing greater renewable fuel content (such as E85) relative 
to fuels containing less renewable fuel (such as E10), consumers who 
own flexible fuel vehicles (FFVs) will then choose to purchase 
increasing volumes of renewable fuel. If the price discount for 
renewable fuels is great enough for a long enough period of time, more 
consumers may also be motivated to purchase vehicles capable of 
utilizing fuels containing higher percentages of renewable fuels, such 
as FFVs.
    Several commenters pointed to the ability of RIN prices to reduce 
the price of fuels containing higher concentrations of renewable fuels, 
such as E85, as a primary justification for establishing a higher total 
renewable fuel standard. They claimed that if EPA established a higher 
standard than proposed, RIN prices would rise, retail prices for E85 
would fall relative to those for gasoline, and consequently consumers 
would purchase greater volumes of E85. In effect, these comments said, 
the RIN mechanism would ensure that greater volumes of renewable fuel 
would be consumed, the renewable fuels market would expand, and 
sufficient RINs would be generated to meet the higher standards. Some 
commenters also noted that since EPA agreed that higher RIN prices 
would not be expected to impact E10 prices there would be no economic 
harm in setting a higher total renewable fuel standard, and that this 
action was necessary in order to drive renewable fuel consumption 
beyond the E10 blendwall. In contrast, other commenters claimed that 
higher RIN prices would not have the desired effect of increasing the 
consumption of renewable fuels, at least not in the short term, and 
that high RIN prices could have adverse economic impacts, including 
higher diesel fuel prices, as EPA has already acknowledged.
    If higher RIN prices, which would likely result from a higher total 
renewable fuel standard, are to lead to substantial increases in E85 
consumption, two independent events must occur. First, the higher RIN 
prices must lead to lower E85 retail prices. If this does not happen 
consumers would have no incentive to purchase additional volumes of E85 
as a result of higher RIN prices. Second, FFV owners must respond to 
these lower prices by purchasing E85 instead of E10 when E85 is 
available. Authors such as Babcock and Pouliot, who have written about 
the ability for RINs to drive significant increases in E85 sales 
volumes, optimistically assume that RIN prices are passed through to 
E85 prices and that consumers are highly responsive to E85 prices.\83\
---------------------------------------------------------------------------

    \83\ Babcock, Bruce A. and Sebastien Pouliot. Feasibility and 
Cost of Increasing US Ethanol Consumption Beyond E10. Card Policy 
Briefs, January 2014. 14-PB 17.
---------------------------------------------------------------------------

    EPA examined available data in an attempt to determine whether or 
not higher RIN prices resulted in lower E85 prices at retail, and 
whether lower E85 retail prices lead to substantial increases in E85 
sales, as economic theory would suggest would be the case when FFV 
owners receive better value for purchasing E85 rather than E10. Our 
analysis suggests that the market was not sufficiently responsive to 
higher RIN prices to drive large increases in E85 sales volumes in the 
period of time at question. For instance, we found that between January 
2013 and July 2015 only 44% of the RIN value was passed on to E85 
customers in the form of lower E85 retail prices.\84\ Recent work by 
other parties has reached similar conclusions.\85\ We also found that 
while sales volumes of E85 did increase as the price discount for E85 
relative to E10 increased, these sales increases were both less 
dramatic than many have assumed, and perhaps more importantly, did not 
increase sharply when the price discount exceeded energy parity, as 
others, including Babcock and Pouliot have assumed.\86\ While we did 
not investigate all factors that might slow retail response to changing 
RIN prices, our observations lead us to conclude that if EPA were to 
increase the total renewable fuel volume requirement significantly, we 
would expect to see sharply higher RIN prices, but sales volumes of E85 
would be expected to see only modest increases that would be 
insufficient to enable the market to reach the statutory targets.
---------------------------------------------------------------------------

    \84\ ``An Assessment of the Impact of RIN Prices on the Retail 
Price of E85,'' Dallas Burkholder, Office of Transportation and Air 
Quality, US EPA. November 2015. EPA Air Docket EPA-HQ-OAR-2015-0111.
    \85\ Knittel, Christopher R., Ben S. Meiselman, and James H. 
Stock. The Passthrough of RIN Prices to Wholesale and Retail Fuels 
Under the Renewable Fuel Standard. Working Paper 21343. NBER Working 
Paper Series. Available online <http://www.nber.org/papers/w21343.pdf>
    \86\ Because E85 contains approximately 22% less energy per 
gallon than E10, economic theory would suggest that minimal volumes 
of E85 would be sold when the price discount for E85 relative to E10 
was less than 22% and that sharply increasing sales volumes would 
occur when the price discount exceeds 22%. For more information on 
the observed relationship between E85 retail pricing and E85 sales 
volumes, see ``Correlating E85 consumption volumes with E85 price,'' 
memorandum from David Korotney to EPA Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    While economic theory and the illustrations above support the idea 
that RINs can serve as a mechanism to increase the production, 
distribution, and consumption of renewable fuels, it is important to 
note that this result is dependent on the marketplace working both 
efficiently and quickly. In reality, there is a timing component 
associated with each of the steps outlined above. Renewable fuel 
producers and investors must see a sustained, profitable market for 
renewable fuels before they will be willing to invest in the 
construction of additional fuel production capacity, which may take 
years to construct and bring online. Fuel blenders and distributors 
must see sustained profit opportunities before they are willing to 
invest in new infrastructure to increase their capacity to blend and 
distribute renewable fuels. Market competition must increase before 
fuel blenders and distributors are willing to pass along all of the 
reduced effective price of renewable fuel (in essence, the value of 
RINs) to consumers at retail. New fueling infrastructure will need to 
be built to facilitate the growth in sales of

[[Page 77460]]

fuels containing an increasing percentage of renewable fuel. And as 
exposure to renewable fuels increases, it will take some time for 
consumers to learn to identify value in fuel blends containing higher 
proportions of renewable fuels, as well as their vehicle's ability to 
handle these fuel blends and where they are available for purchase.
    This suggests that while the RFS program can be effective at 
increasing the renewable content of transportation fuels over time, it 
likely cannot substantially increase the available supply of renewable 
transportation fuels to consumers in the United States to the volumes 
envisioned by Congress in the short term. The program, as Congress 
clearly indicated, is intended to grow over a period of years. Market 
participants require long term certainty in EPA's approach to 
establishing renewable fuel standards to allow them to effectively plan 
for the most efficient and least costly ways to provide the needed 
fuels and comply with the standards. EPA remains committed to promoting 
renewable fuel production and use in the United States, and we believe 
the RFS program will be effective in achieving this end. Due to the 
current state of the renewable fuel production, distribution, and 
consumption marketplace, we believe the required volumes of renewable 
fuel must be reduced below the statutory levels in the immediate near 
term. An approach that acknowledges supply constraints when determining 
the appropriate volume requirements is necessary, is consistent with 
the statute and Congressional intent, and is the intended outcome of 
this action.
iii. Ethanol Supply as E85 in 2016
    While the use of one gallon of E15 can increase the amount of 
ethanol used by about 50% in comparison to an energy-equivalent gallon 
of E10, the use of one gallon of E85 can increase the amount of ethanol 
over that in an energy-equivalent gallon of E10 by about a factor of 
nine.\87\ As a result, many stakeholders focused on the potential for 
increases in sales of E85 to quickly and significantly increase total 
ethanol consumption. Stakeholders who believed that our proposed volume 
requirements were too high similarly focused on E85 as being an 
impractical means of exceeding the E10 blendwall.
---------------------------------------------------------------------------

    \87\ We have assumed that the ethanol content of E85 is 74% on 
average, consistent with the approach taken by EIA. One gallon of 
E85 would replace 0.79 gallon of E10 due to the energy content 
difference. Ethanol content of one gallon of E85 would be 0.74 gal, 
while ethanol content of 0.79 gal of E10 would be 0.079 gal. 0.74/
0.079 = 9.4.
---------------------------------------------------------------------------

    All stakeholders agreed that actual sales of E85 in the past have 
been low. A number of parties referenced E85 estimates made using EIA 
data of about 77 million gallons in 2014. This estimate was based on 
data collected from two sources: Refiners and blenders, and ethanol 
production facilities.\88\ After further investigation, however, we 
believe that this estimate is lower than actual E85 use. EIA's Bulk 
Terminal and Blender Report is administered only to entities with at 
least 50,000 barrels of product storage capacity, so production at 
terminals, ethanol production facilities, or blenders that do not meet 
this threshold is not reported to EIA. EIA also does not collect 
information on E85 produced using reformulated gasoline or natural 
gasoline as the petroleum based component.\89\ We believe that E85 
produced using these petroleum blendstocks represents a significant 
portion of the total E85 produced in 2014. When considering the E85 
production volumes reported to EIA in 2014 in light of the potential 
for production of E85 not covered by EIA's surveys, we believe that 
actual E85 sales were closer to about 150 million gallons in 2014. 
Details of our analysis can be found in a memorandum to the docket.\90\
---------------------------------------------------------------------------

    \88\ See EIA-810 form, Part 5, where refiners and blenders 
indicate production of ``Finished motor gasoline, Conventional, 
Greater than ED55'', http://www.eia.gov/survey/form/eia_810/form.pdf, and EIA-819 form, Part 6, where ethanol producers report 
``Blending to produce finished motor fuel,'' ``Conventional, Greater 
than Ed55,'' http://www.eia.gov/survey/form/eia_819/form.pdf.
    \89\ As further evidence for the underestimate of E85 production 
at ethanol production facilities, we note that the reported E85 
production in 2009 was -(minus)228 thousand barrels, strongly 
suggesting that the accounting involved is not based on E85 volumes 
alone.
    \90\ ``Estimating E85 Consumption in 2013 and 2014,'' Dallas 
Burkholder, Office of Transportation and Air Quality, US EPA. 
November 2015. EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Although 150 million gallons is about twice as high as the estimate 
discussed above based on EIA data, it still does not indicate an 
overall preference among FFV owners for E85 when E85 has been 
available. Indeed, based on other comments received it is clear that 
the experience at retail has been mixed. Some retailers, such as 3G 
Energy, found that E85 sales were good and they were able to make a 
profit from selling it. Others, such as U.S. Ethanol, found E85 sales 
to be very poor and have consequently converted E85 tanks to other 
uses. Other retailers, including some in the Midwest, have recently 
made decisions to market E0 in lieu of E85 due to greater relative 
consumer interest in E0 in the current economic climate. There was no 
consistent trend among comments provided by parties attempting to sell 
E85 on the attractiveness of the product to FFV owners.
    Most stakeholders agreed that one important factor in low 
historical sales of E85 is the small number of retail stations offering 
it. According to DOE's Alternative Fuels Data Center, the number of E85 
stations reached 2,941 in August of 2015. While the growth in E85 
stations was substantial in late 2010 and early 2011--equivalent to 
about 400 new stations per year--since then growth in the number of E85 
stations has been considerably slower at about 120 per year. Most 
recently growth may have plateaued due to the lower price of crude oil, 
reducing the attractiveness of E85 to consumers and thus the 
willingness of retailers to invest to make it available at their 
stations.
    A number of stakeholders cited a recent grant program sponsored by 
USDA that is designed to provide a total of $100 million for updated 
and expanded infrastructure at retail for higher level ethanol 
blends.\91\ This is an important program that not only demonstrates the 
U.S. commitment to expanding the use of renewable fuels, but helps to 
boost private investment in infrastructure by providing matching funds. 
It is expected to increase the number of stations offering higher level 
ethanol blends by 1,486, and to increase the number of underground 
tanks that can hold higher level ethanol blends by 515.\92\ While the 
infrastructure changes are required to be completed by the end of 2016, 
there are also opportunities for extensions of up to two additional 
years. The program supports both E15 and E85 deployment. It is unclear 
how many new E15 and E85 stations would result from this USDA program 
in 2016. If E85 stations were installed in 2016 at a rate that rivaled 
the dramatic increases seen in 2010-2011, about 400 new E85 stations 
could be added in 2016. This would bring the total number of stations 
to about 3,300. However, it is not possible to make a precise 
projection at this time of the impacts of this grant program on the 
number of E85 stations that will be in operation in 2016.
---------------------------------------------------------------------------

    \91\ ``USDA grant program--Biofuel Infrastructure Partnership'', 
docket EPA-HQ-OAR-2015-0111.
    \92\ ``BIP Awards by State,'' docket EPA-HQ-OAR-2015-0111. It is 
unclear how many of the 515 new tanks will be used for E15 versus 
E85, nor how many of the additional 1,486 stations will offer E15, 
E85, or both.
---------------------------------------------------------------------------

    Even if the number of E85 stations did reach 3,300 in 2016, it 
would represent an increase of only 12% in comparison

[[Page 77461]]

to those in operation as of August, 2015. It is reasonable to assume 
that a 12% increase in the number of E85 stations would result in 
overall sales of E85 increasing by 12%, all other things being equal. 
However, many stakeholders pointed to the power of high-priced RINs to 
motivate consumers to use more E85 and argued that larger growth was 
possible from the impact of high-priced RINs than from the growth in 
the number of E85 stations. More specifically, many ethanol proponents 
claimed that increasing the volume requirements above the levels 
proposed in the NPRM, even up to the statutory targets, would increase 
RIN prices, which in turn would translate into a larger retail price 
discount for E85 in comparison to gasoline. This larger price discount 
would make E85 more attractive to FFV owners, and thus sales of E85 
would increase beyond a level that is merely proportional to the number 
of E85 stations.
    As discussed in more detail in Section II.E.2.ii, we agree 
generally that the market could theoretically be expected to work in 
this way in response to higher standards. However, we have investigated 
the specific mechanisms involved and have concluded that the process is 
far more constrained in the immediate future than most ethanol 
proponents believe it to be. These constraints, discussed further 
below, make it inappropriate to estimate total potential E85 
consumption based on the consumption capacity of all FFVs, or even just 
those FFVs with reasonable access to E85. It is similarly inappropriate 
to assume that the E85 throughput at a given retail station can be the 
same as typical throughput rates for E10. Such estimates demonstrate 
what is physically possible, not what is likely to occur given the way 
that the market actually operates under the influence of high RIN 
prices as evidenced by the limited growth in 2013 despite the standards 
that were in place.
    Based on an analysis of available data, we have determined that at 
this point in the market's development, the constraints on the ability 
of applicable standards to drive increased consumption of E85 in 2016 
are twofold:
     Higher RIN prices are not likely to produce dollar-for-
dollar equivalent reductions in E85 retail prices under current 
circumstances wherein the number of E85 stations is too few to compel 
competition between them.
     Reductions in E85 retail prices are associated with only 
moderate increases in E85 sales to FFV owners.

As discussed in a memorandum to the docket, we found that only a 
minority of the value of RINs has been passed on to FFV owners in the 
past in the form of lower E85 retail prices.\93\ This effect appears to 
be due to the fact that there is often little incentive for wholesalers 
to pass the full value of the RIN on to retailers in the form of lower 
E85 prices, and/or retailers can maximize their overall profits by 
retaining much of the value of the RIN that they do receive rather than 
passing that value on to customers in an effort to increase sales of 
E85.
---------------------------------------------------------------------------

    \93\ ``An Assessment of the Impact of RIN Prices on the Retail 
Price of E85,'' Dallas Burkholder, Office of Transportation and Air 
Quality, U.S. EPA. November 2015. EPA Air Docket EPA-HQ-OAR-2015-
0111.
---------------------------------------------------------------------------

    We have also found that greater E85 price discounts relative to 
gasoline have not been associated with the substantial increases in E85 
sales volumes that would be needed to reach the total E85 consumption 
levels that some stakeholders said are possible. Based on an analysis 
of E85 consumption in five states (including the frequently cited E85 
consumption data from Minnesota) and the E85 price reductions relative 
to gasoline in those states, as shown in Figure II.E.2.iii-1 below, we 
estimate that increasing the E85 price reduction from the 2014 
nationwide average of 17.5% to 30% would have increased total 2014 E85 
consumption to about 200 million gallons, an increase of only 33%. A 
recent paper published by Babcock and Pouliot estimated similar sales 
volumes for these price reductions, projecting that consumers would 
consume about 250 million gallons of E85 if it was priced at parity on 
a cost-per-mile basis with E10 (approximately 22% lower on a price-per 
gallon basis).\94\
---------------------------------------------------------------------------

    \94\ Babcock, Bruce and Sebastien Pouliot. How Much Ethanol Can 
Be Consumed in E85? Card Policy Briefs, September 2015. 15-BP 54.
[GRAPHIC] [TIFF OMITTED] TR14DE15.005

It is possible that significant increases in the number of retail 
stations offering E85 could help to increase E85 consumption. It is 
also possible that the relationship between E85 consumption and prices 
in the five states analyzed is not indicative of consumer responses in 
other states, but instead the consumer responses in other states could 
be more dramatic. We examined the potential impacts of these factors 
and determined that collectively it may be possible for

[[Page 77462]]

nationwide E85 consumption to reach as high as 400 million gallons in 
2016. This volume could only occur if all relevant factors were 
extremely favorable, and we do not consider this to be a likely outcome 
in 2016. Further discussion of these analyses can be found in a 
memorandum to the docket.\95\
---------------------------------------------------------------------------

    \95\ ``Correlating E85 consumption volumes with E85 price,'' 
memorandum from David Korotney to EPA Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Our observations and analysis lead us to conclude that if EPA were 
to dramatically increase the total renewable fuel volume requirement 
for 2016 above the level we proposed, in the near term we would expect 
to see sharply higher RIN prices, but this would not translate into 
dramatically higher E85 sales volumes in the near term. However, 
sustained higher RIN prices would, over the longer term, be expected to 
provide greater incentive for the market to expand infrastructure.
iv. E0 Demand in 2016
    One of the ways that the RFS program can increase the supply of 
renewable fuels in the United States is by incentivizing the market to 
continue to transition from E0 (gasoline containing no ethanol) to E10 
and other higher level ethanol blends. While the RFS program provides a 
significant incentive for this transition, the continued availability 
of E0 in certain markets is also something that we believe we must 
consider in determining the supply of ethanol in 2016. E0 continues to 
be marketed in many parts of the country, often at a significant cost 
premium to E10, including in the Midwest where ethanol is most readily 
available at the lowest cost. In the NPRM we discussed the potential 
for ongoing use of E0 through 2016 and into the future. We anticipated 
that E0 use would remain fairly limited and would tend to decrease over 
time given the widening use of ethanol overall. We also highlighted one 
particular market segment, recreational marine engines, that we 
believed would be particularly difficult to transition from E0. While 
most nonroad engines in use today can operate on E10, recreational 
marine engines are a potentially special subcategory. Because such 
engines are used in a water environment there is a greater potential 
for water contamination of the fuel. For gasoline that contains 
ethanol, the ethanol-water mixture may then separate from the gasoline 
and cause engine damage. As a result, some recreational marine engine 
owners seek out E0. We believe that we should take into consideration 
the ongoing preference for some E0 in this context.
    In the NPRM we discussed our investigation into the volumes of E0 
that are in demand by owners of recreational marine engines. We 
expressed our view that it is most likely that any recreational marine 
engines refueled at retail service stations would use only E10 since E0 
is rarely offered at retail. Moreover, only a small minority of 
recreational marine engines refuel at marinas where E0 is more likely 
to be available. Based on this assessment, we estimated that about 124 
million gallons of E0 would be consumed by recreational marine engines 
in 2016. We estimated that the impact of this volume of E0 used in such 
applications on the total supply of renewable fuel in 2016 would be 
very low, and would likely be offset by the small expected use of E15. 
As a result, we omitted E0 and E15 from the scenarios described in 
Table II.D.2-2 of the NPRM.
    Stakeholders that commented on this topic generally agreed that E0 
will continue to exist, but argued that our estimates of the likely 
volumes of E0 were too low. For instance, in their joint comments on 
the NPRM, the American Petroleum Institute and the American Fuel and 
Petrochemical Manufacturers (API/AFPM) suggested that there is ongoing 
demand for E0 at a level of at least 3% of the total gasoline pool. 
This would be the equivalent of about 4 billion gallons of E0, 
considerably higher than the 124 million gallons we estimated in the 
NPRM. They based this position on data from EIA on the supply of non-
ethanol conventional gasoline from refineries, importers, and blenders, 
corrected to account for exports and stock changes. We investigated the 
EIA data on which the API/AFPM comments were based, and concluded that 
it is not an appropriate basis for determining the amount of E0 
actually sold at retail, and thus cannot be used to estimate likely E0 
sales. While the EIA data at issue does take into account the 
production of E10 by large terminals from E0 supplied by refiners, it 
does not account for E10 produced downstream at smaller facilities, 
truck blending, and blending at retail. Given that there are a number 
of states that require the supply of E0 at the wholesale level 
explicitly to permit downstream blending with ethanol, the estimates of 
E0 supply referenced by API/AFPM that were generated from EIA gasoline 
supply data overestimate the potential demand for E0 at retail.\96\
---------------------------------------------------------------------------

    \96\ ``States that require ethanol-free gasoline,'' docket EPA-
HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    In response to the NPRM, a number of organizations disagreed with 
our assessment of the potential volume of E0 consumed by recreational 
marine engines. Several stakeholders pointed to EPA's own NONROAD model 
as providing much higher estimates of total gasoline consumption by 
these engines. We agree that total gasoline consumption by recreational 
marine engines is substantial--about 1.55 billion gallons according to 
a recent estimate from the EPA's NONROAD model.\97\ However, we 
disagree that all of this volume is E0, and no stakeholders provided 
any data on actual consumption of E0 by recreational marine engines. 
Instead, stakeholders pointed to anecdotal evidence that owners of 
recreational marine engines preferentially seek out E0. One stakeholder 
referenced data purporting to show that states with the greatest number 
of retail stations offering E0 tend to also be states with the greatest 
number of registered boats. After reviewing these data we concluded 
that a weak correlation does exist, but that it nevertheless provides 
no straightforward mechanism to quantitatively determine the volume of 
E0 consumed by recreational marine engines. Notably, the same data 
suggest that not all marinas may offer E0. As described in a memorandum 
to the docket, we considered several different approaches to estimating 
the volume of E0 consumed by recreational marine engines.\98\
---------------------------------------------------------------------------

    \97\ ``NONROAD estimate of fuel use in recreational marine,'' 
docket EPA-HQ-OAR-2015-0111.
    \98\ ``Estimating E0 use in recreational marine engines,'' 
memorandum from David Korotney to docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Based on the information provided by stakeholders and our own 
analyses, we believe that the volume of E0 consumed by recreational 
marine engines or otherwise demanded by the marketplace could be as 
high as several hundred million gallons in 2016. As a result, we have 
included some estimates of E0 in the volumes scenarios described in 
Section II.G below. Those scenarios demonstrate that our final volume 
requirements can be met even in cases where some volume of E0 remains 
in the marketplace.
v. Ethanol Supply as E15 in 2016
    In the NPRM, we discussed the fact that E15 is approved for use in 
model year 2001 and newer motor vehicles, but that we expected the 
volume of E15 used in 2016 to be low. We based this assessment on the 
fact that the number of retail stations offering it at the time of the 
NPRM was only about 100 out of the approximately 152,000 retail 
stations in the U.S. We estimated that, at most, the use of E15 in 2016 
would

[[Page 77463]]

increase total ethanol consumption by only about 10 million gallons. 
Since this volume was far lower than the volume requirements under 
consideration, and its impact in our analysis would likely be offset by 
the small expected use of E0, we omitted E0 and E15 from the scenarios 
described in Table II.D.2-2 of the NPRM.
    While some stakeholders agreed with our assessment, others said 
that we had significantly underestimated the volume of E15 that could 
be consumed in 2016, and that doing so biased our proposed volume 
requirements low. These stakeholders, including the American Coalition 
for Ethanol and Growth Energy among others, pointed to both the large 
number of vehicles that are legally permitted to use E15 and 
opportunities for expanding the number of retail stations that offer 
E15.
    The number of vehicles that are legally permitted to use E15 is 
large. Model year 2001 and later vehicles comprise about 85% of the 
current in-use fleet, or about 195 million vehicles. These vehicles 
have a total annual gasoline consumption capacity of more than 120 
billion gallons, so changing their fuel consumption type from E10 to 
E15 could increase total ethanol consumption by more than 6 billion 
gallons. However, as pointed out by several stakeholders, being legally 
permitted by EPA to operate on E15 for emission compliance purposes 
under the CAA does not necessarily enable expanded use of E15. These 
stakeholders highlighted that the operator's manuals and manufacturer 
warranties for vehicles manufactured before 2012 make no mention of E15 
because E15 did not exist at the time that those vehicles were 
manufactured. Manufacturers have been increasingly citing E15 as an 
acceptable fuel in owner's manuals for various models since 2012, but 
as of today these statements are not universal for all makes and 
models. Whether these facts would cause some vehicle owners to avoid 
E15 is not clear. This situation is similar to the historical situation 
with E10. E10 has been permitted under the CAA to be used in all 
highway vehicles and nonroad engines for many years. Nevertheless, it 
took years for the vehicle manufacturers, especially the nonroad engine 
manufacturers, to warrant the use of E10 in their products.
    Regardless, we do not believe that the number of vehicles that are 
legally permitted to use E15, or the number of 2001 or later model year 
vehicle owners who would choose to use it, are the predominant factors 
in determining the volume of E15 that is likely to be consumed in 2016. 
Instead, it is the number of retail stations offering E15 in 2016 that 
is more likely to determine how much E15 is actually consumed. In the 
time since E15 was approved for use, the number of retail stations 
registered to offer E15 has only grown to about 120, or about 0.1% of 
all retail stations, based on information collected by the RFG Survey 
Association.\99\ Based on comments received from retail station owners, 
this low number of retail stations offering E15 is most likely due to 
liability concerns. We stated our belief in the NPRM that the number of 
retail stations offering E15 is unlikely to increase dramatically by 
the end of 2016. The recently announced Biofuel Infrastructure 
Partnership (BIP) program managed by USDA is expected to increase the 
number of underground storage tanks that can hold higher level ethanol 
blends by 515 tanks, and to increase the number of stations offering 
higher level ethanol blends by 1,486 stations. However, it is not clear 
at present how many of these new tanks or stations offering higher 
level ethanol blends will expand E15 rather than or in addition to E85, 
nor how many will be operational in 2016 versus subsequent years. At 
this time, we continue to believe that the number of retail stations 
likely to offer E15 in 2016 is unlikely to increase fast enough to 
provide a significant increase in total ethanol consumption in 2016.
---------------------------------------------------------------------------

    \99\ ``Stations registered to offer E15,'' docket EPA-HQ-OAR-
2015-0111.
---------------------------------------------------------------------------

    Some stakeholders said that the small number of retail stations 
currently offering E15 is not relevant when making estimates of 
potential E15 sales for 2016. They claimed that the equipment at most 
retail stations is already compatible with E15, and typically cited two 
studies as the basis for claiming that the number of stations offering 
E15 could expand significantly in 2016: one by the National Renewable 
Energy Laboratory (NREL), and another by Stillwater 
Associates.100 101 These stakeholders argued that the number 
of retail stations offering E15 could expand by many thousands by the 
end of 2016 if EPA were to create the appropriate incentives by setting 
the applicable volume requirements much higher than proposed.
---------------------------------------------------------------------------

    \100\ K. Moriarty and J. Yanowitz, ``E15 and Infrastructure,'' 
National Renewable Energy Laboratory, May 2015. Attachment 3 of 
comments submitted by the Renewable Fuels Association.
    \101\ Stillwater Associates, ``Infrastructure Changes and Cost 
to Increase RFS Ethanol Volumes through Increased E15 and E85 Sales 
in 2016,'' July 27, 2015. Submitted with comments provided by Growth 
Energy.
---------------------------------------------------------------------------

    In evaluating the potential for expansion of E15 offerings at 
retail, we think it is important to consider the views of those whose 
business entails making determinations about which fuels to offer at 
retail. This perspective was provided by the Petroleum Marketers 
Association of America, the Society of Independent Gasoline Marketers 
of America, and the National Association of Convenience Stores. These 
stakeholders made it clear that retailers will in general offer any 
fuel that has the potential for generating profit. However, in the 
specific case of E15, there are liability concerns that make it less 
likely to be offered.
    It may be the case that much of the equipment at many retail 
stations is compatible with E15, as argued in the NREL and Stillwater 
studies. But stakeholders arguing that there is greater E15 potential 
than we assumed in the NPRM oversimplify the situation. In their 
comments, stakeholders representing retail like those mentioned above 
clarified that compatibility with E15 is not the same as being approved 
for E15 use. Recently-amended EPA regulations require that parties 
storing ethanol in underground tanks in concentrations greater than 10 
percent demonstrate compatibility of their tanks with the fuel, through 
either a certification or listing of underground storage tank system 
equipment or components by a nationally recognized, independent testing 
laboratory for use with the fuel, written approval by the equipment or 
component manufacturer, or some other method that is determined by the 
agency implementing the new requirements to be no less protective of 
human health and the environment. The use of any equipment to offer E15 
that does not satisfy these requirements, even if that equipment is 
technically compatible with E15, would pose potential liability for the 
retailer, including concerns related to liability for equipment damage. 
Few retailers would be willing to assume such liability, according to 
comments submitted by their national associations. This issue is of 
particular concern for underground storage tanks and associated 
hardware, as the documentation for their design and the types of 
materials used, and even their installation dates, is often 
unavailable.
    Insofar as equipment can be verified as being compatible with E15 
and is approved as such by a testing laboratory such as Underwriter's 
Laboratory, many retailers are still left with significant concerns 
about liability for misfueling. Notwithstanding EPA regulations that 
require pump labeling, a misfueling mitigation plan, surveys, product 
transfer documents, and approval of equipment configurations, retailer 
associations indicated that many retail

[[Page 77464]]

stations owners are nevertheless concerned about litigation liability 
for misfueling, either for vehicles manufactured before 2001 or for 
nonroad engines. This concern creates a disincentive for many retailers 
to offer E15. While such disincentives are not insurmountable, they do 
represent a constraint that we must take into consideration.
    Apart from retail stations that may already have equipment that 
could be used to offer E15, some stakeholders pointed to the potential 
for new equipment to be installed at retail, citing a number of 
companies which have plans for adding E15 dispensing capabilities to 
retail stations. However, even if all planned installations sponsored 
by these companies occurred by the end of 2016, they would only expand 
the number of retail stations offering E15 by a few hundred based on 
information provided by stakeholders in their comments. The matching 
funds provided by the USDA BIP program described above may be leveraged 
by these stakeholders to allow these increases in E15 retail outlets 
and even more to materialize.\102\ However, it is not clear how many 
additional stations will be able to offer E15 as a result of the BIP 
program in 2016 specifically, since the program provides for extensions 
of the equipment installation timelines into 2018. Even if most of the 
retail stations that have been targeted by the BIP program were 
upgraded to offer E15 and this occurred by the end of 2016, they would 
not all offer E15 for all of 2016. Instead, there would be a ramp up of 
stations offering E15 throughout 2016. Effectively, then, an average of 
only about 700 might be offering E15 for all of 2016. Since actual 
experience with E15 sales is so limited, we cannot conduct a detailed 
analysis of potential E15 volumes as we did for E85. However, we can 
make an estimate based on historical gasoline retail station 
throughout. If all of these retail stations also offered E10, and the 
fuel throughput was the same for both E10 and E15 at each retail 
station, the total increase in ethanol consumption due to increased use 
of E15 would be about 17 million gallons in 2016.\103\
---------------------------------------------------------------------------

    \102\ ``USDA announces state finalists for the Biofuel 
Infrastructure Partnership,'' docket EPA-HQ-OAR-2015-0111.
    \103\ Per-station annual gasoline throughput is about 916 
thousand gallons. If a retail station offers both E10 and E15 at 
equivalent pricing on an energy basis, the annual sales of each 
would be 458 thousand gallons. For 700 stations, total E15 sales 
would be 320 mill gal, which would displace about 315 mill gal E10. 
15% x 320 - 10% x 315 = 17.
---------------------------------------------------------------------------

    We do not believe, based on past experience, that the core concerns 
retailers have with liability over equipment compatibility and 
misfueling would change if the RFS volume requirements were increased 
significantly. Therefore, setting higher volume requirements would be 
unlikely to result in dramatic increases in the number of additional 
retail stations offering E15 in 2016 beyond those that may be upgraded 
through USDA's BIP program. As a result, we do not believe that the E15 
expansion can occur on the scale and timeframe that ethanol proponents 
believe it can. However, we do believe that retail infrastructure can 
and will change to offer more E15. To the degree that E15 is used, the 
volume of E85 that might be needed to reach a given volume of ethanol 
supply above the E10 blendwall would be less. Therefore, in the 
scenarios described in Section II.G below, we note that E15 could be 
used in addition to E85 to result in ethanol use above the E10 
blendwall.
vi. Total Ethanol Supply in 2016
    The total volume of ethanol that can be supplied in 2016 is a 
function of the respective volumes of E10, E15, and E85 that we believe 
can be supplied, while accounting for some E0. Assuming that the total 
demand for gasoline energy is independent of the amounts of each of 
these types of fuel (16.85 Quadrillion Btu based on the October, 2015 
version of EIA's Short-Term Energy Outlook), estimating the volumes of 
E0, E15, and E85 that will be supplied provides an estimate of the 
remaining portion of the gasoline fuel pool which is E10.
    As discussed earlier, we continue to believe that the volumes of E0 
that are both in demand and needed to address potential water 
contamination in recreational marine engines will be very small in 
comparison to total gasoline demand. While information provided by 
stakeholders was not sufficient to permit us to precisely estimate E0 
volumes, we investigated several different approaches in a memorandum 
to the docket that resulted in a range of about 100-300 million 
gallons. For the purposes of estimating total ethanol supply, we have 
assumed an E0 supply of 200 million gallons. Actual volumes of E0 used 
in recreational marine engines in 2016 may be higher or lower than this 
level, but we do not expect them to be significantly different than 200 
million gallons. This would effectively reduce the total supply of 
ethanol by 20 million gallons relative to a scenario where all gasoline 
contained at least 10% ethanol.
    Similarly, we continue to believe that supply of E15 will be very 
small in 2016. As described earlier, the primary limitation in E15 
supply is the small number of retail stations offering it. While the 
number of E15 stations can grow significantly in 2016, we do not 
believe that it can reach the many thousands that some stakeholders 
said was possible given that the total number of such stations is about 
120 currently and stakeholders representing retail service stations 
have cited potential liability as an ongoing concern. For the purposes 
of estimating total ethanol supply, it might be possible that total E15 
supply in 2016 could reach 320 million gallons, based on an estimate of 
an average of about 700 stations offering E15 in 2016 as described in 
Section II.E.2.v. Actual volumes of E15 in 2016 may be higher or lower 
than this level, but 320 million gallons represents our best estimate 
of the most likely maximum volumes that can be reasonably be attained 
by a market responsive to the RFS. This would effectively increase the 
total supply of ethanol by 17 million gallons relative to a scenario 
where the volumes assumed here to be used as E15 are instead used as 
E10.
    Finally, our detailed analysis of E85 has led us to conclude that 
the very large volumes suggested by some stakeholders are out of reach 
of the market in 2016, given the various constraints. Even if the 
number of stations offering E85 continues to grow and the price of E85 
continues to fall relative to E10, it is highly unlikely that E85 
volumes in 2016 can exceed several hundred million gallons. For the 
purposes of estimating total ethanol supply, we have estimated that 
total E85 supply in 2016 will reach 200 million gallons, based on an 
estimate of growth in the number of E85 stations to about 3,200 and an 
E85 price discount of 22% relative to E10.\104\ Actual volumes of E85 
in 2016 may be higher or lower than this level, but 200 million gallons 
represents our best estimate of the most likely maximum volumes that 
can be attained by a market responsive to the RFS standards. This 
amounts to an increase in ethanol supply of about 132 million gallons 
relative to a scenario where the volumes assumed here to be used as E85 
are instead used as E10.
---------------------------------------------------------------------------

    \104\ A 22% reduction in the price of E85 relative to the price 
of E10 would ensure that the price of the two fuels are equivalent 
on the basis of energy content.
---------------------------------------------------------------------------

    Based on these estimates of E0, E15, and E85 supply, we have 
determined that 139.33 billion gallons of E10 would be supplied in 
order to ensure that the full gasoline pool provides the 16.85 
Quadrillion Btu that EIA has projected will be in demand in 2016. The

[[Page 77465]]

combined contributions from E10, E15, and E85 would produce a total 
ethanol supply in 2016 of 14.13 billion gallons, equivalent to a 
poolwide average ethanol content of about 10.09%. This volume of 
ethanol would be composed of cellulosic ethanol, advanced ethanol such 
as imported sugarcane ethanol, and conventional ethanol such as that 
produced from corn starch.

