
[Federal Register Volume 81, Number 104 (Tuesday, May 31, 2016)]
[Proposed Rules]
[Pages 34777-34816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12369]



[[Page 34777]]

Vol. 81

Tuesday,

No. 104

May 31, 2016

Part V





Environmental Protection Agency





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40 CFR Part 80





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

  Federal Register / Vol. 81 , No. 104 / Tuesday, May 31, 2016 / 
Proposed Rules  

[[Page 34778]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2016-0004; FRL-9946-90-OAR]
RIN 2060-AS72


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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: Under section 211 of the Clean Air Act, the Environmental 
Protection Agency (EPA) is required to set renewable fuel percentage 
standards every year. This action proposes the annual percentage 
standards for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel that would apply to all motor vehicle 
gasoline and diesel produced or imported in the year 2017. The EPA is 
proposing a cellulosic biofuel volume that is below the applicable 
volume specified in the Act. Relying on statutory waiver authorities, 
the EPA is also proposing to reduce the applicable volumes of advanced 
biofuel and total renewable fuel. The proposed standards are expected 
to continue driving the market to overcome constraints in renewable 
fuel distribution infrastructure, which in turn is expected to lead to 
substantial growth over time in the production and use of renewable 
fuels. In this action, we are also proposing the applicable volume of 
biomass-based diesel for 2018.

DATES: Comments must be received on or before July 11, 2016. EPA will 
announce the public hearing date and location for this proposal in a 
supplemental Federal Register document.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2016-0004, at http://www.regulations.gov. Follow the online 
instructions for submitting comments. Once submitted, comments cannot 
be edited or removed from Regulations.gov. The EPA may publish any 
comment received to its public docket. Do not submit electronically any 
information you consider to be Confidential Business Information (CBI) 
or other information whose disclosure is restricted by statute. 
Multimedia submissions (audio, video, etc.) must be accompanied by a 
written comment. The written comment is considered the official comment 
and should include discussion of all points you wish to make. The EPA 
will generally not consider comments or comment contents located 
outside of the primary submission (i.e. on the web, cloud, or other 
file sharing system). For additional submission methods, the full EPA 
public comment policy, information about CBI or multimedia submissions, 
and general guidance on making effective comments, please visit http://www2.epa.gov/dockets/commenting-epa-dockets.

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

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

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

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

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Proposed Approach to Setting Volume Requirements
    2. Advanced Biofuel and Total Renewable Fuel
    3. Biomass-Based Diesel
    4. Cellulosic Biofuel
    5. Annual Percentage Standards
    C. Outlook for 2018 and Beyond
II. Advanced Biofuel and Total Renewable Fuel Volumes for 2017
    A. Statutory Authorities for Reducing Volume Targets
    B. Proposed Determination of Inadequate Domestic Supply
    C. Total Renewable Fuel Volume Requirement
    1. Ethanol
    2. Biodiesel and Renewable Diesel
    i. Feedstock Availability
    ii. Biodiesel and Renewable Diesel Production Capacity
    iii. Biodiesel and Renewable Diesel Import Capacity
    iv. Biodiesel and Renewable Diesel Distribution Capacity
    v. Biodiesel and Renewable Diesel Retail Infrastructure Capacity
    vi. Biodiesel and Renewable Diesel Consumption Capacity
    vii. Biodiesel and Renewable Diesel Consumer Response
    viii. Projected Supply of Biodiesel and Renewable Diesel in 2017
    3. Total Renewable Fuel Supply
    D. Advanced Biofuel Volume Requirement
    E. Market Responses to the Proposed Advanced Biofuel and Total 
Renewable Fuel Volume Requirements
    F. Impacts of Proposed Standards on Costs
III. Cellulosic Biofuel Volume for 2017
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment

[[Page 34779]]

    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Proposed Cellulosic Biofuel Volume for 2017
IV. Biomass-Based Diesel Volume for 2018
    A. Statutory Requirements
    B. Determination of Applicable Volume of Biomass-Based Diesel
    1. BBD Production and Compliance Through 2015
    2. Interaction Between BBD and Advanced Biofuel Standards
    3. Proposed BBD Volume for 2018
    C. Consideration of Statutory Factors for 2018
V. Percentage Standards for 2017
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Proposed Standards
VI. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the agency?
VII. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act (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
VIII. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to 
the requirements in Clean Air Act (CAA) section 211(o) that were added 
through the Energy Policy Act of 2005 (EPAct). The statutory 
requirements for the RFS program were subsequently modified through the 
Energy Independence and Security Act of 2007 (EISA), resulting in the 
publication of major revisions to the regulatory requirements on March 
26, 2010.\1\ EISA's stated goals include moving the United States 
toward ``greater energy independence and security, to increase the 
production of clean renewable fuels.'' Today, nearly all of the 
approximately 142 billion gallons of gasoline used for transportation 
purposes contains 10 percent ethanol (E10), and a substantial portion 
of diesel fuel contains biodiesel.
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    \1\ 75 FR 14670, March 26, 2010.
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    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 in order to reduce greenhouse gases 
(GHGs) and increase energy security. Renewable fuels represent an 
opportunity for the U.S. to move away from fossil fuels towards a set 
of lower lifecycle GHG transportation fuels, and a chance for a still-
developing lower lifecycle GHG technology sector to grow. While 
renewable fuels include corn starch ethanol, which is the predominant 
renewable fuel in use to date, 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 2015 while the advanced volumes continue to grow.\2\
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    \2\ In this document we follow the common practice of using the 
term ``conventional'' renewable fuel to mean any renewable fuel that 
is not an advanced biofuel.
---------------------------------------------------------------------------

    The statute includes annual volume targets, and requires EPA to 
translate those volume targets (or alternative volume requirements 
established by EPA in accordance with statutory waiver authorities) 
into compliance obligations that refiners and importers must meet every 
year. In this action, we are proposing the annual percentage standards 
for cellulosic biofuel, biomass-based diesel, advanced biofuel, and 
total renewable fuel that would apply to all gasoline and diesel 
produced or imported in 2017. We are also proposing the applicable 
volume of biomass-based diesel for 2018.
    In this action, we are proposing standards that are designed to 
achieve the Congressional intent of increasing renewable fuel use over 
time in order to reduce lifecycle GHG emissions of transportation fuels 
and increase energy security, while at the same time accounting for the 
real-world challenges that have slowed progress toward such goals. 
Those challenges have made the volume targets established by Congress 
for 2017 beyond reach for all but the minimum 1.0 billion gallons for 
biomass-based diesel (BBD). We are proposing to use the waiver 
mechanisms provided by Congress to establish volume requirements that 
would be lower than the statutory targets for fuels other than biomass-
based diesel, but set at a level that we believe would spur growth in 
renewable fuel use, consistent with Congressional intent.
    Our proposed 2017 volume requirements are ambitious, with 
substantial growth in all categories relative to 2016. We are also 
proposing a volume requirement for BBD for 2018 that would continue the 
growth in that category of renewable fuel. The proposed volume 
requirements are shown in Table I-1 below.

               Table I-1--Proposed Volume Requirements \a\
------------------------------------------------------------------------
                                               2017            2018
------------------------------------------------------------------------
Cellulosic biofuel (million gallons)....             312             n/a
Biomass-based diesel (billion gallons)..           b 2.0             2.1
Advanced biofuel (billion gallons)......             4.0             n/a
Renewable fuel (billion gallons)........            18.8             n/a
------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except
  for BBD which is biodiesel-equivalent.
\b\ The 2017 BBD volume requirement was established in the 2014-2016
  final rule (80 FR 77420, December 14, 2015). We are not reproposing or
  inviting comment on this volume requirement and any such comment we do
  receive will be considered beyond the scope of this rulemaking.


[[Page 34780]]

    Our decision to propose volumes for total renewable fuel that rely 
on using both the cellulosic waiver authority and the general waiver 
authority is based on the same fundamental reasoning we relied upon in 
the final rule ``Renewable Fuel Standard Program: Standards for 2014, 
2015, and 2016 and Biomass-Based Diesel Volume for 2017,'' which 
established the standards for 2014, 2015, and 2016 (hereinafter 
referred to as the ``2014-2016 final rule'').\3\ 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.
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    \3\ 80 FR 77420, December 14, 2015.
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    We believe that the RFS program can and will drive renewable fuel 
use, and we have considered the ability of the market to respond to the 
standards we set when we assessed the amount of renewable fuel that can 
be supplied. Therefore, while this proposed 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 proposing 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.'' \4\ 
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 proposing 
would provide those incentives.
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    \4\ 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.
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    As for past rulemakings establishing the annual standards under the 
RFS program, the final standards that we set for 2017 and the final BBD 
volume requirement for 2018 will take into account comments received in 
response to this proposal and relevant new or updated information that 
becomes available prior to the final rule.\5\ As a result, the final 
standards that we set for 2017 and the final BBD volume requirement for 
2018 may differ from those we have proposed.
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    \5\ For example, we intend in the final rule to use updated EIA 
projections of gasoline and diesel fuel consumption, as well as 
updated information on expected production of cellulosic biofuels.
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A. Purpose of This Action

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

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

    Under the RFS program, EPA is required to determine and publish 
annual percentage standards for each compliance year. The percentage 
standards are calculated to ensure use in transportation fuel of the 
national ``applicable volumes'' of the four types of biofuel 
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel) 
that are set forth in the statute or established by EPA in accordance 
with the Act's requirements. The percentage standards are used by 
obligated parties (generally, producers and importers of gasoline and 
diesel fuel) to calculate their individual compliance obligations. Each 
of the four percentage standards is applied to the volume of non-
renewable gasoline and diesel that each obligated party produces or 
imports during the specified calendar year to determine their 
individual volume obligations with respect to the four renewable fuel 
types. The individual volume obligations determine the number of RINs 
of each renewable fuel type that each obligated party must acquire and 
retire to demonstrate compliance.
    EPA is proposing the annual applicable volume requirements for 
cellulosic biofuel, advanced biofuel, and total renewable fuel for 
2017, and for BBD for 2018.\6\ Table I.A-2 lists the statutory 
provisions and associated criteria relevant to determining the national 
applicable volumes used to set the percentage standards in this 
proposed rule.
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    \6\ The 2017 BBD volume requirement was established in the 2014-
2016 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
                                                    211(o)(2)(B)(i)(III)
                                                    or EPA's projected
                                                    volume.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Biomass-based diesel \7\......  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.

[[Page 34781]]

 
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Advanced biofuel..............  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Total renewable fuel..........  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
------------------------------------------------------------------------

    As shown in Table I.A-2, the statutory authorities allowing EPA to 
modify or set the applicable volumes differ for the four categories of 
renewable fuel. Under the statute, EPA must annually determine the 
projected volume of cellulosic biofuel production for the following 
year. If the projected volume of cellulosic biofuel production is less 
than the applicable volume specified in section 211(o)(2)(B)(i)(III) of 
the statute, EPA must lower the applicable volume used to set the 
annual cellulosic biofuel percentage standard to the projected volume 
of production during the year. In Section III of this proposed rule, we 
present our analysis of cellulosic biofuel production and the proposed 
applicable volume for 2017. This analysis is based on an evaluation of 
producers' production plans and progress to date following discussions 
with cellulosic biofuel producers.
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    \7\ Section 211(o)(7)(E) also authorizes EPA in consultation 
with other federal agencies to issue a temporary waiver of 
applicable volumes of BBD where there is a significant feedstock 
disruption or other market circumstance that would make the price of 
BBD fuel increase significantly.
---------------------------------------------------------------------------

    With regard to BBD, Congress chose to set aside a portion of the 
advanced biofuel standard for BBD and CAA section 211(o)(2)(B) 
specifies the applicable volumes of BBD to be used in the RFS program 
only through year 2012. For subsequent years the statute sets a minimum 
volume of 1 billion gallons, and directs EPA, in coordination with the 
U.S. Departments of Agriculture (USDA) and Energy (DOE), to determine 
the required volume after review of the renewable fuels program and 
consideration of a number of factors. The BBD volume requirement must 
be established 14 months before the year in which it will apply. In the 
2014-2016 final rule we established the BBD volume for 2017. In Section 
IV of this preamble we discuss our proposed assessment of statutory and 
other relevant factors and our proposed volume requirement for BBD for 
2018, which has been developed in coordination with USDA and DOE.\8\ We 
are proposing growth in the required volume of BBD so as to provide 
continued support to that important contributor to the pool of advanced 
biofuel while at the same time providing continued incentive for the 
development of other types of advanced biofuel.
---------------------------------------------------------------------------

    \8\ The 2017 BBD volume requirement was established in the 
December 14, 2015 final rule (80 FR 77420).
---------------------------------------------------------------------------

    Regarding advanced biofuel and total renewable fuel, Congress 
provided several mechanisms through which those volumes could be 
reduced if necessary. If we lower the applicable volume of cellulosic 
biofuel below the volume specified in CAA 211(o)(2)(B)(i)(III), we also 
have the authority to reduce the applicable volumes of advanced biofuel 
and total renewable fuel by the same or a lesser amount. We refer to 
this as the ``cellulosic waiver authority.'' We may also reduce the 
applicable volumes of any of the four renewable fuel types using the 
``general waiver authority'' provided in CAA 211(o)(7)(A) if EPA, in 
consultation with USDA and DOE, finds that implementation of the 
statutory volumes would severely harm the economy or environment of a 
State, region, or the United States, or if there is inadequate domestic 
supply. Section II of this proposed 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. Consistent with the views that we 
expressed in the 2014-2016 final rule, we continue to believe that the 
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 and engines that can 
use them.
    We believe these realities continue to 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. While available volumes of 
all categories of renewable fuel have been increasing in recent years, 
the statutory volume targets have been increasing as well. For the 
total renewable fuel requirement in this rule, we are proposing to use 
both the cellulosic biofuel and general waiver authorities only to the 
extent necessary to derive the applicable volume of total renewable 
fuel that reflects the

[[Page 34782]]

maximum supply that can reasonably be expected to be produced and 
consumed by a market that is responsive to the RFS standards (hereafter 
sometimes referred to as ``reasonably achievable supply''). This is a 
very challenging task not only in light of the myriad of 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 total renewable fuel volume 
requirement is one that we believe necessarily involves considerable 
exercise of judgment. However, the circumstances facing us for this 
proposal are not unlike those we faced in the 2014-2016 final rule, and 
thus the approach we have taken to determining reasonably achievable 
supply for 2017 is largely the same as that in the 2014-2016 final 
rule. Based on our assessment of reasonably achievable supply, we 
believe that an adjustment to the statutory target for total renewable 
fuel is warranted for 2017. Nevertheless, as discussed in subsequent 
sections of this rule, it is our intention that the proposed volume 
requirements will lead to growth in supply beyond the levels achieved 
in the past, based in part on the expectation that the market can and 
will respond to the standards we set.
    For the advanced biofuel volume requirements, we are proposing to 
use the cellulosic waiver authority alone to derive the volume 
requirement for 2017 that is reasonably attainable and which to a 
significant extent would result in backfilling the shortfall in 
cellulosic biofuel volumes with other advanced biofuels that also 
provide substantial GHG emission reductions.