                  Table II.E.2.vi-1--Gasoline Volumes Used To Determine Ethanol Supply in 2016
----------------------------------------------------------------------------------------------------------------
                                                                  Fuel volume    Ethanol  volume   Energy (quad
                                                                  (mill gal)       (mill gal)          Btu)
----------------------------------------------------------------------------------------------------------------
E0............................................................             200                 0            0.03
E10...........................................................         139,325            13,932           16.77
E15...........................................................             320                48            0.04
E85...........................................................             200               148            0.02
                                                               -------------------------------------------------
    Total.....................................................         140,045            14,128           16.85
----------------------------------------------------------------------------------------------------------------

    We recognize that the market may not necessarily respond to the 
final volume requirements for 2016 to produce the volumes of E0, E10, 
E15 and E85 noted in Table II.E.2.vi-1. However, we believe these 
volumes are reasonable estimates for use in deriving the final total 
renewable fuel volume requirement for 2016.
3. Biodiesel and Renewable Diesel
    While the market constraints on ethanol supply are readily 
identifiable as being primarily in the areas of refueling 
infrastructure and ethanol consumption, it is more difficult to 
identify and assess the market components that limit potential growth 
in the use of biodiesel in 2016. Nevertheless, a review of the 
historical supply volumes of biodiesel and renewable diesel, 
particularly in 2013, indicates that the growth in supply of these 
fuels for use in transportation fuel in the United States has 
constraints.
    In 2013 there were two very strong incentives for the increased 
production, import, and use of biodiesel and renewable diesel in the 
United States. For the first time in the history of the RFS program, 
the total renewable fuel standard could not be satisfied by using the 
minimum amount of biodiesel and renewable diesel required by the BBD 
volume requirement and blending ethanol as E10. Due to the challenges 
associated with expanding ethanol consumption through increased sales 
volumes of E15 and E85 mentioned above, there was a strong demand for 
non-ethanol fuels. RIN prices for all types of RINs rose as obligated 
parties sought to meet their RFS obligations. In addition to the 
incentives provided by the RFS requirements and resulting high RIN 
prices, the biodiesel blender's tax credit was in place throughout 
2013, providing a strong economic incentive for biodiesel growth. With 
these strong incentives in place, the supply of biodiesel and renewable 
diesel used in transportation fuel in the United States increased 
significantly in 2013 (see Figure II.E.3-1 below).
[GRAPHIC] [TIFF OMITTED] TR14DE15.006

    Despite these large increases in the supply of biodiesel and 
renewable diesel, the number of RINs available to meet the obligated 
parties' renewable volume obligations fell short of the required volume 
by about 820 million RINs. This provides a strong indication that the 
biodiesel and renewable diesel supply in 2013 was limited; if this were 
not so then we would have expected that the strong demand for RINs in 
2013 combined with the availability of the

[[Page 77466]]

biodiesel blenders tax credit would have resulted in sufficient 
production, import, and use of biodiesel and renewable diesel to 
satisfy the 2013 RFS volume requirements. The situation in 2014 and 
2015 is more ambiguous, since there were no final RFS standards in 
place during 2014 and the first 11 months of 2015 and the availability 
of the biodiesel blenders tax credit for these years has been very 
uncertain. Nevertheless, we believe the growth in biodiesel and 
renewable diesel supplies in 2014 and 2015, together with the market 
performance in 2013, indicates that while there is significant 
opportunities for growth in the supply of biodiesel and renewable 
diesel, supply will be constrained in some way in 2016. The sections 
that follow discuss the many different factors that may constrain the 
supply of biodiesel and renewable diesel in 2016.
i. Feedstock Availability
    Biodiesel and renewable diesel are produced from biogenic oils, 
fats, and greases. These can be oils, fats, and greases that are 
produced as by-products and collected from other industries, oils, 
fats, and greases recovered from waste streams, or virgin vegetable 
oils. Increasing the feedstock available for biodiesel and renewable 
diesel can be done both by diverting feedstocks from other existing 
uses, increasing the recovery rate of potential feedstocks from waste 
streams, or increasing the global supply of vegetable oils through 
greater oil crop cultivation and yields.
    Several stakeholders claimed that the level of biodiesel feedstock 
supply that could be available in 2016 combined with the biodiesel and 
renewable diesel production capacity that already exists warrant an 
increase in the required volumes of advanced biofuel and total 
renewable fuel compared to those we proposed in the NPRM. For instance, 
the National Biodiesel Board (NBB), in support of their claim that up 
to 3.4 billion gallons of biodiesel could be available in 2016, 
submitted a study by LMC International entitled ``Current and Future 
Supply of Biodiesel Feedstocks.'' This study concluded that feedstock 
availability is not a limiting factor for increasing BBD volumes; there 
is increased availability of qualifying waste fats, greases, and 
inedible corn oil, as well as soy, canola and other vegetable oils. 
According to the study, in 2015 there is enough qualifying feedstock 
for 6.8 billion gallons of biodiesel globally, and by 2020, there is 
likely to be sufficient feedstock to support at least 8.5 billion 
gallons of biodiesel.
    The LMC International study did not specifically provide estimates 
of feedstock available for use in the U.S. in 2016, making it difficult 
to determine how the study might affect our determination of applicable 
volume requirements for 2016. Moreover, we believe the LMC 
International study contains an erroneous assumption which contributes 
to an overestimation of feedstock availability. When estimating 
availability the study considers the maximum theoretical amount of oil 
that could be extracted from an oilseed, or ``oil in seed'', versus the 
amount of oil that is actually expected to be extracted/produced. In 
reality some amount of the soybean supply is not crushed to produce oil 
but instead is fed directly to livestock, while in other instances the 
soybean is crushed and oil is extracted but the oil is added to feed 
and thus does not enter the oil market. Adding additional soy bean 
crushing capacity is possible, but would require a strong market signal 
and take time to construct and bring online. It is unlikely that 
significant new soy bean oil crushing capacity could be brought online 
in time to impact the feedstock available for biodiesel and renewable 
diesel production in 2016. These assumptions result in oil supply 
estimates that are in some cases significantly higher than USDA 
estimates. For example, LMC International's estimates of U.S. soybean 
oil production is more than 80 percent greater than that reported by 
USDA-WASDE for recent years.
    The LCM International study also did not attempt to project the 
quantity of feedstock that would actually be available for biodiesel 
and renewable diesel production in light of the demand for these 
feedstocks from other industries. Currently there is significant 
competing demand for the feedstocks that can be used to produce 
biodiesel and renewable diesel from the food, livestock feed and 
oleochemical industries. Existing feedstock supplies are typically 
already under contract and/or already set up for certain distribution 
pathways to end use. These can and do change over time, but they cannot 
reasonably be expected to do so immediately. Furthermore, even when 
feedstocks are moved into biodiesel and renewable diesel production, it 
often means a shifting around of feedstocks, rather than an overall 
growth in total feedstock production. The existing competing demand for 
these feedstocks does not go away. If, for example, soy oil feedstocks 
are drawn away from food use to biodiesel use in response to the recent 
FDA regulations (as discussed below), it may result in other oil that 
was being used to produce biodiesel, such as palm or canola oil, now 
shifting to food use.
    Finally, the LMC study did not take into consideration the volumes 
of feedstocks already devoted to biodiesel and renewable diesel 
production in the U.S. and abroad. For perspective, according to 
Statista, 2014 production of biodiesel from the top 15 producing 
countries was 6.8 billion gallons.\105\ This indicates that a 
considerable amount of the available global feedstock estimated by LMC 
is already being used for biofuel production, and that much of that 
biofuel is being used in countries outside the U.S. In essence, the 
study provides a hypothetical upper limit of BBD oil supply worldwide, 
not an assessment of the feedstocks available to be used to produce 
biodiesel and renewable diesel for consumption in the United States in 
2016.\106\
---------------------------------------------------------------------------

    \105\ The world's biggest biodiesel producers in 2014, by 
country. Statista, Accessed 9/22/2015 http://www.statista.com/statistics/271472/biodiesel-production-in-selected-countries/.
    \106\ We note that a significant portion of the global biodiesel 
production uses palm oil as a feedstock, which is not a qualifying 
feedstock in the RFS program. This this production volume is not 
directly comparable with 6.8 billion gallons of qualifying biodiesel 
feedstock identified in the LCM International study.
---------------------------------------------------------------------------

    The American Soybean Association similarly provided information on 
higher potential volumes of biodiesel feedstock in 2016. They pointed 
out that demand for U.S. soybean oil for food use began to decline 
following the U.S. Food and Drug Administration's (FDA) action in 2003 
to require food manufacturers to include trans-fats on nutrition 
labels. They stated that the likely continued displacement of 
additional soy oil from food use would make additional soy oil 
available for biodiesel feedstock. We acknowledge the trend of 
declining soybean oil use in food, and believe it will continue as a 
result of a June 2015 FDA determination requiring the elimination by 
2018 of all partially hydrogenated oil in food use. To the extent that 
soy oil is being phased down for food purposes, some supply of soy oil 
will likely become available for other uses, such as biodiesel 
production. However, the impact on biodiesel production volumes is not 
likely to be substantial, particularly for 2016, for two reasons. 
First, the FDA action will not be complete until 2018. Second, as 
mentioned above, the removal of some soy oil from food will likely be 
offset by an increase in the use of other oils in food, with a 
corresponding reduction in the availability of those other oils for use 
in making biodiesel. As a result

[[Page 77467]]

there may be no net impact on biodiesel feedstock supply but rather 
just a shifting of oils used for different purpose.
    We also received comments challenging the availability of 
additional biodiesel feedstocks and thus the opportunity for increased 
BBD production. The International Council on Clean Transportation and 
the Union of Concerned Scientists submitted a study ``Projections of 
U.S. Production of Biodiesel Feedstock'' by Professor Brorsen at the 
University of Oklahoma. Professor Brorsen considered all the major 
sources of U.S. biodiesel feedstock and developed projections of their 
availability through 2019. The conclusion of the study is that the 
potential to expand biodiesel production from the feedstocks in the 
U.S. is quite limited without substantially increasing feedstock 
prices. The study estimated that the U.S. agricultural sector can 
increase production of fats/oils beyond 2014 levels by 30 million 
gallons in 2015, 29 million gallons for 2016, and 25 million gallons in 
2017. Thus, according to the study, higher volumes of biodiesel in 2016 
beyond the approximately 30 million gallons from the U.S. agricultural 
sector would have to come from diverting existing feedstocks from 
current uses, increasing the supply of recovered waste feedstocks, or 
increasing imports of feedstock or finished biodiesel or renewable 
diesel, which the study did not address.
    We acknowledge that the world supply of oils, fats, and greases 
that are suitable feedstocks for biodiesel and renewable diesel 
production has grown and can continue to grow over time. Nevertheless, 
diverting biodiesel and renewable diesel feedstocks from current uses 
and increasing total feedstock availability will take time. We believe 
that this supply can continue to grow as more oilseed crops are 
planted, productivity from existing crops increases, and recovery rates 
of waste, fats, oils, and greases adds to the total available supply. 
The recent development and commercialization of the non-food grade corn 
oil extracted from distillers dried grains at ethanol plants has also 
added to the total supply of biodiesel and renewable feedstocks. At the 
same time, all biodiesel feedstocks are not created equal. They have 
different markets and require different product handling and process 
steps, techniques, and conditions to maintain necessary product 
quality. As individual production facilities are designed to operate on 
the sources of feedstock available in their local area, growth in other 
types of feedstocks, even if they have access to it and have production 
capacity to handle it, does not necessarily allow them to simply 
increase production.
    As the volume of feedstocks expands, the infrastructure for storing 
the feedstock and distributing it to biodiesel and renewable diesel 
production facilities will also need to expand. This will require 
changes to a number of industries depending on the feedstock, 
potentially including rail cars, barges, trucks, and oil storage 
facilities. If supply of biodiesel and renewable diesel feedstocks are 
being sourced internationally, it would also involve expansion of 
import and export facilities.
    It is also worth highlighting that over time the opportunity for 
continued growth in the feedstocks currently used to produce biodiesel 
and renewable diesel may begin to plateau, and the volumes of these 
fuels along with it unless there is a breakthrough in the development 
of new feedstocks. The bump up in supply brought about by large 
increases in palm oil production, corn oil extraction, and the 
increased recovery of waste fats, oils, and greases is limited, and may 
soon near its practical limit. There has been considerable research and 
development for many years in the potential for algal bio-oils and 
other new oilseed crops that could be grown on marginal lands that 
could serve as a feedstock for biodiesel and renewable diesel. However, 
the promise of large volumes of algal bio-oils and alternative oilseed 
crops remains in the future, well beyond the timeframe of the 2016 
standards, and near term feedstock supply increases are likely to be 
incremental.
ii. Biodiesel and Renewable Diesel Production Capacity
    As highlighted in the NPRM, the total capacity of all registered 
biodiesel and renewable diesel production facilities in the United 
States currently exceeds 2.7 billion gallons. In addition to the 
domestic production capacity, there is also significant registered 
capacity overseas. Historically domestic biodiesel production rates 
have been well short of the production capacity, with facility 
utilization rates often less than 50%. The reason for this is that the 
capital cost associated with biodiesel production is a relatively small 
portion of the cost of biodiesel, allowing facilities to build excess 
capacity to allow for expansion later as the market develops and grows. 
The economies of scale associated with biodiesel facilities are also 
fairly low relative to other types of renewable fuel, allowing 
biodiesel production facilities operating at low utilization rates or 
very small biodiesel facilities to be economically viable by taking 
advantage of low priced local feedstock supplies.
    The situation is quite different however, for renewable diesel, 
where the hydrotreating necessary to convert the oil into diesel fuel 
requires considerably more capital, economies of scale require 
facilities to be relatively large, and the size and complexity of the 
facilities require much more time for financing, design, construction, 
and commissioning. This helps explain why renewable diesel production 
facilities are far fewer in number, have much larger production 
capacities on average, and why the volume of renewable diesel 
production has grown more slowly.
    NBB in their comments pointed to the currently existing and 
registered production capacity as evidence to support its projection of 
how much biodiesel and renewable diesel could be supplied in 2016. 
However, while there is certainly potential to increase utilization of 
the existing production facilities it is uncertain what steps would 
have to be taken to increase production rates at these facilities. 
There is therefore uncertainty associated with the ability for an 
appreciable number of registered biodiesel and renewable diesel 
production facilities to simultaneously increase production rates given 
the constraints raised elsewhere in this section. Furthermore, 
different facilities are designed to handle different feedstocks (e.g., 
facilities processing waste fats oils and greases require different 
pre-processing steps and different feedstocks produce fuels with 
different cold weather performance, necessitating different mitigating 
actions), and often process feedstocks sourced locally, so increasing 
volumes of other types of feedstocks, or feedstocks in other locations 
does not mean excess production capacity can immediately be utilized. 
Consequently, while we do not believe biodiesel and renewable diesel 
production capacity will likely be a constraining factor in biodiesel 
and renewable diesel production in 2016, reaching the 3.4 billion 
gallons suggested by NBB would likely require the addition of new 
production capacity.
iii. Biodiesel and Renewable Diesel Import Capacity
    Another important market component in assessing biodiesel and 
renewable diesel supply is the potential for imported volumes and the 
diversion of biodiesel and renewable diesel exports to domestic uses. 
In addition to the approximately 500 million gallons imported into the 
U.S. in 2014, there

[[Page 77468]]

were about 80 million gallons exported from the United States to 
overseas markets in 2014. While 2015 is not yet over, similar trends 
have been experienced in 2015. Given the right incentives, it might be 
possible to redirect a portion of the biodiesel consumed in foreign 
countries to use in the U.S. in 2016. However, the amount of biodiesel 
and renewable diesel that can be imported into the United States is 
difficult to predict, as the incentives to import biodiesel and 
renewable diesel to the U.S. are a function not only of the RFS and 
other U.S. policies and economic drivers, but also those in the other 
countries around the world. These policies and economic drivers are not 
fixed, and change on a continual basis. Over the years there has been 
significant variation in both the imports and exports of biodiesel and 
renewable diesel as a result of varying policies and relative economic 
policies (See Figure II.E.3.iii-1 below). This includes a period from 
2004 to 2008 when biodiesel and renewable diesel imports and exports 
were both simultaneously large due to the so-called ``splash and dash'' 
practices of importing biodiesel to the U.S., blending it with a small 
volume of petroleum based diesel to get the U.S. biodiesel blenders tax 
credit, and then exporting it to Europe where it received additional 
tax benefits. Because of biodiesel demand in other countries and 
potential biodiesel distribution constraints in the United States, 
maintaining or increasing import volumes of biodiesel and/or renewable 
diesel while at the same time decreasing export volumes may not be 
feasible in 2016. For example, as discussed above, the combination of 
the RFS mandate and the biodiesel blender's tax credit provided very 
large economic incentives for the use of biodiesel in the U.S. in 2013. 
Yet despite this incentive, biodiesel exports were also at historic 
highs. Furthermore, a portion of the reported imports and exports is 
simply trade across the border with Canada. The exported biodiesel 
satisfies biodiesel mandates in Canada, while also helping to minimize 
biodiesel transportation costs in situations where the available supply 
for markets near the border happens to lie in the other country. Thus, 
on an annual basis we experience both exports to Canada and imports 
from Canada simply due to market constraints related to biodiesel 
distribution.
[GRAPHIC] [TIFF OMITTED] TR14DE15.007

    Nevertheless, as evidenced in 2015 we have clearly been 
experiencing some upward growth in imports of biodiesel and renewable 
diesel. Much of the increase in biodiesel imports in 2015 has been from 
grandfathered facilities that are exempt from the 20% lifecycle GHG 
reduction requirement. Fuel from these facilities qualifies for D6 RINs 
that can be used to satisfy the total renewable fuel standard.
    In order for foreign biodiesel and renewable diesel producer to 
increase their imports into the U.S., they will need to either increase 
their total production (which may require building new production 
capacity), or divert exports from domestic use and/or other foreign 
markets currently relying on these volumes to meet their own 
requirements. If the former, it may require the expansion of foreign 
distribution and export capacity which will take some time to put in 
place. If the latter, it will require a number of changes, including:
     A clear economic advantage (e.g., higher prices) for 
exports to be directed to the U.S. relative to other destinations,
     Time to renegotiate existing contracts and commitments,
     Certainty that economic and political conditions won't 
change that ultimately undermine such a decision,
     Time to expand available U.S. import terminal facilities, 
including not only tankage, loading, and offloading infrastructure, but 
also the rail and truck fleet necessary to transport the fuel from the 
import terminal to new markets.

All of this can and is expected to occur over time, however the degree 
to which this can be accomplished in the coming year is uncertain.
    To demonstrate the uncertainty associated with increasing biodiesel 
and renewable imports it is instructive to consider the case of imports 
from Argentina in recent years. Several stakeholders expressed concern 
that Argentina would significantly increase exports of biodiesel to the 
U.S. in 2016, and that this potential for increased imports must be 
accounted for in the determination of the applicable 2016

[[Page 77469]]

volume requirements.\107\ This concern was based on the facts that pre-
existing opportunities for export to European countries had recently 
been closed off, and the EPA had recently approved an alternative 
biomass tracking program for Argentina which commenters assumed would 
make it easier for Argentinean biodiesel producers to document that 
their product complies with the land use provisions associated with the 
RFS definition of renewable biomass. Some stakeholders suggested that 
imports of Argentinean biodiesel could be as high as several hundred 
million gallons in 2016. Our review of the available information, 
including that submitted by other stakeholders, does not support this 
view. For instance, the approval of the alternative biomass tracking 
program for Argentina was not followed by a sudden increase in imports 
to the U.S. as shown below. In fact, imports actually declined compared 
to months immediately preceding that approval.\108\
---------------------------------------------------------------------------

    \107\ There have also been imports of biodiesel from other 
countries, but by and large such biodiesel did not qualify as 
advanced biofuel.
    \108\ While it is possible that the full impact of EPA's 
approval of the alternative biomass tracking program for Argentina 
is not yet reflected in the data (i.e., that it will take longer for 
the effects to be seen), we note that there are elements of the 
approved tracking program that are considerably more exacting than 
the pre-existing renewable biomass verification process, so we are 
not persuaded that EPA's approval will in fact lead to an increase 
in Argentinean biodiesel imports.
[GRAPHIC] [TIFF OMITTED] TR14DE15.008


[[Page 77470]]


    Additionally, the annualized volume of imported Argentinean 
biodiesel for 2015, based on data collected through July, is 94 million 
gallons. This level is far less that the potential volumes projected by 
the National Biodiesel Board and several others. Brazil has also just 
recently proposed increasing its biodiesel mandate from 7% to 8% in 
2016, which may provide another attractive destination for exports of 
Argentinean biodiesel.\109\ There are also indications that Argentina's 
production of biodiesel in 2015 will be significantly reduced compared 
to prior years.\110\ Finally, Argentina has changed the applicable tax 
on exported biodiesel several times since the beginning of 2015, 
highlighting the uncertainty associated with projecting potential 
future imports into the U.S.\111\ Based on these facts, we believe that 
the volume of biodiesel and renewable diesel imported from Argentina in 
2016 is likely to be far less than the several hundred million gallons 
suggested by some commenters.
---------------------------------------------------------------------------

    \109\ ``Brazil Proposes Raising Biodiesel Mandate To B10,'' 
docket EPA-HQ-OAR-2015-0111.
    \110\ ``Argentina's biodiesel output to drop 30% in 2015--
Industry group,'' docket EPA-HQ-OAR-2015-0111.
    \111\ ``Argentina changes biodiesel export tax--Biofuels 
Digest,'' docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

iv. Biodiesel and Renewable Diesel Distribution Capacity
    While biodiesel and renewable diesel are similar in that they are 
both diesel fuel replacements produced from the same types of 
feedstocks, there are significant differences in their fuel properties 
that result in differences in the way the two fuels are distributed and 
consumed. Biodiesel is an oxygenated fuel rather than a pure 
hydrocarbon. It cannot currently be distributed through most pipelines 
due to contamination concerns with jet fuel, and often requires 
specialized storage facilities to prevent the fuel from gelling in cold 
temperatures. A number of studies have investigated the impacts of cold 
temperatures on storage, blending, distribution, and use of biodiesel, 
along with potential mitigation strategies.112 113 114 
Renewable diesel, in contrast, is a pure hydrocarbon fuel that is 
nearly indistinguishable from petroleum based diesel. As a result, 
there are fewer constraints on its growth with respect to distribution 
capacity.
---------------------------------------------------------------------------

    \112\ ``Biodiesel Cloud Point and Cold Weather Issues,'' NC 
State University & A&T State University Cooperative Extension, 
December 9, 2010.
    \113\ ``Biodiesel Cold Weather Blending Study,'' Cold Flow 
Blending Consortium.
    \114\ ``Petroleum Diesel Fuel and Biodiesel Technical Cold 
Weather Issues,'' Minnesota Department of Agriculture, Report to 
Legislature, February 15, 2009.
---------------------------------------------------------------------------

    Comments we received from stakeholders on biodiesel supply 
challenges related to biodiesel distribution, storage, or use due to 
cold temperatures reveal differing opinions on the degree to which this 
may be a constraint on the growth of biodiesel and renewable diesel. 
The National Biodiesel Board stated that there are no constraints 
related to the distribution of biodiesel and renewable diesel because 
options such as heated storage tanks and the use of biodiesel produced 
from feedstocks with better cold temperature properties are available 
to address the issue. They pointed specifically to some states which 
require the use of biodiesel year-round. Others, such as CountryMark, 
indicated that they or their members stop blending biodiesel in the 
winter months. These comments suggest that the constraints on biodiesel 
supply due to cold temperatures may not be as pronounced as suggested 
in the NPRM, but that they continue to exist. Furthermore, the 
existence of methods for addressing potential challenges related to the 
cold temperature issues associated with biodiesel does not mean that 
these solutions can be employed nationwide in 2016. Since the market 
will determine the specific types and amounts of renewable fuels to use 
to meet the applicable volume requirements, investments and actions 
needed to address cold weather issues will certainly be a consideration 
for some parties, and their hesitancy to blend biodiesel in winter 
months may constrain the total supply of biodiesel in 2016.
    Another factor potentially constraining the supply of biodiesel is 
the number of terminals and bulk plants that currently distribute 
biodiesel. At present there are about 600 distribution facilities 
reported as selling biodiesel either in pure form or blended form.\115\ 
Our review of these locations indicates that the vast majority of them 
are what we refer to as bulk plants. These are not the major gasoline 
and diesel distribution terminals, but rather much smaller terminals 
that receive diesel fuel mostly by truck from the major terminals. 
These 600 facilities are a small subset of the 1400 terminals and 
approximately 9000 bulk plants nationwide.\116\ This small subset, 
however, appears to be concentrated in most of the population centers 
of the country, in addition to the Midwest. As a result, as the market 
continues to expand, it may require greater investment per volume of 
biodiesel supplied, as the new biodiesel distribution facilities will 
generally have access to smaller markets than the existing facilities, 
or face competition from existing distribution facilities.
---------------------------------------------------------------------------

    \115\ List of biodiesel distributers from Biodiesel.org Web site 
(http://biodiesel.org/using-biodiesel/finding-biodiesel/locate-distributors-in-the-us/distributors-map). Accessed 10/8/15.
    \116\ Number of terminals from the American Fuel and 
Petrochemical Manufacturer's (AFPM) Web site, ``AFPM Industry 101, 
Fuels Facts'', (http://education.afpm.org/refining/fuels-facts/). 
Accessed 10/28/15. Number of bulk plants from the Regulatory Impact 
Analysis for the Heavy-Duty Engine and Vehicle Standards and Highway 
Diesel Fuel Sulfur Control Requirements, EPA420-R-00-026, December 
2000.
---------------------------------------------------------------------------

    Transportation of biodiesel to and from the terminals and bulk 
plants is also an important consideration. There are two aspects to the 
distribution infrastructure of importance here; the distribution of 
biodiesel in pure/near pure form from biodiesel production or import 
facilities to terminals and bulk plants, and the distribution from the 
terminals/bulk plants in blended form to retail stations. As mentioned 
above, the unique properties of biodiesel have precluded blends from 
being transported in common carrier pipelines either in pure form 
(B100) or in blended form (such as B5 or B20). NBB has been working 
with the pipeline industry for many years in an effort to enable 
biodiesel blends to be transported by pipeline, as the ability to 
transport biodiesel by pipeline would quickly open new markets in 
farther ranging locations. In 2013 a major pipeline approved the 
transport of low level biodiesel blends (B5) in limited pipeline 
segments that do not carry jet fuel.\117\ While an important step, the 
pipeline segments that have been approved to ship biodiesel blends only 
serve a small portion of the U.S. market.
---------------------------------------------------------------------------

    \117\ Sapp, Meghan. ``Colonial Pipeline to Start B5 
Transportation in Georgia.'' Biofuels Digest. March 19, 2013. 
Available online: http://www.biofuelsdigest.com/bdigest/2013/03/19/colonial-pipeline-to-start-b5-transportation-in-georgia/.
---------------------------------------------------------------------------

    In lieu of pipeline transport, biodiesel currently relies primarily 
on rail car, barge, and especially tanker truck fleets for distribution 
from production and import facilities to blending terminals and bulk 
plants. Due to the unique properties of biodiesel, such transport 
typically has required the use of heated/insulated tanks, especially in 
winter to keep the product from gelling or freezing. This requirement 
for specialized equipment increases the cost of biodiesel distribution 
and further limits the speed at which biodiesel distribution can grow. 
Increasing biodiesel distribution capacity is not simply a matter of 
shifting barge/rail/truck infrastructure from other

[[Page 77471]]

competing uses, as it may require specialized and/or purpose built 
equipment. The result of this has been that in order to respond as 
quickly as possible to market demand, biodiesel distribution has often 
instead been met using the existing non-specialized tanker truck fleets 
where the haul distance is limited--limiting the time the fuel is 
exposed to cold temperatures. While the use of the existing tanker 
trucks expands the volume of biodiesel that can be transported, it also 
limits the distribution of biodiesel to a smaller geographic area near 
production and distribution facilities. This then translates into the 
need for more and disparately located production facilities and import 
terminals. Once blended with diesel fuel at the bulk plant, further 
distribution concerns are typically minimized by shorter transportation 
distances between the bulk plants and retail stations and lower 
biodiesel blend ratios that have fewer cold weather limitations.
    The net result is that the expansion of terminals and bulk plants 
selling biodiesel and biodiesel blends, and the distribution 
infrastructure necessary to transport biodiesel to and from these 
facilities, is a significant challenge facing the rapid expansion of 
biodiesel. This is an area in which the biodiesel industry has made 
steady progress over time, and we anticipate that this steady progress 
can and will continue into the future, particularly with the ongoing 
incentive for biodiesel growth provided by the RFS standards. As with 
many of these potential supply constraints, however, increasing the 
biodiesel distribution capacity will require time, limiting the 
potential growth in 2016.
v. Biodiesel and Renewable Diesel Retail Infrastructure Capacity
    For renewable diesel, we do not expect that refueling 
infrastructure (e.g. refueling stations selling biodiesel blends) will 
be a significant limiting factor in 2016 due to its similarity to 
petroleum based diesel and the relatively small volumes expected to be 
supplied in the United States. The situation is different, however, for 
biodiesel. Biodiesel is typically distributed in blended form with 
diesel fuel as varying blends from B2 up to B20. Biodiesel blends up to 
and including B20 can be sold using existing retail infrastructure, and 
generally does not require any upgrades or modifications at the retail 
level. Expanding the number of refueling stations offering biodiesel 
blends is therefore constrained less by the retail facilities 
themselves, and more by the lack of nearby wholesale distribution 
networks that can provide the biodiesel blends to retail.
    EPA is currently unaware of reliable data on the number of retail 
stations that offer biodiesel blends nationwide. The Web site 
Biodiesel.org shows the names and locations of 1090 stations that 
currently offer biodiesel blends.\118\ Based on the amount of biodiesel 
sold in the United States in recent years, however, we think this is a 
significant underestimate. This is likely due to the fact that diesel 
fuel that contains 5% or less biodiesel can be sold without special 
labeling. It is probable that many station selling biodiesel blends of 
5% or lower are therefore not included in this count. Nevertheless, the 
relatively low number of terminals and bulk plants offering biodiesel 
is a strong indication that biodiesel blends are not available at 
retail stations nationwide. Biodiesel blends greater than B5 are still 
only available in a very small fraction of possible refueling 
locations. Of the approximately 4,800 truck stops nationwide, and the 
approximately 50,000 diesel retail stations, only 717 stations offer 
biodiesel in blends of B20 of greater.\119\ While the number of 
refueling stations offering higher level biodiesel blends is relatively 
small, the fact that diesel sales volumes in the United States are 
dominated by truck stops and the very large centrally fueled fleets, 
suggests that expanding the refueling infrastructure for these 
biodiesel blends will be relatively straightforward as production and 
distribution allow. The biggest challenge may be the reluctance of 
retailers and fleets to switch to biodiesel blends due to concerns over 
fuel quality, vehicle warranties, liability, or other factors.
---------------------------------------------------------------------------

    \118\ http://biodiesel.org/using-biodiesel/finding-biodiesel/retail-locations/biodiesel-retailer-listings.
    \119\ B20+ Station counts are from the Department of Energy 
Alternative Fuels Data Center Station Locator. Includes public, 
private, government, and utility owned stations.
---------------------------------------------------------------------------

    There is some indication that the number of refueling stations 
willing or able to market biodiesel may become a factor that constrains 
the growth of biodiesel supply in the United States, either in 2016 or 
in future years. A number of retail locations that market diesel fuel 
are only offering biodiesel blends that exceed 5% (B5), which is the 
maximum amount of biodiesel for which many diesel vehicles are 
warranted. For example, the LOVES truck stop chain is a major retailers 
of biodiesel. A recent review of their Web site indicated that 221 of 
their 354 stations were selling B15.\120\ This is despite the fact that 
many of the newer,\121\ and especially the older heavy-duty diesel 
truck engines were only designed and warranted for biodiesel blends up 
to B5. Similarly, in the state of Illinois nearly all sales of 
biodiesel blends are reported to be at B11 in order to benefit from the 
state tax subsidy, despite the fact that not all vehicles and engines 
have been designed and warranted for its use. The fact that some 
retailers are only offering biodiesel blends that are not approved for 
use in the engines of many of their customers may suggest that the rate 
at which the number of refueling stations offering biodiesel blends can 
be increased could be a significant constraining factor to the supply 
of biodiesel in 2016. Were more retail outlets willing and able to 
dispense biodiesel, then, increasing volumes of biodiesel could be 
distributed at concentrations of B5 or less without raising any 
warranty concerns.
---------------------------------------------------------------------------

    \120\ Information from Love's Web site: http://www.loves.com/locateus/fuelpricesearch.aspx# (Accessed 10/8/15).
    \121\ The largest heavy-duty diesel vehicle manufacturer in the 
U.S., Daimler, comprising roughly 40% of the market still does not 
warrant its engines for the use of biodiesel in concentrations 
greater than 5%.
---------------------------------------------------------------------------

vi. Biodiesel and Renewable Diesel Consumption Capacity
    Virtually all diesel vehicles and engines now in the in-use fleet 
have now been warranted for the use of B5 blends. In fact both FTC and 
ASTM specification for diesel fuel (16 CFR part 306 and ASTM D975 
respectively) allows for biodiesel concentrations of up to five volume 
percent (B5) to be sold as diesel fuel, with no separate labeling 
required at the pump. Biodiesel blends of up to 5% are therefore 
indistinguishable in this regard. In addition, NBB claims that nearly 
all manufacturers now warrant at least one of their current offerings 
for use with B20 blends. This is a significant factor in assessing the 
potential supply of biodiesel to vehicles in future years and has been 
a main focus of NBB's technical and outreach efforts for many years, 
and one of their true success stories. Using biodiesel blends above B5 
in diesel engines may require changes in design, calibration, and/or 
maintenance practices.\122\
---------------------------------------------------------------------------

    \122\ The vast majority of diesel fuel in the U.S. is consumed 
by heavy-duty vehicles and nonroad diesel engines. Only a very minor 
portion is consumed by light-duty diesel passenger vehicles.
---------------------------------------------------------------------------

    Even in instances where manufacturers warrant their engines to 
operate on B20 blends, they may have additional requirements to ensure 
the

[[Page 77472]]

quality of the biodiesel fuel being used and that additional engine 
maintenance will be performed. These requirements may make the use of 
biodiesel blends containing greater than 5% biodiesel challenging, 
while technically possible. For instance, Detroit Diesel, a large 
diesel engine manufacturer, implemented a formal, multifaceted B20 
approval process for fleets seeking to use B20. The process involved an 
evaluation of biodiesel producers and marketers that are to provide 
biodiesel to the fleet in question, an assessment of biodiesel 
Certificate of Analysis for B100 and B20 blends (or fuel samples as 
needed), as well as a review of preventative maintenance practices at 
dispensing locations, including bulk tank cleaning intervals, 
dispensing filtration, water handling, and volume of fuel consumed at 
each location. In the B20 fleet approval process, Detroit Diesel also 
considered the particular vehicle application to ensure that fleet 
vehicles were not parked for too long as well as an assessment of the 
preventative maintenance intervals for engines to ensure that they are 
in-line with Detroit Diesel's published guidelines. Even in situations 
where approval to use B20 was granted, the approval did not provide 
blanket coverage for a geographically dispersed fleet; that is, a fleet 
that operated across several states was required to submit separate 
applications for each biodiesel producer, marketer, and dispenser 
supporting the fleet. Fleet operators that successfully completed the 
B20 approval process received a Statement of Warranty from Detroit 
Diesel's Director of Quality and were permitted to operate the fleet 
using B20. Ultimately Detroit Diesel cancelled the B20 fleet approval 
process citing biodiesel quality concerns.
    Given the long life of diesel engines and the number of new engines 
not warranted for biodiesel blends above B5, turning over a significant 
portion of the fleet to engines designed and warranted for B20 is still 
many years off into the future. This means that in the near term the 
opportunity to sell B20 exclusively to vehicles warranted to run on 
these blends will likely be limited to centrally fueled fleets.\123\ 
Increasing the supply of biodiesel, however, is not necessarily 
dependent on selling higher level biodiesel blends, as there is 
significant opportunity for expanding the use of biodiesel in lower 
level blends and for non-road applications. If the diesel pool 
contained 5% biodiesel nationwide consumption of biodiesel would reach 
approximately 2.9 billion gallons in 2016. Furthermore, in addition to 
their successful efforts with diesel vehicles and engines, NBB has had 
a significant market outreach effort to expand the use of biodiesel 
into heating oil applications (referred to as bioheat). While still a 
relatively small outlet for biodiesel consumption compared to diesel 
fuel, it is a growing market that affords significant additional 
opportunity for growth.
---------------------------------------------------------------------------

    \123\ Although as stated above, some public retailers are 
choosing to sell only B11 or B20 blends and allowing the consumer 
the option of either going elsewhere or purchasing fuel for which 
their engines are not warranted.
---------------------------------------------------------------------------

    We received a number of comments on the NPRM related to the degree 
to which engine warranties may constrain biodiesel use in 2016; however 
no stakeholder provided any analyses demonstrating the fraction of in-
use engines which are warranted for more than B5.\124\ Instead, most 
biodiesel proponents stated only that most diesel engines being sold 
today are warranted for B20. Such warranties have not always existed, 
and the degree to which new diesel engines support B20 and higher 
blends may be over-stated. Detroit Diesel produces the engines for 
approximately 30% of the Class 8 trucks sold in the United States and 
currently does not support the use of biodiesel blends greater than B5 
in their engines.\125\ Thus, it is clear that some portion of the in-
use fleet of diesel engine warranties do not approve the use of 
biodiesel blends greater than B5.\126\ These engines represent a 
potential constraint on use of biodiesel, though we cannot quantify the 
level of constraint. Comments submitted by Growth Energy support this 
fact:
---------------------------------------------------------------------------

    \124\ Such warranties apply to the engines, not the fuels, as 
pointed out by the National Biodiesel Board. Nevertheless, the 
engine warranties are contingent upon the use of approved fuels.
    \125\ Sales data received directly from the OEM.
    \126\ As noted above, FTC and ASTM specifications allow for 
biodiesel concentrations of up to five volume percent (B5) to be 
sold as diesel fuel, with no separate labeling required at the pump.

    ``. . . the transportation fleet and heating oil equipment pools 
still contain significant percentages that are not warranted or 
deemed compatible with levels of biodiesel above 5%.'' \127\
---------------------------------------------------------------------------

    \127\ ``Non-Ethanol Potential for RFS Compliance,'' Stratus 
Advisors, July 16, 2015. Submitted by Growth Energy.

    The National Biodiesel Board argued that regardless of whether 
manufacturers place limits on the use of biodiesel blends as a 
condition of honoring their engine warranties, many of these diesel 
engines can still safely use higher biodiesel blends than those cited 
in those warranties. Thus, said NBB, ``. . . the formally OEM 
recommended biodiesel level should not be construed or used as any sort 
of limitation for biodiesel volumes.'' We disagree, and believe that 
the OEM recommended biodiesel levels can have a significant impact on 
owner's willingness to use biodiesel blends. Despite anecdotal evidence 
regarding behavior of some diesel vehicle operators, it would be 
inappropriate for EPA to assume that diesel truck owners in general 
will knowingly use biodiesel blends at concentrations that exceed the 
limits cited in their engine warranties. It would be more prudent for 
EPA to assume that engine manufacturers are in the best position to 
judge which biodiesel blends are appropriate for use in their engines, 
and that engine owners will view their engine warranties in the same 
way. Evidence that some truck owners ignore the recommended limits on 
biodiesel concentrations when refueling their truck is not, we believe, 
a reasonable basis for assuming that engine warranties place no 
constraints on the use of higher biodiesel blends for the in-use truck 
fleet as a whole. Similarly, we do not believe that older engines with 
expired warranties can be assumed to have no constraints on biodiesel 
concentrations. Not only were older engines more likely to have been 
designed to operate on B5 or lower, but engine warranties continue to 
provide indications to truck owners of acceptable biodiesel 
concentrations even after they expire. Owner's manuals for those 
engines may also cite limits on biodiesel concentrations, and owner's 
manuals do not expire.\128\
---------------------------------------------------------------------------

    \128\ EPA is not aware of any comprehensive analysis of the 
diesel engine/vehicle warranties for the in use fleet with respect 
to biodiesel blends. EPA did not have the time or resources to 
conduct a detailed evaluation of warranty constraints over the range 
of engines and model years currently in service for purposes of this 
rulemaking. EPA encourages stakeholders to gather this type of 
information to inform future annual RFS rules.
---------------------------------------------------------------------------

vii. Biodiesel and Renewable Diesel Consumer Response
    Consumer response to the availability of renewable diesel and low 
level biodiesel blends (B5 or less) has been generally positive, and 
this does not appear to be a significant impediment to growth in 
biodiesel and renewable diesel use. Because of its similarity to 
petroleum diesel, consumers who purchase renewable diesel are unlikely 
to notice any difference between renewable diesel and petroleum derived 
diesel fuel. Similarly, biodiesel blends up to B5 are unlikely to be 
noticed by consumers, especially since, as mentioned above, they may be 
sold without specific labeling. Consumer

[[Page 77473]]

response to biodiesel blends is also likely aided by the fact that 
despite biodiesel having roughly 10 percent less energy content than 
diesel fuel, when blended at 5 percent the fuel economy impact of B5 
relative to petroleum derived diesel is a decrease of only 0.5%, an 
imperceptible difference. Consumer response has been further aided by 
the lower prices that many wholesalers and retailers have been willing 
to provide to the consumers for the use of biodiesel blends. The 
economic incentives provided by the tax credit and the RIN have made it 
possible for some retailers to realize additional profits while selling 
biodiesel blends, while in many cases offering these blends at a lower 
price per gallon than diesel fuel that has not been blended with 
biodiesel.
viii. Projected Supply of Biodiesel and Renewable Diesel in 2016
    Due to the large number of market segments where actions and 
investments may be needed to support the continued growth of biodiesel 
blends, it is difficult to isolate the specific constraint or group of 
constraints that will be the limiting factor or factors to the supply 
of biodiesel and renewable diesel in the United States in 2016. Not 
only are many of the potential constraints inter-related, but they are 
likely to vary over time. The challenges in identifying a single factor 
limiting the growth in the supply of biodiesel and renewable diesel in 
2016 does not mean, however, that there are no constraints to the 
growth in supply.
    A logical starting point in developing a projection of the 
available supply of biodiesel and renewable diesel in 2016 is a review 
of the volumes of these fuels supplied in previous years. In examining 
the data, both the absolute volumes of the supply of biodiesel and 
renewable diesel in previous years, as well as the rates of growth 
between years are relevant considerations. The volumes of biodiesel and 
renewable diesel (including both D4 and D6 biodiesel and renewable 
diesel) supplied each year from 2011 through 2015 are shown below.
[GRAPHIC] [TIFF OMITTED] TR14DE15.009

    One way to use the historical data to project the available supply 
of biodiesel and renewable diesel in 2016 would be to start with the 
volume expected to be supplied in 2015 (1.84 billion gallons), the most 
recent year for which actual supply data are available and also the 
year with the largest supply of biodiesel and renewable diesel, and 
then assess how much the supply can be expected to increase in 2016 in 
light of the constraints discussed above. We could assume, for example, 
that past growth in the year or years leading up to 2015 reflects the 
rate at which biodiesel and renewable diesel constraints can reasonably 
be expected to be addressed and alleviated in the future. If this were 
the case, we could use either the largest observed annual supply 
increase (689 million gallons from 2012 to 2013) or the average supply 
increase (212 million gallons from 2011 to 2015) to calculate how much 
biodiesel and renewable diesel volumes could increase over 2015 levels 
in 2016. This would result in a projected supply of 2.53 billion 
gallons of biodiesel and renewable diesel if we used the highest 
observed annual growth rate, or 2.06 billion gallons of biodiesel and 
renewable diesel in 2016 if we used the average annual growth rate.
    We recognize that the highest annual growth rate achieved in the 
past (or the average annual growth rate in the past) does not 
necessarily indicate the growth rate that can be achieved in the 
future. In the past biodiesel was available in fewer markets, allowing 
new investments to be targeted to have a maximum impact on volume. 
However, as the market becomes more saturated and biodiesel becomes 
available in an increasing number of markets, additional investments 
may tend to have less of an impact on volume, limiting the potential 
large increases in supply year over year. Much of the growth in 
biodiesel and renewable diesel supply in the past was enabled by 
addressing the existing constraints in ways that required relatively 
less investment than the challenges currently facing the market. In 
2013 additional feedstock was available to be recovered from waste 
streams and there was still significant opportunity to distribute 
additional biodiesel blends containing 5% biodiesel or less. Future 
supply increases will likely require diverting potential biodiesel and 
renewable diesel feedstocks from

[[Page 77474]]

existing uses, revising production facilities to handle larger volumes 
of different feedstocks, potentially distributing the biodiesel to new 
terminal or bulk plants, and/or using biodiesel in blends greater than 
5%. Thus, it may require greater investment for growth rates of 
biodiesel and renewable diesel in 2016 to equal the growth rate that 
occurred in 2013. However, any such conclusion would need to be 
tempered by the consideration of the extent to which legal and market 
forces were in place to drive future growth. This is especially true 
since the year with the historic maximum rate of growth was 2013--a 
year in which both tax incentives and RFS incentives were in place to 
incentivize growth. We believe the incentives provided by the standards 
in this final rule will be sufficient to enable this growth to occur, 
despite these challenges. However, to avoid volumes of biodiesel and 
renewable diesel from plateauing in the longer term, developments such 
as significant gains in oilseed productivity, the development of new 
oilseed crops, the approval from engine manufacturers to use B20 blends 
in all or nearly all diesel engines, and investments in renewable 
diesel production capacity may be necessary.
    We received many comments on our NPRM that offered projections of 
the available biodiesel and renewable diesel supply in 2016. It was not 
always clear from reading the comments if the volume projections they 
offered represent their projection of the total supply of biodiesel and 
renewable diesel, as is relevant for determining the total renewable 
fuel supply in 2016, or if they represent a sub-set of the total 
biodiesel and renewable diesel availability (such as only BBD and not 
conventional biodiesel, only biodiesel and not renewable diesel, or the 
level at which they requested the BBD standard be set). Nevertheless, 
we have reviewed these comments and considered the volume projections 
offered and the supporting data provided in determining the supply of 
biodiesel and renewable diesel in the United States in 2016.
    The National Biodiesel Board suggested that the volume of advanced 
biodiesel supplied to help meet the advanced biofuel volume requirement 
should be at least 2.7 billion gallons in 2016, based on the highest 
rate of D4 RIN generation achieved in a single month. They effectively 
assumed that the rate of RIN generation that occurred in December 2013 
(220 million gallons) could be duplicated over a 12-month period, and 
that all of this product could be distributed and used in the United 
States in 2016. They stated that an additional 370-720 million gallons 
of biodiesel (550-1,080 million RINs) could be supplied from imported 
biodiesel. We disagree that these volumes can be supplied in 2016. We 
believe that using the highest production in a single month from the 
historical record is not a reasonable basis for projecting possible 
future supply over the course of an entire year for a number of 
reasons. Such an approach does not take into account the factors, 
described below, that allowed for that maximum single month production, 
including the expiring blenders tax credit and the inability to sustain 
that production level year-round. In addition, production inventories 
can be grown over a one-month time period in a manner that masks 
constraints in the fuel delivery infrastructure. As evidence, we note 
that the highest D4 RIN generation level in a single month (220 million 
gallons in December 2013) occurred immediately before one of the lowest 
monthly D4 RIN generation level that has occurred in the last several 
years (88 million gallons in January 2014). The average of those two 
months is the equivalent of about 1.85 billion gallons over the course 
of a year.
    Moreover, the highest monthly D4 RIN generation level cited by the 
National Biodiesel Board included imports which have been highly 
variable and cannot be projected with reasonable certainty based on 
historical supply. The fact that the month used by NBB to project that 
2.7 billion gallons of BBD could be supplied already includes a 
significant amount of imported volumes makes their estimate of 
additional imports particularly uncertain. The portion of the 1.85 
billion gallon annual average RIN generation rate derived from 
annualizing December 2013 and January 2014 volumes that can be 
attributed to domestic production is 1.43 billion gallons, and even 
this number should be considered high because it does not account for 
exports of biodiesel and RINs retired because they were invalid or were 
otherwise not available for compliance. As a result of these factors, 
the actual demonstrated domestic supply (domestic production plus 
imports, less exports and corrections) of biodiesel and renewable 
diesel does not support an available supply of 3.1-3.4 billion gallons 
per year, as suggested by NBB.
    In addition to the comments from NBB, we also received a number of 
other comments suggesting a higher supply of biodiesel may be available 
in 2016 than in previous years. Many commenters, such as the American 
Council on Renewable Energy, the American Soybean Association, the 
National Renders Association, John Deere, several state soybean 
associations, and others suggested that the BBD standard should require 
the use of at least 2 billion gallons in 2016. Other commenters, 
including Archer Daniels Midland, the California Biodiesel Alliance, 
Imperium Renewables, and others suggested that the BBD standard should 
require the use of 2.4 billion gallons in 2016. Since they were focused 
on the BBD standard, these numbers do not necessarily represent the 
commenters' views of the available supply of biodiesel and renewable 
diesel in 2016, but we believe they give a good indication of their 
views on the available supply. We also note that they are much more in 
line with the available supply volumes that we estimate below based on 
an extrapolation of growth rates from previous years.
    Given the widely divergent comments and available data on the 
potential supply of biodiesel feedstocks, it is clear that there is a 
great deal of uncertainty in the degree to which those feedstock 
supplies can grow in 2016. A focus on potentially available feedstock 
supplies is insufficient as this is not the only factor to consider in 
assessing the potential volumes of biodiesel and renewable diesel in 
2016. Neither biodiesel production capacity, nor the supply of oils, 
fats, and greases around the world, has ever been the sole constraint 
on biodiesel and renewable diesel supply to the U.S. Indeed, as 
discussed above, there are a number of constraints, ranging from 
competing demand for biodiesel and renewable diesel feedstocks to 
biodiesel and renewable diesel distribution infrastructure and engine 
compatibility, that we believe will constrain the supply of biodiesel 
and renewable diesel supply in 2016.
    These constraints do not represent insurmountable barriers, but 
they do take time to overcome. The market has been making efforts to 
overcome these constraints in recent years as demonstrated by the fact 
that biodiesel and renewable diesel consumption in the U.S. has been 
steadily increasing. We agree with the biofuels industry that more 
opportunity for ongoing growth still exists, but we do believe that the 
constraints listed above will continue to be a factor in the rate of 
growth for 2016, but we also believe that existing biodiesel and 
renewable diesel production capacity should not be the basis for 
projecting achievable volumes

[[Page 77475]]

in 2016. Instead, we believe that the ongoing constraints listed above 
mean that the opportunity for growth 2016 is of a similar magnitude to 
that which we have experienced in recent years. For 2016 we are 
projecting the supply of biodiesel and renewable diesel for use in the 
United States could reasonably be as much as 2.5 billion gallons. We 
believe this value represents the maximum reasonably achievable volume 
of biodiesel and renewable diesel that can be supplied to the United 
States in 2016.
    This volume of biodiesel and renewable diesel is approximately 
equal to the projected volume using the highest observed annual growth 
rate (2.53 billion gallons), and far higher than the projected volume 
using the average growth rate between 2011 and 2015 (2.06 billion 
gallons). We believe this is appropriate considering both the 
demonstrated ability of the market to respond to incentives for 
increased production, import, and use of biodiesel and renewable 
diesel, as demonstrated in 2013, and also the potential constraints to 
the continued growth of biodiesel and renewable diesel discussed above. 
These constraints, particularly the availability of qualifying 
feedstocks to processing facilities that can utilize them in light of 
competing demand for these feedstocks and the distribution 
infrastructure needed to increase the use of biodiesel and renewable 
diesel, may be more challenging to overcome in the future, but we 
believe growth in 2016 can still approach the record growth experienced 
in 2013. In 2013 increasing available supplies of feedstock, through 
means such as greater corn oil production rates at ethanol plants and 
increased recovery of waste fats and oils, and increasing biodiesel and 
renewable diesel distribution by adding biodiesel blending capacity at 
terminals and/or bulk plants in areas with large local demand for 
diesel fuel, were both relatively simple. For 2016 the RFS standard 
will necessitate similar and potentially even larger investments and 
actions to grow biodiesel and renewable diesel supply.
    We recognize that the market may not necessarily respond to the 
final total renewable standard by supplying exactly 2.5 billion gallons 
of biodiesel and renewable diesel to the transportation fuels market in 
the United States, but may instead supply a slightly lower or higher 
volume of biodiesel and renewable diesel with corresponding changes in 
the supply of other types of renewable fuel. As a result, we believe 
there is less uncertainty with respect to achievability of the total 
volume requirement than there is concerning the projected 2.5 billion 
gallons of biodiesel and renewable diesel that we have used in deriving 
the final total renewable fuel volume requirement.
4. Projecting the Supply of Other Renewable Fuels
    The RINs available for meeting the total renewable fuel standard 
include not only ethanol, biodiesel, and renewable diesel, but also 
RINs generated for a number of other renewable fuels. While the 
potential for each of these fuels is small relative to those covered 
above, the volumes must still be considered in assessing the total 
supply of renewable fuel in 2016. One such fuel is CNG/LNG derived from 
biogas when used as a transportation fuel. The potential for this fuel 
in 2016 is approximately 210 million gallons. This projection is 
discussed in more detail in Section IV, as this fuel generally 
qualifies as a cellulosic biofuel.
    There also are some opportunities for moderate growth through the 
end of 2016 in a variety of other fuel types. Currently, the RFS 
regulations provide a RIN generating pathway for heating oil, naphtha, 
jet fuel, LPG, liquefied natural gas, renewable gasoline, butanol, and 
electricity. To date only heating oil, naphtha, and butanol have been 
produced to generate RINs, reaching a projected annual high of 23 mill 
gal based on data through September, 2015. Since these sources have not 
grown significantly over the last several years, we believe that the 
supply of other non-ethanol renewable fuels can reach about 25 million 
gallons in 2016.
5. Total Renewable Fuel Supply in 2016
    The total volume of renewable fuel that can be supplied in 2016 is 
the combination of the estimated supply of each of the biofuel types 
described above: ethanol, biodiesel and renewable diesel, and other 
biofuels such as biogas, naphtha, and heating oil. Most of these 
biofuel types can be produced as either advanced biofuel or as 
conventional (D6) renewable fuel, depending on the feedstock and 
production process used. Our estimate of the supply of total renewable 
fuel shown in the table below includes contributions from both advanced 
biofuels and conventional renewable fuels.

Table II.E.5-1--Volumes Used To Determine Total Renewable Fuel Supply in
                                  2016
------------------------------------------------------------------------
                                Volume  (million
                                    gallons)            Million RINs
------------------------------------------------------------------------
Ethanol.....................                14,128                14,128
Biodiesel and renewable                      2,500                 3,750
 diesel.....................
Biogas......................                   210                   210
Other non-ethanol renewable                     25                    25
 fuels......................
                             -------------------------------------------
    Total...................                16,861                18,113
------------------------------------------------------------------------

    Based on this analysis, we are establishing a total renewable fuel 
volume requirement of 18.11 billion gallons for 2016. However, we note 
that the contributions from individual sources that are shown in Table 
II.E.5-1 were developed only for the purpose of determining a final 
volume requirement for 2016; they do not represent EPA's projection of 
precisely how the market will respond to the standards we set. We 
continue to believe, as we noted in the NPRM, that any estimate we make 
regarding particular fuel types is uncertain, but that overall the 
final volume requirement is attainable. The contributions from 
individual sources that we have used are illustrative of one way in 
which the volume requirement for total renewable fuel could be met. 
Actual market responses could vary widely, as described more fully in 
Section II.G.
    The volumes of total renewable fuel that we are establishing for 
2016 reflect our assessment of the maximum volumes that can reasonably 
be achieved, taking into account both the constraints on supply 
discussed previously and our judgment regarding the ability of the 
standards we set to result in marketplace changes in 2016.

[[Page 77476]]

As shown in Figure II.E.5-1, the volume requirements for 2016 would 
follow an upward trend consistent with that from previous years.
[GRAPHIC] [TIFF OMITTED] TR14DE15.010

F. Advanced Biofuel Volume Requirement for 2016

    As described in Section II.B above, we are reducing volumes of 
total renewable fuel under both the cellulosic and the general waiver 
authority, and we are reducing volumes of advanced biofuel under the 
cellulosic waiver authority only. As noted in Section II.B, EPA has 
broad discretion in utilizing the cellulosic waiver authority, since 
Congress did not specify the circumstances under which it may or should 
be utilized nor the factors to consider in determining appropriate 
volume reductions. We are cognizant of the fact that increases in the 
statutory volume targets after 2015 are only in advanced biofuel, and 
that advanced biofuel provides relatively large GHG reductions in 
comparison to conventional renewable fuel. In light of these facts, our 
intention in utilizing the cellulosic waiver authority for 2016 is to 
place an emphasis on setting the 2016 advanced biofuel volume 
requirement at a level that is reasonably attainable taking into 
account uncertainties related to such factors as production, import, 
distribution and consumption constraints associated with these 
fuels.\129\
---------------------------------------------------------------------------

    \129\ Our approach in identifying ``reasonably attainable'' 
volumes of advanced biofuels using the cellulosic waiver authority 
is different than our approach under the general waiver authority of 
identifying the ``maximum reasonably achievable supply''. In 
exercising the cellulosic waiver authority in this rulemaking, we 
are not required, and do not intend, to necessarily identify the 
most likely ``maximum'' volumes of advanced biofuels that can be 
used in 2016. Although we generally seek in establishing the 
advanced biofuel volume requirement to require that available 
advanced biofuels backfill for shortfalls in cellulosic biofuels in 
2016, our inquiry is not intended to be as exacting.
---------------------------------------------------------------------------

    As described earlier, we are establishing a total renewable fuel 
volume requirement of 18.11 billion gallons for 2016. Our assessment of 
total renewable fuel is based on an estimate of 14.13 billion gallons 
of ethanol and 2.50 billion gallons of biodiesel and renewable diesel, 
in addition to smaller volumes of biogas and other types of renewable 
fuel.\130\ Given that advanced biofuels are a subset of total renewable 
fuel, the 2016 volume requirement for advanced biofuels reflects our 
assessment of the portion of total ethanol and biodiesel, as well as 
other renewable fuels, that should be required as an advanced biofuel.
---------------------------------------------------------------------------

    \130\ This includes both advanced and conventional biodiesel and 
renewable diesel.
---------------------------------------------------------------------------

    With regard to ethanol, the primary source of advanced biofuel is 
imported sugarcane ethanol.\131\ As described in the NPRM, the supply 
of imported sugarcane ethanol continues to be highly uncertain and 
there is little indication that this uncertainty will change in 2016. 
For instance, both total ethanol imports and imports of Brazilian 
sugarcane ethanol have varied significantly since 2004, as shown in 
Figure II.F-1.
---------------------------------------------------------------------------

    \131\ In certain situations, advanced ethanol can also be 
produced from sorghum and food wastes.

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

[[Page 77477]]

[GRAPHIC] [TIFF OMITTED] TR14DE15.011

    The Brazilian Sugarcane Industry Association (UNICA) provided 
comments suggesting that 2 billion gallons of sugarcane ethanol could 
be supplied to the U.S. in 2016. After further investigation, we do not 
believe that this level of import is reasonably achievable in 2016. To 
begin with, exports of 2 billion gallons from Brazil to the U.S. would 
be significantly higher than total exports to all countries in all 
previous years, as shown below.
[GRAPHIC] [TIFF OMITTED] TR14DE15.012

    In recent years, ethanol exports from Brazil to countries other 
than the U.S. averaged more than 300 million gallons each year. Brazil 
has recently increased ethanol exports to China and has also increased 
its own ethanol use requirements.132 133 If this were to 
continue in 2016, total exports from Brazil would need to reach 2.4 
billion gallons in order to supply 2 billion gallons to the U.S. We do 
not believe that the information that UNICA provided supports this 
extremely high level of exports.
---------------------------------------------------------------------------

    \132\ ``Ethanol acts as lone bright spot amid China commodity 
gloom--Reuters,'' docket EPA-HQ-OAR-2015-0111.
    \133\ ``Brazil Hikes Ethanol Blend in Gasoline to 27%,'' 
DownstreamBusiness.com, March 12, 2015.
---------------------------------------------------------------------------

    Although UNICA cites a variety of factors that can affect ethanol 
exports and which are beyond the control of Brazilian mills and the 
EPA, it nevertheless based its estimate of potential exports to the 
U.S. solely on a combination of Brazilian ethanol production capacity 
and opportunities created by the RFS program itself. We believe that 
UNICA has underestimated the uncertainty associated with other market 
factors, including the E10 blendwall in the U.S., changes in domestic 
demand for ethanol in Brazil, and competing world demand for sugar. 
With regard to sugar, it is true that Brazilian production has been 
declining for the last several years. However, between 2005 and 2015, 
Brazilian production of sugar has increased just as often as it has 
decreased, demonstrating that there is uncertainty with regard to 
worldwide demand for sugar. We

[[Page 77478]]

believe it would be imprudent to assume that the downward trend in 
sugar production in recent years will continue in 2016.
    More importantly, while production of sugarcane has increased 
moderately in Brazil over the last several years, total gasoline 
consumption in Brazil also continues to climb.\134\ This reduces the 
potential for substantial increases in exports of ethanol in 2016, as 
ethanol serves as a critical source of fuel supply in Brazil to offset 
shortages in petroleum. In fact, total consumption of petroleum in 
Brazil has increased at a rate of about 4.9% over the last several 
years, while the rate of sugarcane production has only grown at a rate 
of about 2.2%.\135\
---------------------------------------------------------------------------

    \134\ ``Gasoline Demand in Brazil: an empirical analysis,'' 
Tha[iacute]s Machada de Matos Vilela, Pontifical Catholic University 
of Rio de Janeiro, Figure 2.
    \135\ ``Brazilian sugarcane production and petroleum 
consumption,'' docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Several stakeholders also pointed to the potential for so-called 
``circle trade'' between the U.S. and Brazil as a reason to either 
reduce the applicable volume requirement for advanced biofuel in such a 
way as to limit imports of sugarcane ethanol, and/or to increase the 
required volume of BBD. In this circle trade, corn-based ethanol is 
exported from the U.S. to Brazil at the same time that sugarcane 
ethanol is exported from Brazil to the U.S. This has undoubtedly 
occurred in the past, though the circle trade volumes have represented 
only 21% of all ethanol imports and exports between the two countries 
that occurred between 2010 and 2014.\136\ However, there has been a 
high degree of variability in sugarcane ethanol imports into the U.S., 
and also a high degree of variability in the export of corn ethanol to 
Brazil. In some years the U.S. exported more ethanol to Brazil than 
Brazil exported to the U.S., while in other years the opposite 
occurred. This indicates that there are a wide variety of factors 
driving imports and exports of ethanol, and ``circle trade'' does not 
appear to have been the major one in the past. Nevertheless, to the 
degree that circle trade increased in response to higher RFS volume 
requirements for advanced biofuel, the GHG benefits associated with the 
advanced biofuel volume requirement would be reduced.
---------------------------------------------------------------------------

    \136\ Between 2010 and 2014, circle trade represented about 21% 
of all ethanol imports and exports between the U.S. and Brazil. See 
``Analysis of circle trade between the US and Brazil,'' docket EPA-
HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    As stated in the NPRM, the highest volume of Brazilian sugarcane 
ethanol that has ever been imported was 680 million gallons in 2006; in 
2013 imports reached 435 million gallons.\137\ However, in 2014 imports 
were only 64 million gallons, and the projected annual level of imports 
for 2015 is about 55 million gallons.138 139 Some sugarcane 
ethanol will likely be imported in 2016 in order to meet the 
requirements of California's Low Carbon Fuel Standard (LCFS), and all 
such imported sugarcane ethanol will qualify to meet the RFS standards. 
However, sugarcane ethanol volumes have also fallen off in recent years 
under California's program.\140\ Given our assessment of UNICA's 
estimate of volumes it can export to the U.S. in 2016 as described 
previously, and our assessment of uncertainty in import volumes as 
evidenced by the highly variable historical supply, there is no 
indication (apart from UNICA's comments, discussed above) that imports 
of sugarcane ethanol in 2016 will be markedly different from historic 
levels. While the historical average level of ethanol imports over the 
last ten years is about 300 million gallons, the low levels of imports 
seen in 2014 and 2015 suggest that such volumes may not be available in 
2016. Accordingly, for the purposes of determining the reasonably 
attainable volume of advanced biofuels, we believe it is reasonable to 
assume that a somewhat lower level of imports will occur than the 
historic average over the last ten years. Thus we estimate that about 
200 million gallons of sugarcane ethanol will be available in 2016 for 
the purposes of determining the advanced biofuel volume requirement for 
2016. However, actual imports of sugarcane ethanol could be higher or 
lower than this level as shown in the scenarios for how the market 
could respond in Section II.G.
---------------------------------------------------------------------------

    \137\ Ethanol import data from EIA, representing imports 
directly from Brazil and indirectly through the Caribbean Basin 
Initiative (CBI) and the Central America Free Trade Agreement 
(CAFTA). http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epooxe_im0_mbbl_m.htm.
    \138\ Based on import data from EMTS.
    \139\ Notably, in response to the February 7, 2013 NPRM, UNICA 
projected that Brazil could supply 800 mill gal of sugarcane to the 
U.S. in 2014.
    \140\ ``Status Review of California's Low Carbon Fuel 
Standard,'' Institute of Transportation Studies, University of 
California Davis, April 2015.
---------------------------------------------------------------------------

    With regard to advanced biodiesel and renewable diesel, past 
experience suggests that a high percentage of the supply of biodiesel 
and renewable diesel to the United States qualifies as advanced 
biofuel. In previous years biodiesel and renewable diesel produced in 
the United States has been almost exclusively advanced biofuel. It is 
also likely that some advanced biodiesel will be imported in 2016, as 
discussed in Section II.E.3.iii, however we believe that the volume of 
biodiesel imported from Argentina in 2016 is likely to be less than the 
several hundred million gallons suggested by some commenters (see 
Section II.E.3.iii for more detail on biodiesel and renewable diesel 
imports). Imports of conventional (D6) biodiesel and renewable diesel, 
however, have also increased in recent years, and are likely to 
continue to contribute to the supply of renewable fuel in the United 
States in 2016. By including a high percentage of the 2.5 billion 
gallon projected total supply of biodiesel and renewable diesel in the 
advanced biofuel category, consistent with past experience, we are 
incentivizing increased production and import of biodiesel and 
renewable diesel that is produced from feedstocks that qualify for 
advanced biofuel RINs in 2016, rather than conventional renewable fuel 
RINs, enhancing the GHG benefits of the RFS program.
    The discussion of the many constraints on total biodiesel supply in 
Section II.E.3 above is also relevant in the determination of 
reasonably attainable volumes of advanced biodiesel. In this context, 
we believe that out of the total of 2.5 billion gallons of biodiesel 
and renewable diesel that we have determined can reasonably be assumed 
for purposes of establishing the total renewable fuel volume 
requirement, that 2.1 billion gallons could be advanced biofuel. While 
we expect domestically produced biodiesel and renewable diesel to 
remain the primary source of biodiesel and renewable diesel supplied to 
the United States in 2016, the potential constraints related to the 
distribution and use of biodiesel, discussed in Section II.E.3 above, 
may lead to an increasing demand for renewable diesel, which faces 
fewer potential constraints related to distribution and use than 
biodiesel. Much of the renewable diesel produced globally would qualify 
as conventional, rather than advanced biofuel, and we therefore expect 
that conventional renewable diesel will continue to be an important 
source of renewable fuel used in the United States in 2016. The volume 
of advanced biodiesel and renewable diesel which we are assuming for 
purposes of deriving the advanced biofuel standard for 2016 (2.1 
billion gallons) would represent an increase of about 370 million 
gallons from that supplied in 2015, which is greater than the annual 
increase that occurred in the previous two years (91 million gallons 
from 2013 to 2014 and 104 million gallons from 2014 to 2015)

[[Page 77479]]

but less than the highest annual increase that occurred in 2013 (about 
560 million gallons from 2012 to 2013). This projected increase in the 
available volume of advanced biodiesel and renewable diesel accounts 
for the expected increased availability of feedstocks, such as soy oil, 
distillers corn oil, and waste oils, fats, and greases, that we expect 
will be available to biodiesel and renewable producers in 2016 (see 
Section II.E.3.i for a further discussion of feedstock availability). 
It also represents a significant increase from the highest levels of 
advanced biodiesel and renewable diesel supplied to date. We find this 
volume to be reasonably attainable for the reasons discussed in Section 
II.E.3.
    Due to the nested nature of the standards, all cellulosic biofuel 
qualifies to help meet the advanced biofuel volume requirement. As 
described in Section II.E.4, we have also estimated that about 25 
million gallons of advanced biofuel other than ethanol, biodiesel, and 
renewable diesel can be supplied in 2016. We estimate that the 
combination of all these sources results in a reasonably attainable 
volume of advanced biofuel for 2016 of 3.61 billion gallons. This is 
the volume requirement that we are establishing for advanced biofuel 
for 2016. We note that the volumes actually used to satisfy this 
requirement may be different than those listed in Table II.F-1 below.

 Table II.F-1--Volumes Used To Determine Advanced Biofuel Supply in 2016
------------------------------------------------------------------------
                                                      Volume
                                                     (million   Million
                                                     gallons)     RINs
------------------------------------------------------------------------
Cellulosic biofuel................................        230        230
Biodiesel and renewable diesel....................      2,100      3,150
Imported sugarcane ethanol........................        200        200
Other non-ethanol.................................         25         25
                                                   ---------------------
  Total...........................................      2,555      3,605
------------------------------------------------------------------------

    The volume of advanced biofuel that we are establishing for 2016 
will require increases from current levels that are substantial yet 
attainable, taking into account the constraints on supply discussed 
previously, our judgment regarding the ability of the standards we set 
to result in marketplace changes, and the various uncertainties we have 
described. Figure II.F-3 shows that the advanced biofuel volume 
requirement for 2016 will be significantly higher than the actual 
supply of advanced biofuel in previous years.
[GRAPHIC] [TIFF OMITTED] TR14DE15.013

G. Market Responses to the 2016 Advanced Biofuel and Total Renewable 
Fuel Volume Requirements

    The transportation fuel market is dynamic and complex, and the RFS 
program is only one of many factors that determine the relative types 
and amounts of renewable fuel that will be used. Thus, while we set the 
applicable volume requirements for advanced biofuel and total renewable 
fuel, we cannot precisely predict how the market will choose to meet 
those requirements, as the RFS standards we set generally allow use of 
multiple fuel types for compliance. We can, however, delineate a range 
of possibilities, and doing so provides a means of demonstrating that 
the final volume requirements are attainable through multiple possible 
paths.
    For our final 2016 total renewable fuel volume requirement of 18.11 
billion gallons, there would be 1.05 billion ethanol-equivalent gallons 
needed beyond that supplied by E10, the BBD volume requirement of 1.9 
billion physical gallons (equivalent to 2.85 billion D4 RINs as 
described in Section III.D.4), and that portion of the cellulosic 
biofuel volume which we would expect to be derived from non-ethanol 
biofuel (see Section IV.F).

[[Page 77480]]



  Table II.G-1--Breakdown of Renewable Fuel Use in 2016 Based on Final
                                 Volumes
                  [Billion ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total renewable fuel.........................................      18.11
Ethanol consumed as E10 \a\..................................     -14.00
Non-ethanol cellulosic biofuel...............................      -0.21
Biomass-based diesel \b\.....................................      -2.85
Additional renewable fuel that must be used..................       1.05
------------------------------------------------------------------------
\a\ Includes all sources of ethanol (cellulosic, advanced, and
  conventional).
\b\ Represents the 1.90 billion physical gallons that is the minimum
  required under the BBD standard.

All of the constraints discussed in Section II.E.1 could play a role in 
determining how the market chooses to supply the additional 1.05 
billion gallons needed. The options available to the market to fulfill 
the need for 1.05 billion gallons of renewable fuel include the 
following: \141\

    \141\ Although obligated parties could draw down the bank of 
carryover RINs as an alternative means of compliance, as discussed 
elsewhere we believe that the incentives for obligated parties to 
retain their carryover RINs is sufficiently large that they will 
preferentially acquire and retire current-year RINs for compliance.
---------------------------------------------------------------------------

 Increase the production and use of BBD above the final 
standard of 1.90 billion gallons \142\
---------------------------------------------------------------------------

    \142\ We have determined in the context of deriving the advanced 
biofuel standard that 2.2 billion gallons are reasonably attainable. 
However, the market could operate such that larger volumes are made 
available.
---------------------------------------------------------------------------

 Increase import and use of sugarcane ethanol and/or domestic 
production and use of corn-ethanol, which would require a corresponding 
increase in E15 and/or E85
 Increase production and/or imports of conventional (D6) 
biodiesel and renewable diesel
 Increase the production of other non-ethanol biofuels, such as 
renewable heating oil, jet fuel, naphtha, butanol, and renewable fuels 
coprocessed with petroleum

In determining the amounts of each type of renewable fuel used to meet 
the total renewable fuel volume requirement, the market would also need 
to satisfy the final advanced biofuel standard of 3.61 billion gallons.
    To illustrate the possible outcomes, we evaluated a number of 
scenarios with varying levels of E85/E15, E0, imported sugarcane 
ethanol, advanced biodiesel and renewable diesel, and conventional 
biodiesel and renewable diesel (likely to be made from palm oil). In 
doing so we sought to capture the range of possibilities for each 
individual source, based both on levels achieved in the past and how 
the market might respond to the final standards in 2016. Each of the 
rows in Table II.G-2 represent a scenario in which the final total 
renewable fuel and advanced biofuel volume requirements would be 
satisfied. While we cannot predict precisely how the market will 
respond to the standards we are setting, we believe that the market 
will respond, and will likely do so within the range of options shown 
in the table below. The flexibility afforded the market through the RFS 
program helps to make the standards we are finalizing today reasonably 
achievable.

  Table II.G-2--Volume Scenarios Illustrating Possible Compliance with 3.61 Bill gal Advanced Biofuel and 18.11
                                          Bill gal Total Renewable Fuel
                                              [Million gallons] a b
----------------------------------------------------------------------------------------------------------------
                                                                                                      Minimum
                                                   Total ethanol     Sugarcane         Total         volume of
             E85 \c\                    E0              \d\           ethanol      biodiesel \e\     advanced
                                                                                                   biodiesel \e\
----------------------------------------------------------------------------------------------------------------
200.............................             100          14,122             100           2,502           2,170
200.............................             100          14,122             300           2,502           2,037
200.............................             300          14,102               0           2,516           2,237
200.............................             300          14,102             100           2,516           2,170
200.............................             300          14,102             300           2,516           2,037
200.............................             300          14,102             495           2,516           1,907
400.............................             100          14,255               0           2,414           2,237
400.............................             100          14,255             100           2,414           2,170
400.............................             100          14,255             300           2,414           2,037
400.............................             100          14,255             495           2,414           1,907
400.............................             300          14,234             100           2,427           2,170
400.............................             300          14,234             300           2,427           2,037
----------------------------------------------------------------------------------------------------------------
\a\ Assumes for the purposes of these scenarios that supply of other non-ethanol advanced biofuel (heating oil,
  naphtha, etc.) is 25 mill gal, and that the cellulosic biofuel final standard for 2016 is 230 mill gal, of
  which 20 mill gal is ethanol and the remainder is primarily biogas.
\b\ Biomass-based diesel, conventional biodiesel, and total biodiesel are given as biodiesel-equivalent volumes,
  though some portion may be renewable diesel. Other categories are given as ethanol-equivalent volumes.
  Biodiesel-equivalent volumes can be converted to ethanol-equivalent volumes by multiplying by 1.5.
\c\ Some higher ethanol blend volume here represented as E85 may alternatively be E15 (1 gal of E85 could be
  replaced with 12.8 gallons of E15)
\d\ For the range of total ethanol shown in this table, the nationwide pool-wide average ethanol content would
  range from 10.07% to 10.18%. The majority of gasoline will contain 10% ethanol, and some gasoline will contain
  higher levels of ethanol such as E15 or E85. In comparison, the pool-wide average ethanol content in 2014 and
  2015 (projected) was 9.97% and 10.01%, respectively. When the increase in ethanol use is combined with
  substantial increases in non-ethanol renewable fuels, the 2016 volume requirements are significantly higher
  than both 2014 and 2015.
\e\ Includes supply from both domestic producers as well as imports.

    The scenarios in the table above are not the only ways that the 
market could choose to meet the total renewable fuel and advanced 
biofuel volume requirements that we are finalizing today. Indeed, other 
combinations are possible, with volumes higher than the highest levels 
we have shown above or, in some cases, lower than the lowest levels we 
have shown. The scenarios above (and similar scenarios presented in the 
NPRM) cannot be treated as EPA's views on the only, or even most 
likely, ways that the market may respond to the final volume 
requirements for 2016, contrary to the views of some stakeholders who 
commented on the NPRM. Instead, the scenarios are merely

[[Page 77481]]

illustrative of the various ways that it could play out. Our purpose in 
generating the list of scenarios above is only to illustrate a range of 
possibilities which demonstrate that the standards we are finalizing 
today are achievable despite the considerable increases relative to 
2015.
    Stakeholders who believed that the volume requirements we proposed 
in the NPRM were too high often described them as unprecedented or 
overly aggressive, implicitly treating the various legal and practical 
constraints to increased renewable fuel use as a barrier that cannot or 
should not be crossed. Some stakeholders said that any scenario in 
which a particular category of renewable fuel exceeded historical 
maximums or previously demonstrated production levels cannot be 
considered to be achievable. Based on this premise, such stakeholders 
dismissed all scenarios in the NPRM as being unachievable.
    As described earlier, while we acknowledge that constraints on 
growth in renewable fuel supply are real, we do not believe that they 
create absolute barriers to growth in renewable fuel supply. Instead, 
the current constraints on growth in supply mean that each additional 
supply increment is likely to be more difficult to achieve than 
previous increments, and likely require more time to overcome than past 
constraints. The market most certainly can and will respond to the 
standards that we set by increasing supply, as has been demonstrated on 
other occasions. Growth in the biofuels market is also the primary 
objective of the statute, as we acknowledge throughout this action. 
However, the market is not unlimited in its ability to respond, and for 
this reason we have found it necessary to reduce the required volumes 
below the statutory targets.
    The scenarios that we provided in the NPRM, and somewhat different 
scenarios presented above that reflect the final volume requirements, 
demonstrate that the market has various ways in which it could respond. 
The market can be expected to choose the lowest cost path to compliance 
for 2016, but some parties may choose paths that are intended to result 
in lower costs in the long term despite generating higher costs in the 
near term. For instance, regulated parties may respond to the standards 
we set with investments in production, distribution, and consumption 
infrastructure that is focused on longer term growth.
    All of the volume levels in the scenarios shown above are within 
reach of a responsive market, though they may not all be equally 
likely. Below we discuss several of them to demonstrate that the final 
volume requirements for 2016 are achievable.
    With regard to E85, according to EIA there will be about 16 million 
FFVs in the in-use fleet in 2016 with a total consumption capacity of 
about 14 billion gallons of E85.\143\ However, since only about 2% of 
retail stations nationwide currently offer E85, only a minority of FFVs 
have easy access to E85. Under more favorable E85 pricing that could 
result from higher RIN prices, E85 sales volumes higher than those 
achieved in 2014 (about 150 million gallons) are certainly achievable. 
As described in Section II.E.2.iii we believe that 200 million gallons 
is the most likely maximum achievable volume of E85 in 2016. Even with 
some growth in the number of retail stations offering E85, however, E85 
sales are unlikely to grow dramatically in 2016 due to the weak 
observed consumer response to E85 combined with the limited ability of 
the RIN mechanism under current conditions to reduce the retail price 
of E85 relative to E10 as described in Section II.E.2.ii. USDA's 
Biofuels Infrastructure Partnership grant program, an important program 
to expand ethanol retail infrastructure, could increase the number of 
E85 retail stations by perhaps as much as 400 in 2016 as discussed 
above, but such growth would still have a relatively small impact on 
total ethanol use.\144\ As described in Section II.E.2.iii, under 
highly favorable though much less likely conditions related to growth 
in the number of E85 retail stations, retail pricing, and consumer 
response to that pricing, it is possible that E85 volumes as high as 
400 million gallons could be reached in 2016.\145\ Thus we have 
included scenarios in Table II.G-2 that include E85 volumes as high as 
400 million gallons. Higher volumes of E85 sales in 2016 are very 
unlikely, but are possible if the market can overcome constraints 
associated with E85 pricing at retail and consumer responses to those 
prices.
---------------------------------------------------------------------------

    \143\ According to AEO2015, Table 42, total vehicle miles 
travelled by FFVs in 2016 will be about 7.95% of all light-duty 
gasoline-powered vehicles, equivalent to about 10.9 bill gal of E10 
or 13.9 bill gal of E85.
    \144\ We acknowledge that the USDA program will increase the 
number of retail stations offering E15, potentially significantly. 
However, as described in Section II.E.2.iv, the impact on total 
ethanol supply in 2016 from increased use of E15 is likely to be 
considerably smaller than the impact on total ethanol supply from 
the use of E85. Thus some portion of the volumes of E85 shown in 
Table II.G-2 may instead be ethanol-equivalent volumes of E15.
    \145\ ``Correlating E85 consumption volumes with E85 price,'' 
memorandum from David Korotney to EPA Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    As Table II.G-2 illustrates, the final standards could result in 
the consumption of as much as 2.5 billion gallons of biodiesel and 
renewable diesel, representing an increase of more than 600 million 
gallons over the projected 2015 supply of all D4 and D6 biodiesel and 
renewable diesel. While this would be a substantial increase, we 
believe that it is possible for the market to reach this level as 
discussed as in Section II.E.3. 2.5 billion gallons of biodiesel would 
represent about 4% of the nationwide pool of diesel fuel in 2016. Most 
diesel fuel could contain 5% biodiesel while still allowing some diesel 
fuel to contain no biodiesel to accommodate areas of the country where 
the distribution infrastructure is not yet established, as well as that 
used in northern states during the coldest months of the year. Also, 
B20 could be used in a number of centrally-fueled fleets composed of 
newer engines without violating manufacturer warranties, and additional 
volumes of biodiesel could be used in heating oil. In light of these 
additional volumes, it is possible that 2.5 billion gallons could be 
supplied in 2016.
    We note that it would be inappropriate to construct a new scenario 
based on the highest volumes in each category that are shown in Table 
II.G-2 in order to argue for higher volume requirements than we are 
establishing today. Doing so would result in summing of values that we 
have determined are higher than the most likely maximum achievable 
volumes of the different fuel categories, resulting in a total volume 
that we believe would be extremely unlikely to be achievable. We have 
more confidence in the ability of the market to achieve 18.11 billion 
gallons of total renewable fuel through some combination of different 
types of renewable fuel than we have in the ability of the market to 
achieve a specific level of, say, biodiesel. Thus, for instance, while 
the highest biodiesel volume shown in Table II.G-2 is about 2.5 billion 
gallons, the market could choose a different level of total biodiesel 
and renewable diesel, offsetting the volumes with other fuels. The same 
is true for the highest level of E85 shown in Table II.G-2 of 400 
million gallons, or the highest level of sugarcane ethanol of about 500 
million gallons. In addition, the consumption of each fuel in Table 
II.G-2 is not independent of the consumption of the other fuels in the 
table. For example, greater domestic biodiesel production reduces the 
likelihood of large imports of biodiesel

[[Page 77482]]

because these two fuels compete against one another for access to 
feedstocks that can be used to make biodiesel in 2016 and for available 
distribution infrastructure and market share. The probability that the 
upper limits of all sources shown in Table II.G-2 could be achieved 
simultaneously is extremely unlikely.
    As noted in the NPRM, the volume requirements that we are 
establishing today will likely result in RIN prices that are higher 
than historical levels. RIN price increases are an expected market 
response to a renewable fuel volume requirement that is higher than 
that in previous years and which is expected to require effort on the 
part of producers, distributors, blenders, and retailers to overcome 
constraints. While the RIN market mechanism provides incentives for the 
market to increase supply both in the near and long term, as stated 
earlier the RIN market mechanism is not without limitation, and the 
renewable fuel supply cannot be expected to increase proportionally at 
any RIN price. Particularly in the near term (specifically 2016), we do 
not believe that significantly higher RIN prices would likely compel 
the market to supply substantially higher volumes than we are 
finalizing today.