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this 
proposed rule. We are proposing applicable volume requirements and 
associated percentage standards for cellulosic biofuel, advanced 
biofuel, and total renewable fuel for 2017, as well as the percentage 
standard for BBD for 2017, and the applicable volume requirement for 
BBD for 2018.
1. Proposed Approach to Setting Volume Requirements
    It is our intention that the volume requirements and associated 
percentage standards for 2017 will be issued on the statutory schedule, 
providing the market with the time allotted by Congress to react to the 
standards we set. For advanced biofuel and total renewable fuel, our 
proposed assessment of 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 in the time set forth in the Act, as described 
more fully in Section II. As described in Section III, the proposed 
2017 cellulosic biofuel volume requirement is based on a projection of 
production that reflects a neutral aim at accuracy. Our proposed 
determination regarding the 2018 BBD volume requirement reflects an 
analysis of a set of factors stipulated in CAA 211(o)(2)(B)(ii), as 
described in more detail in Section IV.
    The approach we have taken in this proposal is essentially the same 
as that presented in the 2014-2016 final rule. We believe that the 
approach that we took in the 2014-2016 final rule to determining the 
2016 volume requirements was successful in targeting levels that took 
into account constraints in the supply of renewable fuel while 
simultaneously accounting for the ability of the market to be 
responsive to the standards we set to overcome some of those 
constraints. As a result, we believe that it is appropriate to use the 
same approach in our proposal for the 2017 volume requirements, and the 
discussion of the derivation of the proposed volume requirements in 
this proposal makes frequent reference to the 2014-2016 final rule. 
Where data, analyses, or other information have changed since release 
of the 2014-2016 final rule, we have noted the impact of such changes 
on our assessment of achievable volumes for 2017.
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 2014-2016 final 
rule, we determined that the volume of ethanol in the form of E10 or 
higher ethanol blends such as E15 or E85 that could be supplied to 
vehicles in 2016, together with the volume of non-ethanol renewable 
fuels that could be supplied to vehicles, would be insufficient to 
attain the statutory targets for both total renewable fuel and advanced 
biofuel. As a result, we used the waiver authorities provided in CAA 
211(o)(7)(D) to set lower volume requirements for these renewable fuel 
categories in 2016, and we also used the waiver authority in CAA 
211(o)(7)(A) to provide an additional further increment of reduction 
for total renewable fuel.
    We believe that the conditions compelling us to reduce the 
applicable 2016 volume requirements for advanced biofuel and total 
renewable fuel below the statutory targets remain relevant in 2017. Our 
proposed determination 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.
     The ability of the standards to bring about market changes 
in the time available.
     The ability of reasonably attainable volumes of non-
cellulosic advanced biofuels to backfill for unavailable volumes of 
cellulosic biofuel.
    As described in more detail in Section II.A, 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 CAA section 211(o)(7)(D)(i) 
and the general waiver authority under CAA section 211(o)(7)(A). As for 
2016, we are proposing to use the waiver authorities in a limited way 
that reflects our understanding of how to reconcile real marketplace 
constraints with Congress' intent to spur growth in renewable fuel use 
over time.
    We are proposing applicable volumes for advanced biofuel and total 
renewable fuel for 2017 that would result in significant volume growth 
over the volume requirements for 2016. Moreover, the proposed volume 
requirements for total renewable fuel are, in our judgment, as 
ambitious as can reasonably be justified, and reflect the growth rates 
that can be attained under a program explicitly designed to compel the 
market to respond. We anticipate that the proposed advanced biofuel 
volume requirement would result in reasonably attainable volumes of 
advanced biofuel backfilling for missing cellulosic biofuel volumes.
3. Biomass-Based Diesel
    In EISA, Congress chose to set aside a portion of the advanced 
biofuel standard for BBD, but only through 2012. Beyond 2012 Congress 
stipulated that EPA, in coordination with other

[[Page 34783]]

agencies, was to establish the BBD volume taking into account the 
intent of Congress to reduce GHG emissions and increase energy 
security, along with the history of the program and various specified 
factors, providing that the required volume for BBD could not be less 
than 1.0 billion gallons. For 2013, EPA established an applicable 
volume of 1.28 billion gallons. For 2014 and 2015 we established the 
BBD volume requirement to reflect the actual volume for each of these 
years of 1.63 and 1.73 billion gallons.\9\ For 2016 and 2017, we set 
the BBD volumes at 1.9 and 2.0 billion gallons respectively.
---------------------------------------------------------------------------

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

    Given current and recent market conditions, the advanced biofuel 
volume requirement is driving the biodiesel and renewable diesel 
volumes, and we expect this to continue. Nevertheless we believe that 
it is appropriate to set increasing BBD applicable volumes to provide a 
floor to support continued investment to enable increased production 
and use of BBD. In doing so we also believe in the importance of 
maintaining opportunities for other types of advanced biofuel, such as 
renewable diesel co-processed with petroleum, renewable gasoline blend 
stocks, and renewable heating oil, as well as others that are under 
development.
    Thus, based on a review of the implementation of the program to 
date and all the factors required under the statute, and in 
coordination with USDA and DOE, we are proposing an increase of 100 
million gallons in the applicable volume of BBD, to 2.1 billion gallons 
for 2018. We believe that this increase will support the overall goals 
of the program while also maintaining the incentive for development and 
growth in production of other advanced biofuels. Establishing the 
volumes at this level will encourage BBD producers to manufacture 
higher volumes of fuel that will contribute to the advanced biofuel and 
total renewable fuel requirements, while also leaving considerable 
opportunity within the advanced biofuel mandate for investment in and 
growth in production of other types of advanced biofuel with comparable 
or potentially superior environmental or other attributes.
4. Cellulosic Biofuel
    In the past several years the cellulosic biofuel industry has 
continued to make progress towards significant commercial scale 
production. Cellulosic biofuel production reached record levels in 
2015, driven largely by compressed natural gas (CNG) and liquefied 
natural gas (LNG) derived from biogas. Cellulosic ethanol, while 
produced in much smaller quantities than CNG/LNG derived from biogas, 
was also produced consistently in 2015. In this rule we are proposing a 
cellulosic biofuel volume requirement of 312 million ethanol-equivalent 
gallons for 2017 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.
    As part of estimating the volume of cellulosic biofuel that will be 
made available in the U.S. in 2017, we considered all potential 
production sources by company and facility. This included 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.\10\ From this universe of potential 
cellulosic biofuel sources, we identified the subset that is expected 
to produce commercial volumes of qualifying cellulosic biofuel for use 
as transportation fuel, heating oil, or jet fuel by the end of 2017. To 
arrive at projected volumes, we collected relevant information on each 
facility. We then developed projected production ranges based on 
factors such as the status of the technology being used, progress 
towards construction and production goals, facility registration 
status, production volumes achieved, and other significant factors that 
could potentially impact fuel production or the ability of the produced 
fuel to qualify for cellulosic biofuel Renewable Identification Numbers 
(RINs). We also used this information to group these companies based on 
production history and to select a value within the aggregated 
projected production ranges that we believe best represents the most 
likely production volumes from each group for each year. Further 
discussion of these factors and the way they were used to determine our 
final cellulosic biofuel projection for 2017 can be found in Section 
III.
---------------------------------------------------------------------------

    \10\ Facilities primarily focused on research and development 
(R&D) were not the focus of our assessment, as production from these 
facilities represents very small volumes of cellulosic biofuel, and 
these facilities typically have not generated RINs for the fuel they 
have produced.
---------------------------------------------------------------------------

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 volume requirements used to derive the percentage standards, 
required on a nationwide basis.
    Four separate percentage standards are required under the RFS 
program, corresponding to the four separate renewable fuel categories 
shown in Table I.A-1. The specific formulas we use in calculating the 
renewable fuel percentage standards are contained in the regulations at 
40 CFR 80.1405. The percentage standards represent the ratio of 
renewable fuel volume to projected non-renewable gasoline and diesel 
volume. The volume of transportation gasoline and diesel used to 
calculate the final percentage standards was provided by the Energy 
Information Administration (EIA). The proposed percentage standards for 
2017 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--Proposed 2017 Percentage Standards
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................           0.173
Biomass-based diesel....................................            1.67
Advanced biofuel........................................            2.22
Renewable fuel..........................................           10.44
------------------------------------------------------------------------

C. Outlook for 2018 and Beyond

    As in the past, we acknowledge that a number of challenges still 
need to be overcome in order to fully realize the potential for greater 
use of renewable fuels in the United States as envisioned by Congress 
in establishing the RFS requirements. The RFS program plays a central 
role in creating the incentives for realizing that potential. The 
standards being proposed reflect our understanding of the significant 
progress that is being 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

[[Page 34784]]

constraints associated with production of cellulosic biofuels and other 
advanced biofuels, and constraints associated with supplying renewable 
fuels to the vehicles and engines that can use them. 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 
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 2017 volumes in 
this proposal. 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.
    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 overcoming challenges that limit the potential for 
supply of increased volumes of renewable fuels. We are currently 
considering and evaluating regulatory provisions that should enhance 
the ability of the market to increase not only the production of 
advanced and cellulosic biofuels but also the use of higher-level 
ethanol blends such as E15 and E85. DOE and USDA are continuing to 
provide funds for the development of new technologies and expansion of 
infrastructure. All of this, as well as actions not yet defined, is 
expected to continue to help clear hurdles to support the ongoing 
growth in the use of renewable fuels in future years.

II. Advanced Biofuel and Total Renewable Fuel Volumes for 2017

    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). 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 gallons, for a total of 36 billion gallons in 2022.
    While Congress set ambitious volume targets as a mechanism to push 
renewable fuel volume growth under the RFS program, 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. EPA may reduce the volume targets to the extent that we reduce 
the applicable volume for cellulosic biofuel pursuant to CAA 
211(o)(7)(D), or if the criteria are met for use of the general waiver 
authority under CAA 211(o)(7)(A). As described in this section, we 
believe that reductions in both the advanced biofuel and total 
renewable fuel volume targets are necessary for 2017.
    While the statute and legislative history offer little guidance on 
the specific considerations underlying the statutory volume targets, we 
believe it is highly unlikely that Congress expected those volume 
targets to be reached only through the consumption of E10 and biomass-
based diesel; while the statute does require the use of a minimum 
volume of BBD, it does not explicitly require the use of ethanol. 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.
    While we believe that developments in some of these areas have been 
and will continue to occur, and that such changes will contribute to 
growth in supply in 2017, we do not believe that those developments 
will be sufficient to reach the statutory volume targets in this year. 
Volume requirements over the longer term that are issued in a timely 
manner and which provide the certainty of a guaranteed and growing 
future market are necessary for the industry to have the incentive to 
invest in the development of new technology and expanded infrastructure 
for production, distribution, and dispensing capacity. We believe that 
over time use of both higher level ethanol blends and non-ethanol 
biofuels can and will increase, consistent with Congressional intent to 
increase total renewable fuel use through the enactment of 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 involving shortfalls in cellulosic 
biofuel production, inadequate domestic supply, or where EPA determines 
that severe economic or environmental harm would result from program 
implementation.
    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 2017. This is due in 
part to the expected continued shortfall in cellulosic biofuel; 
production of this fuel type has consistently fallen short of the 
statutory targets by 95% or more (about 4 billion gallons in 2016), and 
projected production volumes for 2017, while continuing to grow, are 
consistent with this trend. In addition, although in earlier years of 
the RFS program we determined that the available supply of advanced 
biofuel and other considerations justified our retaining the statutory 
advanced biofuel and total renewable fuel volumes notwithstanding the 
shortfall in cellulosic biofuel production, the more recent statutory 
targets and continued sluggish pace of cellulosic biofuel production 
precluded such a determination for 2014, 2015, and 2016. We project 
that the same circumstances will continue in 2017. As a result, we are 
proposing to exercise the statutory waiver authorities to reduce the

[[Page 34785]]

applicable volumes of advanced biofuel and total renewable fuel. 
Nevertheless, while we are proposing to use the waiver authorities 
available under the law to reduce applicable volumes from the statutory 
levels, we intend to set the total volume requirement at the maximum 
reasonably achievable level that will drive significant growth in 
renewable fuel use beyond what would occur in the absence of such a 
requirement, as Congress intended. The proposed 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 
proposed volume requirements would be that the necessary volumes of 
both advanced biofuel and conventional (non-advanced) renewable fuel 
would significantly increase over levels used in the past.
    Our analytic approach is to first ascertain the maximum reasonably 
achievable volumes of all types of renewable fuel. Having done so, we 
next determine the extent to which a portion of those fuels should be 
required to be advanced. We then propose to use the cellulosic waiver 
authority to provide equal reductions in advanced and total renewable 
fuel volumes, and the general waiver authority to justify the 
additional incremental reduction in total volumes necessary to 
alleviate inadequacy of supply of total renewable fuels. Based on this 
approach, the volumes that we are proposing are shown below.

              Table II-1--Proposed 2017 Volume Requirements
                            [Billion gallons]
------------------------------------------------------------------------
                                             Proposed        Statutory
------------------------------------------------------------------------
Advanced biofuel........................             4.0             9.0
Total renewable fuel....................            18.8            24.0
------------------------------------------------------------------------

A. Statutory Authorities for Reducing Volume Targets

    In CAA 211(o)(2), Congress specified increasing annual volume 
targets for total renewable fuel, advanced biofuel, and cellulosic 
biofuel for each year through 2022, and for biomass-based diesel 
through 2012, and authorized EPA to set volume requirements for 
subsequent years in coordination with USDA and DOE, and after 
consideration of specified factors. However, Congress also recognized 
that circumstances may arise that necessitate deviation from the 
statutory volumes and thus provided waiver provisions in CAA 211(o)(7). 
We believe, as we did in setting the volumes from 2014-2016, that the 
circumstances justifying use of the waiver authorities and thus a 
reduction in statutory volumes are currently present, and we are 
proposing to again use our waiver authorities under both 211(o)(7)(D) 
and 211(o)(7)(A) to reduce volume requirements. Congress envisioned 
that there would be 5.5 billion gallons of cellulosic biofuel in 2017, 
while we estimate the potential for 312 million gallons. Under 
211(o)(7)(D), EPA must lower the required cellulosic volume to the 
projected production volumes. Doing so also provides EPA with authority 
to lower advanced and total renewable fuel volumes by the same or a 
lesser amount. Additionally, we believe that even after reducing total 
renewable fuel volumes to the full extent possible under the cellulosic 
waiver authority in 211(o)(7)(D), there is an inadequate domestic 
supply of renewable fuel to achieve those volumes, both warranting and 
justifying a further reduction in the total renewable fuel volumes 
under the authority of 211(o)(7)(A). The inadequate domestic supply is 
due to a combination of projected limitations in the production and 
importation of qualifying renewable fuels, as well as factors limiting 
supplying those fuels to the vehicles that can consume them.
1. Cellulosic Waiver Authority
    Section 211(o)(7)(D) of the CAA provides that if the projected 
volume of cellulosic biofuel production is less than the minimum 
applicable volume in the statute, EPA shall reduce the applicable 
volume of cellulosic biofuel required to the projected volume 
available. For 2017, we are proposing to reduce the applicable volume 
of cellulosic biofuel under this authority.
    Section 211(o)(7)(D) also provides EPA with the authority to reduce 
the applicable volume of total renewable fuel and advanced biofuel in 
years where it reduces the applicable volume of cellulosic biofuel. The 
reduction must be less than or equal to the reduction in cellulosic 
biofuel. For 2017, we are also proposing to reduce applicable volumes 
of advanced biofuel and total renewable fuel under this authority.
    The cellulosic waiver authority is discussed in detail in the 
preamble to the 2014-2016 final rule. See also, API v. EPA, 706 F.3d 
474 (D.C. Cir. 2013) (requiring that EPA's cellulosic biofuel 
projections reflect a neutral aim at accuracy); Monroe Energy v. EPA, 
750 F.3d 909 (D.C. Cir. 2014) (affirming EPA's broad discretion under 
the cellulosic waiver authority to reduce volumes of advanced biofuel 
and total renewable fuel).
2. General Waiver Authority
    Section 211(o)(7)(A) of the CAA provides that EPA, in consultation 
with the Secretary of Agriculture and the Secretary of Energy, may 
waive the applicable volumes of total renewable fuel, after public 
notice and comment based on a determination that there is an inadequate 
domestic supply. In addition to proposing to use the cellulosic waiver 
authority to lower total renewable fuel volumes, we are also proposing 
to further reduce total renewable fuel volumes for 2017 using the 
general waiver authority.
    EPA interpreted and applied this waiver provision in the 2014-2016 
final rule, and concluded that it was appropriate to use this authority 
in combination with the cellulosic waiver authority to reduce total 
renewable volumes for those years. EPA, in consultation with DOE and 
USDA, continues to find that the circumstances justifying the use of 
the general waiver authority exist and support a finding of inadequate 
domestic supply. As discussed in the 2014-2016 final rule, we find that 
this undefined 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 production, infrastructure and other constraints. This 
includes, for example, factors affecting the ability to produce or 
import biofuels as well as factors affecting the ability to distribute, 
blend, dispense, and consume those renewable fuels as transportation 
fuel, jet fuel or heating oil.
    A full discussion of EPA's interpretation of this waiver authority 
can be found in the 2014-2016 final rule. A full discussion of EPA's 
proposed determination that there is an ``inadequate domestic supply'' 
of total

[[Page 34786]]

renewable fuel in 2017 can be found in Section II.B below.
3. Combining Authorities for Reductions in Total Renewable Fuel
    We are again proposing to reduce the applicable volumes of total 
renewable fuel for 2017 using two distinct authorities. Proposed 
initial reductions in total renewable fuel correspond to the volume 
reduction in advanced biofuels, using the cellulosic waiver authority. 
We are proposing to reduce total renewable fuel further based on a 
determination of inadequate domestic supply. We are proposing to use 
the cellulosic waiver authority to reduce the statutory volume for 
total renewable fuel by an initial increment of 5.0 billion gallons for 
2017. In addition, we are proposing to use the general waiver authority 
exclusively as the basis for further reducing the applicable volume of 
total renewable fuel by an additional 0.2 billion gallons in 2017.