H. Treatment of Carryover RINs

    We explained in the NPRM that we cannot precisely assess the volume 
of carryover RINs available for use in complying with the 2014, 2015, 
and 2016 standards, but that we estimated that approximately 1.8 
billion would remain after compliance with the 2013 RFS standards. We 
proposed that the current bank of carryover RINs should be preserved as 
a compliance ``buffer'' and not intentionally drawn down by setting 
volume requirements at a level that is higher than can be satisfied 
through the production and use of physical gallons of fuel.\146\ Many 
stakeholders provided comment on the topic of how EPA should consider 
carryover RINs as part of the standard-setting process. After 
considering these comments, we have decided for this rulemaking to 
treat carryover RINs in the manner proposed and not establish volume 
requirements that would be expected to require obligated parties to 
draw down the current bank of carryover RINs so as to achieve 
compliance.
---------------------------------------------------------------------------

    \146\ For the bank of carryover RINs to be preserved from one 
year to the next, individual carryover RINs are used for compliance 
before they expire and are essentially replaced with a newer vintage 
RIN that is then held for use in the next year. For example, if the 
volume of the RIN bank is unchanged from 2013 to 2014, then all of 
the approximately 1.74 billion vintage 2013 carryover RINs must be 
used for compliance in 2014, or they will expire. However, the same 
volume of 2014 RINs can then be ``banked'' for use in the next year.
---------------------------------------------------------------------------

1. Summary of Public Comments
    Comments on this issue generally expressed two opposing points of 
view. Many commenters, including many obligated parties, contended that 
EPA should not assume a draw-down in the bank of carryover RINs in 
determining the appropriate level of volume requirements. On the other 
hand, other commenters including many renewable fuel providers urged 
EPA to rely on carryover RINs to push the standards higher than the 
levels of projected physical volumes and so minimize the extent to 
which statutory applicable volumes are reduced.
    Representatives of obligated parties were nearly uniform in 
supporting EPA's proposal to not assume a draw-down in the current bank 
of carryover RINs in setting the 2014, 2015, and 2016 advanced biofuel 
and total renewable fuel standards. Virtually all of these commenters 
agreed that maintaining the bank of carryover RIN would provide them 
with needed compliance flexibility to address unforeseen events such as 
operational problems, market dislocations, supply limitations, or 
fraudulent RINs. Several commenters noted that if EPA were to rely on 
the use of carryover RINs to push for higher standards than reflected 
by actual renewable fuel supply, it would remove a flexibility that 
Congress had intended for obligated parties. Several commenters also 
noted that obligated parties vary in their ability to acquire RINs, 
with the result being that some obligated parties have a substantial 
number of carryover RINs, while others have few or none. They argued 
that setting the volume requirements with the expectation that all or a 
substantial number of carryover RINs would be used would make 
compliance even more difficult than it would otherwise be for those who 
must rely largely or totally on RIN purchases rather than on acquiring 
RINs through blending activities. Several commenters also argued that 
maintaining the bank of carryover RINs allows for better market trading 
liquidity and a cushion against future program uncertainty. They noted 
the importance of a relatively stable, liquid RIN market for achieving 
compliance with volume requirements, particularly where new and 
expanded avenues of supply are still being developed and built. In 
their view, carryover RINs have been important to maintaining a 
functioning market, and they cautioned EPA against reducing that pool 
at all or too much and thereby risking severe market disruption in the 
event of a drought or other unforeseen difficulties.
    Commenters from the renewable fuel industry, on the other hand, 
urged EPA to assume a draw-down in the bank of carryover RINs in 
determining whether and to what extent to waive statutory volumes. They 
noted that EPA considered the availability of carryover RINs in 
previous decisions not to waive statutory volumes, and argued that 
EPA's proposed approach was inconsistent with this past practice. They 
pointed out that in order to comply with the statute's purpose to 
encourage growth in the use of renewable fuel in the transportation 
fuel supply, carryover RINs should be considered available for 
minimizing the extent to which statutory volume requirements are 
reduced. Some of these commenters further argued that the carryover 
RINs clearly are part of the renewable fuel ``supply'' available for 
compliance purposes, and therefore EPA must count them in determining 
whether there is an ``inadequate domestic supply'' for purposes of 
justifying use of the general waiver authority.
2. Updated Projection of Carryover RIN Volume
    In the NPRM, EPA assessed the size of the RIN bank at approximately 
1.8 billion carryover RINs. However, we have updated our assessment, 
and now believe that 1.74 billion is the maximum that might be 
available for possible use in complying with the standards for 2014, 
2015 and 2016.\147\ There is considerable uncertainty surrounding this 
number since there has not been a compliance demonstration since 2013 
(for the 2012 RFS standards). As described in a memorandum to the 
docket, the 1.74 billion carryover RIN maximum value will effectively 
be reduced to an uncertain degree to satisfy deficit carry-forwards 
from 2012.\148\ In addition, there have been enforcement actions in 
past years that have resulted in the retirement of RINs that were 
fraudulently generated and were therefore invalid, and parties who 
relied

[[Page 77483]]

on those invalid RINs for compliance were required to acquire valid 
substitutes to true up their past compliance demonstrations. Future 
enforcement actions could have similar results, and require that 
obligated parties settle past enforcement-related obligations in 
addition to the 2014-2016 standards, thereby creating greater demand 
for RINs than what EPA has determined represents the maximum reasonably 
achievable in this time period. The result of such enforcement actions, 
therefore, could be an effective reduction in the size of the 
collective bank of carryover RINs to a level further below 1.74 billion 
RINs.
---------------------------------------------------------------------------

    \147\ As noted elsewhere, we do not believe that the collective 
bank of carryover RINs will be drawn down to achieve compliance with 
2014, 2015, and 2016 standards, since carryover RINs from one year 
will likely be rolled over into new carryover RINs for the next; we 
are describing here the size of the collective RIN bank, RINs that 
could theoretically be used for compliance purposes with 2014, 2015 
and 2016 standards, though we do not believe that they will be.
    \148\ ``Estimating Carryover RINs Available for Use in 2014,'' 
Dallas Burkholder, Office of Transportation and Air Quality, U.S. 
EPA. November 2015. EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

3. EPA's Decision and Response to Comments
    EPA has decided to maintain the proposed approach, and not set the 
volume requirements in the final rule with the intention or expectation 
of drawing down the current bank of carryover RINs. While we have not 
assumed an intentional drawdown in the overall bank of carryover RINs 
owned by obligated parties collectively in establishing the volume 
standards for 2014, 2015, and 2016, we understand that some obligated 
parties may choose to sell or use all or part of their individual banks 
of carryover RINs during this time period. To the extent that they do 
so, other obligated parties would be in a position to bank carryover 
RINs by using available renewable fuel or purchasing RINs representing 
such fuel, with the expected net result being no effective change in 
the size of the overall bank of carryover RINs that is owned 
collectively by obligated parties.
    In finalizing this approach, we carefully considered the many 
comments received, including on the role of carryover RINs under our 
waiver authorities and the policy implications of our decision. Our 
responses to major comments are summarized here, with additional 
detailed responses in the Response to Comments document in the docket.
i. Importance of Carryover RINs
    We agree with the many commenters who noted the importance of 
carryover RINs to individual compliance flexibility and operability of 
the program as whole. We believe that carryover RINs are 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. As described in the 
2007 rulemaking establishing the RFS regulatory program,\149\ carryover 
RINs are intended to provide flexibility in the face of a variety of 
circumstances that could limit the availability of RINs, including 
weather-related damage to renewable fuel feedstocks and other 
circumstances affecting the supply of renewable fuel that is needed to 
meet the standards. Commenters have drawn our attention to operational 
problems, market dislocations, and fraudulent RINs as other types of 
unforeseen circumstances for which the availability of carryover RINs 
is important. Obligated parties make individual decisions about whether 
and how many RINs to acquire for their compliance management purposes, 
and a decision by EPA to effectively require the ``draw down'' of all 
or a substantial volume of individual carryover RIN banks by setting 
higher future volume requirements than can be satisfied with actual 
renewable fuel use would decrease their compliance options and increase 
their risk of noncompliance. An intentional drawdown of the carryover 
RIN bank under current circumstances would likely have long-term 
effects on the RFS program, as increasing standards are expected to 
make compliance more challenging and reduce the ability to generate new 
carryover RINs.
---------------------------------------------------------------------------

    \149\ 72 FR 23900, May 1, 2007.
---------------------------------------------------------------------------

    An adequate RIN bank also serves to make the RIN market liquid and 
to avoid the possible need for frequent standards adjustments. 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 will not 
function properly unless sufficient carryover RINs are held in reserve 
for potential use by the RIN holders themselves, or for possible sale 
to others that may not have established their own carryover RIN 
reserves. Were there to be no RINs in reserve, then even minor 
disruptions causing shortfalls in renewable fuel production or 
distribution, or higher than expected transportation fuel demand 
(requiring greater volumes of renewable fuel to comply with the 
percentage standards that apply to all volumes of transportation fuel, 
including the unexpected volumes) could lead to the need for a new 
waiver of the standards, undermining the market certainty so critical 
to the long term success of the RFS program. Furthermore, many 
obligated parties lack the ability to generate certain types of RINs. 
With a functioning liquid RIN market this is not a problem because we 
expect that these obligated parties will be able to comply by securing 
these RINs on the open market. However, a significant drawdown of the 
carryover RIN bank leading to a scarcity of RINs may stop the market 
from functioning in an efficient manner, even where the market overall 
could satisfy the standards. For all of these reasons, the collective 
carryover RIN bank provides a needed programmatic buffer that both 
facilitates individual compliance and provides for smooth overall 
functioning of the program. (Here and elsewhere we use the term 
``buffer'' as shorthand reference to all of the benefits that are 
provided by a sufficient bank of carryover RINs.)
    The importance of carryover RINs to the RFS program and to 
obligated parties can be illustrated by comparing them to either 
currency or inventory, as they can be seen as functioning in both roles 
in the RFS program. First, carryover RINs, like all RINs, are a form of 
``currency'' that can be traded and that ultimately are used to settle 
compliance accounts at the close of each RFS compliance year. 
Individual banks of carryover RINs can be analogized to a typical 
individual bank account in which money is deposited and withdrawn. It 
is commonly understood that in managing both personal and business 
finances, that a reserve fund should be maintained to cover unforeseen 
circumstances. Thus, it is generally considered unwise to budget 
spending every dollar that is earned in a paycheck, since unforeseen 
events such as illness, injury, or a downturn in business could impact 
future earnings, and it is prudent to assume that such an event will 
occur in the future and to plan for them. This type of planning is 
particularly important in situations where credit is either unavailable 
or restricted, since in such circumstances there may be very limited 
alternatives to a reserve account. The RFS compliance system is 
structured to provide only limited ``credit'' for compliance 
obligations. Parties may defer compliance for one calendar year, but 
are required to pay back the deficit in the next compliance year while 
also meeting the next year's requirements.\150\ Parties may also seek 
forgiveness of their RFS debt by petitioning EPA pursuant to CAA 
section 211(o)(7)(A) for a waiver to account for ``inadequate domestic 
supply'' or severe economic or environmental harm, but there is no 
guarantee that such waivers will be provided, or that they will be 
granted in time to provide the relief needed, and since such waivers 
are only available to address widespread concerns. They are

[[Page 77484]]

not likely to be available to address individual circumstances. Thus, 
we believe that there are very good reasons for the program to allow 
for the market as a whole to have a reasonable number of carryover RINs 
available, and there are incentives for individual parties to seek to 
establish and retain a reserve bank of carryover RINs that can be used 
to address expected market downturns as well as unforeseen 
circumstances that may hinder or prevent compliance. Furthermore, just 
as the economy as a whole is stronger and more resilient when many 
individuals have significant monetary savings, we believe the RFS 
program, too, is stronger and more resilient to market swings and 
unforeseen events when obligated parties, collectively, have a 
sufficient bank of carryover RINs. Excessive savings are generally not 
positive for an economy, since they suggest that investments in future 
growth are not being made; however, insufficient savings run the risk 
of a market collapse in the face of economic downturns. An appropriate 
amount of savings is the desired goal. In our judgement, maintaining 
the current volume of carryover RINs will provide an appropriate 
collective savings account for the RFS program to provide benefits 
similar to desired collective savings in the economy.
---------------------------------------------------------------------------

    \150\ See CAA section 211(o)(5)(D).
---------------------------------------------------------------------------

    We also believe the carryover RIN bank for the RFS program can be 
analogized to the working inventory that any business needs to operate. 
In the case of businesses, these are the raw materials, parts, or cash 
on hand needed to keep production going for the next day, the next 
week, or the next several months until new supplies can be delivered 
during normal operations and to allow for potential disruptions in 
supply of necessary materials. Failure to maintain an adequate working 
inventory of supplies could shut down operations, cause contracts to go 
unfulfilled, and create a lack of confidence in the business by would-
be purchasers of their products that could ultimately lead to business 
failure. This is why successful businesses maintain inventories of 
supplies that they will need to maintain continuous production, and to 
account for unexpected disruptions in supply.\151\ This phenomenon, 
known as convenience yield, is also why they typically maintain 
multiple sources of supply, rather than relying on just one. 
Maintaining an inventory and alternative sources is particularly 
important in situations where product supply is limited, unreliable, or 
uncertain, since the inventory allows continued operations despite 
these circumstances. While in theory the working inventories can be 
drawn down, and might need to be when circumstances dictate, these 
working inventories are not drawn down in the course of normal business 
operations and instead are maintained year after year to serve their 
intended purpose. We believe we are in this same situation for the 
existing bank of carryover RINs. Although the RFS program is structured 
such that compliance with the percentage standards is determined on an 
annual average (rather than a per-gallon) basis, it is nevertheless 
logical and prudent for obligated parties to view RINs as an essential 
ingredient of their product, and to attempt to match their RIN holdings 
to production volumes on an ongoing basis. The availability of 
carryover RINs can help provide needed assurance to obligated parties 
during the compliance year that they will eventually be able to comply 
with the RFS standards, while still planning to do so through the 
acquisition of current-year RINs. While individual obligated parties 
may not have a bank of carryover RINs at present, the access to 
carryover RINs in the marketplace from other sources can serve the same 
function.
---------------------------------------------------------------------------

    \151\ For example, the marketwide carryover inventory of corn 
from one crop year to the next is roughly 9-10% of annual harvest. 
EIA. ``Weekly U.S. Ending Stocks of Fuel Ethanol.'' October 21, 2015 
(available at http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPOOXE_SAE_NUS_MBBL&f=W); EIA. ``Weekly 
U.S. Oxygenate Plant Production of Fuel Ethanol.'' October 21, 2015 
(available at http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPOOXE_YOP_NUS_MBBLD&f=W). Similarly, the 
average amount of ethanol in inventory at any given time is 
approximately 5-6% of annual production. USDA. ``Grain Stocks.'' 
September 30, 2015 (available at http://usda.mannlib.cornell.edu/usda/current/GraiStoc/GraiStoc-09-30-2015.pdf); USDA. ``Crop 
Production Annual Summary.'' January 12, 2015 (available at http://usda.mannlib.cornell.edu/usda/current/CropProdSu/CropProdSu-01-12-2015_revision.pdf).
---------------------------------------------------------------------------

ii. Role of Carryover RINs Under the Waiver Authorities
    Some commenters disagreed with the proposed approach, suggesting 
that carryover RINs must be considered as part of ``supply'' in 
determining if there is an ``inadequate domestic supply'' justifying a 
waiver pursuant to CAA section 211(o)(7)(A). We disagree with these 
comments. As noted in Section II.B., the term ``inadequate domestic 
supply'' is not defined in the statute. Similarly, CAA section 
211(o)(5), which provides the statutory basis for the carryover RIN 
regulatory provisions, 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, but is silent on 
the relationship of these credits to the ``inadequate domestic supply'' 
reference in section 211(o)(7)(A). Therefore, EPA finds no guidance in 
the text of these key statutory provisions on whether or not carryover 
RINs should be deemed part of the ``supply'' referenced in CAA section 
211(o)(7)(A). In light of the statute's silence on this matter, it is 
appropriate for EPA to interpret the term so as to best fulfill the 
statute's objectives, including the general objective that the program 
runs efficiently.
    We believe that the word ``supply'' in the phrase ``inadequate 
domestic supply'' can logically be read to refer only to actual 
renewable fuel (and not carryover RINs), since the focus of the entire 
RFS program is on increasing the amount of renewable fuel used in the 
transportation sector. Commenters suggested that the word ``supply'' 
could perhaps be interpreted to include both renewable fuel and 
carryover RINs on the grounds that all such RINs can be used for 
compliance purposes. However, it is clear that the result of this 
latter interpretation would be a complete drawdown in the collective 
bank of carryover RINs in a relatively short time period. In any year 
where actual renewable fuel supply was below the statutory levels and 
there was a balance of carryover RINs, reducing if not eliminating that 
balance would be a condition of exercising the general waiver 
authority. Because we firmly believe that maintaining a significant 
bank of carryover RINs provides a substantial benefit to the RFS 
program, as described above, in our judgment it best serves the 
interests of the program to interpret the term ``supply'' in the term 
``inadequate domestic supply'' to include only actual renewable fuel, 
and not carryover RINs.
    Although we do not believe that carryover RINs should be considered 
as part of the ``supply'' of renewable fuel in the context of a finding 
of ``inadequate domestic supply'' under the general waiver authority, 
we do believe that the availability of carryover RINs is an important 
factor for EPA to consider in determining whether or not to use the 
general waiver authority, just as it is when EPA considers using its 
cellulosic waiver authority (as upheld in the Monroe case). Thus, while 
we do not take carryover RINs into consideration in determining whether 
we can exercise the general waiver authority, we do take them into 
consideration in determining whether we should exercise either the 
general waiver authority or the

[[Page 77485]]

cellulosic waiver authority. The exercise of these waiver authorities 
is discretionary and with an overabundance of carryover RINs, EPA could 
decide not to waive the statutory volume targets, even where the supply 
of actual renewable fuel may be inadequate to allow compliance, since 
the carryover RINs would allow compliance and a drawdown in the 
carryover RIN bank would not result in a loss of the important 
``buffer'' function provided by a sufficient bank of carryover RINs. 
However, when the size of the bank of carryover RINs is limited, EPA 
could reasonably decide to exercise its waiver authorities to match the 
RFS requirements to the volume of the renewable fuel supply in the year 
in question, with the intention of preserving the limited bank of 
carryover RINs for the overall benefit of the program.\152\ That is the 
present situation; in light of the projected limited size of the 
current bank of carryover RINs, we have determined that the volume 
requirements for total renewable fuel should be set at the level of 
projected supply of renewable fuels, and not at higher levels that 
would be expected to require a drawdown in the overall bank of 
carryover RINs. Similarly, in exercising the cellulosic waiver 
authority, we are not setting the volume requirements for advanced 
biofuel with the intention or expectation of requiring a draw-down in 
the bank of carryover RINs. We believe that preserving the current 
collective bank of carryover RINs is appropriate to provide a program 
buffer that facilitates the effective operation of the RFS program, and 
that a draw-down of this collective bank of carryover RINs should be 
avoided in setting the volume requirements for 2014-2016.
---------------------------------------------------------------------------

    \152\ In some years, the situation could fall between these 
extremes, where EPA may exercise its discretion in a manner that 
assumes a somewhat enlarged bank of carryover RINs would be drawn 
down to a limited degree.
---------------------------------------------------------------------------

    We do not agree with those commenters who asserted that carryover 
RINs may never be a consideration in determining whether and by how 
much to reduce statutory volume requirements. In evaluating EPA's 
decision not to use the cellulosic waiver authority in 2013 to reduce 
advanced and total renewable fuel volumes, the D.C. Circuit in Monroe 
ruled that EPA reasonably concluded that the availability of carryover 
RINs was ``certainly relevant'' to its decision.\153\ We also 
considered the availability of carryover RINs in our decision not to 
exercise the general waiver authority in responding to petitions 
seeking a waiver of RFS requirements based on the 2012 drought.\154\
---------------------------------------------------------------------------

    \153\ Monroe at 12. The court also quoted with approval EPA's 
explanation that ``carryover RINs are a valid compliance mechanism'' 
and a means for obligated parties to ``protect [] against any 
potential supply shortfalls that could limit the availability of 
RINs.'' Id. (emphasis added by the court).
    \154\ At the same time, as discussed elsewhere in this section, 
we do not agree with commenters who view our past actions as 
requiring that we always rely on the availability of carryover RINs 
as justification for avoiding waivers.
---------------------------------------------------------------------------

    Similarly, were EPA to receive a request to waive already-
established standards during the compliance year, we believe that it 
would be appropriate for EPA to take into consideration the 
substantially different context involved. Although the situation is not 
presently before us, we believe that there could be a strong case for 
avoiding granting a waiver during the course of a compliance year if a 
waiver can be avoided through the use of carryover RINs. We would need 
to consider in that context whether it would be appropriate to revise 
an established standard in the midst of the compliance year if there is 
a compliance mechanism available to avert that result. Indeed, EPA 
believes that one benefit of preserving carryover RINs when setting 
standards in the first instance, is precisely so that they may be 
available to address unforeseen circumstances such as a downturn in wet 
gallon supply during the compliance year. EPA will evaluate all such 
actions on a case-by-case basis.
iii. Extent to Which the Current Bank of Carryover RINs Could Be Drawn 
Down Without Compromising the Beneficial Buffer They Provide
    As discussed above, we believe that an appropriate bank of 
carryover RINs serves an important program function, but we also 
believe that in circumstances where there is an overabundance of 
carryover RINs, that EPA can and should consider their availability as 
a possible approach to avoid or minimize waivers of the statutory 
volume targets. In establishing the RFS regulatory program, we 
considered both the beneficial program impacts of carryover RINs (e.g., 
compliance flexibility, liquidity in the RIN trading market, etc.) and 
the potential that a substantial volume of carryover RINs could 
undermine the legitimate need of biofuel producers for assurance that 
the products they produce will actually be sold and used during a given 
compliance year, which could occur if obligated parties preferentially 
satisfy their obligations with carryover RINs. Balancing these 
considerations, and taking into account the statutory provision that 
credits should only be valid to show compliance for 12 months after the 
date of generation, EPA specified by regulation that obligated parties 
may only satisfy 20 percent of their RVO in a given year with carryover 
RINs. This 20 percent value therefore sets a cap on the possible use of 
carryover RINs that increases in absolute terms over time as the volume 
of renewable fuel required through the RFS program grows. In the 
initial years of the RFS program, obligated parties were able to 
steadily build up an inventory of carryover RINs, as market demand for 
ethanol exceeded the RFS standards. However the absolute size of the 
carryover RIN bank has been decreasing in recent years, as compliance 
requirements have become more challenging, and the ability to over-
comply and create carryover RINs has become increasingly difficult.
    For example, we estimated that 3.5 billion excess RINs were 
generated in 2011--almost 500 million more than the 3.02 billion 
carryover RINs that could be used in 2012 as a result of the 20 percent 
cap.\155\ For 2013, we estimated that 2.67 billion 2012 carryover RINs 
were available for compliance.\156\ This represented 16 percent of that 
year's 16.55 billion gallon total renewable fuel applicable volume. 
After compliance with the 2013 standards, we estimate that the 
carryover RIN bank will include at most 1.74 billion RINs and probably 
something less than that as discussed above. If we use the availability 
of carryover RINs as a basis for setting the standards for 2014 and 
2015 to the statutory volumes as some commenters suggest, instead of 
setting them at actual renewable fuel supply, then, assuming we entered 
the 2014 compliance year with 1.74 billion carryover RINs, the amount 
of carryover RINs available for 2016 would only be on the order of 0.1 
billion RINs, insufficient to maintain the statutory volumes for 2016 
and insufficient to provide the benefits of a program buffer as 
described in this section. If instead we do not require a drawdown in 
2014 and 2015, then potentially 1.74 billion carryover RINs would still 
be available for 2016, representing just 8 percent of the statutory 
volume of 22.25 billion gallons and 10 percent of the 18.1 billion 
gallon total renewable volume requirement finalized today.\157\ We 
believe that we

[[Page 77486]]

should not intentionally set the RFS standards for 2014-2016 so as to 
intentionally draw down this bank of carryover RINs.\158\ This is not 
inconsistent with prior decisions, as some commenters have argued, 
since the bank of carryover RINs is substantially less, both in 
absolute numbers and as a percentage of the applicable standards, than 
was the case in prior actions when we noted the availability of 
carryover RINs as a factor in deciding not to waive statutory volume 
targets. We recognize that the volume of carryover RINs that should be 
preserved for programmatic purposes is not given to a precise 
determination, and is largely a matter of judgement. At this time, 
given the information presently available to us, we believe it best not 
to set the RFS standards for 2014-2016 so as to intentionally draw down 
the current carryover RIN bank in whole or in part. We expect to 
evaluate this issue each year in our annual standards rulemakings, and 
to learn from experience in implementing the program, particularly once 
compliance for 2013, 2014, 2015, and 2016 has been established.
---------------------------------------------------------------------------

    \155\ See 77 FR 70752, 70759 (November 27, 2012).
    \156\ See 78 FR 49821 (August 15, 2013).
    \157\ As noted earlier, stocks of ethanol have averaged 
approximately 5-6 percent of annual production, and corn stocks, 
which vary by season, have rarely fallen below 9-10 percent of the 
annual harvest.
    \158\ Although EPA has set the volume requirements for total 
renewable fuel in today's rule based on a determination of volumes 
we believe represent the maximum levels that are reasonably 
achievable, we acknowledge that this determination is difficult, and 
that it involves a considerable amount of judgement. If EPA has 
erred in assuming too much is possible, the collective bank of 
carryover RINs would be available to obligated parties to facilitate 
compliance. This can be seen as an additional potential benefit of 
retaining an adequate bank of carryover RINs.
---------------------------------------------------------------------------

iv. Whether Carryover RINs Will Be Used To Avoid Needed Investments
    Some commenters felt that the availability of carryover RINs could 
result in obligated parties complying through retirement of carryover 
RINs rather than investing in infrastructure or other long-term efforts 
to increase biofuel supply. As noted above, we recognize the potential 
that too large a volume of carryover RINs could undermine the 
legitimate need of biofuel producers for assurance that the products 
they produce will actually be sold and used during a given compliance 
year, but we believe the current size of the carryover RIN bank is not 
sufficiently large to result in such problems. While we recognize that 
individual obligated parties may choose to comply in part through 
retiring carryover RINs (up to the 20 percent cap), we believe that, 
considering the importance of carryover RINs in providing compliance 
flexibility, obligated parties as a whole are unlikely to deplete the 
collective bank of carryover RINs simply to delay making investments in 
new infrastructure to increase the production and distribution of 
renewable fuel. Our thesis is supported by empirical evidence from 
2013.
    EPA acknowledged in setting the 2013 standards that 14.5 billion 
gallons of ethanol would be needed to meet the total statutory 
renewable fuel volume of 16.55 billion gallons, assuming that no 
biomass-based diesel was produced above the 1.28 billion gallons 
required by the biomass-based diesel standard. We also determined that 
that the total amount of ethanol the market could absorb as E10 in 2013 
was 13.1 billion gallons, leaving a potential gap of 1.4 billion 
gallons. We then described how biomass-based diesel production in 
excess of the biomass-based diesel standard, increased production of 
other non-ethanol renewable fuels, and use of E85 could contribute to 
the needed gallons. We also pointed out that about 2.6 billion 
carryover RINs would be available in 2013, which was more than enough 
to cover the potential gap of 1.4 billion gallons if other approaches 
to compliance were not realized. We decided, therefore, that a waiver 
of the statutory applicable volume of total renewable fuel was not 
needed in 2013, since there were multiple approaches to compliance 
available in the marketplace. Following signature of the final rule, 
there was a dramatic increase in RIN prices, as parties bid them up in 
an attempt to acquire sufficient RINs for compliance.\159\ We believe 
in general that high RIN prices provide an incentive to the renewable 
fuels market to increase renewable fuel production and import, as well 
as an incentive to invest in the infrastructure necessary to enable 
higher volumes of renewable fuels to be consumed.\160\ This appears to 
have occurred in 2013, notwithstanding the availability of carryover 
RINs. For example, E85 sales volumes increased significantly relative 
to previous years, although due to infrastructure limitations the 
increase in E85 consumption was still relatively small in absolute 
terms. Instead, the market turned to biodiesel and renewable diesel; 
these fuels were used at record levels, far exceeding the biomass-based 
diesel standard, and even exceeding the volumes required to satisfy the 
advanced biofuel standard.\161\ Excess biodiesel was used to fulfill a 
substantial portion of the shortfall in conventional biofuel necessary 
to meet the total renewable fuel standard. Not only did RIN prices 
spike, but they also all converged to the RIN prices for D4 BBD, 
indicating that obligated parties were willing to pay advanced biofuel 
and BBD prices for as many RINs as could be supplied rather than rely 
on carryover D6 RINs. Had obligated parties collectively acted in 2013 
so as to delay the investments necessary to expand the infrastructure 
to produce and consume additional volumes of biofuel they would have 
blended ethanol as E10, blended the minimum biodiesel volume required 
to meet the BBD and advanced biofuel standards, and used carryover RINs 
to satisfy the balance of their obligations. Although we estimate that 
800 million carryover RINs will ultimately be used for 2013 compliance, 
this is far short of the 1.4 billion RINs that could have been used had 
obligated parties placed little value on their retention and 
collectively drawn them down as an alternative to investing in the 
biofuel supply.\162\ We believe the experience in 2013 supports our 
assessment that obligated parties as a whole are unlikely to draw down 
the current bank of carryover RINs (which is substantially smaller than 
it was in 2013) as an alternative to buying RINs representing current-
year production.
---------------------------------------------------------------------------

    \159\ See Figure III.D.1-1.
    \160\ See ``A Preliminary Assessment of RIN Market Dynamics, RIN 
Prices, and Their Effects,'' Dallas Burkholder, Office of 
Transportation and Air Quality, U.S. EPA. May 14, 2015, EPA Air 
Docket EPA-HQ-OAR-2015-0111.
    \161\ See Section III.B of this preamble.
    \162\ We recognize that carryover RINs are held unevenly and 
that discussion of the collective behavior of obligated parties in 
the face of the 2013 RFS mandates greatly oversimplifies the 
dynamics likely at work. Nevertheless, we believe the experience 
provides useful information regarding market response as a whole to 
a situation with both ambitious RFS requirements and significant 
availability of carryover RINs.
---------------------------------------------------------------------------

v. Response to Other Comments
    Some parties argued that we should not assume a draw-down in the 
bank of carryover RINs in setting the total renewable fuel volume 
requirements because obligated parties vary in their ability to acquire 
RINs, with the result being that some obligated parties have a 
substantial number of carryover RINs, while others have few or none. 
They argued that setting the volume requirements with the expectation 
that all or a substantial number of carryover RINs would be used would 
make compliance even more difficult than it would otherwise be for 
those who must rely largely or totally on RIN purchases rather than on 
acquiring RINs through blending activities. We acknowledge this 
argument and believe that our approach will make the RIN market more 
fluid and facilitate compliance by parties that choose to comply with 
RFS

[[Page 77487]]

requirements by purchasing separated RINs.
    Some parties argued that setting the annual standards so as to 
intentionally draw down the carryover RIN bank would likely raise RIN 
prices to a higher degree than the proposed approach and provide 
increased incentive for expansion of production and delivery 
infrastructure of renewable fuels. While we acknowledge that higher RIN 
prices would likely occur from the suggested approach, we do not 
believe, for the reasons set forth in section II.E of this preamble, 
that there is an unlimited ability for higher RIN prices to result in 
increased biofuel supply. We believe we have set the total renewable 
fuel volume requirements today at the maximum reasonably achievable 
levels, taking into account the ability of the market to respond to 
higher standards. Furthermore, even if the commenter were correct, any 
benefits associated with increased biofuel supply in the short term 
would need to be balanced against the harmful effects of depletion of 
the bank of carryover RINs and instability of the RIN market it would 
cause. Given the importance we place on an adequate RIN bank to provide 
a needed compliance buffer, as discussed above, we do not choose to 
exercise our discretion under the general waiver authority to set 
volumes that require depletion of the bank of carryover RINs.
    Some parties argued that our approach to carryover RINs in this 
rule is inconsistent with past practice, and therefore arbitrary. We 
disagree. While it is true that a consideration of the availability of 
carryover RINs factored into our decisions not to exercise statutory 
waiver authorities in the rule establishing 2013 RFS standards (where 
the issue arose in the context of deciding whether to use the 
cellulosic waiver authority), and in our decision to deny waiver 
requests based on the 2012 drought (where we considered whether to 
exercise the general waiver authority on the basis of claims of severe 
harm to the economy), the factual backgrounds for those decisions were 
vastly different than the situation today. In those cases there was an 
overabundance of carryover RINs. As noted above, the size of the 
carryover RIN bank is currently substantially lower, both in absolute 
terms and as a percentage of the 2016 total renewable fuel volume 
requirement finalized today. Furthermore, the program is currently 
facing very considerable challenges that will require new and 
relatively costly approaches to increasing renewable fuel supplies; we 
believe, therefore, that the need for a programmatic buffer is even 
more critical under current circumstances than in the past.
4. Summary
    For all of these reasons, we have determined that under current 
circumstances, carryover RINs should not be counted on to avoid or 
minimize the need to reduce the 2014, 2015, and 2016 statutory volume 
targets. However, we note that we may or may not take a similar 
approach in future years; we will assess the situation on a case-by-
case basis going forward, and take into account any lessons learned 
from implementing the rules applicable to 2014, 2015 and 2016.