B. Proposed Determination of Inadequate Domestic Supply

    In order to use the general waiver authority in CAA 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 proposed determination that there will be an 
inadequate domestic supply of total renewable fuel in 2017, and thus 
that the statutory volume targets are not achievable with volumes that 
can reasonably be supplied in this year. Additionally, this proposed 
determination that the statutory volume targets are not achievable with 
volumes supplied would also support our use of the cellulosic waiver 
authority under CAA 211(o)(7)(D) to reduce the applicable volumes of 
advanced and total renewable fuel.
    The statute sets a target of 24.0 billion gallons of total 
renewable fuel for 2017. We believe that this volume cannot be achieved 
under even the most optimistic assumptions given current and near-
future circumstances. To make this proposed determination, we began by 
assuming that every gallon of gasoline would contain 10% ethanol, and 
that the supply of conventional and advanced biodiesel and renewable 
diesel volumes would be equal to those supplied in 2015. These volumes 
are clearly attainable, based on readily available information and 
analysis. However, when these supplies of renewable fuel are taken into 
account, a significant additional volume of renewable fuel would be 
needed to meet the statutory volume target.

Table II.B-1--Additional Volumes Needed To Meet the Statutory Target for
                      Total Renewable Fuel in 2017
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory target for total renewable fuel....................     24,000
Maximum ethanol consumption as E10 \a\.......................    -14,205
Historical maximum supply of biodiesel and renewable diesel       -2,930
 \b\.........................................................
Additional volumes needed....................................      6,865
------------------------------------------------------------------------
\a\ Derived from projected gasoline energy demand from EIA's Short-Term
  Energy Outlook (STEO) from April, 2016. We intend to use updated EIA
  information for the final rule.
\b\ Represents the 1.90 billion gallons of biodiesel and renewable
  diesel supplied in 2015.

    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 other than biodiesel and renewable diesel. In 2015, the 
total ethanol-equivalent volume for all of these sources was 163 
million gallons, and we projected that 235 million gallons would be 
available in 2016 in our 2014-2016 final rule. In 2017 we believe that 
these sources could be 300 million gallons or more based on the 
expectation that the growth which is expected to occur between 2015 and 
2016 will continue in 2017. Taking these sources into account, we 
estimate that the volume of additional renewable fuel needed in 2017 
would be about 6,600 million gallons.
    Aside from these relatively small sources, renewable fuel that 
could fulfill the need for the additional volumes needed to reach the 
statutory targets in 2017 would be additional ethanol in the form of 
E15 or E85, additional biodiesel and renewable diesel, or some 
combination of these sources. Table II.B-2 provides examples of the 
additional volumes that would be needed if the 2017 statutory target 
for total renewable fuel were not waived.

    Table II.B-2--Examples of Fuel Types Needed to Meet the Statutory
                Targets for Total Renewable Fuel in 2017
        [Million physical gallons of fuel unless otherwise noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Additional volumes needed (ethanol-equivalent)..........           6,600
Meeting the need for additional volumes using only E15..         127,790
Meeting the need for additional volumes using only E85             9,980
 \a\....................................................
Meeting the need for additional volumes using only                 4,400
 biodiesel \b\..........................................
Meeting the need for additional volumes using a
 combination of E15, E85, and biodiesel:
    E15.................................................           2,980
    E85.................................................           2,980
    Biodiesel...........................................           2,980
------------------------------------------------------------------------
\a\ Although E85 is assumed to contain 74% ethanol, the use of E85 also
  displaces some E10. Thus every gallon of ethanol use in excess of the
  E10 blendwall requires 1.51 gallons of E85.
\b\ Each gallon of biodiesel represents 1.5 gallons of renewable fuel in
  the context of fulfilling the total renewable fuel volume requirement.


[[Page 34787]]

    Although a combination of E15, E85, and biodiesel would in theory 
reduce the overall burden on the market to supply the additional 
volumes needed, the necessary volumes would nevertheless still be far 
beyond reach. E85 volumes in 2014 only reached about 150 million 
gallons, and in 2015 we estimate that it rose to about 166 million 
gallons.11 12 In deriving the 2016 volume requirements we 
estimated that E85 volumes would increase to 200 million gallons, 
though we also said that 400 million gallons was possible under highly 
favorable though unlikely conditions. More importantly, our assessment 
of the potential for growth in E85 that we discussed in the 2014-2016 
final rule has changed little in the months since. While growth in E85 
supply most certainly can increase in 2017, and programs such as USDA's 
Biofuel Infrastructure Partnership (BIP) can assist in this effort, 
there continue to be constraints associated with the weak response of 
flexible fuel vehicle (FFV) owners to E85 price reductions in 
comparison to E10 and the failure of RIN prices to be fully passed 
through to retail fuel prices. As a result, we do not believe that an 
E85 supply expansion to 2.98 billion gallons can occur in 2017.
---------------------------------------------------------------------------

    \11\ ``Estimating E85 Consumption in 2013 and 2014,'' Dallas 
Burkholder, Office of Transportation and Air Quality, US EPA. 
November 2015. EPA Docket EPA-HQ-OAR-2015-0111.
    \12\ ``Preliminary estimate of E85 consumption in 2015,'' David 
Korotney, Office of Transportation and Air Quality, US EPA. April 
2016. EPA Docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    Similarly, we do not believe that 2.98 billion gallons of E15 can 
be supplied in 2017. We projected that 320 million gallons of E15 could 
be supplied in 2016 based on new infrastructure paid for through USDA's 
BIP program, and this volume could double in 2017 after the BIP program 
is fully phased in. As described more fully in Section II.E below, 
under favorable conditions E15 volumes as high as 800 million gallons 
might be possible in 2017. However, achieving nearly 3 billion gallons 
of E15 would require significantly higher growth rates in the number of 
retail stations offering E15, and/or significantly more favorable 
pricing for E15 compared to E10. We have seen no evidence that the 
market is capable of such dramatic changes between today and the end of 
2017.
    Finally, the necessary volume of advanced and conventional 
biodiesel that would be needed to avoid a waiver of the statutory 
target for total renewable fuel, even if combined with substantial 
increases in E15 and E85 use, is also beyond reach in 2017. For 
instance, the 2.98 billion gallons of biodiesel shown in Table II.B-2 
would be in addition to the 1.9 billion gallons already assumed in 
Table II.B-1, such that the total volume of conventional and advanced 
biodiesel needed would be about 5 billion gallons. A total of 5 billion 
gallons is far higher than the production capacity of all domestic 
biodiesel facilities, even if accounting for those facilities that are 
not currently registered under the RFS program. Imports of biodiesel 
and renewable diesel have historically been much lower than domestic 
production, reaching a maximum of 470 million gallons in 2015, and thus 
could not reasonably be expected to fill the gap left by the shortfall 
in domestic production capacity. The use of 5 billion gallons of 
biodiesel, equivalent to about 10% of the nationwide diesel pool, would 
also be constrained by distribution, blending, and dispensing 
infrastructure. Not only are some areas of the country beyond 
reasonable reach of biodiesel supply centers, as described in Section 
III.E.3.iv, but some retailers reduce or modify offerings of biodiesel 
blends in winter months to account for the higher propensity of 
biodiesel blends to gel in colder temperatures. Also, a significant 
portion of the in-use fleet is made up of highway and nonroad diesel 
engines that are warranted for no more than 5% biodiesel. These 
considerations are similar to those referenced in the 2014-2016 final 
rule since little has changed in the months since that could 
significantly change the potential supply in 2017. In the 2014-2016 
final rule, we projected that total biodiesel and renewable diesel 
volumes could reach 2.5 billion gallons in 2016, which was a 
significant increase from the 2015 actual supply of 1.9 billion 
gallons. Even under the most optimistic circumstances, total biodiesel 
and renewable diesel supply cannot double within one year.
    We are also proposing to use the cellulosic waiver authority to 
reduce volumes of advanced biofuel. Our proposed action is based in 
part on a determination that the statutory volume targets for advanced 
biofuel cannot be met in 2017. To make this proposed determination, we 
took a similar approach to that used for total renewable fuel in Table 
II.B-1: We first accounted for our proposed volume requirements for 
cellulosic biofuel and BBD, as well as an estimate of the volume of 
other non-ethanol advanced biofuel that may be possible in 2017 based 
on supply in previous years to yield an estimate of readily available 
volumes. When these supplies of advanced biofuel are taken into 
account, a significant additional volume of advanced biofuel would 
still be needed for the statutory volume targets to be met.\13\
---------------------------------------------------------------------------

    \13\ The vast majority of these additional volumes needed are 
due to a shortfall in cellulosic biofuel in comparison to the 
statutory target of 5.5 billion gallons for 2017.

  Table II.B-3--Additional Volumes Needed To Meet Statutory Targets for
                        Advanced Biofuel in 2017
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory target for advanced biofuel......................        9,000
Proposed requirement for cellulosic biofuel................          312
Biomass-based diesel.......................................    \a\ 3,000
Potential other non-ethanol advanced.......................       \b\ 50
Additional volumes needed..................................        5,638
------------------------------------------------------------------------
\a\ Represents 2.0 billion gal of BBD that was established in the 2014-
  2016 final rule. Each gallon of biodiesel generates 1.5 RINs.
\b\ Supply of non-ethanol advanced biofuel other than BBD and cellulosic
  biofuel was 53 million gal in 2014 and 33 million gal in 2015. Given
  the variability in this source over these two years, we have rounded
  to 50 mill gal for this assessment.

    Based on historic patterns and our understanding of production 
capacity and feedstock availability, we believe that advanced biofuel 
that could fulfill the need for the additional volumes needed to reach 
the statutory target in 2017 would primarily be imported sugarcane 
ethanol or BBD in excess of the BBD standard. Table II.B-4 provides 
examples of the additional volumes that would be needed.

    Table II.B-4--Examples of Fuel Types Needed To Meet the Statutory
                  Targets for Advanced Biofuel in 2017
            [Million physical gallons unless otherwise noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Additional volumes needed (ethanol-equivalent)..........           5,638
Meeting the need for additional volumes using only                 5,638
 imported sugarcane ethanol.............................
Meeting the need for additional volumes using only BBD             3,759
 \a\....................................................

[[Page 34788]]

 
Meeting the need for additional volumes using a
 combination of imported sugarcane ethanol and BBD:
    Sugarcane ethanol...................................           2,255
    BBD.................................................           2,255
------------------------------------------------------------------------
\a\ Assumed to be biodiesel. Each gallon of biodiesel represents 1.5
  gallons of renewable fuel in the context of fulfilling the advanced
  biofuel volume requirement.

    Even if the additional volumes of advanced biofuel needed to avoid 
a waiver were shared between imported sugarcane ethanol and BBD, the 
necessary volumes of both would be far in excess of what we believe is 
reasonably achievable. For instance, imports of sugarcane ethanol have 
been highly variable in the past, and the highest volume of sugarcane 
ethanol that has ever been imported to the U.S. was 680 million gallons 
in 2006. Moreover, notwithstanding an estimate of 2 billion gallons of 
sugarcane ethanol supply from the Brazilian Sugarcane Industry 
Association (UNICA) submitted in response to the June 10, 2015 proposal 
for the 2016 standards, we do not believe that 2.26 billion gallons 
could be exported from Brazil to the U.S. in 2017. The 2016 standards 
that we established in the 2014-2016 final rule were based in part on a 
projection of 200 million gallons of imported sugarcane ethanol. Our 
current views of the potential supply of imported sugarcane ethanol for 
2017 are largely the same as those discussed in the 2014-2016 final 
rule, and we refer readers to that rule for further discussion.\14\
---------------------------------------------------------------------------

    \14\ See 80 FR 77476.
---------------------------------------------------------------------------

    Under a scenario wherein growth in sugarcane ethanol and BBD both 
contributed to providing the additional volumes needed to avoid a 
waiver of the advanced biofuel statutory target, the total volume of 
BBD required under the RFS program would also be far in excess of what 
is achievable in 2017. For instance, the 2.26 billion gallons of BBD 
shown in Table II.B-4 above would be in addition to the 2.0 billion 
gallon volume requirement for BBD, such that the total volume of BBD 
needed would be 4.26 billion gallons. For many of the same reasons 
discussed above in the context of the inability to meet the statutory 
targets for total renewable fuel, this level of BBD is not achievable 
in 2017.
    In the 2014-2016 final rule, we discussed the fact that the market 
is not unlimited in its ability to respond to the standards EPA sets. 
We continue to believe that 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 2017, but would instead lead to a complete draw-down in the 
bank of carryover RINs (which, as discussed in Section II.C, we do not 
believe to be in the best interest of the program), noncompliance, and/
or additional petitions for a waiver of the standards.

C. Total Renewable Fuel Volume Requirement

    We are proposing to exercise our authority to waive the volume of 
total renewable fuel under the general waiver authority for 2017, since 
reductions using the cellulosic authority alone would be insufficient 
to alleviate the inadequacy in supply. Our objective is to exercise the 
general waiver authority only to the extent necessary to address the 
inadequacy in supply. 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 believe 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, although the determination is founded on our analyses 
and evaluation of the available information, the determination is also 
one that we believe is not given to precise measurement and necessarily 
involves considerable exercise of judgment.
    Our intention for 2017 is to establish a requirement for total 
renewable fuel that takes into account the ability of the market to 
respond to the standards we set, and is the maximum that is reasonably 
achievable given the various constraints on supply. In this context, we 
continue to believe that the constraints associated with the E10 
blendwall do not represent a firm barrier that cannot or should not be 
crossed. Rather, the E10 blendwall marks the transition from relatively 
straightforward and easily achievable increases in ethanol consumption 
as E10 to those increases in ethanol consumption as E15 and E85 that 
are more challenging to achieve. To date we have seen no compelling 
evidence that the nationwide average ethanol concentration in gasoline 
cannot exceed 10.0%.
    However, we also recognize that the market is not unlimited in its 
ability to respond to the standards we set. This is true both for 
expanded use of ethanol and for non-ethanol renewable fuels. The fuels 
marketplace in the United States is large, diverse, and complex, made 
up of many different players with different, and often competing, 
interests. Substantial growth in the renewable fuel volumes beyond 
current levels will require action by many different parts of the fuel 
market, and a constraint in any one part of the market can limit the 
growth in renewable fuel supply. Whether the primary constraint is in 
the technology development and commercialization stages, as has been 
the case with cellulosic biofuels, or is instead related to the 
development of distribution infrastructure, as is recently the case 
with ethanol and biodiesel in the United States, the end result is that 
these constraints limit the growth rate in the available supply of 
renewable fuel as transportation fuel, heating oil, or jet fuel. These 
constraints were discussed in detail in the 2014-2016 final rule, and 
we believe that the same constraints will operate to limit supply for 
2017 as well.\15\ Other factors outside the purview of the RFS program 
also impact

[[Page 34789]]

the supply of renewable fuel, including the price of crude oil and 
global supply and demand of both renewable fuels and their feedstocks. 
These factors add uncertainty to the task of estimating volumes of 
renewable fuel that can be supplied in the future.
---------------------------------------------------------------------------

    \15\ See 80 FR 77450.
---------------------------------------------------------------------------

    While the constraints are real and must be taken into account when 
we determine maximum reasonably achievable volumes of total renewable 
fuel for 2017, none of those constraints represent insurmountable 
barriers to growth. Rather, they are challenges that can be overcome in 
a responsive marketplace given enough time and with appropriate 
investment. The speed with which the market can overcome these 
constraints is a function of whether and how effectively parties 
involved in the many diverse aspects of renewable fuel supply respond 
to the challenges associated with transitioning from fossil-based fuels 
to renewable fuels, the incentives provided by the RFS program, and 
other programs designed to incentivize renewable fuel use. As discussed 
in the following sections, we believe that the total renewable fuel 
volume requirements that we are proposing for 2017 reflect the extent 
to which market participants can reasonably be expected to respond 
within the time period in question to increase renewable fuel supplies.
    Consistent with our approach in the 2014-2016 final rule, we have 
also considered the availability of carryover RINs in our proposed 
decision to exercise our waiver authorities in setting the volume 
requirements for 2017. Other than requiring a credit program, neither 
the statute nor EPA regulations specify how or whether EPA should 
consider the availability of carryover RINs in exercising its waiver 
authorities either in the standard-setting context or in response to 
petitions for a waiver during a compliance year. The availability of 
carryover RINs is important both 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,\16\ and further reiterated in the 2014-2016 final 
rule,\17\ 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.
---------------------------------------------------------------------------

    \16\ 72 FR 23900, May 1, 2007.
    \17\ See 80 FR 77482-77487.
---------------------------------------------------------------------------