I. Impacts of Final Standards on Costs

    In this section we provide illustrative cost estimates for the 
final standards. By ``illustrative costs,'' EPA means that the cost 
estimates provided are not meant to be precise measures, nor do they 
attempt to capture the full impacts of the rule. These estimates are 
provided solely for the purpose of showing how the cost to produce a 
gallon of a ``representative'' renewable fuel compares to the cost of 
petroleum fuel. There are a significant number of caveats that must be 
considered when interpreting these cost estimates. First, as discussed 
by commenters, there are a number of different feedstocks that could be 
used to produce advanced fuels, and there is a significant amount of 
heterogeneity in the costs associated with these different feedstocks 
and fuels. Some fuels may be cost competitive with the petroleum fuel 
they replace; however we do not have cost data on every type of 
feedstock and every type of fuel. Therefore, we do not attempt to 
capture this range of potential costs in our illustrative estimates.
    Second, given time constraints associated with providing estimates 
for several annual standards in this rule, EPA did not quantitatively 
assess other direct and indirect costs or benefits of increased biofuel 
volumes such as infrastructure costs, investment, GHG reduction 
benefits, air quality impacts, or energy security benefits, which all 
are to some degree affected by the rule. While some of these impacts 
were analyzed in the 2010 final rulemaking which established the 
current RFS program, we have not fully analyzed these impacts for the 
2014, 2015, and 2016 volume requirements being established today. We 
have framed the analyses we have performed for this final rule as 
``illustrative'' so as not to give the impression of comprehensive 
estimates.
    Third, a number of different scenarios could be considered the 
``baseline'' for the assessment of the costs of this rule. One scenario 
would be the statutory volumes in which case this final rule would be 
reducing volumes, and reducing costs. For the purposes of showing 
illustrative overall costs of this rulemaking, we use the preceding 
year's standard as the baseline (e.g., the baseline for the 2016 
advanced standard is the final 2015 advanced standard, etc.), an 
approach consistent with past practices.
    Fourth, the 2014 standards were not finalized prior to 2014 so it 
is difficult to estimate what their costs may have been. Market 
participants may have anticipated a higher final 2014 standard than the 
market would provide in the absence of the standard, which would 
contribute to the positive RIN prices witnessed in 2014. In contrast, 
the final 2014 standards represent reductions in both the advanced and 
conventional volumes compared to the 2013 standards, suggesting a 
reduction in costs for this final 2014 rule compared to the 2013 
standards. Finally, the final 2014 standards are based on actual 
production levels in 2014, possibly suggesting that the 2014 standards 
we are finalizing are what would have happened in the marketplace 
absent a rulemaking. Viewed in this way, the standards would impose no 
cost. Given the complexity of this issue, we have not attempted to 
estimate the costs of the 2014 standards. This issue associated with 
estimating costs for the 2014 standards also arises with the 2015 
standards to a degree. The final standards for 2015 are being set late 
in the 2015 calendar year, so it is not clear how much extra renewable 
fuels (and thus costs) the standards are requiring above what the 
marketplace would have supplied absent them.\163\ In any case, we 
provide illustrative costs for the 2015 advanced biofuel standards and 
total renewable fuel standards in addition to those for 2016.
---------------------------------------------------------------------------

    \163\ Because the 2015 proposal was out part way through the 
year, it is possible that market participants anticipated standards 
at least as high as those proposed.
---------------------------------------------------------------------------

    EPA is providing cost estimates for three illustrative scenarios--
one, if the entire change in the advanced standards is met with soybean 
oil BBD; two, if the entire change in the advanced standards is met 
with sugarcane ethanol from Brazil; and three, if the entire change in 
the total renewable fuel volumes that can be satisfied with 
conventional biofuels (i.e., non-advanced) is met with corn ethanol. 
While a variety of biofuels could help fulfill the advanced standard

[[Page 77488]]

beyond soybean oil BBD and sugarcane ethanol from Brazil, these two 
biofuels have been most widely used in the past. The same is true for 
corn ethanol vis-a-vis the non-advanced component of the total 
renewable fuel standard. We believe these scenarios provide 
illustrative costs of meeting the final standards. For this analysis, 
we estimate the per gallon costs of producing biodiesel, sugarcane 
ethanol, and corn ethanol relative to the petroleum fuel they replace 
at the wholesale level, then multiply these per gallon costs by the 
applicable volumes established in this rule for the advanced (for 
biodiesel and sugarcane ethanol) and non-advanced component of the 
total renewable fuel (for corn ethanol) categories. More background 
information on this section, including details of the data sources used 
and assumptions made for each of the scenarios, can be found in a 
memorandum submitted to the docket.\164\
---------------------------------------------------------------------------

    \164\ ``Illustrative Costs Impact of the Final Annual RFS2 
Standards, 2014-2017,'' Memorandum from Michael Shell and Michael 
Shelby to EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Because we are focusing on the wholesale level in each of the three 
scenarios, these comparisons do not consider taxes, retail margins, and 
any other costs or transfers that occur at or after the point of 
blending (i.e., transfers are payments within society and are not 
additional costs). Further, as mentioned above we do not attempt to 
estimate potential costs related to infrastructure expansion with 
increased biofuel volumes. In addition, because more ethanol gallons 
must be consumed to go the same distance as gasoline and more biomass-
based diesel must be consumed to go the same distance as petroleum 
diesel due to each of the biofuels' lesser energy content, we consider 
the costs of ethanol and biomass-based diesel on an energy equivalent 
basis to their petroleum replacements (i.e., per energy equivalent 
gallon (EEG)).
    For our first illustrative cost scenario, we consider the costs of 
soybean-based biodiesel to meet the entire change in the advanced 
standards. The final 2014 standard is being set at the actual level of 
advanced biofuels produced in 2014, 2.67 billion gallons. The advanced 
biofuel volumes are being finalized for 2015 at 2.88 billion gallons 
and for 2016 at 3.61 billion gallons. Comparing the difference in costs 
between biomass-based diesel and petroleum-based diesel, we estimate a 
cost difference that ranges from $1.45 to $1.71/EEG in 2015 and from 
$1.00 to $2.46/EEG in 2016. Multiplying the per gallon cost estimates 
by the volume of fuel displaced by the advanced standard, on an energy 
equivalent basis, results in an overall annual cost of $203 to $240 
million in 2015 and $480 to $1,182 million in 2016.
    For our second illustrative cost scenario, we provide estimates of 
what the potential costs might be if all additional volumes used to 
meet the 2015 and 2016 advanced biofuel standards above the previous 
year's advanced biofuel standard are met with imported Brazilian 
sugarcane ethanol. Comparing the difference in costs between sugarcane 
ethanol and the wholesale gasoline price on a per gallon basis, we 
estimate cost differences that range from $0.89 to $2.05/EEG in 2015 
and from $0.91 to $2.07/EEG in 2016. Taking the difference in per 
gallon costs for sugarcane ethanol and the wholesale gasoline price and 
multiplying that by the volume of petroleum displaced on an energy 
equivalent basis from the advanced standard results in an overall 
estimated annual cost of $186 to $431 million for 2015 and $656 to 
$1,493 million for 2016.
    For the third illustrative cost scenario, we assess the difference 
in cost associated with a change in the implied volumes available for 
conventional (i.e., non-advanced) biofuels for 2015 and 2016. We 
provide estimates of what the potential costs might be if corn ethanol 
is used to meet the entire conventional renewable fuel volumes. The 
implied 2014 volume allowance for conventional renewable fuel is 13.61 
billion gallons, 14.05 billion gallons in 2015, and 14.50 billion 
gallons in 2016. If corn ethanol is used to meet the difference between 
the implied 2014 to 2015 and 2015 to 2016 conventional renewable fuel 
volume increases, an increase of 440 million gallons of corn ethanol 
would be required in 2015 and 450 million gallons in 2016. Comparing 
the difference in costs between corn ethanol and the wholesale gasoline 
price, we estimate a cost difference of $0.96 in 2015 and cost 
differences that range from $1.01 to $1.33/EEG in 2016. Taking the 
difference in per gallon costs between the corn ethanol and the 
wholesale gasoline price estimates and multiplying that by the volume 
of petroleum displaced on an energy equivalent basis by the 
conventional standard results in an overall estimated annual cost of 
$424 million for 2015 and $453 to $597 million for 2016.
    An alternative way of looking at the illustrative costs in 2016, 
given the fact that this is a three year rule, is to consider a volume 
change relative to the 2014 proposed standard. The cost estimate for 
meeting the 2016 standard would range from $620 to $1,526 million if 
the entire advanced standard were to be met with soybean-based diesel. 
The cost estimates would range from $847 to $1,929 million if the 
entire advanced standard were met with sugarcane ethanol. The cost 
estimate for meeting the entire conventional standard in 2016 with corn 
ethanol would range from $895 to $1,181 million.
    While it would be instructive to show not only the costs but also 
the potential benefits of the standards being finalized and 
understanding both would be an important consideration in any future 
reassessment of the RFS program, the short timeframe provided for the 
annual renewable fuel rule process does not allow sufficient time for 
EPA to conduct a comprehensive analysis of the benefits of the 2015 and 
2016 standards and the statute does not require it. Moreover, as 
discussed in the final rule establishing the 1.28 billion gallon 
requirement for BBD in 2013, the costs and benefits of the RFS program 
as a whole are best assessed when the program is fully mature in 2022 
and beyond.\165\ We continue to believe that this is the case, as the 
annual standard-setting process encourages consideration of the program 
on a piecemeal (i.e., year-to-year) basis, which may not reflect the 
long-term economic effects of the program. Therefore, for the purpose 
of this annual rulemaking, we have not quantified benefits for the 2015 
and 2016 final standards. As noted, this approach pertains to this and 
other annual rulemakings, not to potential future assessments of the 
program. We do not have a quantified estimate of the GHG impacts for 
the single year (e.g., 2015, 2016). When the RFS program is fully 
phased in, the program will result in considerable volumes of renewable 
fuels that will reduce GHG emissions in comparison to the fossil fuels 
which they replace. EPA estimated GHG, energy security, and air quality 
impacts and benefits for the 2010 RFS2 final rule for 2022.
---------------------------------------------------------------------------

    \165\ 77 FR 59477, September 27, 2012.
---------------------------------------------------------------------------

    EPA received numerous comments related to the costs of the proposed 
2014, 2015, and 2016 renewable fuel volumes. One commenter believes 
that EPA overestimated the cost of additional biodiesel volumes. They 
claimed that ``the program has resulted in providing the public with an 
alternative fuel source at a lower cost,'' and provided documentation 
of a testimony in which a diesel fuel provider claims to use biodiesel 
because it's cheaper than diesel. The commenter further states that the 
price of the RIN offers discounts to the biofuel producer.

[[Page 77489]]

    Per gallon, wholesale biodiesel prices have been and continue to be 
more expensive than petroleum diesel. For example, on October 22, 2015, 
the front month futures price for B100 Soy Methyl Ester (SME) Chicago 
is $2.32/gallon, while the front month futures price for New York 
Harbor (NYH) Ultra-Low Sulfur Diesel (ULSD) is $1.47/gallon.\166\
---------------------------------------------------------------------------

    \166\ PFL Market Daily, Progressive Fuels Limited. http://www.progressivefuelslimited.com/Web_Data/pfldaily.pdf.
---------------------------------------------------------------------------

    Regarding the RIN discount, EPA acknowledges that biofuel producers 
may receive discounts due to RIN values. However, the discount a 
producer may receive due to RIN payment is not a cost, or a benefit; it 
is a transfer. In our cost methodology, we attempt to calculate the 
real resource costs associated with using biofuels in comparison to the 
fossil fuels that they replace. We did not attempt to capture transfers 
as a result of RIN prices and tax credits, which we acknowledge have 
distributional impacts. We simply evaluated the cost to consumers by 
considering per energy equivalent gallon difference in wholesale costs 
of biofuels against their petroleum alternative given projected market 
prices.
    Multiple commenters expressed concern over the fact that EPA did 
not perform a full incremental cost-benefit analysis for the annual 
renewable fuel volumes. API commented that EPA should provide a 
``complete assessment of the rule's costs on obligated parties, 
consumers, and other affected parties, along with a comparison of those 
costs with the rule's benefits.'' As EPA has previously stated, the 
annual rulemaking schedule for setting renewable fuel volumes does not 
allow sufficient time to conduct a comprehensive benefit-cost analysis. 
For the 2010 RFS2 final rule, EPA performed a full benefit-cost 
analysis for 2022, when the program fully matures. For this rulemaking, 
EPA performed the illustrative cost analysis described above in an 
attempt to capture some of the impacts of the rule qualitatively. 
Another commenter acknowledged EPA's 2010 benefit-cost analysis and the 
time constraint facing the agency in propagating annual standards, but 
called on EPA to complete an incremental analysis of the full impacts 
of this rule.
    We agree that performing an incremental cost-benefit analysis would 
be helpful to an extent, but we continue to believe that assessing the 
program as a whole, over its maturity, is most appropriate.

III. Final Biomass-Based Diesel Volumes for 2014-2017

    In this section we discuss the final biomass-based diesel (BBD) 
applicable volumes for 2014 through 2017. It is important to note that 
the BBD volume requirement is nested within both the advanced biofuel 
and the total renewable fuel volume requirements; so that any 
``excess'' BBD produced beyond the mandated BBD volume can be used to 
satisfy both these other applicable volume requirements. Therefore, in 
finalizing the applicable BBD volume for 2014-2017, we considered not 
only the volume for the BBD standard, which effectively guarantees a 
minimum amount, but also the advanced biofuel and total renewable fuel 
volume requirements, which historically have played a significant role 
in determining demand for BBD as well.
    In finalizing an applicable BBD volume requirement for 2017, we are 
establishing the volume requirement but not the percent standard.

A. Statutory Requirements

    The statute establishes applicable volume targets for years through 
2022 for cellulosic biofuel, advanced biofuel, and total renewable 
fuel. For BBD, applicable volume targets are specified in the statute 
only through 2012. For years after those for which volumes are 
specified in the statute, EPA is required under CAA section 
211(o)(2)(B)(ii) to determine the applicable volume of BBD, in 
coordination with the Secretary of Energy and the Secretary of 
Agriculture, based on a review of the implementation of the program 
during calendar years for which the statute specifies the volumes and 
an analysis of the following factors:
    1. The impact of the production and use of renewable fuels on the 
environment, including on air quality, climate change, conversion of 
wetlands, ecosystems, wildlife habitat, water quality, and water 
supply;
    2. The impact of renewable fuels on the energy security of the 
United States;
    3. The expected annual rate of future commercial production of 
renewable fuels, including advanced biofuels in each category 
(cellulosic biofuel and BBD);
    4. The impact of renewable fuels on the infrastructure of the 
United States, including deliverability of materials, goods, and 
products other than renewable fuel, and the sufficiency of 
infrastructure to deliver and use renewable fuel;
    5. The impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
    6. The impact of the use of renewable fuels on other factors, 
including job creation, the price and supply of agricultural 
commodities, rural economic development, and food prices.

The statute also specifies that the volume requirement for BBD cannot 
be less than the applicable volume for calendar year 2012, which is 1.0 
billion gallons. The statute does not, however, establish any other 
numeric criteria, or provide any guidance on how the EPA should weigh 
the importance of the often competing factors, and the overarching 
goals of the statute when the EPA sets the applicable volumes of BBD in 
years after those for which the statute specifies such volumes. In the 
period 2013-2022, the statute specifies increasing applicable volumes 
of cellulosic biofuel, advanced biofuel, and total renewable fuel, but 
provides no guidance, beyond the 1.0 billion gallon minimum, on the 
level at which BBD volumes should be set.

B. BBD Production and Compliance Through 2013

    Due to the delayed issuance of the major regulatory revisions 
necessary to implement changes to the RFS program enacted through the 
Energy Independence and Security Act of 2007, EPA established a 2010 
BBD standard that reflected volume requirements for both 2009 and 2010, 
and allowed RINs generated as early as 2008 to be used for compliance 
with that standard. Given the complexity associated with the 2010 BBD 
standard, we begin our review of implementation of the program with the 
2011 compliance year. This review is required by the CAA, and also 
provides insight into the capabilities of the industry to produce, 
import, export, and distribute BBD. It also helps us to understand what 
factors, beyond the BBD standard, may incentivize the production and 
import of BBD. The number of BBD RINs generated, along with the number 
of RINs retired for reasons other than compliance with the annual BBD 
standards, are shown in Table III.B-1 below.

[[Page 77490]]



                                         Table III.B-1--Biomass-Based RIN Generation and Standards in 2011-2013
                                                                 [Million gallons] \167\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             BBD RINs
                                                             BBD RINs      Exported BBD    retired, non-   Available BBD   BBD standard    BBD standard
                                                             generated        (RINs)        compliance         RINs          (gallons)     (RINs) \168\
                                                                                              reasons
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................................           1,692             110              97           1,484             800           1,200
2012....................................................           1,737             193              80           1,465           1,000           1,500
2013....................................................           2,739             295              94           2,350           1,280           1,920
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In reviewing historical BBD RIN generation and use, we see that the 
number of RINs available for compliance purposes exceeded the volume 
required to meet the BBD standard in 2011 and 2013. Additional 
production and use of biodiesel was likely driven by a number of 
factors, including demand to satisfy the advanced biofuel and total 
renewable fuels standards, the biodiesel tax credit, and favorable 
blending economics. In 2012 the available BBD RINs were slightly less 
than the BBD standard. There are many reasons this may have been the 
case, including the temporary lapse of the biodiesel tax credit at the 
end of 2011.\169\
---------------------------------------------------------------------------

    \167\ Net BBD RINs Generated and BBD RINs Retired for Non-
Compliance Reasons information from EMTS. Biodiesel Export 
information from EIA (http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_a.htm.)
    \168\ Each gallon of biodiesel generates 1.5 RINs due to its 
higher energy content per gallon than ethanol. Renewable diesel 
generates between 1.5 and 1.7 RINs per gallon.
    \169\ 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.
---------------------------------------------------------------------------

    While the total number of BBD RINs generated in 2013 was 2.74 
billion (representing 1.79 billion gallons of BBD), it is also 
instructive to review the data on volumes that were produced 
domestically, imported, exported, and retired for reasons other than 
compliance. Total domestic production of BBD was 1.45 billion gallons 
(2.19 billion RINs), while imports resulted in an additional 0.34 
billion gallons (0.55 billion RINs).\170\ However, this volume was not 
entirely available for compliance purposes, since some of the BBD 
produced domestically was exported and some RINs had to be retired for 
purposes other than compliance. Based on EIA export data, we estimate 
that 0.196 billion gallons (0.295 billion RINs) of BBD were exported in 
2013.\171\ A corresponding number of BBD RINs will eventually be 
retired by exporters, as required by the RFS regulations, and therefore 
are not available for use by refiners and importers in satisfying their 
2013 obligations.\172\ Additionally, 0.094 billion BBD RINs were 
retired for reasons other than compliance, such as volume error 
corrections, contaminated or spoiled fuel, or fuel used for purposes 
other than transportation fuel, heating oil, or jet fuel. Based on this 
information, the actual amount of BBD available for compliance in 2013 
totaled 2.36 billion RINs, representing approximately 1.55 billion 
gallons of BBD. This is 430 million more BBD RINs than were required 
for compliance with the BBD standard in 2013.
---------------------------------------------------------------------------

    \170\ ``2013 RIN Supply'', EPA Docket EPA-HQ-OAR-2015-0111.
    Note that not all of the imported volumes generated BBD (D4) 
RINs. Some of this volume may have generated Renewable Fuel (D6) 
RINs or no RINs at all.
    \171\ U.S. Energy Information Administration (EIA). Annual 
export data for Biodiesel (2013). See http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_a.htm (last accessed October 27, 
2015).
    \172\ EMTS includes data on RINs retired for export, but the 
values are incomplete as of this writing since the 2013 compliance 
deadline has not yet passed.
---------------------------------------------------------------------------

C. BBD Volumes for 2014

    As we did for advanced and total renewable fuel in 2014 and 2015, 
we believe that it is appropriate to establish the 2014 and 2015 volume 
requirements of BBD to reflect actual supply (including a projection 
for the latter part of 2015 that is primarily based on supply in the 
earlier part of the year for which data is available). Therefore, we 
are finalizing a BBD applicable volume requirement of 1.63 billion 
gallons for 2014, which represents our estimate of actual BBD supply in 
2014. We define supply for 2014 as the number of BBD RINs generated in 
2014 that were available for compliance.\173\ Supply would thus include 
RINs that were generated for renewable fuel produced or imported in 
2014 as recorded in the EMTS, minus any RINs that have already been 
retired or would be expected to be retired to cover exports of 
renewable fuels or for any purpose other than compliance with the RFS 
percentage standards. RINs that have already been retired for such 
circumstances as RINs being invalid, spills, corrected and replaced 
RINs, etc. are recorded in EMTS on an ongoing basis. However, complete 
information on RINs that are retired to cover exports of renewable fuel 
and foreign generated renewable fuel that is exported to another 
country is not available through EMTS until after the 2014 compliance 
demonstration deadline. Since compliance cannot occur until the 
standards are set, we are using biodiesel export information from EIA 
for 2014 to estimate the number of 2014 BBD RINs that will be retired 
to satisfy obligations associated with exported BBD.
---------------------------------------------------------------------------

    \173\ Our focus on RINs generated in 2014 is consistent with our 
general approach to carryover RINs for this rulemaking, as described 
in Section II.H.
---------------------------------------------------------------------------

    Actual supply of BBD in 2014 and the projected actual supply for 
2015 is shown in Table III.C-1 below. Further details are provided in a 
memorandum to the docket.\174\ Since EIA does not distinguish exports 
by D code, we assumed that all biodiesel exports represent D4 BBD. We 
expect that any errors introduced by this assumption will be very 
small.\175\
---------------------------------------------------------------------------

    \174\ ``2014 RIN Supply,'' EPA docket EPA-HQ-OAR-2015-0111.
    \175\ From 2011 through 2015 only 12 million gallons of 
conventional (D6) biodiesel and renewable diesel was produced in the 
United States. We believe it is unlikely that foreign-produced 
conventional (D6) biodiesel and renewable diesel was imported into 
the United States and consequently exported, especially as the 
biodiesel blenders tax credit has not applied to fuel produced 
outside the U.S. for use as a fuel outside the U.S. since 2008.

[[Page 77491]]



                         Table III.C-1--Supply of Biomass-Based Diesel in 2014 and 2015
----------------------------------------------------------------------------------------------------------------
                                                      2014
-----------------------------------------------------------------------------------------------------------------
                                                                                     BBD RINs
                                                     Domestic                      retired, non-
                                                  production and      Exports       compliance      Net supply
                                                      imports                         reasons
----------------------------------------------------------------------------------------------------------------
Million RINs....................................           2,709             124              82           2,490
Million gallons.................................           1,763              83              48     \176\ 1,630
----------------------------------------------------------------------------------------------------------------
                                              Projected Actual 2015
----------------------------------------------------------------------------------------------------------------
Million RINs....................................           2,888             145              92           2,650
Million gallons.................................           1,880              97              54           1,730
----------------------------------------------------------------------------------------------------------------

    Some \\commenters suggested the EPA was prohibited from increasing 
the biomass-based diesel standard above 1.28 billion for the 2014 
through 2016 time period because obligated parties did not have notice 
of EPA's intention to increase the biomass-based diesel standard above 
this amount at the times EPA missed the statutory deadlines for 
establishing applicable BBD volume requirements for these years. We do 
not agree with these commenters and believe that obligated parties were 
on notice that the BBD volume requirements for these years could be 
higher than 1.28 billion gallons. First, while in the November 2013 
NPRM we proposed 2014 and 2015 BBD volume requirements of 1.28 million 
gallons, we also requested comment on alternative approaches and higher 
volumes.\177\ We noted in the NPRM that total biodiesel production by 
the end of 2013 could be as high as 1.7 billion gallons and that the 
facilities contributing to this production collectively had a capacity 
of well over 2 billion gallons.\178\ Thus, stakeholders were certainly 
on notice by November 2013 that a final BBD volume requirement greater 
than 1.28 billion gallons was possible and could be used in deriving 
the final 2014 and 2015 BBD standards. Furthermore, they were provided 
with notice of the precise (for 2014) or approximate (for 2015) volume 
requirements being finalized today through the June 10, 2015 NPRM. 
Thus, we believe that parties had adequate notice that 2014 and 2015 
BBD volume requirements as high as those in today's rule could be 
finalized. And, although our proposal for 2016 was also issued late, 
obligated parties will have had approximately six months from the date 
of the June 2015 NPRM before the start of the compliance year, plus 12 
months during the compliance year, plus three months after the close of 
the compliance year to plan for compliance and acquire necessary RINs. 
Finally, to provide those parties who may need additional time to 
engage in RIN trading to obtain the right number and balance of RINs 
for 2014 and 2015 compliance, EPA is providing very extensive 
extensions of the normal compliance demonstration deadlines. For 2014, 
the deadline in today's rule is August 1, 2016, two months later than 
proposed and a full 8 months after signature of this rule. For 2015 the 
compliance demonstration deadline is December 1, 2016, or 12 months 
from signature of this rule. Since compliance can be achieved through 
acquisition of RINs in the marketplace, and does not require capital 
investments or actual renewable fuel blending, we believe that this 
amount of lead time for parties to come into compliance is adequate and 
reasonable.
---------------------------------------------------------------------------

    \176\ While the actual physical volume of D4 BBD supplied in 
2014 was 1.63 billion gallons, we have used a physical volume of 
1.67 billion gallons in calculating the percentage standard for 2014 
because the formula for calculating the BBD percentage standard in 
40 CFR 80.1405(c) includes a factor of 1.5, presuming that all BBD 
is biodiesel. In reality, a significant portion of BBD in 2014 was 
renewable diesel (328 million gallons), which generally has an 
equivalence value of 1.7 rather than 1.5. The use of a physical 
volume of 1.67 billion gallons ensures that the applicable 
percentage standard for BBD accounts for the higher equivalence 
value of the volume of renewable diesel produced and imported in 
2014 and results in a requirement for 2.49 billion RINs, consistent 
with supply.
    \177\ 78 FR 71732, 71734.
    \178\ 78 FR 71732, 71752.
---------------------------------------------------------------------------

    These same industry commenters suggested that because EPA was late 
in issuing its final BBD applicable volume rules, some obligated 
parties might have relied on the proposed 1.28 billion gallon 
applicable volume requirement for 2014 and 2015, and would now face 
difficulty in meeting higher volume obligations. Although they did not 
identify any parties in this situation, there was one obligated party 
who asserted in separate comments that they had in fact relied on the 
November 2013 NPRM in planning 2014 compliance for all four of the 
renewable fuel standards, and requesting that in fairness EPA not now 
impose a higher obligation for that year. In reply we reiterate that 
parties were on notice through the November 2013 NPRM that EPA could 
finalize higher volume requirements than proposed. Indeed, it is the 
nature of proposed rules that EPA review comments and consider changes, 
so our doing so should not come as a surprise to anyone. In addition, 
the tables of applicable volumes in the statute have long provided 
notice with respect to advanced biofuel, total renewable fuel and 
cellulosic biofuel that volume requirements could be as high for those 
fuels as are specified there. We believe that once this commenter 
complies with the 2014 advanced biofuel and total renewable fuel volume 
requirements regarding which such extensive notice was available, that 
compliance with the 2014 BBD volume requirement will likely either be 
satisfied, or easily satisfied. Even if the party needs to adjust the 
types of advanced biofuel RINs they own to acquire sufficient BBD RINs 
to comply with the BBD standard, they will be able to sell the non-BBD 
advanced RINs for a nearly identical price to the BBD RINs they will 
need to purchase.\179\ And as noted above, EPA is extending the 
compliance demonstration deadline for 2014 beyond what we proposed, 
allowing this party and any other similarly situated party sufficient 
time to engage in the needed RIN transactions.
---------------------------------------------------------------------------

    \179\ ``RIN Prices in 2015 (January-October)'' memorandum from 
Dallas Burkholder to docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Even if an obligated party faced compliance challenges for 2014, 
CAA section 211(o)(2)(5)(A)-(D) provides two additional compliance 
flexibility options that an obligated party may utilize if they are 
unable to meet any of the 2014 standards, including their 2014 BBD 
volume obligation with RINs generated in 2014. First, to the extent 
that any shortfall of BBD RINs might exist, an obligated party could 
utilize carryover BBD RINs (D4) to meet their compliance obligation. As 
we discussed

[[Page 77492]]

in Section II.H, carryover RINs were intended to provide flexibility 
for obligated parties in complying with the RFS standards in a variety 
of circumstances. Certainly, if an obligated party experiences a 
shortfall in complying with the BBD 2014 volume standard it would be an 
appropriate use of carryover RINs to meet compliance obligations. Based 
on available data in the EMTS system \180\, we estimate that there are 
nearly 600 million carryover BBD RINs available for use in 2014. This 
number of BBD carryover RINs should be available for purchase on the 
RIN market (since if they are not used in 2014 they will expire), and 
together with available RINs generated in 2014 make up a substantial 
RIN pool from which obligated parties may acquire needed RINs. However, 
if an obligated party was either unable to purchase the necessary 
carryover RINs or current-year RINs to meet its compliance obligation, 
they could alternatively use the carry-forward deficit provision of CAA 
section 211(o)(2)(5)(D) to carry forward the deficit for one year on 
the condition that it be met the following year (assuming they did not 
carry a deficit into 2014).
---------------------------------------------------------------------------

    \180\ ``Estimating Carryover RINs Available for Use in 2014,'' 
memorandum from Dallas Burkholder to docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    We recognize that the same number of BBD RINs will likely be 
retired for compliance with the 2014 RFS standards whether we set the 
BBD volume requirement at 1.28 versus 1.63 billion RINs, because 
complying with the 2014 advanced and total renewable fuel standards 
will require retirement of 1.63 billion BBD RINs. However, in light of 
this fact, the ease with which RINs may be traded, as well as the 
availability of carryover RINs and the deficit carry-forward option, we 
are not persuaded that any obligated party will have more difficulty 
complying with a 1.63 billion gallon BBD volume requirement as compared 
to a 1.28 billion gallon BBD volume requirement. Therefore, we do not 
believe that sufficient justification has been presented by commenters 
for EPA to deviate from the proposed approach of setting the 2014 BBD 
volume requirement as equal to the actual 2014 BBD supply. In addition, 
we believe that lowering the proposed 2014 BBD volume requirement would 
send a potentially chilling message to investors in the BBD industry 
that would be contrary to the objectives of the CAA to incentivize the 
growth of renewable fuel volumes.
    For all of these reasons, we believe that it is reasonable and 
appropriate to establish the 2014 BBD applicable volume requirement as 
equal to 1.63 billion gallons, the volume actually produced and 
imported in 2014 and which is available for compliance. This is 
consistent with the approach we are taking to establishing the total 
renewable fuel, advanced biofuel, and cellulosic biofuel standards in 
2014. Since we are establishing the requirement for a time period that 
has already passed, and setting the requirement equal to the available 
supply of 2014 BBD RINs, we believe that our action will result in no 
impacts with respect to the factors listed under CAA section 
211(o)(2)(B)(ii)(I)-(VI).

D. Determination of Applicable Volume of Biomass-Based Diesel for 2015-
2017

    The statute requires that, in determining the applicable volume of 
BBD, we review the implementation of the program in previous years. 
Based on the fact that the industry made more BBD available in 2011 and 
2013 than volume requirements for those years, we conclude that the BBD 
standard is not the sole driver for the amount of BBD produced or 
imported into the United States.\181\ We believe that the advanced 
biofuel and total renewable fuel standards are significant factors in 
the amount of biodiesel produced and imported into the United States. 
We also believe that the advanced and/or total renewable fuel standards 
can continue to drive BBD volume in 2015-2017. As described in more 
detail in Sections II.E and II.F, we are finalizing volumes of advanced 
biofuel and total renewable fuel for 2016 that require growth beyond 
the volumes supplied in 2014 and 2015 and this will continue to provide 
incentives for BBD volumes that exceed the BBD volume requirement.
---------------------------------------------------------------------------

    \181\ The blenders tax credit for biodiesel likely also 
incentivized additional biodiesel blending in these years.
---------------------------------------------------------------------------

    However, we recognize that in addition to being a component of 
advanced biofuel and total renewable fuel, Congress also intended that 
BBD have its own specific standard. Given that the statute requires 
annual increases in advanced biofuel through 2022, it may be 
appropriate for BBD to play a specific and increasing role in supplying 
advanced biofuels to the market. While we generally believe that the 
advanced and total volume requirements are sufficient to incentivize 
continued growth in the production and consumption of BBD in most 
years, circumstances may arise that result in unfavorable market 
conditions for the production and consumption of BBD, as was the case 
in 2012. We believe there is value in providing some degree of 
certainty to BBD producers that there will be a market for the fuel 
they produce for circumstances such as this. Therefore, this final rule 
seeks to balance the goals of supporting the BBD industry and 
incentivizing the production of non-BBD advanced biofuels by providing 
a guaranteed, increasing market for BBD, while at the same time 
providing room under the advanced standard for other types of advanced 
biofuels, and thus incentivizing their growth as well. We have 
considered the ability of the advanced biofuel and total renewable fuel 
standards to incentivize an increasing volume of BBD, the 
implementation of the RFS program to date, and the statutory factors 
listed in CAA section 211(o)(2)(B) (discussed in further detail in 
Section III.E below). We have also consulted with USDA and DOE in 
establishing the final requirements.
1. Implication of Nested Standards
    The BBD standard is nested within the advanced biofuel and total 
renewable fuel standards. This means that when an obligated party 
retires a BBD RIN (D4) to satisfy their BBD obligation, this RIN also 
counts towards meeting their advanced biofuel and total renewable fuel 
obligations. It also means that obligated parties may use BBD RINs in 
excess of their BBD obligations to satisfy their advanced biofuel and 
total renewable fuel obligations. Higher advanced biofuel and total 
renewable fuel standards, therefore, create demand for BBD, especially 
if there is an insufficient supply of other advanced or conventional 
renewable fuels to satisfy the standards, or if BBD RINs can be 
acquired at or below the price of other advanced or conventional 
biofuel RINs.
    In reviewing the implementation of the RFS program to date, it is 
apparent that the advanced and/or total renewable fuel requirements 
were in fact helping grow the market for volumes of biodiesel above the 
BBD standard. Table III.D.1-1 below shows the number of BBD RINs 
generated and available for use towards demonstrating compliance \182\ 
in each year from 2011-2013. Similar data for 2014 is shown in Table 
III.C-1. As can be seen from these tables, in 2011 and 2013 the number 
of BBD RINs available for use exceeded the volumes required to satisfy 
the BBD

[[Page 77493]]

standard. Similarly the quantity of BBD RINs in 2014 far exceeded the 
1.28 billion gallons volume requirement (1.92 billion BBD RINs) for BBD 
that EPA proposed in November 2013. In 2013 the number of advanced RINs 
generated from fuels other than BBD was not large enough to satisfy the 
implied standard for ``other advanced'' biofuel (advanced biofuel 
needed to satisfy the advanced biofuel standard after the BBD and 
cellulosic biofuel standards are met), and additional volumes of BBD 
filled the gap. In fact, the amount by which the available BBD RINs 
exceeded the 1.28 billion gallon BBD volume requirement (421 million 
RINs) was larger than the amount by which the non-BBD RINs fell short 
of satisfying the ``other advanced'' biofuel implied standard (285 
million RINs), helping to fill a shortfall in meeting the total 
renewable fuel standard. Thus the advanced biofuel and total renewable 
fuel standards provided an incentive to support a BBD volume in the 
United States in excess of that required to satisfy the BBD standard.
---------------------------------------------------------------------------

    \182\ RINs available for use is number of RINs generated minus 
the number of RINs retired (or that we anticipate will be retired) 
for any reason other than a demonstration of annual compliance, such 
as RINs retired for exported biofuel, volume error corrections, 
enforcement actions, fuel used in applications other than 
transportation fuel, heating oil, or jet fuel, etc.
---------------------------------------------------------------------------

    In 2012 the available BBD RINs were slightly less than the BBD 
standard, despite the continued opportunity for BBD to contribute 
towards satisfying the advanced and total renewable fuel volume 
requirements. There are a number of reasons this may have been the 
case. The drought in 2012 resulted in reduced production of soy beans 
and other oilseed crops that provide feedstocks for the BBD industry. 
Compounding this effect was the lower corn harvest in 2012, which 
increased the demand for soy beans and other fats and oils in the 
animal feed market. The biodiesel tax credit, which had been in place 
since the end of 2010, expired at the end of 2011. Finally, and perhaps 
most significantly, the E10 blendwall had not yet been reached in 2012. 
This meant that meeting the advanced biofuel requirements through the 
use of advanced ethanol, primarily sugar cane ethanol, in E10 blends, 
rather than additional volumes of BBD was still a viable option. 
Indeed, in 2012 over 600 million RINs were generated for advanced 
ethanol. While we believe these circumstances are unlikely to be 
repeated in future years, this does demonstrate that the BBD standard 
can still have an impact despite the ability in some years for the 
advanced and total renewable fuel volume requirements to incentivize 
additional biodiesel and renewable diesel volumes beyond the BBD 
standard.

             Table III-D.1-1--Biomass-Based Diesel and Advanced Biofuel RIN Generation and Standards
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                 Available  non-     ``Other''
                                                  Available BBD   BBD standard      biodiesel        advanced
                                                     (RINs)          (RINs)          advanced         biofuel
                                                                                     biofuel          allowed
----------------------------------------------------------------------------------------------------------------
2011...........................................           1,484           1,200              225             150
2012...........................................           1,465           1,500              597             500
2013...........................................           2,360           1,920              552             830
----------------------------------------------------------------------------------------------------------------

    The prices paid for advanced biofuel and BBD RINs beginning in 
early 2013 through 2015 also support the conclusion that advanced 
biofuel and/or total renewable fuel standards provide a sufficient 
incentive for additional biodiesel volume beyond what is required by 
the BBD standard. Because the BBD standard is nested within the 
advanced biofuel and total renewable fuel standards, we would expect 
the price of BBD RINs to exceed that of advanced and conventional 
renewable RINs.\183\ If, however, BBD RINs are being used by obligated 
parties to satisfy their advanced biofuel and/or total renewable fuel 
obligations, above and beyond the BBD standard, we would expect the 
prices of conventional renewable fuel, advanced biofuel, and BBD RINs 
to converge. When examining RIN prices data from 2011 through 2014, 
shown in Figure III.D.1-1 below, we see that until January 2013 there 
is a consistent price differential between the price of BBD and the 
relatively cheaper other advanced biofuel and conventional renewable 
fuel RINs. Beginning in 2013 the price of BBD RINs and other advanced 
biofuel RINs converge, and remain at a similar price throughout 2015. 
This is more evidence that suggests that the advanced biofuel standard 
and/or total renewable fuel standard is capable of incentivizing 
increased BBD volumes beyond the BBD standard, and that it in fact 
operated in this manner in 2013.\184\
---------------------------------------------------------------------------

    \183\ This is because when an obligated party retires a BBD RIN 
to help satisfy their BBD obligation, the nested nature of the BBD 
standard means that this RIN also counts towards satisfying their 
advanced and total renewable fuel obligations. Advanced RINs count 
towards both the advanced and total renewable fuel obligations, 
while conventional RINs (D6) count towards only the total renewable 
fuel obligation.
    \184\ Although we did not issue a rule establishing the final 
2013 standards until August of 2013, we believe that the market 
anticipated the final standards, based on EPA's July 2011 proposal 
and the volume targets for advanced and total renewable fuel 
established in the statute. (76 FR 38844, 38843).

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

[[Page 77494]]

[GRAPHIC] [TIFF OMITTED] TR14DE15.014

2. Biomass-Based Diesel as a Fraction of Advanced Biofuel
    In establishing the BBD and cellulosic standards as nested within 
the advanced biofuel standard, Congress clearly intended to support 
development of BBD and cellulosic biofuels, while also providing an 
incentive for the growth of other non-specified types of advanced 
biofuels. That is, the advanced biofuel standard provides an 
opportunity for other advanced biofuels (advanced biofuels that do not 
qualify as cellulosic biofuel or BBD) to be used to satisfy the 
advanced biofuel standard after the cellulosic biofuel and BBD 
standards have been met. Indeed, since Congress specifically directed 
growth in BBD only through 2012, leaving development of volume targets 
for BBD to EPA for later years while also specifying substantial growth 
in the cellulosic and general advanced categories, we believe that 
Congress clearly intended for EPA to evaluate in setting BBD volume 
requirements after 2012 the appropriate rate of participation of BBD 
within the advanced biofuel standard.
    The unspecified advanced biofuel volume in the statutory tables in 
CAA section 211(o)(2)B)(i) starts at 0.25 billion gallons in 2013 and 
grows to 3.5 billion gallons in 2022. The actual size of the 
unspecified volume of advanced biofuel in any given year is, however, 
heavily dependent on EPA actions. Increasing the BBD standard above 1 
billion gallons, as we did in 2013, reduced the potential market for 
other advanced biofuels to contribute towards meeting the advanced 
biofuel standard in that year. Conversely, reducing the cellulosic 
biofuel standard while simultaneously maintaining the advanced biofuel 
standard (or reducing it by a lesser amount), as we have done each year 
since 2010, increases the potential market for all advanced biofuels, 
including BBD. While each year's volume requirements are established in 
consideration of the volumes of various types of biofuels expected to 
be reasonably attainable in that year, we are also cognizant that the 
annual standards send messages to the market that can influence the 
direction of research and investment.
    When viewed in a long-term perspective, BBD can be seen as 
competing for research and development dollars with other types of 
advanced biofuels for participation as advanced biofuels in the RFS 
program. In addition to the long-term impact of our action in 
establishing the BBD volume requirements, there is also the potential 
for short-term impacts during the compliance years in question. 
Although we are setting the advanced standard at a level that reflects 
growth in volumes that is reasonably attainable, we are not setting the 
standard at the maximum theoretical level that reflects the highest 
potential for domestic production plus import. As described in Section 
II.F, there is substantial uncertainty, especially regarding import 
volumes, that cautions against such an approach. Therefore, by setting 
the BBD volume requirement at a level lower than the advanced biofuel 
volume requirement (and lower than the expected production of BBD to 
satisfy the advanced biofuel requirement), we are allowing the 
potential for some competition between BBD and other advanced biofuels 
(including imported advanced biofuels) to satisfy the advanced biofuel 
volume standard. We believe that this competition will also help to 
encourage, over the long term, the development and production of a 
variety of advanced biofuels. However, in the short term it could also 
result in lower cost advanced biofuels.
    BBD, like all non-cellulosic advanced biofuels, must, by 
definition, achieve lifecycle greenhouse gas reductions of at least 50% 
relative to the petroleum fuels it displaces. Thus, the environmental 
benefits of BBD are comparable to those of other non-cellulosic 
advanced biofuels. Increasing the portion of the advanced standard that 
comprises a guaranteed market for BBD would over time likely reduce 
competition among advanced biofuels and could dis-incentivize research 
and development of advanced biofuels that are potentially more 
economical or environmentally preferable (including for non-GHG

[[Page 77495]]

related reasons) than BBD. Having a more limited assortment of biofuels 
participate in the RFS program would also reduce the potential energy 
security benefits of the program, since energy security is enhanced 
through fuel diversity. Thus, we believe that the long term success of 
the RFS program, as envisioned by Congress, is best served by growth in 
a variety of advanced biofuels. We intend, therefore that the standards 
we set today provide a signal to the market to move forward with 
research, development, and commercialization of a variety of types of 
advanced biofuels beyond just BBD.
    We received comments that the consideration of competition within 
the advanced biofuel pool between BBD and other advanced biofuels, and 
the potential for lower compliance costs cited in our proposed rule, 
are not included in the list of factors in 42 U.S.C. 
7545(o)(2)(B)(ii)(V) that EPA is to consider in establishing the volume 
requirement for BBD. EPA respectfully disagrees. Three of the factors 
specified in the statute are indeed related to the considerations 
discussed above. The ``impact of the use of renewable fuels on the cost 
to consumers of transportation fuel and on the cost to transport 
goods'' referenced in CAA section 211(o)(2)(B)(ii)(V) is relevant, 
since we believe a diverse advanced biofuel pool will potentially 
result in decreased costs associated with the use of advanced biofuels 
and, consequently, decreased costs to consumers. Similarly, the 
``impact of the production and use of renewable fuels on the 
environment'' referenced in CAA section 211(o)(2)(B)(ii)((I) is 
relevant, since we believe that incentivizing research and development 
in a variety of advanced biofuels could lead to the development of 
biofuels that have more benign effects on the environment than those 
that are currently available. As noted above, ``the impact of renewable 
fuels on the energy security of the United States'' referenced in CAA 
section 211(o)(2)(B)(ii)(II) is relevant, since we believe that 
incentivizing the development of a diverse array of biofuels will 
increase energy security Finally, we note that the list of factors 
specified in the statute is not exclusive; that is EPA is not precluded 
from considering additional factors that advance the statutory 
objectives when it sets applicable volumes for years not specified in 
the statute.
3. Ensuring Growth in Biomass-Based Diesel and Other Advanced Biofuel
    While a single-minded focus on the ability of the advanced and 
total renewable fuel standards to incentivize increasing production of 
advanced biofuels other than BBD would suggest that a flat or even 
decreasing BBD volume requirement may be the optimal solution, this is 
not the only consideration. Despite many of these same issues being 
present in 2013, EPA decided to increase the BBD standard in 2013 to 
1.28 billion gallons. EPA's decision to establish this higher BBD 
volume for 2013 was made against the backdrop of the BBD industry 
having increased production from about 400 million gallons in 2010 to 
about 1 billion gallons in 2011.\185\ EPA was not completely confident 
in the ability of the BBD industry to further increase production 
without an increased BBD standard. While BBD production had performed 
well in 2011 and the early part of 2012, the biodiesel industry had 
gone through a period of instability in 2009 and 2010.\186\
---------------------------------------------------------------------------

    \185\ 77 FR 59461 col. 1, September 27, 2012.
    \186\ Regulations of Fuels and Fuel Additives: 2013 BBD 
Renewable Fuel Volume; Final Rule. 77 FR 59458, 59460-59461. http://www2.epa.gov/renewable-fuel-standard-program/regulations-and-volume-standards-under-renewable-fuel-standard (last accessed October 22, 
2015).
---------------------------------------------------------------------------

    During the development of the 2013 standards rulemaking, we were 
also concerned that production of cellulosic biofuel, also nested 
within the advanced biofuel requirement, was lagging significantly 
behind the statutory volume target. The shortfall in cellulosic biofuel 
volume meant that either other sources of advanced biofuel would be 
necessary to fulfill the specified volumes in the statute for advanced 
biofuel, or that EPA would need to waive a portion of the advanced 
biofuel volume target. It is in this context that we determined that 
raising the BBD requirement to 1.28 billion gallons was appropriate. 
Most importantly, an applicable volume requirement of 1.28 billion 
gallons was expected to encourage continued investment and innovation 
in the BBD industry, providing necessary assurances to the industry to 
increase production for 2013 while also serving the long term goal of 
the RFS statute to increase volumes of advanced biofuels over 
time.\187\
---------------------------------------------------------------------------

    \187\ 77 FR 59458, 59462 and 59483.
---------------------------------------------------------------------------

    Although the BBD industry has performed well in 2013 and in 
subsequent years, we believe that continued appropriate increases in 
the BBD volume requirement will help provide stability to the BBD 
industry and encourage continued growth. This industry is currently the 
single largest contributor to the advanced biofuel pool, one that to 
date has been largely responsible for providing the growth in advanced 
biofuels envisioned by Congress. Nevertheless, there has been 
variability in the number of biodiesel facilities in production over 
the last few years, as well as the percent utilization of individual 
facilities, both of which contribute uncertainty in the rate of 
production in the near future, and which can be mitigated to some 
degree with an increase in the BBD applicable volume.\188\ Increasing 
the BBD volume requirement should help to provide market conditions 
that allow these BBD production facilities to operate with greater 
certainty. This result is consistent with the goals of the Act to 
increase the production and use of advanced biofuels.
---------------------------------------------------------------------------

    \188\ EIA's Monthly Biodiesel Production Reports since 2009 
indicate that there were significant biodiesel facility closures 
during the 2009 and 2010 calendar years. Throughout 2013 the number 
of biodiesel plants operating fluctuated between 110-116 and at the 
end of 2013, EIA's monthly production report, noted there were 115 
plants operational. During 2014 the number of operating biodiesel 
plants in the U.S. was lower than in 2013, fluctuating between 89-
100 facilities, finishing up the year at 99 operating biodiesel 
plants. Overall industry-wide utilization rates increased during the 
2009-2013 period from 25% in 2009 to approximate 46% in 2011 and 
2012 and to more than 60% in 2013 and 2014. These data suggest a 
stabilizing trend in the industry, but with some continued 
fluctuations. See http://www.eia.gov/biofuels/biodiesel/production/ 
for copies of monthly reports (last accessed October 22, 2015).
---------------------------------------------------------------------------

4. Final BBD Volume for 2015
    In the June 10, 2015 NPRM we proposed a 1.7 billion gallon BBD 
volume requirement for 2015, anticipating that the growth over actual 
levels observed in the first part of the year was possible despite late 
issuance of the proposal. The market responded as we anticipated and, 
indeed, slightly exceeded our expectations. During the first nine 
months of 2015 for which data are now available, 2.05 billion BBD RINs, 
representing 1.34 billion gallons of biodiesel and renewable diesel, 
were generated. When this rate of production is extrapolated to the end 
of the year, and taking into account the heightened end-of-year 
production we expect, based on past experience, as well as expected RIN 
corrections and retirements due to exports, we now estimate an actual 
BBD volume of 1.73 billion gallons for 2015.\189\ We do not anticipate 
that this final rule can influence the market in any way for the 
remaining month of 2015. Therefore, we are finalizing a 1.73 billion 
gallon volume requirement for 2015.\190\
---------------------------------------------------------------------------

    \189\ ``Projection of annual renewable fuel supply in 2015,'' 
memorandum from David Korotney to docket EPA-HQ-OAR-2015-0111.
    \190\ Some commenters suggested that EPA should set the 2015 
final BBD volume requirement at 1.28 billion gallons, for the same 
reasons they asserted that the 2014 volume requirement should be set 
at that level. We disagree, for the same reasons noted earlier with 
respect to the 2014 BBD requirement.