    At the time of the 2014-2016 final rule, we estimated that there 
were at most 1.74 billion carryover RINs available and decided that 
carryover RINs should not be counted on to avoid or minimize the need 
to reduce the 2014, 2015, and 2016 statutory volume targets. We also 
stated that we may or may not take a similar approach in future years, 
and that we would evaluate the issue on a case-by-case basis 
considering the facts present in future years. Since that time, 
obligated parties have submitted their compliance demonstrations for 
the 2013 compliance year and we now estimate that there are now at most 
1.72 billion carryover RINs available, a decrease of 20 million RINs 
from the previous estimate of 1.74 billion carryover RINs. Since we 
established the 2014 and the 2015 RFS volume standards at essentially 
the same level of renewable fuel supplied for those years, we do not 
expect there to be an appreciable change in the number of available 
carryover RINs after compliance demonstrations are made for the 2014 
and 2015 compliance years.\18\
---------------------------------------------------------------------------

    \18\ The compliance demonstration deadlines for the 2014 and 
2015 RFS standards are August 1, 2016, and December 1, 2016, 
respectively.
---------------------------------------------------------------------------

    For 2016, we established standards that represented a significant 
increase in the renewable fuel volume targets from 2014 and 2015. In 
the 2014-2016 final rule, we stated that these standards may result in 
a drawdown in the carryover RIN bank, although an intentional drawdown 
was not assumed in setting the volume standards. However, we will 
likely not have data showing whether or not there has been an 
appreciable change in the size of the bank of carryover RINs until 
after the 2017 RFS standards have been established.\19\ Therefore, 
there is considerable uncertainty regarding the total number of 
carryover RINs that may be available for compliance with the 2017 
standards. Given this uncertainty, we believe that it would be prudent, 
and would advance the long-term objectives of the CAA, not to propose 
standards for 2017 so as to intentionally draw down the current bank of 
carryover RINs. Assuming the bank of carryover RINs either remains 
constant after 2016 compliance demonstrations are made or is reduced, 
we believe that the availability of the full volume of those carryover 
RINs will be important for both obligated parties and the efficient 
functioning of the RFS program itself in addressing significant future 
uncertainties and challenges, particularly since we would expect 
compliance with the proposed advanced and total renewable fuel 
standards to require significant progress in growing and sustaining 
increased production and use of renewable fuels. We believe it is 
highly unlikely that the bank of carryover RINs will be larger after 
2016 compliance demonstrations are made; however, if this is the case, 
we will take that fact into consideration in setting future standards.
---------------------------------------------------------------------------

    \19\ The compliance demonstration date for the 2016 RFS 
standards is March 31, 2017, while the statutory deadline for 
establishing the 2017 RFS standards is November 30, 2016.
---------------------------------------------------------------------------

    For the reasons noted above, and consistent with the approach we 
took in the 2014-2016 final rule, we believe that the collective bank 
of carryover RINs that we anticipate will be available in 2017 should 
be retained, and not intentionally drawn down, to provide an important 
and necessary programmatic buffer that will both facilitate individual 
compliance and provide for smooth overall functioning of the program. 
Therefore, we are not proposing to set renewable fuel volume 
requirements at levels that would envision the drawdown in the bank of 
carryover RINs.
1. Ethanol
    Ethanol is the most widely produced and consumed biofuel, both 
domestically and globally. Since the beginning of the RFS program, the 
total volume of renewable fuel produced and consumed in the United 
States has grown substantially each year, primarily due to the 
increased production and use of corn ethanol. However, the rate of 
growth in the supply of ethanol has decreased in recent years as the 
gasoline market has become saturated with E10, and efforts to expand 
the use of higher ethanol blends such as E15 and E85 have not been 
sufficient to maintain past growth rates in total ethanol supply. The 
low number of retail stations selling these higher-level ethanol 
blends, along with poor price advantages compared to E10, a limited 
number of FFVs, and limited marketing of these fuels, among others, 
represent challenges to the continued growth of the supply of ethanol 
as a transportation fuel in the United States.
    In the 2014-2016 final rule we discussed in detail the factors that 
constrain growth in ethanol supply and the opportunities that exist for 
pushing the market to overcome those

[[Page 34790]]

constraints.\20\ That discussion generally remains relevant for 2017, 
though we believe that the supply of ethanol can be somewhat higher in 
2017 than it is expected to be in 2016.
---------------------------------------------------------------------------

    \20\ 80 FR 77456-77465.
---------------------------------------------------------------------------

    Ethanol supply is not currently limited by production and import 
capacity, which is in excess of 15 billion gallons. Instead, the amount 
of ethanol supplied is constrained by the following:
     Overall gasoline demand and the volume of ethanol that can 
be blended into gasoline as E10 (the so-called E10 blendwall).
     The number of retail stations that offer higher ethanol 
blends such as E15 and E85.
     The number of vehicles that can both legally and 
practically consume E15 and/or E85.
     Relative pricing of E15 and E85 versus E10 and the ability 
of RINs to affect this relative pricing.
     The demand for gasoline without ethanol (E0).

The applicable standards that we set under the RFS program provide 
incentives for the market to overcome many of these ethanol-related 
constraints. While the RFS program is unlikely to have a direct effect 
on overall gasoline demand or the number of vehicles designed to use 
higher ethanol blends, it can provide incentives for changes in the 
number of retail stations that offer higher ethanol blends and the 
relative pricing of those higher ethanol blends in comparison to E10. 
The RFS program complements other efforts to increase the use of 
renewable fuels, such as USDA's Biofuel Infrastructure Partnership 
(BIP) program which has provided $100 million in grants for the 
expansion of renewable fuel infrastructure in 2016 (supported by 
additional State matching funds), and their Biorefinery Assistance 
Program which has provided loan guarantees for the development and 
construction of commercial-scale biorefineries with a number of the new 
projects focused on producing fuels other than ethanol.
    However, as described in detail in the 2014-2016 final rule, the 
RFS program is not unlimited in its ability to compel changes in the 
market to accommodate greater supply of ethanol. For instance, while we 
do believe that the number of retail stations offering E85 will expand 
under the influence of the RFS program, an examination of efforts to 
expand E85 offerings at retail in the past suggests that there are 
limits in how quickly this can occur even under the most favorable 
market conditions. While the average rate of expansion has recently 
been about 120 new E85 stations per year, the growth in E85 stations 
was more substantial in late 2010 and early 2011--equivalent to about 
400 new stations per year. The more recent experience in particular 
suggests that the growth in 2017 is unlikely to exceed several hundred 
additional stations each year.21 22 Similarly, RIN prices 
can continue to provide additional subsidies that help to reduce the 
price of E85 relative to E10 at retail, but the propensity for retail 
station owners and wholesalers to retain a substantial portion of the 
RIN value substantially reduces the effectiveness of this aspect of the 
RIN mechanism.\23\ Finally, in the 2014-2016 final rule we based the 
2016 volume requirements in part on the expectation that the RFS 
program would compel all but a tiny portion--estimated at 200 million 
gallons--of gasoline to contain ethanol. At this time we do not believe 
that the RFS program would provide incentives for this pool of E0 to 
shrink further, as the demand for E0 by recreational marine engine 
owners is often driven by concerns about potential water contamination 
when E10 is used. (For further discussion of how the Agency arrived at 
200 mill gal E0, see 80 FR 77464. We will continue to investigate 
available sources to determine volumes of E0 in the gasoline market 
both historically and projected out into the future for establishing 
the standards under the RFS program, and we request comment on 
forecasting future volumes of E0.)
---------------------------------------------------------------------------

    \21\ The impacts of the USDA BIP program were taken into 
consideration in the 2014-2016 final rule. This program will phase-
in expanded retail offerings for E15 and E85 throughout 2016, and is 
expected to be fully phased-in by 2017.
    \22\ See discussion at 80 FR 77460.
    \23\ See discussion at 80 FR 77458.
---------------------------------------------------------------------------

    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 some stakeholders believe have occurred, or could 
occur in the near future. 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, we estimate that increasing the national average E85 price 
reduction relative to E10 from 17.5% to 30% would have increased total 
2014 E85 consumption from 150 million gallons to only 200 million 
gallons.\24\ Importantly, an increase in the nationwide average E85 
price reduction to 30% would be unprecedented. A paper published by 
Babcock and Pouliot estimated sales volumes of a similar magnitude 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).\25\ Based on our analysis of consumer response to E85 prices, 
as supported by the Babcock and Pouliot analysis, it would be 
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 would be similarly inappropriate to assume 
that the E85 throughput at a given retail station could 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.
---------------------------------------------------------------------------

    \24\ ``Correlating E85 consumption volumes with E85 price,'' 
memorandum from David Korotney to docket EPA-HQ-OAR-2015-0111.
    \25\ Babcock, Bruce and Sebastien Pouliot. How Much Ethanol Can 
Be Consumed in E85? Card Policy Briefs, September 2015. 15-BP 54. 
200 and 250 mill gal of E85 are of similar magnitude when compared 
to the many billions of gallons of E85 that some parties have said 
is possible.
---------------------------------------------------------------------------

    Another significant factor in estimating the total volume of 
ethanol that can be supplied is the E10 blendwall, which is in turn a 
function of total gasoline demand. While the E10 blendwall does not 
represent a barrier to increasing ethanol supply, it does mark the 
point at which additional ethanol supply becomes more challenging to 
achieve. As the pool-wide ethanol concentration increases from 10% to 
higher levels of ethanol, the market transitions from mild resistance 
to obstacles that are more difficult to overcome, particularly with 
regard to infrastructure and relative pricing for higher ethanol blends 
such as E15 and E85. Because of this dynamic, it is helpful to identify 
the total volume of ethanol that could be supplied if all gasoline was 
E10 and there were no higher ethanol blends.
    Based on the April 2016 Short-Term Energy Outlook (STEO) from the 
Energy Information Administration, total demand for gasoline energy in 
2017 is projected to be 17.10 quadrillion Btu.\26\ If all of this 
gasoline energy was consumed as E10, the total volume of gasoline would 
be 142.0 billion gallons,

[[Page 34791]]

and the corresponding volume of ethanol consumed would be 14.2 billion 
gallons. If we took into account the small volume of E0 that we believe 
would continue to be supplied for use in recreational marine engines as 
discussed in the 2014-2016 final rule, the total volume of ethanol used 
as E10 would be slightly smaller at 14.18 billion gallons. By 
comparison, the ethanol volume we estimated in the 2014-2016 final rule 
to be associated with the E10 blendwall in 2016 was 14.0 billion 
gallons.\27\
---------------------------------------------------------------------------

    \26\ Derived from Table 4a of the STEO, converting consumed 
gasoline and ethanol projected volumes into energy using conversion 
factors supplied by EIA. http://www.eia.gov/forecasts/steo/archives/apr16.pdf. Excludes gasoline consumption in Alaska. For further 
details, see ``Calculation of proposed % standards for 2017'' in 
docket EPA-HQ-OAR-2016-0004.
    \27\ See Table II.E.2.i-1, 80 FR 77458.
---------------------------------------------------------------------------

    It is difficult to identify the precise boundary between ethanol 
supply volumes that can be realistically achieved in 2017 and those 
that likely cannot realistically be achieved in that timeframe. 
Nevertheless, we believe that ongoing efforts to increase the 
availability of E15 and E85 at retail will create opportunities for 
greater supply of ethanol in 2017 in comparison to 2016.
    In the 2014-2016 final rule, we projected that ethanol supply in 
2016 could exceed that supplied in 2015 by about 170 million gallons 
based on changes in gasoline demand, the influence of programs such as 
USDA's BIP program, and our expectation for how the RFS standards we 
set would influence sales of E0, E15, and E85 between the two years. 
For 2017, we believe that slightly larger increases in ethanol supply 
are possible. For the purpose of assessing the supply of total 
renewable fuel to require in 2017, we are proposing to use an ethanol 
supply of 14.4 billion gallons for 2017. While the market will 
ultimately determine the extent to which compliance with the annual 
standards is achieved through the use of greater volumes of ethanol 
versus other, non-ethanol renewable fuels, we nevertheless believe that 
this ethanol volume represents a realistically achievable level that 
takes into account the ability of the market to respond to the 
standards we set. We request comment on whether 14.4 billion gallons of 
ethanol is an appropriate volume to use in the determination of the 
applicable total renewable fuel volume requirement for 2017. For the 
final rule, we will consider comments received in response to this 
proposal, additional data and information that has become available, 
and more up-to-date projections of gasoline demand in estimating the 
total volume of ethanol that can be supplied.
2. 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 may limit potential 
growth in the use of biodiesel in 2017. Nevertheless, as discussed in 
the final rule establishing the RFS standards for 2014-2016, there are 
several factors that may, to varying degrees and at different times 
limit the growth of biodiesel and renewable diesel in future years, 
including local feedstock availability, production and import capacity, 
and the capacity to distribute, sell, and consume increasing volumes of 
biodiesel and renewable diesel. We continue to believe that the supply 
of biodiesel and renewable diesel as transportation fuel in the United 
States, while growing, is not without limit in the near term.
    In the 2014-2016 rule we discussed the current status of each of 
the factors that impacts the supply of biodiesel and renewable diesel 
used as transportation fuel in the United States. While the market for 
biodiesel and renewable diesel has continued to develop, little has 
changed that would significantly impact our assessment of these 
factors. Instead, we expect that the growth in the supply of biodiesel 
and renewable diesel will largely be driven by incremental developments 
across the marketplace in 2017 to steadily increase volumes. For the 
purpose of deriving our proposed volumes for advanced biofuel and total 
renewable fuel we have projected that 2.7 billion gallons of biodiesel 
and renewable diesel (including both advanced and conventional biofuel) 
can be supplied in 2017, up from the 2.5 billion gallons that was 
projected for 2016. This volume exceeds the previously established BBD 
volume requirement of 2.0 billion gallons in 2017, as we believe 
additional volumes of both conventional and advanced biodiesel and 
renewable diesel can be supplied to the United States in 2017 (see 
Section IV for further discussion of the BBD standard). The following 
sections discuss our expectations for developments in key areas 
affecting the supply of biodiesel and renewable diesel in 2017. For a 
more detailed discussion of each of these factors, see the discussion 
in the 2014-2016 final rule.\28\ We request comment on the projected 
available supply of biodiesel and renewable diesel in 2017, as well as 
the degree to which each of the factors discussed below may impact the 
available supply.
---------------------------------------------------------------------------

    \28\ 80 FR 77465.
---------------------------------------------------------------------------

i. Feedstock Availability
    In previous years, the primary feedstocks used to produce biodiesel 
and renewable diesel in the United States have been vegetable oils 
(primarily soy, corn, and canola oils) and waste fats, oils, and 
greases. We anticipate that these feedstocks will continue to be the 
primary feedstocks used to produce biodiesel and renewable diesel in 
2017. Supplies of these oils are expected to increase slowly over time, 
as oilseed crop yields increase and an increasing portion of waste oils 
are recovered. While some have suggested that industries that compete 
with the biodiesel and renewable diesel industry for vegetable oil 
feedstocks will turn to alternative feedstock sources, resulting in 
greater feedstock availability for biodiesel and renewable diesel 
producers, such a shift in renewable oil feedstock use would not result 
in an increase in the total available supply of renewable oil 
feedstocks, and would therefore not alter the fundamental feedstock 
supply dynamics for biodiesel and renewable diesel production.
    We anticipate that there will be a modest increase in the available 
supply of feedstocks that can be used to produce biodiesel and 
renewable diesel in 2017. Oil crop yield increases over the next few 
years are expected to be modest, and significant increases in the 
planted acres of oil crops are expected to be limited by competition 
for arable land from other higher value crops. The recovery of corn oil 
from distillers grains and the recovery of waste oils are already 
widespread practices, limiting the potential for growth from these 
sectors. Based on currently available information, we do not believe 
that it is likely that the availability of feedstocks will 
significantly limit the supply of biodiesel and renewable diesel used 
for transportation fuel in the United States in 2017, as other factors 
that impact the available supply (discussed below) are likely to 
present greater challenges. However, it is possible that biodiesel 
production at some individual facilities, especially those built to 
take advantage of low-cost, locally available feedstocks, may be 
limited by their access to affordable feedstocks in 2017, rather than 
their facility capacity. Large increases in the available supply of 
biodiesel and renewable diesel in future years will likely depend on 
the development and use of new, high-yielding feedstocks, such as algal 
oils or alternative oilseed crops.