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

[[Page 77496]]

5. Final Volumes for 2016-2017
    With the considerations discussed in sections III.D.1-3 in mind, as 
well as our analysis of the factors specified in the statute and 
described below, and in coordination with the Departments of 
Agriculture and Energy, we are finalizing the applicable volume of BBD 
at 1.9 billion gallons for 2016 and 2.0 billion gallons for 2017. These 
volumes are higher than the 1.8 and 1.9 billion gallons proposed for 
2016 and 2017, and reflect the fact that we are finalizing an increase 
in the advanced biofuel requirement for 2016, from the 3.4 billion 
gallons we proposed, to 3.61 billion gallons in the final rule. We have 
decided to dedicate a portion of this increase to BBD, and leave the 
remainder as unspecified advanced biofuel, and thus available for any 
advanced biofuel to fill, for the same reasons reflected in the 
proposal and this final rule for establishing the BBD volume 
requirements: To provide additional support for the BBD industry while 
allowing room within the advanced biofuel volume requirement for the 
participation of non-BBD advanced fuels.
    We believe this final rule strikes the appropriate balance between 
providing a market environment where the development of other advanced 
biofuels is incentivized, while also realizing the benefits associated 
with increasing the required volume of BBD. Given our final volumes for 
advanced biofuel in these years, setting the BBD standard in this 
manner continues to allow a considerable portion of the advanced 
biofuel volume to be satisfied by either additional gallons of BBD or 
by other unspecified types of qualifying advanced biofuels (see Table 
III.D.4-1 below). While we have not yet determined the applicable 
volume of total advanced biofuel for 2017, we anticipate the continued 
growth in the advanced biofuel standard such that the advanced standard 
will provide an incentive for both increasing volumes of BBD and other 
advanced biofuels. We believe maintaining this unspecified or other 
advanced biofuel volume will provide the incentive for development and 
growth in other types of advanced biofuels. At the same time, allowing 
the portion of the advanced biofuel volume requirement that is 
dedicated to BBD to increase concurrently with the increase in the 
overall advanced biofuel volume requirement will contribute to market 
certainty for both the BBD industry and the renewable fuels program in 
general.

   Table III-D.5-1--Final Biomass-Based Diesel, Cellulosic Biofuel, and Advanced Biofuel Standards: 2015-2017
----------------------------------------------------------------------------------------------------------------
                                                                    Cellulosic       Advanced       Unspecified
                                   BBD (billion    BBD (billion       biofuel         biofuel        advanced
                                     gallons)          RINs)      (billion RINs)  (billion RINs)  (billion RINs)
----------------------------------------------------------------------------------------------------------------
2015............................            1.73            2.65           0.123            2.88           0.107
2016............................            1.90            2.85           0.230            3.61           0.530
2017............................            2.00            3.00             TBD             TBD             TBD
----------------------------------------------------------------------------------------------------------------

    EPA received comments on our proposed rule providing data 
suggesting that sufficient BBD feedstocks, production facilities, and 
fuel distribution infrastructure existed to produce, import, and 
consume volumes of BBD in 2016-2017 that exceed the volume requirements 
established in this rule.\191\ Some commenters specifically cited the 
potential for large volumes of imported BBD to displace domestically 
produced BBD if the BBD volume requirements were not increased. These 
commenters argued that EPA should increase the BBD standard in 2016-
2017 in light of the fact that the potential volume of BBD exceeds the 
proposed BBD volume requirements for each of these years. EPA agrees 
with the commenters that the potential available volume of BBD in 2016 
and 2017 exceeds the BBD volume requirements we are finalizing in this 
rule, and have considered multiple scenarios where additional volumes 
of BBD are used to comply with the advanced and total renewable fuel 
standards.\192\ As discussed above, however, we do not believe it is in 
the best interest of the RFS program to set the BBD volume requirement 
at the maximum available volume of BBD. Doing so would reduce the 
opportunity for other advanced biofuels to compete for market share 
within the context of the advanced biofuel standard, and would send 
market signals that would hinder the long term development of these 
fuels. Our review of the history of the RFS program strongly suggests 
that the advanced and total renewable fuel standards can provide 
sufficient incentives for the production and use of increased volumes 
of BBD beyond levels required to satisfy the BBD standard.
---------------------------------------------------------------------------

    \191\ For a further discussion of EPA's assessment of BBD 
feedstock availability, production capacity, and fuel distribution 
limitations see ``Memorandum to docket: Final Statutory Factors 
Assessment for 2016-2017 BBD Applicable Volumes'' EPA-HQ-OAR-2015-
0111.
    \192\ See Section II.G for a list of potential compliance 
scenarios.
---------------------------------------------------------------------------

    EPA also received comments stating that increasing the BBD volume 
requirement to reflect actual BBD available volumes would have the 
advantage of helping to ensure that BBD, rather than imported sugar 
cane ethanol, would be used to satisfy the advanced standard. The 
commenters claimed that this was preferable because BBD does not 
contribute to the renewable fuel consumption challenges associated with 
the E10 blendwall, and because BBD is generally produced in the United 
States, while sugar cane ethanol is almost exclusively an imported 
product. They claimed that requiring additional volumes of a domestic 
product rather than an imported one would have positive impacts on the 
economy of the United States and aid rural economic development, and 
that these benefits justified a higher BBD standard.
    EPA acknowledges that if we were to increase the BBD volume 
standard we would increase the guaranteed market for BBD, and reduce 
the likelihood that significant volumes of sugar cane ethanol would be 
imported to satisfy the advanced and total renewable fuels standards. 
We do not agree, however, that this is a necessary step to promote the 
viability and growth of the BBD industry. In reviewing the history of 
the program, as shown above, EPA notes that BBD production, import, and 
consumption has been strong and increasing each year since 2011. In 
particular, we note that in 2013 BBD volumes rose sharply, and ethanol 
imports simultaneously fell and have stayed low.\193\
---------------------------------------------------------------------------

    \193\ The reduction in ethanol imports was likely due to a 
combination of factors including poor sugar cane harvests, increased 
demand for sugar cane ethanol in the countries where it was 
produced, increased competition for sugar cane ethanol imports from 
other countries, and challenges relating to increasing the 
consumption of ethanol beyond E10 in the U.S. See ethanol import 
volumes, as reported by EIA, at: http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epooxe_im0_mbbl_a.htm.

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

[[Page 77497]]

    The data EPA has presented in the preceding sections strongly 
suggests that despite the ongoing potential for competition from sugar 
cane ethanol and biodiesel imports, the BBD industry, supported by the 
advanced and total renewable fuel standards, has achieved and can 
continue to achieve production volumes beyond levels needed to satisfy 
the BBD volume requirement. Given the constraints on ethanol use 
associated with the E10 blendwall even if sugar cane ethanol imports 
were to increase, it is still likely that there would be a strong 
market for BBD to help satisfy the total renewable fuel requirements. 
Finally, in light of the broad programmatic objective of the RFS 
program to increase the content of biofuels in U.S. transportation 
fuel, we believe that it would be counterproductive to design the 
standards in such a way as to intentionally discourage or 
disincentivize the import of foreign biofuels.
    In finalizing these standards for BBD for 2014-2017 EPA has taken 
into account the statutory requirements found in CAA section 
211(o)(2)(B)(ii), including coordination with the Departments of Energy 
and Agriculture, review of the implementation of the renewable fuels 
program to date, and analysis of the statutory factors specified in CAA 
section 211(o)(2)(B)(ii)(I)-(VI). Of particular relevance in our review 
of the implementation of the renewable fuels program to date were the 
circumstances and context that led us to increase the BBD standard from 
1.0 billion gallons in 2012 to 1.28 billion gallons for 2013, and the 
biofuel industry's successful performance in 2013. We have also 
reviewed the statutory factors in the context that the BBD volume 
requirement is nested within the advanced biofuels and total renewable 
fuels volume requirements. This discussion of the statutory factors is 
found in Section III.E., below.
    In deciding to finalize the applicable volume of 1.9 billion 
gallons of BBD for 2016, with an additional 100 million gallon increase 
for 2017 to 2.0 billion gallons, we considered not only the short-term 
impacts, but also the potential long-term impacts of our action on the 
RFS program. We took into account the competitive impacts such an 
increase in the BBD volume requirement would likely have on other 
advanced biofuel producers already in the marketplace as well as on 
potential new market entrants. This increase in the BBD volumes through 
2017 should result in ongoing investment and growth for BBD, while also 
providing for continued investment and growth in other advanced 
biofuels.
    Raising the guaranteed BBD volume beyond the volumes in this rule 
so that it approaches the maximum possible volume of BBD could result 
in a less competitive advanced biofuels market, increasing RIN prices, 
and a less efficient market-driven renewable fuels program. Our 
decision today to finalize the BBD volumes for 2016-2017 at 1.90 and 
2.0 billion gallons per year respectively, would not be expected to 
lead to such an adverse result. We believe that the final BBD volume 
increases for 2016-2017 will both contribute to market stability for 
the renewable fuels program and continue to promote a growing and 
competitive advanced biofuels marketplace, one which encourages the 
growth and development of diverse biofuels along with additional 
volumes of BBD beyond the volumes required by the BBD standard.

E. Consideration of Statutory Factors for 2014-2017

    In this section we discuss our considerations of the statutory 
factors set forth in CAA section 211(o)(2)(B)(ii)(I)-(VI). As discussed 
earlier in Section III.D.1, the BBD volume requirement is nested within 
the advanced biofuel requirement and the advanced biofuel requirement 
is, in turn, nested within the total renewable fuel volume requirement. 
This means that any BBD produced beyond the mandated BBD volume can be 
used to satisfy both these other applicable volume requirements. The 
result is that in considering the statutory factors we must consider 
the potential impacts of increasing BBD in comparison to other advanced 
biofuels.\194\ For a given advanced biofuel standard, greater or lesser 
applicable volumes of BBD do not change the amount of advanced biofuel 
used to displace petroleum fuels; rather, increasing the BBD applicable 
volume may result in the displacement of other types of advanced 
biofuels that could have been used to meet the advanced biofuels volume 
requirement.
---------------------------------------------------------------------------

    \194\ While excess BBD production could also displace 
conventional biofuel 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 biofuels under the total 
renewable standard, but rather other advanced biofuels. See Table 
II.G-2, ``Volume Scenarios Illustrating Possible Compliance with 
3.61 Bill Gal Advanced Biofuel and 18.11 Bill Gal Bill Gal Total 
Renewable Fuel''.
---------------------------------------------------------------------------

1. Assessment for 2014 and 2015 Biomass-Based Diesel Applicable Volume
    Given the fact that the 2014 compliance year has passed, we believe 
that our action in setting the 2014 BBD volume requirement will result 
in no real-world impacts, including no impacts with respect to the 
factors listed under CAA section 211(o)(2)(B)(ii)(I)-(VI). For example, 
there is no longer any ability for other advanced biofuels to compete 
with BBD for a greater share of the advanced biofuel pool in 2014, so 
there would be no marginal benefit in terms of incentivizing production 
of such fuels in setting a lower volume requirement than the volume of 
BBD that was actually produced and imported and available for 
compliance in 2014. Setting the applicable volume at a higher level 
than was actually produced and available for compliance would require a 
draw-down in the bank of carryover RINs, which EPA does not consider 
prudent for the reasons discussed in Section II.H of this preamble. In 
light of these considerations, we are finalizing the 2014 applicable 
volume for BBD as equal to the volume actually produced and imported, 
which is available for compliance. We believe this approach is also 
appropriate for the 2015 BBD standard. While there is still one month 
remaining in 2015, we believe it is similarly appropriate to set the 
biomass-based diesel standard for 2015 at the level of BBD that we 
project will actually be produced and imported and available for 
compliance in 2015 given that the primary benefits of allowing for 
opportunity for non-BBD fuels in the context of the advanced biofuel 
standard is not applicable for the 11 months of 2015 that have passed, 
and this rule is being issued too late to significantly influence 
production and use of BBD and advanced biofuel in the remainder of 
2015.
2. Primary and Supplementary Statutory Factors Assessment for 2016 and 
2017 Biomass-Based Diesel Applicable Volumes
    EPA's primary assessment of the statutory factors for 2016 is that 
because the final advanced biofuel volume requirement for 2016 reflects 
the advanced biofuel volumes (including BBD) that can be reasonably 
attained, and because the BBD requirement is

[[Page 77498]]

nested within the advanced biofuel volume requirement, we expect that 
the 2016 advanced volume requirement will largely determine the level 
of BBD production and imports; the same volume of BBD will likely be 
produced and imported regardless of the BBD volume that we require for 
2016.
    This assessment is based, in part, on our review of the RFS program 
implementation to date, as discussed in Sections III.B and III.D. Since 
our decision on the BBD volume requirement for 2016 is not expected to 
impact the volume of BBD which is produced and imported during this 
time period, we do not expect our decision to result in a difference in 
the factors we are required to consider pursuant to CAA section 
211(o)(2)(B)(ii)(I)-(VI). However, we note that our principal approach 
of setting BBD volume requirements at a higher level in 2016, while 
still at a volume level lower than anticipated overall production and 
consumption of BBD, is consistent with our evaluation of statutory 
factors in sections 211(o)(2)(B)(ii) (I), (II) and (III), since we 
believe that our decision on the BBD volume requirement can have a 
positive impact on the future development and marketing of other 
advanced biofuels and can also result in potential environmental and 
energy security benefits, while still sending a supportive signal to 
potential BBD investors, consistent with the objectives of the Act to 
support the continued growth in production and use of renewable fuels.
    Similarly for 2017, even though we are finalizing only the 2017 BBD 
volume requirement at this time and not the 2017 advanced biofuel 
requirement, we believe this same primary assessment is appropriate 
since we anticipate that the 2017 advanced biofuel requirement will be 
set to reflect ambitious but reasonably attainable volumes in the use 
of all advanced biofuels and that the advanced biofuel volume standard 
will be expected to drive BBD production and use.
    As an additional supplementary assessment, we have considered the 
potential impacts of modifying the applicable volume of BBD from the 
final levels of 1.90 billion gallons in 2016, and 2.0 billion gallons 
in 2017, based on the assumption that in guaranteeing BBD volumes at 
any given level there could be greater use of BBD and a corresponding 
decrease in the use of other types of advanced biofuels. However, 
setting a higher or lower BBD volume requirement than the final levels 
would only be expected to impact BBD volumes on the margin, protecting 
to varying degrees this advanced biofuel from being outcompeted by 
other advanced biofuels. In this supplementary assessment we have 
considered the statutory factors found in CAA section 211(2)(B)(ii), 
and as described in a memorandum to the docket,\195\ our final 
assessment does not appear, based on available information, to provide 
a good reason for setting a higher or lower volume standard for BBD 
than 1.90 billion gallons in 2016, and 2.0 billion gallons in 2017.
---------------------------------------------------------------------------

    \195\ ``Memorandum to docket: Final Statutory Factors Assessment 
for 2016-2017 BBD Applicable Volumes''.
---------------------------------------------------------------------------

    The EPA received numerous comments pertaining to the consideration 
of the statutory factors for the 2016-2017 BBD volume requirement. 
Following are responses to a number of key issues raised by NBB. 
Additional comments and EPA responses can be found in the Response to 
Comment document that accompanies this final rule.
    NBB stated that we improperly based our consideration of the 
statutory factors on a comparison of BBD to other advanced biofuels, 
rather than to diesel fuel. They asserted that BBD would not compete 
with other advanced biofuels because EPA proposed to set the advanced 
biofuel volume at maximally achievable levels, and that no competition 
would be present if all available advanced biofuels had to be used. 
They suggested that setting the BBD standard at a higher level than 
proposed would actually result in BBD competing against diesel fuel, 
and therefore, EPA should analyze the impacts of displacing diesel fuel 
with BBD. We disagree. In setting the advanced biofuel volume 
requirement, we have assumed reasonably attainable volumes in BBD and 
other advanced biofuels. After determining that it is in the interest 
of the program, as described in Sections III.D.1-D.3, to set the BBD 
volume requirement at a level below anticipated BBD production and 
imports, so as to provide continued incentives for research and 
development of alternative advanced biofuels, it is apparent that 
excess BBD above the BBD volume requirement will compete with other 
advanced biofuels, rather than diesel. The only way for EPA's action on 
the BBD volume requirement to result in a direct displacement of 
petroleum-based fuels, rather than other advanced biofuels, would be if 
the BBD volume requirement were set larger than the total renewable 
fuel requirement. However, since BBD is a type of advanced biofuel, and 
advanced biofuel is a type of renewable fuel, the BBD volume 
requirement could never be larger than the advanced requirement and the 
advanced biofuel requirement could never be larger than the total 
renewable fuel requirement. Thus, EPA continues to believe that it is 
appropriate to evaluate the impact of its action in setting the BBD 
volume requirements by evaluating the impact of using BBD as compared 
to other advanced biofuels to determine what increment of the advanced 
biofuel standard that is not guaranteed to BBD.
    NBB also asserted that our analysis of the desirability of setting 
the BBD volume requirement in a manner that would promote the 
development and use of a diverse array of advanced biofuels is 
prohibited by statute. We disagree with these comments and continue to 
believe that the statutory volumes of renewable fuel established by 
Congress in CAA section 211(o)(2)(B) provide an opportunity for other 
advanced biofuels (advanced biofuels that do not qualify as cellulosic 
biofuel or BBD) to be used to satisfy the advanced biofuel standard 
after the cellulosic biofuel and BBD standards have been met. Ensuring 
that a diversity of renewable biofuels are produced is consistent with 
CAA section 211(o)(2)(A)(i),which requires that the EPA ``ensure that 
transportation fuel sold, or introduced into commerce in the United 
States . . . contains at least the applicable volume of renewable fuel, 
advanced biofuels, cellulosic biofuel, and biomass-based diesel . . 
.''. Because the BBD standard is nested within the advanced biofuel and 
total renewable fuel standards, when an obligated party retires a BBD 
RIN (D4) to satisfy their obligation, this RIN also counts towards 
meeting their advanced biofuel and total renewable fuel obligations. It 
also means that obligated parties may use BBD RINs in excess of their 
BBD obligations to satisfy their advanced biofuel and total renewable 
fuel obligations. To the extent that obligated parties are required to 
achieve compliance with the overall advanced biofuel standard using 
higher volumes of BBD D4 RINs, they forgo the use of other biofuels 
considered advanced biofuels to meet the advanced biofuel requirement. 
Therefore, the higher the BBD volume standard is, the lower the 
opportunity for other non-BBD advanced biofuels to compete for market 
share within the context of the advanced biofuel standard. When viewed 
in a long-term perspective, BBD can be seen as competing for research 
and development dollars with other types of advanced biofuels for 
participation as advanced biofuels in the RFS program.

[[Page 77499]]

    Finally, NBB stated that the EPA previously found statutory factors 
supported greater annual increases in BBD volume requirement for 2013 
and the statutory factors analysis developed to justify the 2016 and 
2017 BBD volume requirements contradicts the analysis EPA put forward 
in 2013. We disagree. As in 2013, we have determined that incremental 
increases in the 2016 and 2017 BBD volume requirement are appropriate 
to provide continued support to the BBD industry. We did this in 2013, 
acknowledging the important role the industry thus far had played in 
providing advanced biofuels to the marketplace, and in furthering the 
GHG reduction objectives of the statute. We did not in 2013, and are 
not today, setting the BBD volume requirement at the maximum potential 
production volume of BBD.

IV. Final Cellulosic Biofuel Volume for 2014-2016

    In the past several years the cellulosic biofuel industry has made 
significant progress towards commercial scale production. Quad County 
Corn Processors produced the first cellulosic biofuel RINs from corn 
kernel fiber at a corn ethanol plant in 2014. In addition, in 2014 two 
large scale cellulosic ethanol facilities owned and operated by Abengoa 
and Poet completed construction. EPA also determined that compressed 
natural gas (CNG) and liquefied natural gas (LNG) produced from biogas 
from landfills, municipal waste-water treatment facility digesters, 
agricultural digesters, and separated municipal solid waste (MSW) 
digesters are eligible to generate cellulosic RINs. This determination 
led to a significant increase in cellulosic RIN generation beginning in 
late 2014, as fuel that previously had been qualified to generate 
advanced biofuel RINs could now generate cellulosic RINs. Efforts 
continue to be made at facilities across the country to reduce both 
capital costs and production costs associated with cellulosic biofuel 
production through technology advances and the development of best 
practices gained through operating experience. EPA also continues to 
support the ongoing development of cellulosic biofuels through actions 
such as the evaluation of new pathways with the potential to generate 
cellulosic biofuel RINs. This section describes the available supply of 
cellulosic biofuel RINs in 2014, the volumes that we project will be 
produced or imported in 2015 and 2016, and some of the uncertainties 
associated with these volumes projections.
    In this rule we are finalizing the proposed approach of using a 
slightly different methodology to determine the projected available 
volume of cellulosic biofuel for each of the three years. Our approach 
to each of these years can broadly be described as one that seeks to 
use actual production volumes where they are available (such as for all 
of 2014 and the first nine months of 2015) and to project production 
volumes from likely production facilities for future months in which 
actual production volumes are not available. In order to project the 
volume of cellulosic biofuel production in 2015 and 2016 we considered 
the Energy Information Administration's projections of cellulosic 
biofuel production,\196\ data reported to EPA through the EPA Moderated 
Transaction System (EMTS) and information we collected regarding 
individual facilities that have produced or have the potential to 
produce qualifying volumes for consumption as transportation fuel, 
heating oil, or jet fuel in the U.S. in 2015 or 2016. New cellulosic 
biofuel production facilities projected to be brought online in the 
United States over the next few years are expected to continue to 
increase the production capacity of the cellulosic industry. 
Operational experience gained at the first few commercial scale 
cellulosic biofuel production facilities should also lead to increasing 
production of cellulosic biofuel from existing production facilities as 
they ramp up to production rates at or near their nameplate capacity 
over the next few years. The following section discusses the companies 
EPA reviewed in the process of projecting qualifying cellulosic biofuel 
production in the United States in 2015 and 2016. Information on these 
companies forms the basis for our production projections of cellulosic 
biofuel that will be produced for use as transportation fuel, heating 
oil, or jet fuel in the United States in these years (see Table IV-1 
below).
---------------------------------------------------------------------------

    \196\ ``EIA projections of transportation fuel for 2015 and 
2016'', letter from Adam Sieminski, EIA Administrator to Gina 
McCarthy, EPA Administrator September 16, 2015.

             Table IV-1--Final Cellulosic Biofuel Standards
------------------------------------------------------------------------
                                                        Volume (million
                        Year                               gallons)
------------------------------------------------------------------------
2014................................................              \a\ 33
2015................................................                 123
2016................................................                 230
------------------------------------------------------------------------
\a\ Based on the number of cellulosic biofuel RINs generated in 2014
  minus RINs retired for reasons other than compliance with the RFS
  standard. We assumed no exports of cellulosic biofuel (data from
  EMTS).

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS program each 
year (absent an adjustment or waiver by EPA) are specified in CAA 
section 211(o)(2). The volumes of cellulosic biofuel specified in the 
statute for 2014, 2015, and 2016 are shown in Table IV.A-1 below. The 
statute provides that if EPA determines, based on EIA's estimate, that 
the projected volume of cellulosic biofuel production in a given year 
is less than the statutory volume, then EPA is to reduce the applicable 
volume of cellulosic biofuel to the projected volume available during 
that calendar year.\197\
---------------------------------------------------------------------------

    \197\ On January 25, 2013, the United States Court of Appeals 
for the District of Columbia Circuit issued its decision concerning 
a challenge to the 2012 cellulosic biofuel standard. In this 
decision the Court stated that in projecting potentially available 
volumes of cellulosic biofuel EPA must apply a ``neutral 
methodology'' aimed at providing a prediction of ``what will 
actually happen.'' API v. EPA, 706 F 3d 474 (D.C. Cir. January 25, 
2013).

          Table IV.A-1--Statutory Volumes of Cellulosic Biofuel
------------------------------------------------------------------------
                                                        Volume (million
                        Year                               gallons)
------------------------------------------------------------------------
2014................................................               1,750
2015................................................               3,000
2016................................................               4,250
------------------------------------------------------------------------

    In addition, if EPA reduces the required volume of cellulosic 
biofuel below the level specified in the statute, the Act also 
indicates that we may reduce the applicable volumes of advanced 
biofuels and total renewable fuel by the same or a lesser volume, and 
we are required to make cellulosic waiver credits available. Our 
consideration of the 2014, 2015, and 2016 volume requirements for 
advanced biofuels and total renewable fuel is presented in Section II.

B. Cellulosic Biofuel Industry Assessment

    In order to project cellulosic biofuel production for 2015 and 2016 
we have tracked the progress of several dozen potential cellulosic 
biofuel production facilities. As we did in establishing the 2013 
annual volumes, we have focused on facilities with the potential to 
produce commercial scale volumes of cellulosic biofuel rather than 
small R&D or pilot-scale facilities. We did so because the larger 
commercial-scale facilities are much more likely to generate RINs for 
the fuel they produce and the volumes they produce will have a far 
greater impact on the cellulosic biofuel standards for 2015-2016. The 
volume of cellulosic biofuel produced

[[Page 77500]]

from R&D and pilot scale facilities is quite small in relation to that 
expected from the commercial scale facilities. R&D and demonstration 
scale facilities have also generally not generated RINs for any fuel 
they have produced in the past as their focus is on developing and 
demonstrating the technology, not producing commercial volumes.
    From this list of commercial scale facilities we used information 
from EMTS and publically available information, and information 
provided by representatives of potential cellulosic biofuel producers, 
to make a determination of which facilities are most likely to produce 
cellulosic biofuel and generate cellulosic biofuel RINs in 2015 and 
2016. Each of these companies was investigated further in order to 
determine the current status of its facilities and its likely 
cellulosic biofuel production and RIN generation volumes for 2015 and 
2016. Both in our discussions with representatives of each company 
\198\ 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.
---------------------------------------------------------------------------

    \198\ In determining appropriate volumes for CNG/LNG producers 
we did not contact individual producers but rather relied primarily 
on discussions with industry associations, and information on likely 
production facilities that are already registered under the RFS 
program. In some cases where further information was needed we did 
speak with individual companies.
---------------------------------------------------------------------------

    Our approach for each of the three years is discussed in more 
detail in Sections IV.D-IV.F below. The remainder of this Section 
discusses the current status of the companies and facilities EPA 
expects may be in a position to produce commercial scale volumes of 
cellulosic biofuel by the end of 2016. This information forms the basis 
for our final standards for cellulosic biofuel for the final three 
months of 2015, and all of 2016.
1. Potential Domestic Producers
    There are a number of companies and facilities \199\ located in the 
United States that have either already begun producing cellulosic 
biofuel for use as transportation fuel, heating oil, or jet fuel at a 
commercial scale, or are anticipated to be in a position to do so by 
the end of 2016. The financial incentive provided by cellulosic biofuel 
RINs, combined with the fact that all these facilities intend to 
produce fuel on a commercial scale for domestic consumption using 
approved pathways, gives us a high degree of confidence that cellulosic 
biofuel RINs will be generated for any fuel produced. In order to 
generate RINs, each of these facilities must be registered under the 
RFS program and comply with all the regulatory requirements. This 
includes using an approved RIN-generating pathway and verifying that 
their feedstocks meet the definition of renewable biomass. Many of the 
companies and facilities have already successfully completed facility 
registration, and some have successfully generated RINs. A brief 
description of each of the companies that EPA believes may produce 
commercial scale volumes of RIN generating cellulosic biofuel by the 
end of 2016 can be found in a memorandum to the docket for this final 
rule.\200\ These descriptions are based on a review of the publicly 
available information and information provided to EPA in conversations 
with company representatives. The key data for each of these companies 
used in our projection of the potentially available volume of 
cellulosic biofuel in 2015 and 2016 is summarized in Table IV.B.3-1 
below.
---------------------------------------------------------------------------

    \199\ The volume projection from CNG/LNG producers does not 
represent production from a single company or facility, but rather a 
group of facilities utilizing the same production technology.
    \200\ ``Cellulosic Biofuel Producer Company Descriptions 
(November 2015)'', memorandum from Dallas Burkholder to EPA Air 
Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located 
in the United States, there are several foreign cellulosic biofuel 
companies that may produce cellulosic biofuel in the remainder of 2015 
or 2016. 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. These companies would therefore be eligible to 
register these facilities under the RFS program and generate RINs for 
any qualifying fuel imported into the United States. While these 
facilities may be able to generate RINs for any volumes of cellulosic 
biofuel they import into the United States, demand for the cellulosic 
biofuels they produce is expected to be high in local markets.
    EPA is charged with projecting the volume of cellulosic biofuel 
that will be produced or imported into the United States. For the 
purposes of this final rule we have considered all of the companies who 
have registered foreign facilities under the RFS program to be 
potential sources of cellulosic biofuel in the remainder of 2015 and 
2016. We believe that due to the strong demand for cellulosic biofuel 
in local markets, the significant technical challenges associated with 
the operation of cellulosic biofuel facilities, and the time necessary 
for potential foreign cellulosic biofuel producers to register under 
the RFS program and arrange for the importation of cellulosic biofuel 
to the United States, cellulosic biofuel imports from facilities not 
currently registered to generate cellulosic biofuel RINs are highly 
unlikely in 2015 and 2016. We have therefore only considered foreign 
cellulosic biofuel production from facilities that are currently 
registered in our projection of available volume of cellulosic biofuel 
in 2015 and 2016. Two foreign facilities that have registered as 
cellulosic biofuel producers have already generated cellulosic biofuel 
RINs for fuel exported to the United States; projected volumes from 
each of these facilities are included in our projection of available 
volumes for 2015 and 2016. One facility has registered as a cellulosic 
biofuel producer, but has not yet generated any cellulosic RINs. EPA 
contacted representatives of this facility and received confirmation 
that they intended to export cellulosic biofuel to the United States in 
2016. EPA has therefore included potential volumes from this facility 
in our 2016 volume production projections.
3. Summary of Volume Projections for Individual Companies
    The information we have gathered on cellulosic biofuel producers, 
described above, along with the production estimates from EIA and data 
collected through EMTS, forms the basis for our projected volumes of 
cellulosic biofuel production for each facility in 2015 and 2016. As 
discussed above, we have focused on commercial scale cellulosic biofuel 
production facilities.
    By 2016 there are a number of cellulosic biofuel production 
facilities that have the potential to produce fuel at commercial scale. 
Each of these facilities is discussed in a memorandum to the 
docket,\201\ and the relevant information used to project a likely 
production range for each company is summarized in Table IV.B.3-1 
below.\202\
---------------------------------------------------------------------------

    \201\ ``Cellulosic Biofuel Producer Company Descriptions 
(November 2015)'', memorandum from Dallas Burkholder to EPA Air 
Docket EPA-HQ-OAR-2015-0111.
    \202\ For the purpose of the preamble discussion we have grouped 
together all facilities expected to produce cellulosic CNG/LNG. The 
individual facilities included in our assessment are listed in 
``November 2015 Assessment of Cellulosic Biofuel Production from 
Biogas (2015-2016)'', memorandum from Dallas Burkholder to EPA Air 
Docket EPA-HQ-OAR-2015-0111.

[[Page 77501]]



                                             Table IV.B.3--Projected Producers of Cellulosic Biofuel by 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Facility capacity  Construction start   First production
          Company name                 Location            Feedstock             Fuel             (MGY) \203\            date                \204\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abengoa.........................  Hugoton, KS.......  Corn Stover.......  Ethanol...........  25................  September 2011....  4Q 2015.
Cool Planet.....................  Alexandria, LA....  Wood Waste........  Gasoline..........  1.................  2Q 2015...........  Late 2016.
CNG/LNG Producers \205\           Various...........  Biogas............  CNG/LNG...........  Various...........  N/A...............  August 2014.
DuPont..........................  Nevada, IA........  Corn Stover.......  Ethanol...........  30................  November 2012.....  4Q 2015.
Edeniq..........................  Various...........  Corn Kernel Fiber.  Ethanol...........  Various...........  Various...........  Various.
Ensyn...........................  Renfrew, ON.......  Wood Waste........  Heating Oil.......  3.................  N/A...............  2014.
GranBio.........................  S[atilde]o Miguel   Sugarcane bagasse.  Ethanol...........  21................  Mid 2012..........  September 2014.
                                   dos Campos,
                                   Brazil.
INEOS Bio.......................  Vero Beach, FL....  Vegetative Waste..  Ethanol...........  8.................  February 2011.....  1Q 2016.
Poet............................  Emmetsburg, IA....  Corn Stover.......  Ethanol...........  24................  March 2012........  4Q 2015.
QCCP............................  Galva, IA.........  Corn Kernel Fiber.  Ethanol...........  2.................  Late 2013.........  October 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Projection From the Energy Information Administration

    Section 211(o)(3)(A) of the Clean Air Act requires EIA to ``. . . 
provide to the Administrator of the Environmental Protection Agency an 
estimate, with respect to the following calendar year, of the volumes 
of transportation fuel, biomass-based diesel, and cellulosic biofuel 
projected to be sold or introduced into commerce in the United 
States.'' EIA provided these estimates to us on September 16, 
2015.\206\ With regard to cellulosic biofuel, the EIA estimated that 
the available volume in 2015 would be 3 million gallons and in 2016 
would be 10 million gallons. A summary of the commercial scale plants 
they considered is shown below in Table IV.C-1.
---------------------------------------------------------------------------

    \203\ The Facility Capacity is generally equal to the nameplate 
capacity provided to EPA by company representatives or found in 
publicly available information. If the facility has completed 
registration and the total permitted capacity is lower than the 
nameplate capacity then this lower volume is used as the facility 
capacity. For companies generating RINs for CNG/LNG derived from 
biogas the Facility Capacity is equal to the lower of the annualized 
rate of production of CNG/LNG from the facility or the sum of the 
volume of contracts in place for the sale of CNG/LNG for use as 
transportation fuel (reported as the actual peak capacity for these 
producers).
    \204\ 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.
    \205\ For more information on these facilities see ``November 
2015 Assessment of Cellulosic Biofuel Production from Biogas (2015-
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2015-0111.
    \206\ Letter from Adam Sieminski, EIA Administrator to Gina 
McCarthy, EPA Administrator September 16, 2015.

   Table IV.C-1--List of Cellulosic Biofuel Plants Considered in EIA's
                               Projections
------------------------------------------------------------------------
   Year online          Company          Location           Product
------------------------------------------------------------------------
2013.............  INEOS Bio.......  Vero Beach, FL..  Ethanol.
2014.............  Quad County.....  Galva, IA.......  Ethanol.
2015.............  Abengoa.........  Hugoton, KS.....  Ethanol.
2015.............  POET............  Emmetsburg, IA..  Ethanol.
2016.............  DuPont..........  Nevada, IA......  Ethanol.
------------------------------------------------------------------------

    EIA indicated in their letter that they did not include estimates 
for cellulosic biofuel produced from biogas from landfills, municipal 
wastewater treatment facilities, separated MSW digesters, or 
agricultural digesters or those producing renewable heating oil, which 
represent approximately 90% of our projected cellulosic biofuel volume 
for 2016. When limiting the scope of our projection to the companies 
assessed by EIA, we note that while our volume projections are not 
identical, they are very similar. EPA projects approximately 4 million 
gallons of liquid cellulosic biofuel will be produced in 2015 
(approximately 2 million gallons has been produced through September 
2015, and we project an additional 2 million gallons will be produced 
through the end of 2015). This projection includes renewable heating 
oil (up to 1 million gallons) which was not considered in EIA's 
projection. For 2016 EPA projects 23 million gallons of liquid 
cellulosic biofuel will be produced. Of this 23 million gallons, up to 
3 million gallons is expected to come from renewable heating oil, and 
up to 2 million gallons is expected to come from imported cellulosic 
biofuel. Neither of these sources are included in EIA's projection. EIA 
did not provide detail on the basis of their projections other than the 
list of expected producers shown above, so we cannot say precisely why 
EPA and EIA's projections differ. We further note that if we used EIA's 
projections for liquid cellulosic biofuel production without 
modification to reflect other data and our judgement the impact on the 
cellulosic biofuel standard overall for 2016 would be less than 5%.

D. Cellulosic Biofuel Volume for 2014

    EPA is charged with projecting the available volume of cellulosic 
biofuel for each year, and to reduce the applicable volume of 
cellulosic biofuel to the level projected to be available for years in 
which the projected available volume falls below the cellulosic biofuel 
applicable volume target specified in the CAA section 211(o)(2). EPA 
believes that for any historical time period, the required projection 
is best calculated as the sum of the cellulosic biofuel RINs (D3) and 
the cellulosic diesel RINs (D7) generated, adjusted for RINs that are 
retired for purposes other than compliance with the annual standards. 
EPA publishes the number of cellulosic

[[Page 77502]]

biofuel and cellulosic diesel RINs generated on a month-by-month basis 
on our Web site.\207\ The number of cellulosic biofuel and cellulosic 
diesel RINs generated for each month of 2014 can be found in Table 
IV.D-1 below. From this total, we subtract the number of cellulosic 
biofuel and cellulosic diesel RINs retired for reasons other than 
compliance with the annual standards, as these RINs are not available 
to obligated parties.\208\ In calculating the number of cellulosic 
biofuel RINs available for compliance with the annual standards for 
2014 we have assumed that there were no exports of cellulosic 
biofuel.\209\ In this final rule, we are establishing the cellulosic 
biofuel requirement for 2014 at 33 million gallons. We believe this 
number, calculated by subtracting the total number of cellulosic 
biofuel RINs (D3 and D7) retired for reasons other than compliance with 
the annual standards from the total number of cellulosic biofuel RINs 
generated in 2014 (D3 and D7), represents the total available supply of 
cellulosic biofuel RINs for 2014.
---------------------------------------------------------------------------

    \207\ http://www2.epa.gov/fuels-registration-reporting-and-compliance-help/2014-renewable-fuel-standard-data.
    \208\ In 2014 Cellulosic Biofuel and Cellulosic Diesel RINs were 
retired for Remedial Actions and Invalid RINs.
    \209\ The vast majority of cellulosic biofuel RINs generated in 
2014 (approximately 32 or the 33 million RINs) were for CNG or LNG. 
These fuels require verification that the CNG/LNG was used as 
transportation fuel in the United States in order for RINs to be 
generated.

       Table IV.D-1--Cellulosic Biofuel RIN Generation in 2014 210
------------------------------------------------------------------------
                                         Cellulosic        Cellulosic
                                        biofuel  (D3)     diesel  (D7)
------------------------------------------------------------------------
January 2014........................            58,415                 0
February 2014.......................             7,072                 0
March 2014..........................             6,624               472
April 2014..........................               643            10,950
May 2014............................                 0                 0
June 2014...........................                 0                 0
July 2014...........................             4,156             1,248
August 2014.........................         3,492,106             5,532
September 2014......................         7,555,432            17,073
October 2014........................         7,047,762            24,030
November 2014.......................         6,325,080                 0
December 2014.......................         8,863,270                 0
                                     -----------------------------------
    Total...........................        33,360,560            59,305
RINs retired for reasons other than            348,973             4,997
 compliance with the annual
 standards..........................
RINs Available......................        33,011,587            54,308
                                     -----------------------------------
Available Cellulosic RINs (D3 and
 D7)................................              33,065,895
------------------------------------------------------------------------

E. Cellulosic Biofuel Volume for 2015

    To project the volume of cellulosic biofuel in 2015, EPA has relied 
on a combination of production information reported to EPA through EMTS 
for months in which we have data available and facility or company 
specific estimates of likely production for months for which EMTS data 
is not available. For months in which information on the production of 
cellulosic biofuel is available we have used the methodology discussed 
in Section IV.D, subtracting the number of RINs retired for reasons 
other than compliance in 2015 from the total number of RINs produced in 
2015 that are eligible to be used towards satisfying the cellulosic 
biofuel standard (D3 and D7 RINs). Since the time of the NPRM, data 
have become available for cellulosic RIN generations in April-September 
of 2015. This data has been used in our projection of available 
cellulosic biofuel volume for this final rule. We have again assumed 
that no cellulosic biofuel was exported in the first nine months of 
2015. Data on the number of cellulosic biofuel RINs generated and 
retired for purposes other than compliance with the 2015 RVO from 
January 2015 through September 2015 are shown in Table IV.E-1 below.
---------------------------------------------------------------------------

    \210\ All numbers from EPA Web site: http://www.epa.gov/otaq/fuels/rfsdata/index.htm. Accessed February 9, 2015.

     Table IV.E-1--Cellulosic Biofuel RIN Generation and Retirements
                      [January 2015-September 2015]
------------------------------------------------------------------------
                                         Cellulosic        Cellulosic
                                        biofuel  (D3)     diesel  (D7)
------------------------------------------------------------------------
January 2015........................         4,108,477                 0
February 2015.......................         7,950,318                 0
March 2015..........................         7,803,420                 0
April 2015..........................         7,831,248                 0
May 2015............................         9,341,048           173,731
June 2015...........................        12,506,549                 0
July 2015...........................        12,999,815                 0
August 2015.........................        13,805,608            53,303
September 2015......................        12,316,744                 0
                                     -----------------------------------

[[Page 77503]]

 
    Total...........................        88,663,227           227,034
RINs retired for reasons other than            716,177            22,702
 compliance.........................
RINs Available......................        87,947,050           204,332
                                     -----------------------------------
    Total Available Cellulosic RINs
     (D3 and D7)....................              88,151,382
------------------------------------------------------------------------

    For months in which information is unavailable EPA has generally 
used the projection methodology described in the proposed rule, with 
one change based on comments received on the NPRM. Consistent with our 
proposed rule, our projection methodology starts with estimating a 
range of potential production volumes for each company for the portion 
of 2015 where production data is not available.\211\ EPA has 
established a range of potential production volumes for each company 
such that it is possible, but unlikely, that the actual production will 
be above or below the range. We believe that it is more appropriate to 
project a range of potential production volumes rather than a single 
point estimate due to the highly uncertain and variable nature of 
biofuel production at cellulosic biofuel facilities, especially those 
in the early stages of production. The projected production ranges for 
each facility are used to generate a single point estimate for the 
total production of cellulosic biofuel from all companies in 2015 for 
the months in which actual production volumes through EMTS are not 
available (October-December 2015).
---------------------------------------------------------------------------

    \211\ For the purposes of projecting RIN generation from CNG/LNG 
projections were made for parent companies, generally representing 
multiple facilities. For more detail see ``November 2015 Assessment 
of Cellulosic Biofuel Production from Biogas (2015-2016)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
---------------------------------------------------------------------------

    In establishing a range for each company, we began by determining 
an appropriate low end of the range. The low end of the range for each 
company is designed to represent the volume of fuel EPA believes each 
company would produce if they are unable to begin fuel production on 
their expected start-up date and/or if they experience challenges that 
result in reduced production volumes or a longer than expected ramp-up 
period. In this final rule EPA has set the low end of the production 
range for each company based on the volume of RIN-generating cellulosic 
biofuel the company has produced in the most recent 12 months for which 
data is available. Because we are not attempting to determine a low end 
of a likely production range for a full year, but rather only the 
months in 2015 for which data are not available, this number is then 
multiplied by a scaling factor \212\ to appropriately scale this annual 
production volume for use as the low end of the range over the last 
three of months of 2015 for which actual production data is 
unavailable.
---------------------------------------------------------------------------

    \212\ The scaling factor is 0.25; equal to the 3 months for 
which production data is being projected divided by 12.
---------------------------------------------------------------------------

    This approach provides us with an objective methodology for 
calculating the low end of the potential production range for each 
company that we believe is appropriate in light of the history of 
start-up delays and missed production targets in the cellulosic biofuel 
industry. If a company has not yet begun producing RIN-generating 
volumes of cellulosic biofuel, our experience suggests that they may 
experience challenges in progressing toward commercial-scale production 
that would result in the delay of the production of cellulosic biofuel. 
We acknowledge that in the majority of cases cellulosic companies that 
have begun producing fuel and are currently in the start-up and ramp-up 
phases of production will increase their production of cellulosic 
biofuel from one year to the next as they work towards production rates 
at or near the facility capacity. Fuel production by these companies 
may, however, be interrupted, either intentionally or unexpectedly, and 
these interruptions may hinder the ability of these companies to 
increase biofuel production year over year. Several commenters also 
noted low market prices for cellulosic biofuel as an additional reason 
that fuel production may be reduced or suspended until such a time as 
the market for the fuel produced improves. We will account for the 
likelihood of increasing production in developing the high end of each 
company's production range. Finally, there may be cases in which 
information is available that suggests a company is unlikely to meet 
the production volumes achieved in the previous 12 months for which 
data is available, due to technical, financial, or legal difficulties. 
We do not believe this is the case with any of the companies projected 
to produce cellulosic biofuel in 2015.
    It is important to note that the low end of the range does not 
necessarily represent a worst-case scenario. The worst-case scenario 
for any of these facilities for the months in which we are projecting 
production is no production, as it is always possible that extreme 
circumstances or natural disasters may result in extended delays, 
facility damages, or facility closures. While not denying such a 
possibility, we nevertheless believe it is generally appropriate to use 
the production over the previous 12 months as the low end of the range, 
with exceptions made where available information indicates that such 
production may be unlikely. In situations where a company has not 
produced any cellulosic biofuel in the previous 12 months, we believe 
it is appropriate to use zero as the low end of the projected 
production range given the many uncertainties and challenges associated 
with the commissioning and start-up of a new cellulosic biofuel 
production facility we have observed to date.
    To determine the high end of the range of expected production 
volumes for each company we considered a variety of factors, including 
the expected start-up date and ramp-up period, facility capacity, and 
fuel off-take agreements. As a starting point, EPA calculated a 
production volume using the expected start-up date, facility capacity, 
and a benchmark of a six-month straight-line ramp-up period 
representing an optimistic ramp-up scenario.\213\ We then compared the

[[Page 77504]]

volume calculated using this methodology to the company's own 
expectations for the period in which we are projecting production where 
they were available. In cases where the company projection for any 
given year exceeds our benchmark volume we used the benchmark volume, 
rather than the company estimate, as the high end of the range for that 
company. If the production estimate EPA received from a company was 
lower than the volume calculated using the projected start-up date, 
facility capacity, and six month straight-line ramp-up period, EPA used 
the company production targets instead.
---------------------------------------------------------------------------

    \213\ We did not assume a six-month straight-line ramp-up period 
in determining the high end of the projected production range for 
CNG/LNG producers. This is because these facilities generally have a 
history of CNG/LNG production prior to producing RINs, and therefore 
do not face many of the start-up and scale-up challenges that impact 
new facilities. For further information on the methodology used to 
project cellulosic RIN generation from CNG/LNG producers see 
``November 2015 Assessment of Cellulosic Biofuel Production from 
Biogas (2015-2016)'', memorandum from Dallas Burkholder to EPA Air 
Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    EPA received comments from biofuels producers stating that 
production projections we receive from companies should be used as the 
basis for the mean value of any projected production range. They argue 
that EPA should defer to the technical expertise of the cellulosic 
biofuel manufacturers who provide these projections, and that it is 
inappropriate to base the low end of the range on previous production 
data. EPA understands that the volume projections provided by companies 
included in our projection are intended to represent the companies' 
expectations for production, rather than the high end of a potential 
production range. We also acknowledge the technical expertise of these 
companies and the significant amount of investment that has gone into 
the development of these biofuel production processes as they have 
progressed from R&D through demonstration and pilot scale in 
preparation for the first commercial scale facilities. While 
acknowledging these facts, we do not believe it would be appropriate to 
ignore the history of the cellulosic biofuel industry. Each year since 
2010, EPA has gathered information, including volume production 
projections, from companies with the potential to produce cellulosic 
biofuel. Each of these companies supported these projections with 
successful pilot and demonstration scale facilities as well as other 
supporting documentation. In each of these cases the companies were 
unable to meet their own volume projections, and in many cases were 
unable to produce any RIN-generating cellulosic biofuel.
    The inability of cellulosic biofuel producers in previous years to 
achieve their projection production targets does not provide a 
sufficient basis for completely discounting production of cellulosic 
biofuel in future years, either for these same facilities that were 
previously unable to achieve their target projections or from new 
facilities expected to start-up in 2015 or 2016. Each of these 
companies is an individual case, with their own production 
technologies, construction and operations staffs, and financial 
situations, and we do not believe it is appropriate to dismiss all 
future potential cellulosic biofuel production because of the failure 
of several facilities to successfully operate at commercial scale. We 
do believe it strongly suggests that we should view the individual 
company projections as something other than the most likely outcomes. 
In order to take a ``neutral aim at accuracy'' in projecting cellulosic 
biofuel production volumes, as directed by the United States Court of 
Appeals for the D.C. Circuit, we have decided to treat these company 
projections as the high end of a potential production range unless this 
volume exceeds the volume calculated using our six-month straight-line 
ramp-up period methodology, suggesting that these company projections 
are unreasonably high. We will continue to monitor the progress and 
experience of the cellulosic biofuel industry and may adjust our 
approach as appropriate in light of additional experience.
    EPA also received comments claiming that the proposed cellulosic 
biofuel volumes were unreasonably high. These commenters generally 
claimed that in light of the inability of cellulosic biofuel companies 
to achieve their projected production volumes, start-up dates, and 
ramp-up schedules in previous years the only reasonable basis for 
projecting future production volumes was historical production data. 
They suggested that EPA should project future production volumes based 
solely on available cellulosic RIN generation data from previous 
months. EPA believes this would be inconsistent with our charge to 
project available cellulosic biofuel volume by taking a neutral aim at 
accuracy. Adopting such an approach would effectively mean ignoring the 
potential for facilities that have not generated RINs during the 
historical time period used for the basis of our future projection to 
contribute significant volumes in the future. This would not only be 
inconsistent with our expectations for an industry that has shown 
substantial growth over the last several years, but also with 
congressional intent to provide incentives for the rapid expansion of 
the cellulosic biofuel industry. Most importantly, a comparison of the 
results of the method suggested by these commenters for the cellulosic 
biofuel standard in 2015 (90 million ethanol-equivalent gallons) and 
those proposed by EPA (106 million ethanol-equivalent gallons) to the 
volume that would be expected to be produced in 2015 using a 
conservative extrapolation of the monthly average cellulosic biofuel 
RIN generation observed in the first nine months of 2015 over the 
remaining three months (118 million gallons) shows this suggested 
method to be inappropriately conservative.
    We believe our range of projected production volumes for each 
company represents the range of what is likely to actually happen for 
each company. A brief overview of each of the companies we believe will 
produce cellulosic biofuel and make it commercially available in 2015 
or 2016 can be found in a memorandum to the docket.\214\ In the case of 
cellulosic biofuel produced from CNG/LNG we have discussed the 
production potential from these facilities as a group rather than 
individually. EPA believes it is appropriate to discuss these 
facilities as a group since they are utilizing a proven production 
technology and face many of the same challenges related to 
demonstrating that the fuel they produce is used as transportation fuel 
and therefore eligible to generate RINs under the RFS program.\215\
---------------------------------------------------------------------------

    \214\ ``Cellulosic Biofuel Producer Company Descriptions 
(November 2015)'', memorandum from Dallas Burkholder to EPA Air 
Docket EPA-HQ-OAR-2015-0111.
    \215\ For individual company information see ``November 2015 
Cellulosic Biofuel Individual Company Projections for 2014-2016 
(CBI)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2015-0111.
---------------------------------------------------------------------------

    After establishing a projected production range for each facility 
(or group of facilities for CNG/LNG producers), we must then determine 
a method for using these projected production ranges to project the 
volume of cellulosic biofuel most likely to be produced by the 
cellulosic biofuel industry as a whole in 2015. As discussed above, the 
high and the low end of the range for each company represents values 
such that it is possible but unlikely that actual volumes would fall 
outside of those ranges. At present, data do not exist to allow EPA to 
develop a unique production probability distribution for each company 
based on the available information, as some commenters suggested. Even 
if EPA were able to undertake such a task there is no evidence that the 
distributions we developed would necessarily be more accurate than a 
standardized distribution curve as the cellulosic biofuel industry is 
still in its infancy and there is a high degree of uncertainty

[[Page 77505]]

associated with many of the factors that will impact production at each 
individual facility. This is supported by the poor accuracy of the 
individual company estimates in previous years, which were made by 
individuals with significant technical expertise and knowledge of each 
individual company and technology.
    Rather than attempting to develop a unique probability distribution 
curve that represents likely cellulosic biofuel production for each 
company, EPA has instead separated the list of potential cellulosic 
biofuel producers into several groups with similar characteristics and 
projected the likely production from each of these groups. In our 
proposed rule we separated all of the potential cellulosic biofuel 
producers into two groups; those who have already achieved consistent 
commercial-scale production and those who have not. EPA received 
comments on our proposed rule that biogas producers should be treated 
differently than liquid biofuel producers since there was very little 
technology risk associated with the production and collection of 
biogas. We believe these comments are valid, and that the available 
data support using a percentile value to projected production from 
biogas facilities that differs from the value used for liquid biofuel 
producers. For this final rule we have used the 50th and 75th 
percentile values within the projected ranges to project likely 
cellulosic biofuel production from new and consistently producing 
facilities producing CNG/LNG from biogas.\216\
---------------------------------------------------------------------------

    \216\ For more information see ``November 2015 Assessment of 
Cellulosic Biofuel Production from Biogas (2015-2016)'', memorandum 
from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-0111. Using 
these percentile values and the ranges from the NPRM results in a 
production projection much closer to the actual production of 
cellulosic biofuel in 2015.
---------------------------------------------------------------------------

    We continue to believe that grouping the potential cellulosic 
biofuel producers using the criteria of whether or not they have 
achieved consistent commercial-scale production is appropriate for the 
purposes of projecting a likely production volume. While each of these 
groupings contains a diverse set of companies with their own production 
technologies and challenges, we believe there is sufficient commonality 
in the challenges related to the funding, construction, commissioning, 
and start-up of commercial-scale cellulosic biofuel facilities to 
justify aggregating these company projections into a single group for 
the purposes of projecting the most likely production volume of 
cellulosic biofuel. The challenges new production facilities face are 
also significantly different than those of facilities ramping up 
production volumes to the facility capacity and maintaining consistent 
production.
    After separating the companies into these four groups (liquid 
cellulosic biofuel producers with and without consistent production and 
biogas producers with and without consistent production) we then summed 
the low and high ends of each of the ranges for each individual company 
(or group of companies for CNG/LNG producers) within the group to 
calculate an aggregate projected production range for each group of 
companies. The ranges for each group of companies are shown in Tables 
IV.E-2 through IV.E-4 below.

   Table IV.E-2--2015 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                               range         the range
------------------------------------------------------------------------
Abengoa.................................               0               1
CoolPlanet..............................               0               0
DuPont..................................               0               1
Poet....................................               0               1
                                         -------------------------------
    Total...............................           \a\ 0           \a\ 3
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.


                Table IV.E-3--2015 Production Ranges for Liquid Cellulosic Biofuel Producers With Consistent Commercial Scale Production
                                                                    [Million gallons]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Low end of the range                          High end of the range
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ensyn.....................................................                                          \b\ X                                            0.5
Quad County Corn Processors...............................                                          \b\ X                                            0.5
                                                           ---------------------------------------------------------------------------------------------
    Total.................................................                                          \a\ 0                                          \a\ 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
\b\ The low end of the range for each individual company is based on actual production volumes and is therefore withheld to protect information claimed
  to be confidential business information.


                      Table IV.E-4--2015 Production Ranges for CNG/LNG Produced From Biogas
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                               Low end of the range \a\            High end of the range \a\
----------------------------------------------------------------------------------------------------------------
CNG/LNG Producers (New Facilities)......                                   0                                   0
CNG/LNG Producers (Currently generating                                   27                                  35
 RINs)..................................
----------------------------------------------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.


[[Page 77506]]

    Because the cellulosic biofuel industry is still in its infancy and 
it is therefore not possible to predict with any degree of certainty 
the precise production volume each individual company will achieve, we 
believe that it would not be appropriate to choose a specific value 
within the projected range for each individual company/source. We 
believe it is more appropriate to identify a specific value within the 
aggregated ranges from Tables IV.E-2 and IV.E-4 that best reflects the 
likely production volume for each group of companies. For liquid 
cellulosic biofuel producers that have not yet achieved consistent 
commercial-scale production (Table IV.E-2) we are finalizing the use of 
the 25th percentile of the projected production range. This does not 
mean, as some commenters suggested, that we expect these facilities to 
operate at 25% of their nameplate, but rather that we expect that this 
group of facilities will produce a volume of cellulosic biofuel at the 
25th percentile of the projected range. We note again that the high end 
of the range for each company, which were used to calculate the high 
end of the range for the group of companies, is significantly lower 
than the nameplate capacity of each facility, in some cases 
dramatically so, based on the expected start-up date of the facility. 
We believe this volume is appropriate as, in addition to the 
uncertainties listed above, there is also significant technology risk 
as these facilities attempt to operate their technologies at commercial 
scale. In the early years of the cellulosic biofuel industry several 
companies, including Cello Energy, Range Fuels, and KiOR experienced 
significant technical difficulties in scaling up their technologies and 
were able to produce little, if any, volumes of cellulosic biofuels. 
More recently, facilities owned and operated by Abengoa and Poet-DSM 
have also experienced unexpected challenges that resulted in commercial 
scale production being delayed. It is necessary to consider this 
history when projecting production volumes from companies who have not 
yet achieved consistent production at commercial scale.\217\
---------------------------------------------------------------------------

    \217\ While ``new'' CNG/LNG facilities may not face the same 
challenges related to start-up and scale-up there is uncertainty 
related to RIN generation from facilities that have not yet begun 
generating RINs. RIN generation from these facilities may be delayed 
or reduced if they are unable to verify that all or a portion of the 
CNG/LNG they produce is used as transportation fuel, or if they 
decide to sell the CNG/LNG they produce into non-transportation 
markets. These uncertainties can significantly impact the number of 
RINs generated by a CNG/LNG producer, and we therefore believe that 
projecting production from these ``new'' facilities at the 50th 
percentile of the range is appropriate.
---------------------------------------------------------------------------

    For the group of liquid cellulosic biofuel producers that have 
achieved consistent commercial-scale production (Table IV.E-3) we are 
projecting the available volume produced by these facilities at the 
mid-point (50th percentile) of the projected range. We believe that 
this point accounts for the uncertainty related to the scale-up of 
production from the volume produced in the previous 12 months (through 
September 2015) as well as other uncertainties related to the 
generation of RINs such as documenting that the fuel is used as 
transportation fuel, heating oil, or jet fuel. As stated above, this 
does not mean that we anticipate that each of these facilities within 
each group will produce at the 50th percentile of the projected range 
over the final 3 months of 2015, but rather that as a group the 50th 
percentile is a realistic projections for this group of companies. We 
believe this methodology accounts for the fact that some individual 
company may be able to deliver the volume of cellulosic biofuel they 
expect and produce at or near the high end of the range, while others 
may experience challenges and produce closer to the low end of the 
range.
    Finally, EPA has projected production for companies generating 
cellulosic biofuel RINs from biogas at the 50th percentile for those 
facilities that have not yet generated cellulosic biofuel RINs and at 
the 75th percentile for those facilities that have achieved consistent 
commercial scale production. In our proposed rule we projected volumes 
from these facilities at the 25th and 50th percentile of the projected 
production ranges respectively, consistent with the way we projected 
likely production from liquid cellulosic biofuel producers. We received 
comments that our methodology under-estimated the potential for the 
generation of cellulosic RINs from biogas, with some commenters 
claiming that the mature state of the technology required to produce 
and/or collect biogas and clean it to pipeline quality justified a 
using a higher percentile to projected production from these 
facilities. In our proposed rule EPA noted the differences in the 
status of the technologies used to produce liquid cellulosic biofuels 
and cellulosic biofuel from biogas. We nevertheless proposed to use the 
same percentiles for both liquid cellulosic biofuels and cellulosic 
biofuel from biogas due to uncertainties related to the ability of the 
biogas production facilities to demonstrate the use of the biogas as 
transportation fuel and a lack of RIN generation data to compare to 
previous projections on the part of many of the biogas facilities. 
After reviewing the fuel production and RIN generation history of these 
facilities, and with these comments in mind, EPA has decided to use 
higher percentile values to project likely production from cellulosic 
biogas producers as compared to liquid cellulosic biofuel 
producers.\218\ The projected volume of cellulosic RINS generated for 
CNG/LNG from biogas are shown in Table IV.E-5 below.
---------------------------------------------------------------------------

    \218\ ``November 2015 Assessment of Cellulosic Biofuel 
Production from Biogas (2015-2016)'', memorandum from Dallas 
Burkholder to EPA Air Docket EPA-HQ-OAR-2015-0111.

         Table IV.E-5--Projected Volume of Cellulosic Biofuel in 2015 for Months Without Production Data
                                              [Million gallons] \a\
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                       range         the range      Percentile      volume \b\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers Without                    0               3            25th               1
 Consistent Commercial Scale Production.........
Liquid Cellulosic Biofuel Producers With                     0.5               1            50th               1
 Consistent Commercial Scale Production.........
CNG/LNG Produced From Biogas Without Consistent                0               0            50th               0
 Commercial Scale Production....................
CNG/LNG Produced From Biogas With Consistent                  27              35            75th              33
 Commercial Scale Production....................

[[Page 77507]]

 
    Total.......................................             N/A             N/A             N/A              35
----------------------------------------------------------------------------------------------------------------
\a\ The projections in this table are for October 2015-December 2015. The low end of the range is equal to the
  number of RINs produced by the companies over the most recent 12 months for which data is available multiplied
  by a factor of 0.25 (since it is only a projection for 3 months of the year). The high end of the range is
  based on projected production for the final 3 months of 2015.
\b\ Rounded to the nearest million gallons.

    As noted in our proposed rule, EPA anticipates that if the same 
methodology is used in future years that as cellulosic biofuel 
companies successfully achieve commercial scale production, application 
of this methodology will appropriately generate increasing volume 
projections, both for the individual companies and for the industry as 
a whole. This will happen in two ways. First, as companies successfully 
produce cellulosic biofuel the low end of the range (which is based on 
the most recent 12 months of production for which data are available) 
will increase. Second, we would use the higher percentile values for 
all companies who have achieved consistent commercial-scale production. 
If merited by the available data, we will also consider using a higher 
(or lower) percentile for both new facilities and facilities that have 
already achieved consistent commercial-scale production. As new 
pathways for the production of cellulosic biofuel are approved, we will 
also consider volumes produced using these pathways in our 
projections.\219\
---------------------------------------------------------------------------

    \219\ We disagree with commenters who stated that EPA should 
anticipate the approval of new pathways and include production from 
these pathways in our projections. Assuming the approval of new 
pathways, and the subsequent registration and production from new 
facilities using these pathways, is highly uncertain and 
inconsistent with our attempt at neutral projections, particularly 
for pathways that have not yet been proposed.
---------------------------------------------------------------------------

    The final step in projecting the potentially available volume of 
cellulosic biofuel in 2015 is to combine the volumes of cellulosic 
biofuel actually produced in months for which data is available with 
the projected production volumes for the remaining months of 2015. This 
is shown in Table IV.E-6 below. For 2015 we are finalizing a cellulosic 
biofuel standard of 123 million gallons.

      Table IV.E-6--Projected Available Cellulosic Biofuel in 2015
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic Biofuel Production         88 Million Gallons.
 (January 2015-September 2015).
Projected Cellulosic Biofuel          35 Million Gallons.
 Production (October 2015-December
 2015).
Projected Available Volume of         123 Million Gallons.
 Cellulosic Biofuel in 2015.
------------------------------------------------------------------------

F. Cellulosic Biofuel Volume for 2016

    To project the volume of potentially available cellulosic biofuel 
in 2016 we are using a methodology very similar to the methodology used 
for projecting cellulosic biofuel production in 2015 for months in 
which actual production data are not available. The only difference is 
that in 2016 a scaling factor is not used in calculating the low end of 
the projected ranges, as we are projecting production over the entire 
year rather than for only 3 months. For 2016 we separated the list of 
potential producers of cellulosic biofuel into four groups according to 
whether they are producing liquid cellulosic biofuel or CNG/LNG from 
biogas and the production history of the facilities (See Table IV.F-1 
through Table IV.F-3). We next defined a range of likely production 
volumes for each group of potential cellulosic biofuel producers. The 
low end of the range for each group of producers reflects actual 
production data over the last 12 months for which data is available. 
This is the same approach used to establish the low end of the range 
for each of the potential cellulosic biofuel producers in 2015.
    To calculate the high end of the projected production range for 
each group of companies we considered each company individually (with 
the exception of the CNG/LNG producers) and used the same methodology 
in 2016 as for the months in 2015 for which actual past production data 
was not available (this methodology is covered in further detail in 
Section IV.E above). The high end of the range for each company within 
each group was added together to calculate the high end of the 
projected production range for that group.
    After defining likely production ranges for each group of companies 
we projected a likely production volume from each group of companies 
for 2016. We used the same percentile values to projected a production 
volume within the established ranges 2016 as we did in 2015; the 50th 
and 25th percentiles respectively for liquid cellulosic biofuel 
producers with and without a history of consistent cellulosic biofuel 
production, and the 75th and 50th percentiles respectively for 
producers of CNG/LNG from biogas with and without a history of 
consistent commercial scale production. These percentile values are 
discussed in more detail in Section IV.E above.

[[Page 77508]]



   Table IV.F-1--2016 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
Abengoa.................................               0              22
CoolPlanet..............................               0               0
DuPont..................................               0              26
Edeniq..................................               0               5
GranBio.................................               0               2
Ineos Bio...............................               0               6
Poet....................................               0              15
                                         -------------------------------
Aggregate Range.........................               0              76
                                         -------------------------------
Projected Production (25th Percentile of
 Range).................................                19
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.


   Table IV.F-2--2016 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             Range \a\     the Range \a\
------------------------------------------------------------------------
Ensyn...................................           \b\ X               3
Quad County Corn Processors.............           \b\ X               2
Aggregate Range.........................               2               5
                                         -------------------------------
Projected Production (50th Percentile of
 Range).................................                 4
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
\b\ The low end of the range for each individual company is based on
  actual production volumes and is therefore withheld to protect
  information claimed to be confidential business information.


  Table IV.F-3--2016 Production Ranges for CNG/LNG Produced From Biogas
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
CNG/LNG Producers (New Facilities)......               0              63
CNG/LNG Producers (Currently generating              107             197
 RINs)..................................
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.

    The final step in projecting the potentially available volume of 
cellulosic biofuel in 2016 is to combine the volumes of cellulosic 
biofuel projected to be produced from each of the four groups discussed 
above (shown in Table IV.F-4 below). For 2016 we are finalizing a 
cellulosic biofuel volume requirement of 230 million gallons.

                          Table IV.F-4--Projected Volume of Cellulosic Biofuel in 2016
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                     range \a\     the range \a\    Percentile      volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; New                       0              76            25th              19
 Facilities.....................................
Liquid Cellulosic Biofuel Producer; Consistent                 2               5            50th               4
 Production.....................................
CNG/LNG Producers; New Facilities...............               0              63            50th              32
CNG/LNG Producers; Consistent Production........             107             197            75th             175
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A             230
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.

G. Rescission of the 2011 Cellulosic Biofuel Standards

    On January 25, 2013, the United States Court of Appeals for the 
District of Columbia Circuit issued its decision concerning a challenge 
to the 2012 cellulosic biofuel standard.\220\ The Court found that in 
establishing the applicable

[[Page 77509]]

volume of cellulosic biofuel for 2012, EPA had used a methodology in 
which ``the risk of overestimation [was] set deliberately to outweigh 
the risk of underestimation.'' The Court held EPA's action to be 
inconsistent with the statute because EPA had failed to apply a 
``neutral methodology'' aimed at providing a prediction of ``what will 
actually happen,'' as required by the statute. As a result of this 
ruling, the Court vacated the 2012 cellulosic biofuel standard, and we 
removed the 2012 requirement from the regulations in a previous action. 
Industry had also challenged the 2011 cellulosic biofuel standard by, 
first, filing a petition for reconsideration of that standard, and then 
seeking judicial review of our denial of the petition for 
reconsideration. This matter was still pending at the time of the D.C. 
Circuit's ruling on the 2012 cellulosic biofuel standard. Since we used 
essentially the same methodology to develop the 2011 cellulosic biofuel 
standard as we did to develop the 2012 standard, we requested, and the 
Court granted, a partial voluntary remand to enable us to reconsider 
our denial of the petition for reconsideration of the 2011 cellulosic 
biofuel standard. Given the Court's ruling that the methodology EPA 
used in developing the 2012 cellulosic biofuel standard was flawed, we 
are rescinding the 2011 cellulosic biofuel applicable standard and will 
refund the money paid by obligated parties to purchase cellulosic 
waiver credits to comply with the standard. The only comments received 
on this issue were supportive of this action.
---------------------------------------------------------------------------

    \220\ API v. EPA, 706 F 3d 474 (D.C. Cir. January 25, 2013).
---------------------------------------------------------------------------

V. Percentage Standards

A. Background

    The renewable fuel standards are expressed as volume percentages 
and are used by each obligated party to determine their Renewable 
Volume Obligations (RVO). 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 gasoline 
and diesel produced or imported. The percentage standards are set so 
that if every obligated party meets the percentages, then the amount of 
renewable fuel, cellulosic biofuel, biomass-based diesel (BBD), and 
advanced biofuel used will meet the applicable volumes established in 
this rule on a nationwide basis.
    Sections II, III, and IV provide our rationale and basis for the 
final volumes for advanced biofuel and total renewable fuel, BBD, and 
cellulosic biofuel, respectively. The volumes to be used to determine 
the four final percentage standards are shown in Table V.A-1.

                Table V.A-1--Final Volumes for Use in Setting the Applicable Percentage Standards
----------------------------------------------------------------------------------------------------------------
                                                                       2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel (million gallons)............................              33             123             230
Biomass-based diesel (billion gallons) \a\......................            1.63            1.73            1.90
Advanced biofuel (billion gallons)..............................            2.67            2.88            3.61
Renewable fuel (billion gallons)................................           16.28           16.93           18.11
----------------------------------------------------------------------------------------------------------------
\a\ Represents physical volume.


[[Page 77510]]

B. Calculation of Standards

1. How Are the Standards Calculated?
    The following formulas are used to calculate the four percentage 
standards applicable to producers and importers of gasoline and diesel 
(see 40 CFR 80.1405):
[GRAPHIC] [TIFF OMITTED] TR14DE15.015


Where
StdCB,i = The cellulosic biofuel standard for year i, in 
percent.
StdBBD,i = The biomass-based diesel standard (ethanol-
equivalent basis) for year i, in percent.
StdAB,i = The advanced biofuel standard for year i, in 
percent.
StdRF,i = The renewable fuel standard for year i, in 
percent.
RFVCB,i = Annual volume of cellulosic biofuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
RFVBBD,i = Annual volume of biomass-based diesel required 
by section 211(o) of the Clean Air Act for year i, in gallons.
RFVAB,i = Annual volume of advanced biofuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
RFVRF,i = Annual volume of renewable fuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
Gi = Amount of gasoline projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
Di = Amount of diesel projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons. This value 
excludes diesel used in ocean-going vessels.
RGi = Amount of renewable fuel blended into gasoline that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
RDi = Amount of renewable fuel blended into diesel that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
GSi = Amount of gasoline projected to be used in Alaska 
or a U.S. territory in year i if the state or territory opts-in, in 
gallons.
RGSi = Amount of renewable fuel blended into gasoline 
that is projected to be consumed in Alaska or a U.S. territory in 
year i if the state or territory opts-in, in gallons.
DSi = Amount of diesel projected to be used in Alaska or 
a U.S. territory in year i if the state or territory opts-in, in 
gallons.
RDSi = Amount of renewable fuel blended into diesel that 
is projected to be consumed in Alaska or a U.S. territory in year i 
if the state or territory opts-in, in gallons.
GEi = Amount of gasoline projected to be produced by 
exempt small refineries and small refiners in year i, in gallons, in 
any year they are exempt per Sec. Sec.  80.1441 and 80.1442, 
respectively.
DEi = Amount of diesel projected to be produced by exempt 
small refineries and small refiners in year i, in gallons, in any 
year they are exempt per Sec. Sec.  80.1441 and 80.1442, 
respectively.