[[Page 34792]]

ii. Biodiesel and Renewable Diesel Production Capacity
    The capacity for all registered biodiesel production facilities is 
currently at least 2.7 billion gallons. The capacity for all registered 
renewable diesel production facilities is more than 0.6 billion 
gallons. Active production capacity is lower, however, as many 
registered facilities were idle in 2015. Additionally, as discussed 
above, the availability of economically viable feedstocks may limit 
biodiesel production at any given facility to a volume lower than the 
facility capacity.\29\ As with feedstock availability, we do not expect 
that production capacity at registered facilities will limit the supply 
of biodiesel for use as transportation fuel in the United States in 
2017, however the supply of renewable diesel may be limited by the 
production capacity at registered facilities. Renewable diesel 
production facilities require significant investment and time to build, 
and it is not likely that the capacity of registered renewable diesel 
production facilities will increase sufficiently in time to have a 
significant impact on the supply of renewable diesel to the United 
States in 2017. It is likely that the addition of new production 
capacity will be required in future years if the supply of renewable 
diesel is to continue to increase.
---------------------------------------------------------------------------

    \29\ Due to the relatively low capital cost of biodiesel 
production facilities, many facilities were built with excess 
production capacity that has never been used.
---------------------------------------------------------------------------

iii. Biodiesel and Renewable Diesel Import Capacity
    Another important market component in assessing biodiesel and 
renewable diesel supply is the potential for imported volumes and the 
diversion of biodiesel and renewable diesel exports to domestic uses. 
In addition to the approximately 560 million gallons imported into the 
U.S. in 2015, there were about 90 million gallons exported from the 
United States to overseas markets. 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 2017. However, the amount of biodiesel 
and renewable diesel that can be imported into the United States is 
difficult to predict, as the incentives to import biodiesel and 
renewable diesel to the U.S. are a function not only of the RFS and 
other U.S. policies and economic drivers, but also those in the other 
countries around the world. These policies and economic drivers are not 
fixed, and change on a continuing basis. Over the years there has been 
significant variation in both the imports and exports of biodiesel and 
renewable diesel as a result of varying policies and relative economic 
policies (See Figure II.C.2.iii-1 below). Increasing net imports 
significantly would require a clear signal that increasing imports was 
economically advantageous, potential re-negotiations of existing 
contracts, and upgrades and expansions at U.S. import terminals. 
Because of demand for biodiesel and renewable diesel in other countries 
and potential biodiesel distribution constraints in the United States 
(discussed below), we do not expect a dramatic increase in the net 
imports of biodiesel and renewable diesel (total biodiesel and 
renewable diesel imports minus exports) in 2017, but rather a moderate 
increase, consistent with the general trend observed in previous years.
[GRAPHIC] [TIFF OMITTED] TP31MY16.004

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

[[Page 34793]]

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.30 31 32 Information provided by the National 
Biodiesel Board indicates that some retailers offer biodiesel blend 
levels that differ in the summer and winter to account for these cold 
temperature impacts.\33\
---------------------------------------------------------------------------

    \30\ ``Biodiesel Cloud Point and Cold Weather Issues,'' NC State 
University & A&T State University Cooperative Extension, December 9, 
2010.
    \31\ ``Biodiesel Cold Weather Blending Study,'' Cold Flow 
Blending Consortium.
    \32\ ``Petroleum Diesel Fuel and Biodiesel Technical Cold 
Weather Issues,'' Minnesota Department of Agriculture, Report to 
Legislature, February 15, 2009.
    \33\ http://biodiesel.org/using-biodiesel/finding-biodiesel/retail-locations/biodiesel-retailer-listings.
---------------------------------------------------------------------------

    The infrastructure needed to store and distribute biodiesel has 
generally been built in line with the local demand for biodiesel. In 
most cases the infrastructure must be expanded to bring biodiesel to 
new markets, and additional infrastructure may also be needed to 
increase the supply of biodiesel in markets where it is already being 
sold. 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.
    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, the 
majority of which are bulk plants.34 35 These 600 facilities 
are still a relatively small subset of the 1400 terminals and thousands 
of additional bulk plants nationwide.\36\ This small subset appears to 
be concentrated in the Midwest and most of the population centers of 
the country, resulting in relatively few biodiesel distribution points 
to provide biodiesel and biodiesel blends to a large portion of the 
diesel fuel retailers in the United States. As a result, for the market 
to continue to expand, it will likely 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 will face competition as they seek to expand 
into areas already supplied by existing distribution facilities. 
Transportation of the biodiesel to and from the terminals and bulk 
plants must also be addressed, as biodiesel and biodiesel blends are 
precluded from being transported in common carrier pipelines. Instead, 
biodiesel must be transported by rail (where infrastructure permits) or 
truck. Either of these options results in high fuel transportation 
costs (relative to petroleum derived diesel, which is generally 
delivered to terminals via pipelines), which may impact the viability 
of adding biodiesel distribution capacity at a number of existing 
terminals or bulk plants.
---------------------------------------------------------------------------

    \34\ 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.
    \35\ Bulk plants are much smaller than major gasoline and diesel 
distribution terminals, and generally receive diesel and biodiesel 
shipped by trucks from major terminals.
    \36\ 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.
---------------------------------------------------------------------------

    The net result is that the expansion of terminals and bulk plants 
selling biodiesel and biodiesel blends, and the distribution 
infrastructure necessary to store and transport biodiesel to and from 
these facilities, is a significant challenge we believe will limit the 
potential for the rapid expansion of the biodiesel supply. This is an 
area in which the biodiesel industry has made steady progress over 
time, and we anticipate that this progress can and will continue into 
the future, particularly with the ongoing incentive for biodiesel 
growth provided by the RFS standards. Low oil prices, however, present 
a challenge to the expansion of biodiesel distribution infrastructure, 
since such projects generally have long payback timelines and parties 
may be hesitant to invest in new infrastructure to enable additional 
biodiesel distribution at a time when diesel prices are low. As with 
many of these potential supply constraints, increasing biodiesel 
storage and distribution capacity will require time and investment, 
limiting the potential growth in 2017.
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 2017 due to its similarity to 
petroleum-based diesel and the relatively small volumes expected to be 
supplied in the United States. The situation is different, however, for 
biodiesel. Biodiesel is typically distributed in blended form with 
diesel fuel as blends varying 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. Retailers of diesel fuel, however, generally have only a single 
storage tank for diesel fuel. They can therefore generally only offer a 
single biodiesel blend. We expect that many of the retailers in this 
situation will be hesitant to offer biodiesel blends above B5, as doing 
so would mean only selling a fuel that would potentially void the 
warranty of many of their customers' engines if used (see following 
section for a further discussion of engine warranty issues). As 
discussed in the next section, biodiesel blends up to 5% may be legally 
sold as diesel fuel without the need for special labeling, and are 
approved for use in virtually all diesel engines. Because biodiesel 
blends up to B5 can be used in virtually all diesel engines and require 
no specialized infrastructure at refueling stations, expanding the 
number of refueling stations offering biodiesel blends is therefore 
constrained less by resistance from the retail facilities themselves, 
and more by the lack of nearby wholesale distribution networks that can 
provide the biodiesel blends to retail. As discussed in the previous 
section, we expect this expansion will continue at a steady pace in 
2017.
vi. Biodiesel and Renewable Diesel Consumption Capacity
    Virtually all diesel vehicles and engines now in the in-use fleet 
have been warranted for the use of B5 blends. Both the Federal Trade 
Commission (FTC) and ASTM International (ASTM) 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. Using 
biodiesel blends above B5 in diesel engines may, however, require 
changes in design, calibration, and/or maintenance practices.\37\ 
According to NBB, approximately 80% of all diesel engine manufacturers 
now warrant at least one of their current offerings for use with B20 
blends. This is a potentially significant factor in assessing the 
potential supply of biodiesel to vehicles in future years and has been 
a main focus of NBB's

[[Page 34794]]

technical and outreach efforts for many years.
---------------------------------------------------------------------------

    \37\ 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.
---------------------------------------------------------------------------

    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. As of 2015, EPA estimates that nearly 
one third of the heavy duty diesel vehicles on the road were at least 
15 years old, and that approximately 7 percent were at least 25 years 
old. The relatively large number of older diesel engines in the fleet, 
the significant number of new engines that are not warranted to use 
biodiesel blends above B5, and the fact that most diesel fuel retailers 
sell only a single blend of biodiesel (discussed above), means that in 
the near term the opportunity to sell B20 exclusively to vehicles 
designed and warranted to run on these blends will likely be limited to 
centrally-fueled fleets or retailers large enough to offer multiple 
biodiesel blend levels.\38\
---------------------------------------------------------------------------

    \38\ 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 believe it is likely that in 2017 it will become increasingly 
necessary to sell higher-level biodiesel blends, greater quantities of 
renewable diesel, or additional volumes of biodiesel in qualifying 
nonroad applications to increase the total supply of biodiesel and 
renewable diesel. If the diesel pool contained 5% biodiesel nationwide, 
consumption of biodiesel would reach approximately 2.9 billion gallons 
in 2017. Alternatively, assuming the availability of approximately 500 
million gallons of renewable diesel in 2017 (approximately a 100 
million gallon increase from 2015) and the use of 100 million gallons 
of biodiesel in qualifying nonroad uses, approximately 73% of the 
highway diesel pool in 2017 would have to be sold as a B5 blend to 
achieve the total projected supply of biodiesel and renewable diesel of 
2.7 billion gallons in 2017. Alternatively, selling appreciable volumes 
of biodiesel blends above B5 would mean that a smaller percentage of 
the diesel pool would have to contain biodiesel to achieve the proposed 
standards. While we believe that achieving these blend levels 
nationwide is possible in 2017, it will require significant effort and 
investment in the distribution infrastructure for biodiesel. Biodiesel 
consumption capacity in areas that currently have access to biodiesel 
blends is one of the factors likely to slow the growth of the supply of 
biodiesel and renewable diesel in 2017 and in future years.
vii. Biodiesel and Renewable Diesel Consumer Response
    Consumer response to the availability of renewable diesel and low-
level biodiesel blends (B5 or less) has been generally positive, and 
this does not appear to be a significant impediment to growth in 
biodiesel and renewable diesel use. Because of its similarity to 
petroleum diesel, consumers who purchase renewable diesel are unlikely 
to notice any difference between renewable diesel and petroleum-derived 
diesel fuel. Similarly, biodiesel blends up to B5 are unlikely to be 
noticed by consumers, especially since, as mentioned above, they may be 
sold without specific labeling. Consumer response to biodiesel blends 
is also likely aided by the fact that despite biodiesel having roughly 
10 percent less energy content than diesel fuel, when blended at 5 
percent the fuel economy impact of B5 relative to petroleum-derived 
diesel is a decrease of only 0.5%, an imperceptible difference. 
Consumer response has been further aided by the lower prices that many 
wholesalers and retailers have been willing to provide to the consumers 
for the use of biodiesel blends. The economic incentives provided by 
the biodiesel blenders tax credit and the RIN have made it possible for 
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. The 
ability for retailers to offer biodiesel blends at competitive prices 
relative to diesel that does not contain biodiesel, even at times when 
oil prices are low, is a key factor in the consumer acceptance of 
biodiesel and renewable diesel.
viii. Projected Supply of Biodiesel and Renewable Diesel in 2017
    Due to the large number of market segments where actions and 
investments may be needed to support the continued growth of biodiesel 
blends, it is difficult to isolate the specific constraint or group of 
constraints that would be the limiting factor or factors to the supply 
of biodiesel and renewable diesel in the United States in 2017. Not 
only are many of the potential constraints inter-related, but they are 
likely to vary over time. The challenges in identifying a single factor 
limiting the growth in the supply of biodiesel and renewable diesel in 
2017 does not mean, however, that there are no constraints to the 
growth in supply.
    A starting point in developing a projection of the available supply 
of biodiesel and renewable diesel in 2017 is a review of the volumes of 
these fuels supplied for RFS compliance in previous years. In examining 
the data, both the absolute volumes of the supply of biodiesel and 
renewable diesel in previous years, as well as the rates of growth 
between years are relevant considerations. The volumes of biodiesel and 
renewable diesel (including both D4 and D6 biodiesel and renewable 
diesel) supplied each year from 2011 through 2015 are shown below.

[[Page 34795]]

[GRAPHIC] [TIFF OMITTED] TP31MY16.005


 
 
 
\a\ Values represent current estimates of the net supply of
 biodiesel and renewable diesel (including conventional, advanced,
 and BBD biodiesel and renewable diesel), accounting for the
 production, import, and export of biodiesel and renewable diesel.
 Future RIN retirements, required by enforcement actions of for
 other reasons, may impact the number of biodiesel and renewable
 diesel RINs available for compliance purposes......................
 

    To use the historical data to project the available supply of 
biodiesel and renewable diesel in 2017 we started with the volume 
expected to be supplied in 2016 (2.5 billion gallons), and then 
assessed how much the supply could be expected to increase in 2017 in 
light of the constraints discussed above. Using historic data is 
appropriate to the extent that growth in the year or years leading up 
to 2016 reflects the rate at which biodiesel and renewable diesel 
constraints can reasonably be expected to be addressed and alleviated 
in the future. In assessing the potential growth of biodiesel and 
renewable diesel in 2017 we believe this to be the case. There are many 
potential ways the historical data could be used to project the supply 
of biodiesel and renewable diesel in future years. Two relatively 
straight-forward methods would be to use either the largest observed 
annual supply increase (689 million gallons from 2012 to 2013) or the 
average supply increase (226 million gallons from 2011 to 2015) to 
project how much biodiesel and renewable diesel volumes could increase 
over 2016 levels in 2017. We appreciate that there are limitations in 
the probative value of past growth rates to assess what can be done in 
the future, however we believe there is significant value in 
considering historical data, especially in such cases where the future 
growth rate will be determined by the same variety of complex and 
inter-dependent factors that have factored into historical growth.
    In projecting the available supply of biodiesel and renewable 
diesel in 2016 for the final rule establishing the 2014-2016 standards, 
we estimated that the supply of biodiesel and renewable diesel could 
increase from the level supplied in 2015 in line with the largest 
observed annual supply increase from the historic record. While RIN 
available generation data for 2016 is limited, we continue to believe 
this high year-over-year increase is possible in part due to the 
relatively small growth in the supply of biodiesel and renewable diesel 
in 2014 and 2015, during which no annual standards were in place to 
promote growth in the supply of biodiesel and renewable diesel and 
during which time the biodiesel blenders tax credit was only reinstated 
retroactively. During these years (2014-2015) we believe that the 
supply of biodiesel likely grew at a slower rate than the progress 
being made to expand the potential supply of biodiesel and renewable 
diesel used as transportation fuel in the United States due to the 
absence of standards in these years. We believe that the significant 
increase in the projected supply of biodiesel and renewable diesel from 
2015 to 2016 will therefore be significantly enabled by the relatively 
slow growth in supply in 2014 and 2015. We do not believe that a 
similarly large supply increase in 2017 is possible after such a large 
increase from 2015 to 2016. Instead, we believe that an approximately 
200 million gallon per year increase, more reflective of the average 
annual increased observed from 2011 to 2015 (the most recent year for 
which data is currently available), best reflects the maximum 
reasonably achievable growth rate for the supply of biodiesel and 
renewable diesel in 2017.
    We recognize that these growth rates achieved in the past (the 
average annual growth rate and the largest annual supply increase) do 
not necessarily indicate the growth rate that can be achieved in the 
future. In the past, biodiesel was available in fewer markets, allowing 
new investments to be targeted to have a maximum impact on volume. 
However, as the market becomes more saturated and biodiesel becomes 
available in an increasing number of markets, additional investments 
may tend to have less of an impact on volume, limiting the potential 
large increases in supply year over year. Additionally, much of the 
increase in the volume of biodiesel and renewable diesel supplied from 
2012 to 2013 was renewable diesel, which is faced with far fewer 
distribution and consumption challenges than biodiesel for blends above 
B5. Such an increase in the available supply of renewable diesel in 
2017 is unlikely as we are currently unaware of any renewable diesel 
facilities under construction that are likely to supply significant 
volumes of

[[Page 34796]]

fuel to the United States in 2017, and the capital costs and 
construction timelines associated with constructing new renewable 
diesel facilities are significant. It will likely require greater 
investment to achieve the same levels of growth in the supply of 
biodiesel and renewable diesel in 2017 as compared to previous years. 
However, we must also consider the extent to which historic growth 
rates can be seen as representing the maximum reasonably achievable 
growth that is possible with the RFS standards and other incentives in 
place. The year with the historic maximum rate of growth was 2013--a 
year in which both tax incentives and RFS incentives were in place to 
incentivize growth, and the infrastructure constraints related to the 
distribution and use of biodiesel were not as significant as they are 
presently. We believe it is reasonable to assume the incentives 
provided by the standards in 2017 will be sufficient to enable the 
proposed supply increases in these years despite these challenges 
discussed above, but do not believe that a rate of growth equal to that 
seen in 2013 is possible in 2017.
    The present constraints do not represent insurmountable barriers, 
but they will take time to overcome. The market has been making efforts 
to overcome these constraints in recent years, as demonstrated by the 
fact that biodiesel and renewable diesel consumption in the U.S. has 
been steadily increasing. We believe that opportunity for ongoing 
growth exists, but that the constraints listed above will continue to 
be a factor in the rate of growth in future years. We recognize that 
the market may not necessarily respond to the final total renewable 
standard by supplying exactly 2.7 billion gallons of biodiesel and 
renewable diesel to the transportation fuels market in the United 
States in 2017, but that the market may instead supply a 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 2.7 
billion gallons of biodiesel and renewable diesel that we have used in 
deriving the proposed total renewable fuel volume requirement for 2017. 
We request comment on the projected supply of biodiesel and renewable 
diesel used as transportation fuel in the United States in 2017, as 
well as the factors that may enable or inhibit the growth in the supply 
of these fuels.
3. Total Renewable Fuel Supply
    The total volume of renewable fuel that can be supplied in 2017 is 
driven primarily by the estimated supplies of ethanol and biodiesel/
renewable diesel, as discussed in the previous sections. Cellulosic 
biogas can also contribute to the total volume of renewable fuel, as 
described more fully in Section III. While other renewable fuels such 
as naphtha, heating oil, butanol, and jet fuel can be expected to 
continue growing over the next year, collectively, we expect them to 
contribute considerably less to the total volume of renewable fuel that 
can be supplied in 2017.\39\
---------------------------------------------------------------------------

    \39\ Supply of these other types of renewable fuel reached 33 
million gallons in 2015.
---------------------------------------------------------------------------

    Most biofuel types can be produced as either advanced biofuel (with 
a D code of 3, 4, 5, or 7) or as conventional renewable fuel (with a D 
code of 6), 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.C.3-1--Volumes Used To Determine the Proposed Total Renewable
                    Fuel Volume Requirements in 2017
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Ethanol....................................................       14,400
Biodiesel and renewable diesel (ethanol-equivalent volume/   4,050/2,700
 physical volume)..........................................
Biogas.....................................................          285
Other non-ethanol renewable fuels \a\......................           50
                                                            ------------
  Total renewable fuel.....................................       18,785
------------------------------------------------------------------------
\a\ Includes naphtha, heating oil, butanol, and jet fuel.

    Based on this assessment, we are proposing a total renewable fuel 
volume requirement of 18.8 billion gallons for 2017. We request comment 
on this proposed volume requirement and the basis as shown in the table 
above, and whether a volume requirement higher or lower than we are 
proposing would be more appropriate taking into consideration more 
recent data and factors such as the ability of the volume requirements 
to lead to increases in supply of renewable fuels.
    We note that the contributions from individual sources shown in 
Table II.C.3-1 were developed only for the purpose of determining the 
proposed volume requirements; they do not represent EPA's projection of 
precisely how the market would respond if we set the total renewable 
fuel volume requirement at 18.8 billion gallons for 2017. As we said in 
the 2014-2016 final rule, any supply estimate we make for particular 
fuel types may be uncertain, but there is greater certainty that the 
overall volume requirements can be met given the flexibility in the 
market that is inherent in the RFS program. The contributions from 
individual sources that we have used in the table above are 
illustrative of one way in which the volume requirements for total 
renewable fuel could be met. Actual market responses could vary widely, 
as described more fully in Section II.E.
    The volume of total renewable fuel that we are proposing for 2017 
reflects 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. As shown in Figure II.C.3-1, the 
proposed volume requirements would follow an upward trend consistent 
with that from previous years.

[[Page 34797]]

[GRAPHIC] [TIFF OMITTED] TP31MY16.006

D. Advanced Biofuel Volume Requirement

    As noted earlier, the CAA provides EPA with two waiver authorities. 
For the 2014-2016 final rule, we used the cellulosic waiver authority 
alone to reduce statutory volumes of advanced biofuel to levels we 
determined to be reasonably attainable; in doing so we did not reduce 
advanced biofuel by the full reduction in cellulosic biofuel. We 
reduced total renewable fuel by the same amount using that authority, 
and then by additional increment using the general waiver authority. As 
discussed in Section II.A, EPA has broad discretion in using the 
cellulosic waiver authority, since Congress did not specify the 
circumstances under which it may or should be used nor the factors to 
consider in determining appropriate volume reductions. We note 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 approach in the 2014-2016 final rule was to set the 
2016 advanced biofuel volume requirement at a level that was reasonably 
attainable taking into account uncertainties related to such factors as 
production, import, distribution, and consumption constraints 
associated with these fuels. The result of that approach is that 
reasonably attainable volumes of advanced biofuel will compensate for a 
portion of the shortfall in cellulosic biofuel in 2016, thereby 
promoting the larger RFS goals of reducing GHGs and enhancing energy 
security. We are proposing to take the same approach to determining the 
advanced biofuel volume requirement for 2017.
    Our proposed approach to identifying ``reasonably attainable'' 
volumes of advanced biofuel using the cellulosic waiver authority is 
different than our proposed approach under the general waiver authority 
of identifying the ``maximum reasonably achievable supply.'' In 
proposing to exercise 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 biofuel that 
can be used in 2017. We believe that in exercising our discretion under 
the cellulosic waiver authority we can identify reasonably attainable 
volumes in a manner that is similar to, but may be less exacting than, 
a determination of inadequate domestic supply using the general waiver 
authority.\40\
---------------------------------------------------------------------------

    \40\ See Monroe Energy v. EPA, 750 F.3d 909, 915 (affirming 
EPA's broad discretion in adjusting advanced biofuel and total 
renewable fuel volumes under the cellulosic waiver provision).
---------------------------------------------------------------------------

    Given that advanced biofuels are a subset of total renewable fuel, 
the proposed 2017 volume requirement for advanced biofuel reflects our 
proposed assessment of the portion of total renewable fuel that should 
be required to be advanced biofuel. We have made this assessment 
separately for ethanol, biodiesel/renewable diesel, and other renewable 
fuels.
    With regard to ethanol, the primary source of advanced biofuel 
continues to be imported sugarcane ethanol. As described in the 2014-
2016 final rule, the supply of imported sugarcane ethanol has been 
highly uncertain. Both total ethanol imports and imports of Brazilian 
sugarcane ethanol have varied significantly since 2004, and in 2014 and 
2015 they reached only 64 and 89 million gallons, respectively. Much of 
this variability can be tied to the worldwide price of sugar: between 
2005 and 2015, year-to-year Brazilian production of sugar has increased 
just as often as it has decreased.\41\ Total gasoline consumption in 
Brazil also continues to climb, reducing the potential for substantial 
increases in exports of ethanol in 2017 as ethanol serves as a critical 
source of fuel supply in Brazil to meet increasing demand.\42\ These 
considerations led us to determine that 200 million gallons of imported 
sugarcane ethanol was an appropriate volume to use in determining the 
2016 volume requirement for advanced biofuel.
---------------------------------------------------------------------------

    \41\ ``UNICA--Updated Information on Brazils Sugarcane 
Production--Oct 2015,'' EPA docket EPA-HQ-OAR-2016-0004.
    \42\ ``Gasoline Demand in Brazil: An empirical analysis,'' 
Tha[iacute]s Machado de Matos Vilela, Pontifical Catholic University 
of Rio de Janeiro, Figure 2.
---------------------------------------------------------------------------

    The information currently available to us does not suggest that the 
circumstances will be significantly different for 2017 than they are 
for 2016. For the purposes of deriving the proposed advanced biofuel 
volume requirements for 2017, then, we have assumed that imports of 
sugarcane ethanol will be 200 million gallons, the volume that we used 
in establishing the 2016 volume requirement for advanced biofuel. This 
volume is approximately equal to the average annual import volume 
between 2010 and 2015. Apart from this assumed level in the 
determination of the proposed advanced biofuel volume requirement for 
2017, we note that actual imports of sugarcane ethanol could be higher 
or lower than

[[Page 34798]]

200 million gallons as shown in the scenarios for how the market could 
respond in Section II.E below. For the purposes of determining the 
final applicable volume requirements, we may adjust this value upwards 
or downwards based on more recent data on actual imports of sugarcane 
ethanol that we obtain from commenters or that may otherwise become 
available prior to the time we issue the final rule.
    With regard to biodiesel and renewable diesel, past experience 
suggests that a high percentage of the supply of these fuel types 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 2017, as discussed in Section 
II.C.2.iii. Setting the 2017 advanced biofuel volume requirement so as 
to require that a high percentage of the projected total supply of 
biodiesel and renewable diesel would be in the form of advanced biofuel 
would not only reflect past experience, but would also enhance the GHG 
benefits of the RFS program.
    However, we also acknowledge that imports of conventional (D6) 
biodiesel and renewable diesel have increased in recent years, and are 
likely to continue to contribute to the supply of renewable fuel in the 
United States in 2017.\43\ Moreover, the potential constraints related 
to the distribution and use of biodiesel, discussed in Section 
II.C.2.iv through vi 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 2017. At the same time, the future supply to the U.S. 
market of any imported renewable fuel is particularly difficult to 
assess given potential developments throughout the world that may 
influence actual import levels.
---------------------------------------------------------------------------

    \43\ For instance, imports of qualifying conventional biodiesel 
and renewable diesel were 53 mill gal in 2014 and 179 mill gal in 
2015.
---------------------------------------------------------------------------

    In the context of setting the 2016 volume requirements in the 2014-
2016 final rule, we indicated that supply of conventional biodiesel and 
renewable diesel could increase significantly in comparison to 2015 
supply. For 2017, we believe it would be prudent to assume the same 
level of supply until we can collect additional information on how the 
market is reacting to the 2016 volume requirements. Doing so also 
places an emphasis on growth in advanced forms of biodiesel and 
renewable diesel, furthering the GHG goals of the RFS program. 
Therefore, for the purposes of determining the proposed volume 
requirements in this rule, we believe it would be reasonable to assume 
that the increase in total biodiesel and renewable diesel in 2017 is 
attributed entirely to increases in the supply of advanced biodiesel 
and renewable diesel. The volumes that we propose using are shown 
below, along with the volumes that we used in setting the 2016 volume 
requirements.

 Table II.D-1--Advanced and Total Biodiesel + Renewable Diesel Used For
          Determining the Proposed Volume Requirements for 2017
                       [Million physical gallons]
------------------------------------------------------------------------
                                                       2016       2017
------------------------------------------------------------------------
Total.............................................      2,500      2,700
Advanced..........................................      2,100      2,300
Conventional......................................        400        400
------------------------------------------------------------------------

    The 2016 volume requirements represented substantial increases in 
both advanced and conventional biodiesel and renewable diesel in 
comparison to 2015. The annual increase we are proposing to use for 
2017, as shown in the table above, would be more moderate. We believe 
that this is reasonable because the circumstances we are facing in this 
action are different than those we were facing in the 2014-2016 final 
rule. The 2016 standards were designed to reflect the fact that the 
2014 and 2015 standards had not been set by the statutory deadlines 
even though the market had continued to make progress during that time 
to expand supply. There will be comparatively less time available for 
the market to prepare to meet the applicable standards for 2017. 
Moreover, as the volumes of biodiesel and renewable diesel increase, 
the marketplace challenges associated with them also increase, 
generally making each increment more difficult to attain than the last. 
As the country becomes saturated with retail and distribution 
infrastructure in the major fuel consumption areas, we expect that it 
will be increasingly costly to expand biodiesel and renewable diesel 
into areas with less favorable returns on investments.
    We note that the volumes shown in Table II.D-1 above cannot 
themselves be viewed as volume requirements. The volumes shown in Table 
II.D-1 are merely the basis on which we have determined the proposed 
volume requirements for advanced biofuel and total renewable fuel. As 
discussed in more detail in Section II.E below, there are many ways 
that the market could respond to the volume requirements we are 
proposing, including biodiesel and renewable diesel volumes higher or 
lower than those shown in Table II.D-1.
    Due to the nested nature of the standards, all cellulosic biofuel 
qualifies toward meeting the advanced biofuel volume requirement. As 
shown in Table II.C.3-1, we also believe that the market can supply 
about 50 million gallons of advanced biofuel other than ethanol, 
biodiesel, and renewable diesel in 2017. The combination of all sources 
of advanced biofuel lead us to believe that 4.0 billion gallons of 
advanced biofuel in 2017 is reasonably attainable, and that it is not 
necessary to reduce the advanced biofuel statutory target by the full 
amount permitted under the cellulosic waiver authority (which would 
have resulted in an advanced biofuel volume requirement of 3.8 billion 
gallons). This is the volume requirement that we are proposing for 
advanced biofuel for 2017.

  Table II.D-2--Volumes Used To Determine the Proposed Advanced Biofuel
                       Volume Requirements in 2017
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel.........................................          312
Advanced biodiesel and renewable diesel (ethanol-equivalent  3,450/2,300
 volume/physical volume)...................................
Imported sugarcane ethanol.................................          200
Other non-ethanol advanced.................................           50
                                                            ------------
    Total advanced biofuel.................................        4,012
------------------------------------------------------------------------

    We request comment on this proposed volume requirement for advanced 
biofuel and the basis as shown in the table above, and whether a volume 
requirement higher or lower than we are proposing would be more 
appropriate taking into consideration more recent data and factors such 
as the ability of the volume requirements to lead to increases in 
supply of renewable fuels.
    As noted before, the volumes actually used to satisfy the advanced 
biofuel volume requirements may be different than those shown in the 
table above. The volumes of individual types of renewable fuel that we 
have used in this analysis represent our current best estimate of 
volumes that are reasonably attainable by a market that is responsive

[[Page 34799]]

to the RFS standards. However, given the uncertainty in these 
estimates, the volumes of individual types of advanced biofuel may be 
higher or lower than those shown above.
    The volume of advanced biofuel that we are proposing would require 
increases from current levels that are substantial yet reasonably 
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.D-1 shows that the proposed advanced biofuel 
volume requirement for 2017 would be significantly higher than the 
volume requirements for advanced biofuel in previous years.
[GRAPHIC] [TIFF OMITTED] TP31MY16.007

    We believe the reduction we have proposed in the statutory target 
for advanced biofuel is justifiable in light of our assessment 
regarding the reasonable attainability of advanced biofuel volumes in 
this time period. Moreover, because the proposed reduction in advanced 
biofuel is less than the proposed reductions in cellulosic biofuel, the 
reduction can be accomplished using the cellulosic waiver authority 
alone. We propose to use the cellulosic waiver authority to provide an 
equal reduction in the total renewable fuel volume, and the general 
waiver authority to provide an additional increment of reduction 
necessary to lower the total renewable fuel volume requirement to the 
maximum level reasonably achievable as described in Section II.C.

E. Market Responses to the Proposed 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. We know that to meet 
the proposed volume requirements, 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 cannot precisely predict the mix of different 
fuel types that would result. Nevertheless, we can delineate a range of 
possibilities, and doing so provides a means of demonstrating that the 
proposed volume requirements can reasonably be satisfied through 
multiple possible paths.
    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 proposed standards. 
Each of the rows in Table II.E-1 represents a scenario in which the 
proposed total renewable fuel and advanced biofuel volume requirements 
would be satisfied.

                       Table II.E-1--Volume Scenarios Illustrating Possible Compliance With the Proposed 2017 Volume Requirements
                                                                  [Million gallons] a b
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                          Minimum volume
                           E85                                  E15             E0         Total ethanol     Sugarcane         Total        of advanced
                                                                                                \c\           ethanol      biodiesel \d\   biodiesel \e\
--------------------------------------------------------------------------------------------------------------------------------------------------------
200.....................................................             600             100          14,358               0           2,738           2,425
200.....................................................             600             300          14,337               0           2,752           2,425
200.....................................................             600             300          14,337             200           2,752           2,292
200.....................................................             600             300          14,337             400           2,752           2,159
200.....................................................             600             300          14,337             638           2,752           2,000

[[Page 34800]]

 
200.....................................................             800             100          14,368             400           2,731           2,159
400.....................................................             600             300          14,469             638           2,664           2,000
400.....................................................             800             100          14,500               0           2,643           2,425
400.....................................................             800             100          14,500             200           2,643           2,292
400.....................................................             800             100          14,500             400           2,643           2,159
400.....................................................             800             100          14,500             638           2,643           2,000
400.....................................................             800             300          14,480             200           2,657           2,292
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Assumes for the purposes of these scenarios that supply of other advanced biofuel other than ethanol, BBD and renewable diesel (e.g. heating oil,
  naphtha, etc.) is 50 mill gal, and that the cellulosic biofuel final standard is 312 mill gal, of which 27 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\ For the range of total ethanol shown in this table, the nationwide pool-wide average ethanol content would range from 10.09% to 10.20%.
\d\ Includes supply from both domestic producers as well as imports.