    The formulas used in deriving the annual percentage standards 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 provided by EIA include ethanol and biodiesel used in 
transportation fuel, which are subtracted out as indicated in the 
equations above. Production of other transportation fuels, such as 
natural gas, propane, and electricity from fossil fuels, is not 
currently subject to the standards, and volumes of such fuels are not 
used in calculating the annual 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 standards, 
as well as to determine the annual volume obligations of an individual 
gasoline or diesel producer or importer.
2. 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 \221\ 
through December 31, 2010. Congress provided that small refineries 
could receive a temporary extension of the exemption based on an EPA 
determination of ``disproportionate economic hardship'' on a case-by-
case basis in response to small refinery petitions.\222\
---------------------------------------------------------------------------

    \221\ A small refinery, as defined by the statute, is a refinery 
with an average daily crude throughput of 75,000 barrels or less 
(see 40 CFR 80.1441). As this is a facility-based definition, not 
company-based as SBA's small refiner definition is, it follows that 
not all small refiners' facilities meet the definition of a small 
refinery. A small refiner that meets the parameters of 40 CFR 
80.1442 may also be eligible for an exemption.
    \222\ For 2011 and 2012 13 small refineries were granted an 
extension to the statutory exemption based on the findings of a 
Department of Energy investigation into the disproportionate 
economic hardship experienced by small refineries.
---------------------------------------------------------------------------

    EPA, in consultation with the Department of Energy, evaluates the 
structural impacts petitioning refineries would likely face in 
achieving

[[Page 77511]]

compliance with the RFS requirements and how compliance would affect 
their ability to remain competitive and profitable. A disproportionate 
economic hardship exists where a refinery faces a high cost of 
compliance relative to the industry average and where compliance would 
significantly impair its operations. The U.S. Courts of Appeal for the 
Eighth and D.C. Circuits \223\ have upheld this approach, finding it 
reasonable for DOE and EPA to conclude that the relative costs of 
compliance alone cannot demonstrate disproportionate economic hardship 
because all refineries face a direct cost associated with participation 
in the RFS program.\224\
---------------------------------------------------------------------------

    \223\ Lion Oil Company v. EPA, 792 F.3d 978; 2015 U.S. App. 
LEXIS 11725 (8th Cir. 2015); Monroe Energy, LLC v. EPA, 750 F.3d 
909; 409 U.S. App. DC 413 (D.C. Cir. 2014).
    \224\ EPA has also found in its recent analyses of the RIN 
market that in a competitive market typical of the gasoline and 
diesel marketplace, the cost of RFS compliance (RINs) is passed 
along to consumers and recovered by refiners through the prices of 
the gasoline blendstocks they sell. Consequentially, not only are 
the costs of the RFS program automatically normalized across the 
industry based on production volume, but these costs are passed on 
to consumers.
---------------------------------------------------------------------------

    EPA has granted some exemptions pursuant to this process in the 
past, and has granted exemptions for three small refineries for 2014. 
The final applicable percentage standards for 2014 reflect the fact 
that the gasoline and diesel volumes associated with these three small 
refineries have been exempted, as provided in the formulas described in 
the preceding section. However, at this time, no exemptions have been 
approved for 2015 or 2016, and therefore we have calculated the 
percentage standards for these years without an adjustment for exempted 
volumes. As stated in the final rule establishing the 2011 standards, 
``EPA believes the Act is best interpreted to require issuance of a 
single annual standard in November that is applicable in the following 
calendar year, thereby providing advance notice and certainty to 
obligated parties regarding their regulatory requirements. Periodic 
revisions to the standards to reflect waivers issued to small 
refineries or refiners would be inconsistent with the statutory text, 
and would introduce an undesirable level of uncertainty for obligated 
parties.'' \225\ Thus, any additional exemptions for small refineries 
that are issued after today will not affect the 2014, 2015, or 2016 
standards.
---------------------------------------------------------------------------

    \225\ See 75 FR 76804 (December 9, 2010).
---------------------------------------------------------------------------

3. Final Standards
    As specified in the RFS2 final rule,\226\ 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. In order to ensure that demand for the required 
physical volume of BBD will be created in each year, the calculation of 
the BBD standard provides that the applicable physical volume be 
multiplied by 1.5. The net result is a BBD gallon being worth 1.0 
gallon toward the BBD standard, but worth 1.5 gallons toward the other 
standards.
---------------------------------------------------------------------------

    \226\ 75 FR 14716, March 26, 2010.
---------------------------------------------------------------------------

    The levels of the percentage standards would be reduced if Alaska 
or a U.S. territory chooses to participate in the RFS program, as 
gasoline and diesel produced in or imported into that state or 
territory would then be subject to the standard. Neither Alaska nor any 
U.S. territory has chosen to participate in the RFS program at this 
time, and thus the value of the related terms in the calculation of the 
standards is zero.
    The values of the variables described above are shown in Table 
V.B.3-1.\227\
---------------------------------------------------------------------------

    \227\ To determine the 49-state values for gasoline and diesel, 
the amounts of these fuels used in Alaska is subtracted from the 
totals provided by DOE. The Alaska fractions are determined from the 
June 24, 2015 EIA State Energy Data System (SEDS), Energy 
Consumption Estimates.

                   Table V.B.3-1--Values for Terms in Calculation of the Final Standards \228\
                                                [Billion gallons]
----------------------------------------------------------------------------------------------------------------
                              Term                                     2014            2015            2016
----------------------------------------------------------------------------------------------------------------
RFVCB...........................................................           0.033           0.123           0.230
RFVBBD..........................................................        \a\ 1.66        \b\ 1.77            1.90
RFVAB...........................................................            2.67            2.88            3.61
RFVRF...........................................................           16.28           16.93           18.11
G...............................................................          136.48          139.38          139.96
D...............................................................           55.67           54.05           55.26
RG..............................................................           13.42           13.81           13.85
RD..............................................................            1.55            1.76            2.05
GS..............................................................            0.00            0.00            0.00
RGS.............................................................            0.00            0.00            0.00
DS..............................................................            0.00            0.00            0.00
RDS.............................................................            0.00            0.00            0.00
GE..............................................................            0.01            0.00            0.00
DE..............................................................            0.03            0.00            0.00
----------------------------------------------------------------------------------------------------------------
\a\ Represents the biodiesel-equivalent volume of actual 2014 supply, which was 2.49 bill D4 RINs. Actual
  physical volume was 1.63 billion physical gallons, composed of 1.35 bill gal of biodiesel and 0.28 bill gal
  renewable diesel.
\b\ Represents the biodiesel-equivalent volume of actual 2015 supply, which was 2.65 bill D4 RINs. Actual
  physical volume was 1.73 billion physical gallons, composed of 1.45 bill gal of biodiesel and 0.28 bill gal
  renewable diesel.

    Using\\ the volumes shown in Table V.B.3-1, we have calculated the 
final percentage standards for 2014, 2015, and 2016 as shown in Table 
V.B.3-2.
---------------------------------------------------------------------------

    \228\ Details of volumes and calculations are available in the 
docket.

[[Page 77512]]



                                    Table V.B.3-2--Final Percentage Standards
----------------------------------------------------------------------------------------------------------------
                                                                     2014 (%)        2015 (%)        2016 (%)
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel..............................................           0.019           0.069           0.128
Biomass-based diesel............................................            1.41            1.49            1.59
Advanced biofuel................................................            1.51            1.62            2.01
Renewable fuel..................................................            9.19            9.52           10.10
----------------------------------------------------------------------------------------------------------------

VI. Amendments to Regulations

    We are finalizing several revisions to the RFS regulations, which 
are described below. The first revision relates to the definition of 
terms in Table 1 to 40 CFR 80.1426, which describes approved biofuel 
production pathways. The second set of revisions addresses annual 
compliance reporting and associated attest reporting deadlines.

A. Changes to the Algal Biofuel Pathways

    In the March 2010 RFS rule (75 FR 14670), EPA established two 
pathways for biofuels derived from algal oil to generate D-Code 4 
(Biomass-Based Diesel) or 5 (Advanced) RINs. The analyses supporting 
the pathways approved in the March 2010 RFS rule assumed that algae 
would be grown photosynthetically (i.e., using predominantly sunlight 
and CO2 as inputs) and harvested for their oil.\229\ Biofuel 
produced with algae grown through other means is likely to have 
different lifecycle GHG emissions impacts. EPA proposed and is now 
finalizing changes to our regulations that clarify that the existing 
algal oil pathways adopted as part of the March 2010 RFS rule apply 
only to oil from algae grown photosynthetically. Specifically, we are 
finalizing the proposed replacement of ``algal oil'' as a feedstock in 
Table 1 to 40 CFR 80.1426 with ``oil from algae grown 
photosynthetically.'' We are also finalizing the proposed definition 
for ``algae grown photosynthetically'' to 40 CFR 80.1401. EPA did not 
propose or seek comment on adding a regulatory definition of ``algae.''
---------------------------------------------------------------------------

    \229\ See 75 FR 14696 (March 26, 2010).
---------------------------------------------------------------------------

    EPA received several comments in support of these clarifications. 
EPA also received several comments that suggested these clarifications 
were not necessary and urged the agency to clarify a number of issues 
related to the production of algal biofuel using different pathway 
configurations. Comments also requested the agency expand the 
interpretation of algae to include all autotrophic microorganisms. 
These issues are beyond the scope of this rulemaking, which is limited 
to the proposed regulatory amendments discussed above that clarify the 
existing algal oil pathways. Companies wishing to produce biofuels from 
algae grown with a non-photosynthetic stage of growth must apply to EPA 
for approval of their pathway pursuant to 40 CFR 80.1416.

B. Annual Compliance Reporting and Attest Engagement Deadlines Under 
the RFS Program

    Based on the comments received and the discussion below, the EPA is 
finalizing the annual compliance reporting and attest engagement 
deadlines described in Table VI.B-1. In summary, the EPA is modifying 
for purposes of the final rule the proposed changes to the 2013 
compliance reporting deadline for obligated parties and exporters, and 
the 2014 and 2015 compliance reporting deadlines for obligated parties. 
The EPA is also modifying for purposes of the final rule the proposed 
changes to the 2013 attest engagement reporting deadline for RIN 
generators, the 2014 attest engagement reporting deadline for RIN 
generators and third-party auditors, and the 2015 attest engagement 
reporting deadline for obligated parties. The EPA is finalizing all 
other compliance and attest engagement reporting deadlines.
    Commenters on the proposed due dates for the 2013, 2014, and 2015 
RFS annual compliance and attest engagement reports generally supported 
the EPA's approach to staggering the deadlines between compliance 
years. However, as one commenter noted, the time between the deadline 
for 2015 RFS attest engagement reports for obligated parties conflicts 
with 2016 RFS annual compliance and attest reporting deadlines for 
obligated parties. The commenter argued that obligated parties rely 
upon the results of the prior compliance year's attest engagement 
reports to correct vital information that is needed to accurately 
determine an obligated party's RVO and RIN balance. Since the proposed 
deadlines for 2015 attest engagement reporting occurred after the 2016 
annual compliance reporting deadline, obligated parties would have been 
unable to utilize the 2015 attest engagement report to ensure timely, 
accurate 2016 annual compliance reports. The result of this conflict 
would have been the unnecessary resubmission of 2016 annual compliance 
reports by obligated parties to address issues identified in the 2015 
attest engagement reports. Additionally, certified public accountants 
(CPAs) and certified internal auditors (CIAs) would not have been able 
to rely upon the 2015 attest engagement report for the 2016 attest 
engagement procedures since the proposed deadlines for 2015 and 2016 
attest engagements reports were the same. The commenter noted that six 
months was too much time between the 2014 and 2015 annual compliance 
reporting deadlines for obligated parties. (It should be noted that the 
proposed 2014 and 2015 RFS annual compliance deadlines for obligated 
parties was only five months apart, not six months.)
    While we recognize the concerns raised, due to constraints on the 
EPA's reporting systems and staff, we are unable to accommodate a 
faster annual compliance reporting schedule. Additionally, we have 
concerns that obligated parties may have difficulty complying with a 
more compressed RFS reporting schedule. Obligated parties have several 
other EPA fuel program registration and reporting requirements that 
become effective in 2016 and 2017. These requirements were primarily 
finalized in the Tier 3 rulemaking and include the registration of all 
oxygenate blenders (e.g., terminals), the submission of applications 
for test methods under the Performance Based Analytical Test Method 
Approach program, and compliance with the new Tier 3 gasoline sulfur 
standards.
    Concerning obligated parties' attest engagement reporting 
deadlines, we believe we can move forward the 2015 RFS attest 
engagement reporting deadline for obligated parties to more 
appropriately sequence 2015 and 2016 annual compliance and attest 
engagement reporting deadlines. However, we recognize that there is a 
limited number of CPAs and CIAs that conduct most of the attest 
engagement reporting across all of EPA's fuels programs for obligated 
parties. We are

[[Page 77513]]

concerned that these CPAs and CIAs would become overburdened if we 
compressed the attest engagement reporting deadlines too much. Although 
we value the timely submission of information, we believe compressing 
the 2013 and 2014 attest engagement reporting deadlines would 
unnecessarily increase compliance costs for many obligated parties.
    The EPA is also finalizing an adjustment to the proposed 2013 
compliance and attest reporting deadlines to accommodate the 60-day 
effective date provision of the Congressional Review Act (CRA). As 
discussed further in Section IX.K in the final rule, this action is 
deemed a ``major rule'' as defined by 5 U.S.C 804(2) and therefore 
subject to the 60-day effective date provision of the CRA. This CRA 
provision impacts our proposed dates for the 2013 compliance deadline 
and attest engagement reporting deadline. Therefore, for the 2013 
compliance year, we are finalizing the compliance deadline and attest 
engagement reporting deadline for obligated parties and exporters to be 
March 1, 2016 or 60 days from publication in the Federal Register of a 
final rule establishing standards for 2014, whichever date is later.
    Although these changes are necessary due to the CRA provision, we 
believe this extension will provide obligated parties additional time 
to consider the impact of the final 2014 standards on the manner in 
which they should comply with 2013 requirements, and to engage in RIN 
trading transactions for purposes of their 2013 compliance 
demonstration that will best position them for compliance with 2014 
requirements. Additional detail can located in Table VI.B-1 below and 
Section 9.2 in the Response to Comment document.
    We have also decided to provide an additional two-month extension, 
beyond that which was proposed, for the 2014 obligated party compliance 
demonstration deadline, The final deadline is August 1, 2016. We 
received comment suggesting that some parties may have placed undue 
reliance in their planning for 2014 compliance on proposed levels from 
November, 2013. Although we believe such parties had adequate notice 
that the final standards could be higher than proposed, as noted 
elsewhere in this preamble, we believe that extending the 2014 
compliance demonstration deadline will make it easier for them to come 
into compliance. For example, extending the 2014 obligated party 
compliance deadline by an additional two months will allow additional 
time for such parties to engage in necessary RIN transactions. Together 
with the additional time provided for the 2013 compliance demonstration 
(which could help certain parties better position themselves for 2014 
compliance), and the fact that compliance can be achieved through 
acquisition of RINs, without the need for capital investments or actual 
renewable fuel blending, we believe that the final 2014 compliance 
demonstration deadline is reasonable.
    For obligated parties, we are also finalizing the 2013 and 2014 
attest engagement reporting deadlines as proposed. However, we are 
changing the 2015 attest engagement reporting deadline for obligated 
parties from June 1, 2017 to March 1, 2017. We believe this helps 
address comments concerned with having the 2015 and 2016 RFS attest 
engagement reporting deadlines fall on the same day and should allow 
obligated parties some time to adjust 2016 annual compliance reports 
based on issues identified in the 2015 attest engagement report.
    For RIN generators we are changing the 2013 and 2014 attest 
engagement reporting deadlines from January 31, 2016 to March 1, 2016. 
We are also changing the 2014 attest engagement reporting deadline for 
independent third-party auditors from January 31, 2016 to March 1, 
2016. These changes are a result of the 60-day effective date provision 
of the CRA discussed above.
    We are finalizing all other annual compliance and attest engagement 
reporting deadlines for 2013, 2014, and 2015 for other responsible 
parties as proposed. The revised annual compliance and attest reporting 
deadlines for all regulated party categories for the 2013, 2014, and 
2015 compliance years are shown below in Table VI.B-1. For the 2016 and 
subsequent compliance years, the deadlines will be back on track with 
annual compliance demonstration reports due March 31 and attest 
engagement reports due June 1 of the year following the compliance 
year.

     Table VI.B-1--Annual Compliance and Attest Engagement Reporting
   Deadlines by Regulated Party Category for the 2013, 2014, and 2015
                         Compliance Years \230\
------------------------------------------------------------------------
                                    Revised annual      Revised attest
    Regulated party category          compliance          engagement
                                       deadline       reporting deadline
------------------------------------------------------------------------
                          2013 Compliance Year
------------------------------------------------------------------------
RIN-generating renewable fuel     N/A...............  March 1, 2016.
 producers and importers; other
 parties owning RINs.
Independent third-party auditors  N/A...............  N/A
Renewable fuel exporters........  March 1, 2016.....  June 1, 2016.
Obligated parties...............  March 1, 2016.....  June 1, 2016.
------------------------------------------------------------------------
                          2014 Compliance Year
------------------------------------------------------------------------
RIN-generating renewable fuel     N/A...............  March 1, 2016.
 producers and importers; other
 parties owning RINs.
Independent third-party auditors  N/A...............  March 1, 2016.
Renewable fuel exporters........  Partial report:     Partial report:
                                   March 31, 2015.     June 1, 2015.
    January-September 16, 2014..  Full report: March  Full report: June
                                   1, 2016.            1, 2016.
    September 17-December 31,     March 31, 2015....  June 1, 2015.
     2014.
Obligated parties...............  August 1, 2016....  December 1, 2016.
------------------------------------------------------------------------
                          2015 Compliance Year
------------------------------------------------------------------------
RIN-generating renewable fuel     N/A...............  June 1, 2016.
 producers and importers; other
 parties owning RINs.
Independent third-party auditors  N/A...............  June 1, 2016.
Renewable fuel exporters........  March 31, 2016....  June 1, 2016.

[[Page 77514]]

 
Obligated parties...............  December 1, 2016..  March 1, 2017.
------------------------------------------------------------------------

VII. Assessment of Aggregate Compliance
---------------------------------------------------------------------------

    \230\ For all March 1, 2016 dates listed in this table, the 
actual regulatory deadline is either March 1, 2016 or 60 days from 
publication in the Federal Register of this final rule, whichever 
date is later.
---------------------------------------------------------------------------

A. Assessment of the Domestic Aggregate Compliance Approach

    The RFS2 regulations contain a provision for renewable fuel 
producers who use planted crops and crop residue from U.S. agricultural 
land that relieves them of the individual recordkeeping and reporting 
requirements concerning the specific land from which their feedstocks 
were harvested. To enable this approach, EPA established a baseline 
number of acres for U.S. agricultural land in 2007 (the year of EISA 
enactment) and determined that as long as this baseline number of acres 
was not exceeded, it was unlikely that new land outside of the 2007 
baseline would be devoted to crop production based on historical trends 
and economic considerations. We therefore provided that renewable fuel 
producers using planted crops or crop residue from the U.S. as 
feedstock in renewable fuel production need not comply with the 
individual recordkeeping and reporting requirements related to 
documenting that their feedstocks are renewable biomass, unless EPA 
determines through one of its annual evaluations that the 2007 baseline 
acreage of 402 million acres agricultural land has been exceeded.
    In the final RFS2 regulations, EPA committed to make an annual 
finding concerning whether the 2007 baseline amount of U.S. 
agricultural land has been exceeded in a given year. If the baseline is 
found to have been exceeded, then producers using U.S. planted crops 
and crop residue as feedstocks for renewable fuel production would be 
required to comply with individual recordkeeping and reporting 
requirements to verify that their feedstocks are renewable biomass.
    The Aggregate Compliance methodology provided for the exclusion of 
acreage enrolled in the Grassland Reserve Program (GRP) and the 
Wetlands Reserve Program (WRP) from the estimated total U.S. 
agricultural land. However, the 2014 Farm Bill has terminated the GRP 
and WRP as of 2013 and USDA established the Agriculture Conservation 
Easement Program (ACEP) with wetlands and land easement components. The 
ACEP provides financial and technical assistance to help conserve 
agricultural lands and wetlands and their related benefits. Under the 
Agricultural Land Easements component, USDA helps Indian tribes, state 
and local governments and non-governmental organizations protect 
working agricultural lands and limit non-agricultural uses of the land. 
Under the Wetlands Reserve Easements component, USDA helps to restore, 
protect and enhance enrolled wetlands. The WRP was a voluntary program 
that offered landowners the opportunity to protect, restore, and 
enhance wetlands on their property. The GRP was a voluntary 
conservation program the emphasized support for working grazing 
operations, enhancement of plant and animal biodiversity, and 
protection of grassland under threat of conversion to other uses.
    USDA and EPA concur that the ACEP-WRE and ACEP-ALE represent a 
continuation in basic objectives and goals of the original WRP and GRP, 
although the ACEP-ALE is a bit more expansive that the GRP with respect 
to eligible land. Therefore it was assumed in this rulemaking that 
acreage enrolled in the easement programs would represent a reasonable 
proxy of WRP and GRP acreage. Both Agencies have committed to conduct a 
more detailed analysis of the new programs for the 2017 RFS Annual 
Volume Regulation.
    Based on data provided by the USDA Farm Service Agency (FSA) and 
Natural Resources Conservation Service (NRCS), we have estimated that 
U.S. agricultural land reached approximately 380 million acres in 2013, 
and thus did not exceed the 2007 baseline acreage. This acreage 
estimate is based on the same methodology used to set the 2007 baseline 
acreage for U.S. agricultural land in the RFS2 final rulemaking. 
Specifically, we started with FSA crop history data for 2013, from 
which we derived a total estimated acreage of 379,717,296 acres. We 
then subtracted the amount of land estimated to be participating in the 
Grasslands Reserve Program (GRP) and Wetlands Reserve Program (WRP) by 
the end of Fiscal Year 2013, 144,619 acres, to yield an estimate of 
approximately 380 million acres of U.S. agricultural land in 2013. Note 
that these programs were still in place in 2013. The USDA data used to 
make this derivation can be found in the docket to this rule.
    Similarly, we have estimated that U.S. agricultural land reached 
approximately 378 million acres in 2014, and thus did not exceed the 
2007 baseline acreage. This acreage estimate is based on the same 
methodology used to set the 2007 baseline acreage for U.S. agricultural 
land in the RFS2 final rulemaking, with GRP and WRP data substitution 
as noted above. Specifically, we started with FSA crop history data for 
2014, from which we derived a total estimated acreage of 377,829,781 
acres. We then subtracted the amount of land estimated to be 
participating in the Agriculture Land Easement (ACEP-ALE) and Wetlands 
Reserve (ACEP-WRE) by the end of Fiscal Year 2014, 143,834 acres, to 
yield an estimate of approximately 378 million acres of U.S. 
agricultural land in 2014. The USDA data used to make this derivation 
can be found in the docket to this rule.
    Finally, we have estimated that U.S. agricultural land reached 
approximately 379 million acres in 2015, and thus did not exceed the 
2007 baseline acreage. This acreage estimate is based on the same 
methodology used to set the 2007 baseline acreage for U.S. agricultural 
land in the RFS2 final rulemaking, with GRP and WRP data substitution 
as noted above. Specifically, we started with FSA crop history data for 
2015, from which we derived a total estimated acreage of 379,236,620 
acres. We then subtracted the Agriculture Land Easement (ACEP-ALE) and 
Wetlands Reserve (ACEP-WRE) enrolled acres by the end of Fiscal Year 
2015, 84,133 acres, to yield an estimate of approximately 379 million 
acres of U.S. agricultural land in 2015. The USDA data used to make 
this estimation can be found in the docket to this rule.

B. Assessment of the Canadian Aggregate Compliance Approach

    On March 15, 2011, EPA issued a notice of receipt of and solicited 
public comment on a petition for EPA to authorize the use of an 
aggregate approach for compliance with the

[[Page 77515]]

Renewable Fuel Standard renewable biomass requirements, submitted by 
the Government of Canada. The petition requested that EPA determine 
that an aggregate compliance approach will provide reasonable assurance 
that planted crops and crop residue from Canada meet the definition of 
renewable biomass. After thorough consideration of the petition, all 
supporting documentation provided and the public comments received, EPA 
determined that the criteria for approval of the petition were 
satisfied and approved the use of an aggregate compliance approach to 
renewable biomass verification for planted crops and crop residue grown 
in Canada.
    The Government of Canada utilized several types of land use data to 
demonstrate that the land included in their 124 million acre baseline 
is cropland, pastureland or land equivalent to U.S. Conservation 
Reserve Program land that was cleared or cultivated prior to December 
19, 2007, and was actively managed or fallow and non-forested on that 
date (and is therefore RFS2 qualifying land). The total agricultural 
land in Canada in 2013 is estimated at 119.8 million acres. This total 
agricultural land area includes 96.3 million acres of cropland and 
summer fallow, 13.7 million acres of pastureland and 9.8 million acres 
of agricultural land under conservation practices. This acreage 
estimate is based on the same methodology used to set the 2007 baseline 
acreage for Canadian agricultural land in the RFS2 response to 
petition. The trigger point for further evaluation of the data for 
subsequent years, provided by Canada, is 121 million acres. The data 
used to make this calculation can be found in the docket to this rule.
    The total agricultural land in Canada in 2014 is estimated at 119.5 
million acres. This total agricultural land area includes 96 million 
acres of cropland and summer fallow, 13.7 million acres of pastureland 
and 9.8 million acres of agricultural land under conservation 
practices. This acreage estimate is based on the same methodology used 
to set the 2007 baseline acreage for Canadian agricultural land in the 
RFS2 response to petition. The data used to make this calculation can 
be found in the docket to this rule.
    The total agricultural land in Canada in 2015 is estimated at 118.6 
million acres. This total agricultural land area includes 94.9 million 
acres of cropland and summer fallow, 13.9 million acres of pastureland 
and 9.8 million acres of agricultural land under conservation 
practices. This acreage estimate is based on the same methodology used 
to set the 2007 baseline acreage for Canadian agricultural land in the 
RFS2 response to petition. The data used to make this calculation can 
be found in the docket to this rule.

VIII. Public Participation

    Many interested parties participated in the rulemaking process that 
culminates with this final rule. This process provided opportunity for 
submitting written public comments following the proposal that we 
published on June 10, 2015 (80 FR 33100), and we also held a public 
hearing on June 25, 2015, at which many parties provided both verbal 
and written testimony. All comments received, both verbal and written, 
are available in EPA docket EPA-HQ-OAR-2015-0111 and we considered 
these comments in developing the final rule. Public comments and EPA 
responses are discussed throughout this preamble and in the 
accompanying RTC document, which is available in the docket for this 
action.

IX. Statutory and Executive Order Reviews

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

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

B. Paperwork Reduction Act (PRA)

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

C. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. In 
making this determination, the impact of concern is any significant 
adverse economic impact on small entities. An agency may certify that a 
rule will not have a significant economic impact on a substantial 
number of small entities if the rule relieves regulatory burden, has no 
net burden, or otherwise has a positive economic effect on the small 
entities subject to the rule.
    The small entities directly regulated by the RFS program are small 
refiners, which are defined at 13 CFR 121.201 as refiners with 1,500 
employees or less company-wide. The impacts of the RFS program as a 
whole on small entities were addressed in the March 26, 2010, RFS2 
rulemaking (75 FR 14670), which was a rule that implemented the entire 
program required by the Energy Independence and Security Act of 2007 
(EISA 2007). As such, the Small Business Regulatory Enforcement 
Fairness Act (SBREFA) panel process that took place prior to the 2010 
rule was also for the entire RFS program and looked at impacts on small 
refiners through 2022.
    For the SBREFA process for the March 26, 2010, RFS2 rulemaking, EPA 
conducted outreach, fact-finding, and analysis of the potential impacts 
of the program on small refiners which are all described in the Final 
Regulatory Flexibility Analysis, located in the rulemaking docket (EPA-
HQ-OAR-2005-0161). This analysis looked at impacts to all refiners, 
including small refiners, through the year 2022 and found that the 
program would not have a significant economic impact on a substantial 
number of small entities, and that this impact was expected to decrease 
over time, even as the standards increased. The analysis included a 
cost-to-sales ratio test, a ratio of the estimated annualized 
compliance costs to the value of sales per company, for gasoline and/or 
diesel small refiners subject to the standards. From this test, it was 
estimated that all directly regulated small entities would have 
compliance costs that are less than one percent of their sales over the 
life of the program (75 FR 14862).
    We have determined that this final rule will not impose any 
additional requirements on small entities beyond those already 
analyzed, since the impacts of this final rule are not greater or 
fundamentally different than those already considered in the analysis 
for the March 26, 2010, rule assuming full implementation of the RFS 
program. As shown above in Tables I-1 and I.A-1 (and discussed further 
in Sections II and IV), this rule finalizes the 2014, 2015, and 2016 
volume requirements for cellulosic biofuel, advanced biofuel, and total 
renewable fuel at levels significantly below the statutory volume 
targets. This exercise of EPA's waiver authorities reduces burdens on 
small entities, as compared to the burdens that

[[Page 77516]]

would be imposed under the volumes specified in the Clean Air Act in 
the absence of waivers--which are the volumes that we assessed in the 
screening analysis that we prepared for implementation of the full 
program. Regarding the biomass-based diesel standard, we are finalizing 
an increase in the volume requirements for 2014-2016 over the statutory 
minimum value of 1 billion gallons. However, this is a nested standard 
within the advanced biofuel category, for which we are finalizing 
significant reductions from the statutory volume targets. As discussed 
in Section III, we are setting the biomass-based diesel volume 
requirement at a level below what is anticipated will be produced and 
used to satisfy the reduced advanced biofuel requirement. The net 
result of the standards being finalized in this action is a reduction 
in burden as compared to implementation of the statutory volume 
targets, as was assumed in the March 26, 2010, analysis.
    For this final rule, EPA has conducted a screening analysis to 
assess whether it should make a finding that this action would not have 
a significant economic impact on a substantial number of small 
entities. Currently-available information shows that the impact on 
small entities from implementation of this rule will not be 
significant. EPA has reviewed and assessed the available information, 
which suggests that obligated parties, including small entities, are 
generally able to recover the purchase cost of the RINs necessary for 
compliance through higher sales prices of the petroleum products they 
sell than would be expected in the absence of the RFS 
program.231 232 Even if we were to assume that the cost of 
RINs were not recovered by obligated parties, and we used the maximum 
values of the illustrative costs discussed in Section II.I, the 
gasoline and diesel fuel volume projections from the October 2015 
version of EIA's Short-Term Energy Outlook, and current wholesale fuel 
prices, a cost-to-sales ratio test shows that the costs to small 
entities of the RFS standards are less than 1% of the value of their 
sales.
---------------------------------------------------------------------------

    \231\ For a further discussion of the ability of obligated 
parties to recover the cost of RINs see ``A Preliminary Assessment 
of RIN Market Dynamics, RIN Prices, and Their Effects,'' Dallas 
Burkholder, Office of Transportation and Air Quality, US EPA. May 
14, 2015, EPA Air Docket EPA-HQ-OAR-2015-0111.
    \232\ Knittel, Christopher R., Ben S. Meiselman, and James H. 
Stock. ``The Passthrough of RIN Prices to Wholesale and Retail Fuels 
Under the Renewable Fuel Standard.'' Working Paper 21343. NBER 
Working Paper Series. Available online http://www.nber.org/papers/w21343.pdf.
---------------------------------------------------------------------------

    While the rule will not have a significant economic impact on a 
substantial number of small entities, there are compliance 
flexibilities in the program that can help to reduce impacts on small 
entities. These flexibilities include being able to comply through RIN 
trading rather than renewable fuel blending, 20% RIN rollover allowance 
(up to 20% of an obligated party's RVO can be met using previous-year 
RINs), and deficit carry forward (the ability to carry over a deficit 
from a given year into the following year, providing that the deficit 
is satisfied together with the next year's RVO). In the March 26, 2010, 
final rule, we discussed other potential small entity flexibilities 
that had been suggested by the SBREFA panel or through comments, but we 
did not adopt them, in part because we had serious concerns regarding 
our authority to do so.
    Additionally, as we realize that there may be cases in which a 
small entity experiences hardship beyond the level of assistance 
afforded by the program flexibilities, the program provides hardship 
relief provisions for small entities (small refiners), as well as for 
small refineries.\233\ As required by the statute, the RFS regulations 
include a hardship relief provision (at 40 CFR 80.1441(e)(2)) which 
allows for a small refinery \234\ to petition for an extension of its 
small refinery exemption at any time based on a showing that compliance 
with the requirements of the RFS program would result in the refinery 
experiencing a ``disproportionate economic hardship.'' EPA regulations 
provide similar relief to small refiners that are not eligible for 
small refinery relief. A small refiner may petition for a small refiner 
exemption based on a similar showing that compliance with the 
requirements of the RFS program would result in the refiner 
experiencing a ``disproportionate economic hardship'' (see 40 CFR 
80.1442(h)). EPA evaluates these petitions on a case-by-case basis and 
may approve such petitions if it finds that a disproportionate economic 
hardship exists. In evaluating such petitions, EPA consults with the 
U.S. Department of Energy, and takes the findings of DOE's 2011 Small 
Refinery Study and other economic factors into consideration. For the 
2013 RFS standards, the EPA successfully implemented these provisions 
by evaluating 16 petitions for exemptions from small refineries (one 
was later withdrawn).
---------------------------------------------------------------------------

    \233\ See CAA section 211(o)(9)(B).
    \234\ A small refinery, as defined by the statute, is a refinery 
with an average daily crude throughput of 75,000 barrels or less. As 
this is a facility-based definition, not company-based as SBA's 
small refiner definition is, it follows that not all small refiners' 
facilities meet the definition of a small refinery.
---------------------------------------------------------------------------

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

D. Unfunded Mandates Reform Act (UMRA)

    This action contains a federal mandate under UMRA, 2 U.S.C. 1531-
1538, that may result in expenditures of $100 million or more for 
state, local and tribal governments, in the aggregate, or the private 
sector in any one year. Accordingly, the EPA has prepared a written 
statement required under section 202 of UMRA. The statement is included 
in the docket for this action, and discussed above in Section II.I. 
This action implements mandates specifically and explicitly set forth 
in CAA section 211(o) and, as described in Section II.I, we believe 
that this action represents the least costly, most cost-effective 
approach to achieve the statutory requirements of the rule.
    This action is not subject to the requirements of section 203 of 
UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

E. Executive Order 13132: Federalism

    This action does not have federalism implications. It will not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government.

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

    This action does not have tribal implications as specified in 
Executive Order 13175. This final rule will be implemented at the 
Federal level and affects transportation fuel refiners, blenders, 
marketers, distributors, importers, exporters, and renewable fuel 
producers and importers. Tribal

[[Page 77517]]

governments would be affected only to the extent they produce, 
purchase, and use regulated fuels. Thus, Executive Order 13175 does not 
apply to this action.

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

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

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

    This action is not a ``significant energy action'' because it is 
not likely to have a significant adverse effect on the supply, 
distribution, or use of energy. This action establishes the required 
renewable fuel content of the transportation fuel supply for 2014, 
2015, and 2016, consistent with the CAA and waiver authorities provided 
therein. The RFS program and this rule are designed to achieve positive 
effects on the nation's transportation fuel supply, by increasing 
energy independence and lowering lifecycle greenhouse gas emissions of 
transportation fuel.

I. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

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

    The EPA believes that this action will not have potential 
disproportionately high and adverse human health or environmental 
effects on minority, low-income, or indigenous populations. This final 
rule does not affect the level of protection provided to human health 
or the environment by applicable air quality standards. This action 
does not relax the control measures on sources regulated by the RFS 
regulations and therefore will not cause emissions increases from these 
sources.

K. Congressional Review Act (CRA)

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

X. Statutory Authority

    Statutory authority for this action comes from section 211 of the 
Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural 
and compliance related aspects of this final rule come from sections 
114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 
7601(a).

List of Subjects in 40 CFR Part 80

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Diesel fuel, Fuel additives, Gasoline, Imports, 
Oil imports, Petroleum, Renewable fuel.

    Dated: November 30, 2015.
Gina McCarthy,
Administrator.

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

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

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

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

Subpart M--[Amended]

0
2. Section 80.1401 is amended by adding in alphabetical order the 
definition for ``Algae grown photosynthetically'' to read as follows:


Sec.  80.1401  Definitions.

* * * * *
    Algae grown photosynthetically are algae that are grown such that 
their energy and carbon are predominantly derived from photosynthesis.
* * * * *

0
3. Section 80.1405 is amended by:
0
a. Removing and reserving paragraph (a)(2)(i); and
0
b. Adding paragraphs (a)(5) through (7).
    The additions read as follows:


Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) * * *
    (5) Renewable Fuel Standards for 2014.
    (i) The value of the cellulosic biofuel standard for 2014 shall be 
0.019 percent.
    (ii) The value of the biomass-based diesel standard for 2014 shall 
be 1.41 percent.
    (iii) The value of the advanced biofuel standard for 2014 shall be 
1.51 percent.
    (iv) The value of the renewable fuel standard for 2014 shall be 
9.19 percent.
    (6) Renewable Fuel Standards for 2015.
    (i) The value of the cellulosic biofuel standard for 2015 shall be 
0.069 percent.
    (ii) The value of the biomass-based diesel standard for 2015 shall 
be 1.49 percent.
    (iii) The value of the advanced biofuel standard for 2015 shall be 
1.62 percent.
    (iv) The value of the renewable fuel standard for 2015 shall be 
9.52 percent.
    (7) Renewable Fuel Standards for 2016.
    (i) The value of the cellulosic biofuel standard for 2016 shall be 
0.128 percent.
    (ii) The value of the biomass-based diesel standard for 2016 shall 
be 1.59 percent.
    (iii) The value of the advanced biofuel standard for 2016 shall be 
2.01 percent.
    (iv) The value of the renewable fuel standard for 2016 shall be 
10.10 percent.
* * * * *

0
4. Section 80.1426, paragraph (f)(1) is amended by revising entries F 
and H in Table 1 to Sec.  80.1426 to read as follows:


Sec.  80.1426  How are RINs generated and assigned to batches of 
renewable fuel by renewable fuel producers or importers?

* * * * *
    (f) * * *
    (1) * * *

[[Page 77518]]



         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     Trans-Esterification
                      heating oil.              from algae grown           Hydrotreating Excluding
                                                photosynthetically;        processes that co-
                                                Biogenic waste oils/fats/  process renewable
                                                greases; Non-food grade    biomass and petroleum.
                                                corn oil; Camelina
                                                sativa oil.
 
                                                  * * * * * * *
H..................  Biodiesel, renewable      Soy bean oil; Oil from     One of the following:                5
                      diesel, jet fuel and      annual covercrops; Oil     Trans-Esterification
                      heating oil.              from algae grown           Hydrotreating Includes
                                                photosynthetically;        only processes that co-
                                                Biogenic waste oils/fats/  process renewable
                                                greases; Non-food grade    biomass and petroleum.
                                                corn oil; Camelina
                                                sativa oil.
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

* * * * *

0
5. Section 80.1451 is amended by revising paragraph (a)(1)(xiv) to read 
as follows:


Sec.  80.1451  What are the reporting requirements under the RFS 
program?

    (a) * * *
    (1) * * *
    (xiv)(A) For the 2013 compliance year, annual compliance reports 
shall be submitted no later than March 1, 2016 or 60 days from 
publication in the Federal Register of a final rule establishing 2014 
RFS standards, whichever date is later.
    (B) For obligated parties, for the 2014 compliance year, annual 
compliance reports shall be submitted no later August 1, 2016.
    (C) For exporters of renewable fuel, for the 2014 compliance period 
from January 1, 2014, through September 16, 2014, full annual 
compliance reports (containing the information specified in paragraphs 
(a)(1)(i), (ii), (vi), (viii), and (x) of this section) for that period 
shall be submitted no later than March 1, 2016 or 60 days from 
publication in the Federal Register of a final rule establishing 2014 
RFS standards, whichever date is later.
    (D) For obligated parties, for the 2015 compliance year, annual 
compliance reports shall be submitted no later than December 1, 2016.
* * * * *

0
6. Section 80.1464 is amended by:
0
a. Revising paragraph (g); and
0
b. Adding paragraph (i)(3).
    The addition and revision read as follows:


Sec.  80.1464  What are the attest engagement requirements under the 
RFS program?

* * * * *
    (g)(1) For obligated parties and exporters of renewable fuel, for 
the 2013 compliance year, reports required under this section shall be 
submitted to the EPA no later than June 1, 2016.
    (2) For RIN-generating renewable fuel producers, RIN-generating 
importers of renewable fuel, and other parties owning RINs, for the 
2013 compliance year, reports required under this section shall be 
submitted to the EPA no later than March 1, 2016 or 60 days from 
publication in the Federal Register of a final rule establishing 2014 
RFS standards, whichever date is later.
    (3) For obligated parties, for the 2014 compliance year, reports 
required under this section shall be submitted to the EPA no later than 
December 1, 2016.
    (4) For exporters of renewable fuel, for the 2014 compliance period 
from January 1, 2014, through September 16, 2014, full reports for that 
period required under this section shall be submitted no later than 
June 1, 2016.
    (5) For RIN-generating renewable fuel producers, RIN-generating 
importers of renewable fuel, and other parties owning RINs, for the 
2014 compliance year, reports required under this section shall be 
submitted to the EPA no later than March 1, 2016 or 60 days from 
publication in the Federal Register of a final rule establishing 2014 
RFS standards, whichever date is later.
    (6) For obligated parties, for the 2015 compliance year, reports 
required under this section shall be submitted to the EPA no later than 
March 1, 2017.
* * * * *
    (i) * * *
    (3) Reporting requirements. For the 2014 compliance year, reports 
required under this paragraph (i) shall be submitted to the EPA no 
later than March 1, 2016 or 60 days from publication in the Federal 
Register of a final rule establishing 2014 RFS standards, whichever 
date is later. For the 2015 compliance year and each subsequent year, 
reports required under this paragraph (i) shall be submitted pursuant 
to paragraph (d) of this section.

[FR Doc. 2015-30893 Filed 12-11-15; 8:45 am]
 BILLING CODE 6560-50-P