    The scenarios in the tables above are not the only ways that the 
market could choose to meet the total renewable fuel and advanced 
biofuel volume requirements that we are proposing. Indeed, other 
combinations are possible, with volumes higher than the highest levels 
we have shown above or, in some cases, lower than the lowest levels we 
have shown. The scenarios above cannot be treated as EPA's views on the 
only, or even most likely, ways that the market may respond to the 
proposed volume requirements. Instead, the scenarios are merely 
illustrative of the various ways that it could play out. Our purpose in 
generating the list of scenarios above is only to illustrate a range of 
possibilities which demonstrate that the standards we are proposing in 
this action can reasonably be satisfied.
    We note that it would be inappropriate to construct a new scenario 
based on the highest volumes in each category that are shown in the 
tables above in order to argue for higher volume requirements than we 
are proposing in this action. 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 the proposed volume requirements for advanced biofuel and total 
renewable fuel than we have in the ability of the market to achieve a 
specific level of, say, biodiesel, or E85. The probability that the 
upper limits of all sources shown in the tables above could be achieved 
simultaneously is very small.
    We recognize that in some scenarios the volume of a particular 
category of renewable fuel exceeds the historical maximum or previously 
demonstrated production level. However, this does not mean that such 
levels are not achievable. The RFS program is intended to result in 
supply in any given year that is higher than in all previous years, and 
it is our proposed determination that for 2017 this is possible. We 
request comment on our proposed assessment of the levels of supply that 
are reasonably achievable in 2017.
    With regard to E85, under highly favorable conditions related to 
growth in the number of E85 retail stations, retail pricing, and 
consumer response to that pricing, it is possible that E85 volumes as 
high as 400 million gallons could be reached. USDA's Biofuels 
Infrastructure Partnership grant program, an important program to 
expand ethanol retail infrastructure, is expected to help in this 
regard. This program will increase the number of retail stations that 
have blender pumps by nearly 1,500. While the program requires only 
that the blender pumps be certified to offer E15, it is likely that 
some will also be certified to offer E85. If all of them are certified 
to dispense both E15 and E85, the total number of retail stations 
offering E85 could increase from about 3,100 today to 4,500 by 2017, an 
increase of about 50%. Increases in the price of D6 RINs since the 
release of the 2014-2016 final rule can help to increase the E85 price 
discount relative to E10 if producers and marketers of E85 pass the 
value of the RIN to the prices offered to customers at retail, 
providing greater incentive to FFV owners to refuel with E85 instead of 
E15. Efforts to increase the visibility of E85, including expanded 
marketing and education, can also help to increase E85 sales. As shown 
in a memorandum to the docket, 400 million gallons of E85, while 
unlikely, could be reached under these circumstances.\44\ Sales volumes 
of E85 higher than 400 million gallons are very unlikely, but are 
possible if the market can overcome constraints associated with E85 
pricing at retail and consumer responses to those prices.
---------------------------------------------------------------------------

    \44\ ``Estimating achievable volumes of E85,'' memorandum from 
David Korotney to docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    Similarly, we believe that under favorable conditions, it is 
possible that E15 volumes as high as 800 million gallons could be 
reached in 2017. The nearly 1,500 additional blender pumps that are 
expected to be installed as a result of USDA's Biofuels Infrastructure 
Partnership grant program must be certified to offer E15. Combined with 
previously existing retail stations registered to offer E15 and ongoing 
efforts to expand E15 offerings at retail apart from USDA's program, it 
is possible that 1,700 stations could offer E15 by 2017. Since the 
average retail station will sell about 950 thousand gallons of gasoline 
in 2017, 800 million gallons of E15 could be sold if about half of the 
gasoline sold at each of these 1,700 stations was E15.\45\ Under these 
conditions, the use of E15 instead of E10 would increase total ethanol 
use by about 40 million gallons. Given that the

[[Page 34801]]

vast majority of vehicles in the current fleet are legally permitted to 
use E15, we believe that this is possible with moderately favorable 
pricing of E15 compared to E10.
---------------------------------------------------------------------------

    \45\ We recognize that retail stations vary significantly in 
size. However, we do not have sufficient information to determine 
the size of those stations that currently offer E15 or will in the 
future. In the absence of such information, we have assumed that 
stations offering E15 are of the average (mean) size.
---------------------------------------------------------------------------

    As the tables above illustrate, the proposed volume requirements 
could result in the consumption of more than 2.7 billion gallons of 
biodiesel and renewable diesel in 2017. While this level is 
approximately the same as our estimate of the production capacity of 
facilities that are currently registered under the RFS program (about 
2.7 billion gallons for biodiesel, plus smaller amounts for renewable 
diesel at dedicated facilities), such facilities are not the only 
possible source. Not only is there more than several hundred million 
gallons of unregistered biodiesel production capacity, but there is 
also the potential for production of renewable diesel at existing crude 
oil refineries. Finally, imports of biodiesel and renewable diesel 
reached about 560 million gallons in 2015 and there is no reason to 
believe that such imports would be substantially less in 2017.
    While renewable diesel is chemically indistinguishable from fossil-
based diesel fuel, and thus is not subject to any constraints with 
regard to distribution, cold temperatures, or engine warranties, 
biodiesel is constrained to some degree in these areas. Out of the 
maximum of about 2.7 billion gallons of biodiesel and renewable diesel 
shown in Table II.E-1, more than 2.4 billion gallons could be advanced 
biodiesel. While this is higher than the 2.3 billion gallons that we 
used in determining the proposed advanced biofuel volume requirement, 
it could be supplied from current domestic production capacity which is 
at least 2.7 billion gallons. The existing fleet of diesel engines may 
be able to accommodate this volume of biodiesel despite the fact that 
many in-use diesel engines are only warranted for B5 or less.

F. Impacts of Proposed Standards on Costs

    In this section we provide illustrative cost estimates for the 
proposed standards. By ``illustrative costs,'' EPA means the cost 
estimates provided are not meant to be precise measures, nor do they 
attempt to capture the full impacts of the proposed rule. These 
estimates are provided solely for the purpose of showing how the cost 
to produce a gallon of a ``representative'' renewable fuel compares to 
the cost of petroleum fuel. There are a significant number of caveats 
that must be considered when interpreting these cost estimates. First, 
there are a number of different feedstocks that could be used to 
produce ethanol and biodiesel, and there is a significant amount of 
heterogeneity in the costs associated with these different feedstocks 
and fuels. Some fuels may be cost competitive with the petroleum fuel 
they replace; however we do not have cost data on every type of 
feedstock and every type of fuel. Therefore, we do not attempt to 
capture this range of potential costs in our illustrative estimates.
    Second, 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.\46\ We continue to believe that this is the 
case, as the annual standard-setting process encourages consideration 
of the program on a piecemeal (i.e., year-to-year) basis, which may not 
reflect the long-term economic effects of the program. Thus, EPA did 
not quantitatively assess other direct and indirect costs or benefits 
of increased renewable fuel volumes such as infrastructure costs, 
investment, GHG reduction benefits, air quality impacts, or energy 
security benefits, which all are to some degree affected by the 
proposed rule. While some of these impacts were analyzed in the 2010 
final rulemaking which established the current RFS program, we have not 
fully analyzed these impacts for the 2017 volume requirements being 
proposed. We have framed the analyses we have performed for this 
proposed rule as ``illustrative'' so as not to give the impression of 
comprehensive estimates.
---------------------------------------------------------------------------

    \46\ 77 FR 59477, September 27, 2012.
---------------------------------------------------------------------------

    Third, at least two different scenarios could be considered the 
``baseline'' for the assessment of the costs of this rule. One scenario 
would be the statutory volumes (e.g., the volumes in the Clean Air Act 
211(o)(2) for 2016) in which case this proposed rule would be reducing 
volumes, reducing costs as well as decreasing expected GHG benefits. 
For the purposes of showing illustrative overall costs of this 
rulemaking, we use the preceding year's standard as the baseline (e.g., 
the baseline for the 2017 advanced standard is the proposed 2016 
advanced standard), an approach consistent with past practices in 
previous annual RFS rules.
    EPA is providing cost estimates for three illustrative scenarios--
one, if the entire change in the proposed advanced standards is met 
with soybean oil BBD; two, if the entire change in the proposed 
advanced standards is met with sugarcane ethanol from Brazil; and 
three, if the entire proposed change in the total renewable fuel volume 
standards 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 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 proposed 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 proposed applicable volumes 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.\47\
---------------------------------------------------------------------------

    \47\ ``Illustrative Costs Impact of the Proposed Annual RFS2 
Standards, 2017'', Memorandum from Aaron Sobel and Michael Shelby to 
EPA Docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    Because we are focusing on the wholesale level in each of the three 
scenarios, these comparisons do not consider taxes, retail margins, and 
any other costs or transfers that occur at or after the point of 
blending (i.e., transfers are payments within society and are not 
additional costs). Further, as mentioned above we do not attempt to 
estimate potential costs related to infrastructure expansion with 
increased renewable fuel volumes. In addition, because more ethanol 
gallons must be consumed to go the same distance as gasoline and more 
biomass-based diesel must be consumed to go the same distance as 
petroleum diesel due to each of the biofuels' lesser energy content, we 
consider the costs of ethanol and biomass-based diesel on an energy 
equivalent basis to their petroleum replacements (i.e., per energy 
equivalent gallon).
    For our first illustrative cost scenario, we estimate the costs of 
soybean-based biodiesel to meet the entire change in the advanced 
biofuel standards proposed for 2017.\48\ Table II.F-1 below

[[Page 34802]]

presents the annual change in volumes proposed by this rule, a range of 
illustrative cost differences between biomass-based diesel and 
petroleum-based diesel by individual gallon on a diesel gallon 
equivalent (DGE) basis, and multiplies those per gallon cost estimates 
by the volume of fuel displaced by the advanced standard on an energy 
equivalent basis to obtain an overall cost estimate of meeting the 
proposed standard.
---------------------------------------------------------------------------

    \48\ Soybean biodiesel could meet the pre-established 2017 
biomass-based diesel volume, which itself is a nested volume within 
the proposed 2017 advanced biofuel RFS volume. Illustrative costs 
represent meeting all of the costs of the annual increase of the 
2017 advanced standard using entirely soybean-based biodiesel as one 
scenario.

 Table II.F-1--Illustrative Costs of Soybean Biodiesel To Meet Proposed
             Increase in Advanced Biofuel Standards in 2017
------------------------------------------------------------------------
                                               2016            2017
------------------------------------------------------------------------
Advanced Volume Required (Million                  3,610           4,000
 Gallons)...............................
Advanced Volume Required (Million                  2,407           2,667
 Gallons as Biodiesel)..................
Annual Change in Volume Required          ..............       260 (238)
 (Million Gallons as Biodiesel) (DGE
 \49\)..................................
Cost Difference Between Soybean           ..............      $1.91-2.88
 Biodiesel and Petroleum Diesel per
 Gallon ($/DGE).........................
Annual Increase in Overall Costs          ..............   \50\ $453-683
 (Million $)............................
------------------------------------------------------------------------

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

    \49\ Due to the difference in energy content between biodiesel 
and diesel, one gallon of biodiesel is energy-equivalent to 
approximately 91% of a gallon of diesel; 260 million gallons of 
biodiesel is energy-equivalent to approximately 238 million gallons 
of diesel.
    \50\ Overall costs may not match per gallon costs times volumes 
due to rounding.
    \51\ Due to the difference in energy content between ethanol and 
gasoline, one gallon of ethanol is energy-equivalent to 
approximately 67% of a gallon of gasoline; 390 million gallons of 
ethanol is energy-equivalent to approximately 260 million gallons of 
gasoline.
    \52\ Overall costs may not match per gallon costs times volumes 
due to rounding.

 Table II.F-2--Illustrative Costs of Brazilian Sugarcane Ethanol To Meet
         Proposed Increase in Advanced Biofuel Standards in 2017
------------------------------------------------------------------------
                                               2016            2017
------------------------------------------------------------------------
Advanced Volume Required (Million                  3,610           4,000
 Gallons)...............................
Annual Change in Volume Required          ..............       390 (260)
 (Million Gallons) (GGE) \51\...........
Cost Difference Between Sugarcane         ..............      $1.12-2.25
 Ethanol and Gasoline per Gallon ($/GGE)
Annual Increase in Overall Costs          ..............   \52\ $290-585
 (Million $)............................
------------------------------------------------------------------------

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

    Table II.F-3--Illustrative Costs of Corn Ethanol To Meet Proposed
 Increase in the Conventional (i.e., Non-Advanced) Portion of the Total
                    Renewable Fuel Standards in 2017
------------------------------------------------------------------------
                                               2016            2017
------------------------------------------------------------------------
Implied Conventional Volume Required              14,500          14,800
 (Million Gallons)......................
Annual Change in Implied Conventional     ..............       300 (200)
 Volume Required (Million Gallons) (GGE)
 \53\...................................
Cost Difference Between Corn Ethanol and  ..............    $1.22--$1.44
 Gasoline Per Gallon ($/GGE)............
Annual Increase in Overall Costs          ..............     \54\ $245--
 (Million $)............................                            $288
------------------------------------------------------------------------


[[Page 34803]]

    These illustrative cost estimates are not meant to be precise 
measures, nor do they attempt to capture the full impacts of the rule. 
These estimates are provided solely for the purpose of illustrating how 
the cost to produce renewable fuels could compare to the costs of 
producing petroleum fuels. There are several important caveats that 
must be considered when interpreting these costs estimates. First, 
there is a significant amount of heterogeneity in the costs associated 
with different feedstocks and fuels that could be used to produce 
renewable fuels; however, EPA did not attempt to capture this range of 
potential costs in these illustrative estimates. Second, EPA did not 
quantify other impacts such as infrastructure costs, job impacts, or 
investment impacts. If the illustrative costs from the Tables above, 
representing the range for combined advanced and non-advanced fuel 
volumes, were summed together they would range from $535--$971 million 
in 2017. It is important to note that these costs do not represent net 
benefits of the program.
---------------------------------------------------------------------------

    \53\ 300 million gallons of ethanol is energy-equivalent to 
approximately 200 million gallons of gasoline.
    \54\ Overall costs may not match per gallon costs times volumes 
due to rounding.
---------------------------------------------------------------------------

    For the purpose of this annual rulemaking, we have not quantified 
benefits for the 2017 proposed standards. We do not have a quantified 
estimate of the GHG impacts for a single year (e.g., 2017), and there 
are a number of benefits that are difficult to quantify, such as rural 
economic development, job creation, and national security benefits from 
more diversified fuel sources. When the RFS program is fully phased in, 
the program will result in considerable volumes of renewable fuels that 
will reduce GHG emissions in comparison to the fossil fuels which they 
replace. EPA estimated GHG, energy security, and air quality impacts 
and benefits in the 2010 RFS2 final rule assuming full implementation 
of the statutory volumes in 2022.\55\
---------------------------------------------------------------------------

    \55\ 75 FR 14670, March 26, 2010.
---------------------------------------------------------------------------

    Through the RFS program, EPA is creating a sustained market signal 
to incentivize low greenhouse gas renewable fuels, especially for 
advanced biofuels. This should provide a way to reduce GHG emissions in 
future years as the market for renewable fuels develops further.

III. Cellulosic Biofuel Volume for 2017

    In the past several years the cellulosic biofuel industry has 
continued to make progress towards significant commercial-scale 
production. Cellulosic biofuel production reached record levels in 
2015, driven largely by compressed natural gas (CNG) and liquefied 
natural gas (LNG) derived from biogas.\56\ Cellulosic ethanol, while 
produced in much smaller quantities than CNG/LNG derived from biogas, 
was also produced consistently in 2015. Plans for multiple commercial 
scale facilities capable of producing drop-in hydrocarbon fuels from 
cellulosic biomass were also announced. This section describes our 
proposed assessment of the volume of cellulosic biofuel that we project 
will be produced or imported into the United States in 2017, and some 
of the uncertainties associated with those volumes.
---------------------------------------------------------------------------

    \56\ The majority of the cellulosic RINs generated for CNG/LNG 
are sourced from biogas from landfills, however the biogas may come 
from a variety of sources including municipal wastewater treatment 
facility digesters, agricultural digesters, separated MSW digesters, 
and the cellulosic components of biomass processed in other waste 
digesters.
---------------------------------------------------------------------------

    In order to project the volume of cellulosic biofuel production in 
2017 we considered data reported to EPA through the EPA Moderated 
Transaction System (EMTS) and information we collected regarding 
individual facilities that have produced or have the potential to 
produce qualifying volumes for consumption as transportation fuel, 
heating oil, or jet fuel in the U.S. in 2017. At this time, EPA has not 
received projections of cellulosic biofuel production in 2017 from the 
EIA, however we anticipate considering these estimates, together with 
updated information regarding the potential for contributions from 
individual facilities and groups of facilities, in determining the 
projected volume of cellulosic biofuel production in 2017 for the final 
rule.
    New cellulosic biofuel production facilities projected to be 
brought online in the United States over the next few years would 
significantly increase the production capacity of the cellulosic 
industry. Operational experience gained at the first few commercial 
scale cellulosic biofuel production facilities should also lead to 
increasing production of cellulosic biofuel from existing production 
facilities. The following section discusses the companies the EPA 
reviewed in the process of projecting qualifying cellulosic biofuel 
production in the United States in 2017. 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. We are proposing a cellulosic biofuel 
volume requirement of 312 million gallons for 2017. We request comment 
on this projected volume of cellulosic biofuel production, as well as 
the methodology used to project these volumes.

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS program each 
year (absent an adjustment or waiver by EPA) are specified in CAA 
section 211(o)(2). The volume of cellulosic biofuel specified in the 
statute for 2017 is 5.5 billion gallons. The statute provides that if 
EPA determines, based on EIA's estimate, that the projected volume of 
cellulosic biofuel production in a given year is less than the 
statutory volume, then EPA is to reduce the applicable volume of 
cellulosic biofuel to the projected volume available during that 
calendar year.\57\
---------------------------------------------------------------------------

    \57\ The United States Court of Appeals for the District of 
Columbia Circuit evaluated this requirement in API v. EPA, 706 F.3d 
474, 479-480 (D.C. Cir. 2013), in the context of a challenge to the 
2012 cellulosic biofuel standard. The Court stated that in 
projecting potentially available volumes of cellulosic biofuel EPA 
must apply an ``outcome-neutral methodology'' aimed at providing a 
prediction of ``what will actually happen.''
---------------------------------------------------------------------------

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

B. Cellulosic Biofuel Industry Assessment

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

[[Page 34804]]

demonstrating the technology, not producing commercial volumes, and RIN 
generation from R&D and pilot-scale facilities in previous years has 
not contributed significantly to the overall number of cellulosic RINs 
generated.
    From this list of commercial-scale facilities we used information 
from EMTS, publically available information (including press releases 
and news reports), and information provided by representatives of 
potential cellulosic biofuel producers, to make a determination of 
which facilities are most likely to produce cellulosic biofuel and 
generate cellulosic biofuel RINs in 2017. Each of these companies was 
investigated further in order to determine the current status of its 
facilities and its likely cellulosic biofuel production and RIN 
generation volumes for 2017. Both in our discussions with 
representatives of individual companies \58\ 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.
---------------------------------------------------------------------------

    \58\ In determining appropriate volumes for CNG/LNG producers we 
generally did not contact individual producers but rather relied 
primarily on discussions with industry associations, and information 
on likely production facilities that are already registered under 
the RFS program. In some cases where further information was needed 
we did speak with individual companies.
---------------------------------------------------------------------------

    Our proposed approach for projecting the available volume of 
cellulosic biofuel in 2017 is discussed in more detail in Section III.C 
below. The proposed approach is very similar to the approach adopted in 
establishing the required volume of cellulosic biofuel in 2016.\59\ The 
remainder of this Section discusses the companies and facilities EPA 
expects may be in a position to produce commercial-scale volumes of 
cellulosic biofuel by the end of 2017. This information, together with 
the reported cellulosic biofuel RIN generation in previous years in 
EMTS, forms the basis for our proposed volume requirement for 
cellulosic biofuel for 2017.
---------------------------------------------------------------------------

    \59\ See 80 FR 77420, 77499 (December 14, 2015).
---------------------------------------------------------------------------

1. Potential Domestic Producers
    There are a number of companies and facilities \60\ 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 2017. The financial incentive provided by cellulosic biofuel 
RINs, combined with the facts that to date nearly all cellulosic 
biofuel produced in the United States has been used domestically \61\ 
and all the domestic facilities we have contacted in deriving our 
projections intend to produce fuel on a commercial scale for domestic 
consumption using approved pathways, gives us a high degree of 
confidence that cellulosic biofuel RINs will be generated for any fuel 
produced. In order to generate RINs, each of these facilities must be 
registered under the RFS program and comply with all the regulatory 
requirements. This includes using an approved RIN-generating pathway 
and verifying that their feedstocks meet the definition of renewable 
biomass. Most of the companies and facilities have already successfully 
completed facility registration, and many have successfully generated 
RINs. A brief description of each of the companies (or group of 
companies for cellulosic CNG/LNG producers) that EPA believes may 
produce commercial-scale volumes of RIN generating cellulosic biofuel 
by the end of 2017 can be found in a memorandum to the docket for this 
proposed rule.\62\ These descriptions are based on a review of publicly 
available information and in many cases on information provided to EPA 
in conversations with company representatives. General information on 
each of these companies or group of companies considered in our 
projection of the potentially available volume of cellulosic biofuel in 
2017 is summarized in Table III.B.3-1 below.
---------------------------------------------------------------------------

    \60\ 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.
    \61\ The only known exception was a small volume of fuel 
produced at a demonstration scale facility exported to be used for 
promotional purposes.
    \62\ ``Cellulosic Biofuel Producer Company Descriptions (April 
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
---------------------------------------------------------------------------

2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located 
in the United States, there are several foreign cellulosic biofuel 
companies that may produce cellulosic biofuel in 2017. These include 
facilities owned and operated by Beta Renewables, Enerkem, Ensyn, 
GranBio, and Raizen. All of these facilities use fuel production 
pathways that have been approved by EPA for cellulosic RIN generation 
provided eligible sources of renewable feedstock are used. 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 proposed 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 2017. We believe that due to 
the strong demand for cellulosic biofuel in local markets, the 
significant technical challenges associated with the operation of 
cellulosic biofuel facilities, and the time necessary for potential 
foreign cellulosic biofuel producers to register under the RFS program 
and arrange for the importation of cellulosic biofuel to the United 
States, cellulosic biofuel imports from facilities not currently 
registered to generate cellulosic biofuel RINs are highly unlikely in 
2017. We have therefore only considered foreign cellulosic biofuel 
production from facilities that are currently registered in our 
projection of available volume of cellulosic biofuel in 2017. Two 
foreign facilities that have registered as cellulosic biofuel producers 
have already generated cellulosic biofuel RINs for fuel exported to the 
United States; projected volumes from each of these facilities are 
included in our projection of available volumes for 2017. Two 
additional foreign facilities have registered as a cellulosic biofuel 
producer, but has not yet generated any cellulosic RINs. EPA contacted 
representatives from these facilities and to inquire about their 
intentions to export cellulosic biofuel to the United States in 2017. 
In cases where the companies indicated they intended to export 
cellulosic biofuel to the United States, EPA has included potential 
volumes from this facility in our 2017 volume production projection 
(see Table III.B.3-1 below).

3. Summary of Volume Projections for Individual Companies

    The information we have gathered on cellulosic biofuel producers 
forms the basis for our projected volumes of cellulosic biofuel 
production for each facility in 2017. As discussed above, we have 
focused on commercial-scale cellulosic biofuel production facilities.
    By 2017 there are a number of cellulosic biofuel production 
facilities

[[Page 34805]]

that have the potential to produce fuel at commercial scale. Each of 
these facilities is discussed further in a memorandum to the 
docket.\63\
---------------------------------------------------------------------------

    \63\ ``Cellulosic Biofuel Producer Company Descriptions (April 
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
    \64\ 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).
    \65\ 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.
    \66\ For more information on these facilities see ``April 2016 
Assessment of Cellulosic Biofuel Production from Biogas (2017)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.

                                           Table III.B.3-1--Projected Producers of Cellulosic Biofuel by 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Facility capacity  Construction start   First production
          Company name                 Location            Feedstock             Fuel             (MGY) \64\             date                \65\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \66\..........  Various (US and     Biogas............  CNG/LNG...........  Various...........  N/A...............  August 2014.
                                   Canada).
DuPont..........................  Nevada, IA........  Corn Stover.......  Ethanol...........  30................  November 2012.....  Late 2016.
Edeniq..........................  Various...........  Corn Kernel Fiber.  Ethanol...........  Various...........  Various...........  Summer 2016.
Ensyn...........................  Renfrew, ON,        Wood Waste........  Heating Oil.......  3.................  N/A...............  2014.
                                   Canada.
GranBio.........................  S[atilde]o Miguel   Sugarcane bagasse.  Ethanol...........  21................  Mid 2012..........  September 2014.
                                   dos Campos,
                                   Brazil.
Poet............................  Emmetsburg, IA....  Corn Stover.......  Ethanol...........  24................  March 2012........  4Q 2015.
QCCP............................  Galva, IA.........  Corn Kernel Fiber.  Ethanol...........  2.................  Late 2013.........  October 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Proposed Cellulosic Biofuel Volume for 2017
    To project the volume of potentially available cellulosic biofuel 
in 2017 we are proposing to use the same methodology used to project 
the available volume of cellulosic biofuel in the final rule 
establishing the cellulosic biofuel volume standard for 2016.\67\ To 
project cellulosic biofuel production in 2017 we separated the list of 
potential producers of cellulosic biofuel into four groups according to 
whether they are producing liquid cellulosic biofuel or CNG/LNG from 
biogas, and whether or not the facilities have achieved consistent 
commercial-scale production and cellulosic biofuel RIN generation (See 
Table III.C-1 through Table III.C-3). We next defined a range of likely 
production volumes for each group of potential cellulosic biofuel 
producers. The low end of the range for each group of producers 
reflects actual RIN generation data over the last 12 months for which 
data are available. The low end of the range for companies that have 
not yet begun commercial-scale production (or in the case of CNG/LNG 
producers have not yet generated RINs for fuel sold as transportation 
fuel in the United States) is zero.
---------------------------------------------------------------------------

    \67\ See 80 FR 77499 for additional detail.
---------------------------------------------------------------------------

    To calculate the high end of the projected production range for 
each group of companies we considered each company individually. To 
determine the high end of the range of expected production volumes for 
companies producing liquid cellulosic biofuel we considered a variety 
of factors, including the expected start-up date and ramp-up period, 
facility capacity, and fuel off-take agreements. As a starting point, 
EPA calculated a production volume for these facilities using the 
expected start-up date, facility capacity, and a benchmark of a six-
month straight-line ramp-up period representing an optimistic ramp-up 
scenario.\68\ Generally we used this calculated production volume as 
the high end of the potential production range for each company. The 
only exceptions were cases where companies provided us with production 
projections (or projections of the volume of fuel they expected to 
import into the United States in the case of foreign producers) that 
were lower than the volumes we calculated as the high end of the range 
for that particular company. In these cases, the projected production 
volume (or import volume) provided by the company was used as the high 
end of the potential production range rather than the volume calculated 
by EPA. For CNG/LNG producers, the high end of the range was generally 
equal to each company's projection for the number of RINs generated 
from each facility in 2017.\69\ The high end of the ranges for all of 
the individual companies within each group were added together to 
calculate the high end of the projected production range for that 
group.
---------------------------------------------------------------------------

    \68\ 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 ``April 
2016 Assessment of Cellulosic Biofuel Production from Biogas 
(2017)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-
HQ-OAR-2016-0004.
    \69\ For additional detail on the methods used to project 
cellulosic biofuel production for CNG/LNG producers see ``April 2016 
Assessment of Cellulosic Biofuel Production from Biogas (2017)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.

   Table III.C-1--2017 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
DuPont..................................               0              23
Edeniq..................................               0              18

[[Page 34806]]

 
GranBio.................................               0               5
Aggregate Range.........................               0              46
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.


   Table III.C-2--2017 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
Poet....................................           \b\ X              24
Quad County Corn Processors.............           \b\ X               5
                                         -------------------------------
    Aggregate Range.....................               3              32
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
\b\ The low end of the range for each individual company is based on
  actual production volumes and is therefore withheld to protect
  information claimed to be confidential business information.


 Table III.C-3--2017 Production Ranges for CNG/LNG Produced From Biogas
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
CNG/LNG Producers (New Facilities)......               0             167
CNG/LNG Producers (Currently generating              148             217
 RINs)..................................
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.

    After defining likely production ranges for each group of companies 
we projected a likely production volume from each group of companies 
for 2017. We used the same percentile values to project a proposed 
production volume within the established ranges for 2017 as we did in 
the final rule for 2016; the 50th and 25th percentiles respectively for 
liquid cellulosic biofuel producers with and without a history of 
consistent cellulosic biofuel production and RIN generation, and the 
75th and 50th percentiles respectively for producers of CNG/LNG from 
biogas with and without a history of consistent commercial-scale 
production and RIN generation. As discussed in the final rule 
establishing the 2016 cellulosic biofuel standard, we believe these 
percentages appropriately reflect the uncertainties associated with 
each of these groups of companies.\70\ We will continue to monitor how 
closely these percentile values reflect actual production for each 
group of companies and may adjust these percentiles if a change is 
supported by the available information. After calculating a likely 
production volume for each group of companies in 2017, the volumes from 
each group are added together to determine the total projected 
production volume of cellulosic biofuel in 2017.
---------------------------------------------------------------------------

    \70\ For a further discussion of the percentile values used to 
projected likely production from each group of companies see 80 FR 
77499.

                          Table III.C-4--Projected Volume of Cellulosic Biofuel in 2017
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                     range \a\     the range \a\    Percentile      volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; New                       0              46            25th              12
 Facilities.....................................
Liquid Cellulosic Biofuel Producer; Consistent                 3              32            50th              18
 Production.....................................
CNG/LNG Producers; New Facilities...............               0             167            50th              84
CNG/LNG Producers; Consistent Production........             148             217            75th             200
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A         \b\ 312
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.
\b\ The total is 2 million gallons lower than the sum of the four components due to rounding.


[[Page 34807]]

    We believe our range of projected production volumes for each 
company (or group of companies for cellulosic CNG/LNG producers) 
represents the range of what is likely to actually happen, and that 
projecting overall production in 2017 in the manner described above 
results in a neutral estimate (neither biased to produce a projection 
that is unreasonably high or low) of likely cellulosic biofuel 
production in 2017 (312 million gallons). A brief overview of 
individual companies we believe will produce cellulosic biofuel and 
make it commercially available in 2017 can be found in a memorandum to 
the docket.\71\ 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 using 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.\72\ We 
request comment on the methodology used to project cellulosic biofuel 
production in 2017, as well as on the group of companies listed as 
potential cellulosic biofuel producers and the volume of cellulosic 
biofuel projected to be produced in 2017.
---------------------------------------------------------------------------

    \71\ ``Cellulosic Biofuel Producer Company Descriptions (April 
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
    \72\ For individual company information see ``April 2016 
Cellulosic Biofuel Individual Company Projections for 2017 (CBI)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.
---------------------------------------------------------------------------

IV. Biomass-Based Diesel Volume for 2018

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

A. Statutory Requirements

    The statute establishes applicable volume targets for years through 
2022 for cellulosic biofuel, advanced biofuel, and total renewable 
fuel. For BBD, applicable volume targets are specified in the statute 
only through 2012. For years after those for which volumes are 
specified in the statute, EPA is required under CAA section 
211(o)(2)(B)(ii) to determine the applicable volume of BBD, in 
coordination with the Secretary of Energy and the Secretary of 
Agriculture, based on a review of the implementation of the program 
during calendar years for which the statute specifies the volumes and 
an analysis of the following factors:
    1. The impact of the production and use of renewable fuels on the 
environment, including on air quality, climate change, conversion of 
wetlands, ecosystems, wildlife habitat, water quality, and water 
supply;
    2. The impact of renewable fuels on the energy security of the 
United States;
    3. The expected annual rate of future commercial production of 
renewable fuels, including advanced biofuels in each category 
(cellulosic biofuel and BBD);
    4. The impact of renewable fuels on the infrastructure of the 
United States, including deliverability of materials, goods, and 
products other than renewable fuel, and the sufficiency of 
infrastructure to deliver and use renewable fuel;
    5. The impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
    6. The impact of the use of renewable fuels on other factors, 
including job creation, the price and supply of agricultural 
commodities, rural economic development, and food prices.
    The statute also specifies that the volume requirement for BBD 
cannot be less than the applicable volume for calendar year 2012, which 
is 1.0 billion gallons. The statute does not, however, establish any 
other numeric criteria, or provide any guidance on how the EPA should 
weigh the importance of the often competing factors, and the 
overarching goals of the statute when the EPA sets the applicable 
volumes of BBD in years after those for which the statute specifies 
such volumes. In the period 2013-2022, the statute specifies increasing 
applicable volumes of cellulosic biofuel, advanced biofuel, and total 
renewable fuel, but provides no guidance, beyond the 1.0 billion gallon 
minimum, on the level at which BBD volumes should be set.

B. Determination of Applicable Volume of Biomass-Based Diesel

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

                                      Table IV.B.1-1--Biomass-Based (D4) RIN Generation and Standards in 2013-2017
                                                                 [Million gallons) \73\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             BBD RINs
                                                             BBD RINs      Exported BBD    retired, non-   Available BBD   BBD standard    BBD standard
                                                             generated        (RINs)        compliance       RINs \a\        (gallons)      (RINs) \74\
                                                                                              reasons
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................................           1,692             110              98           1,483             800           1,200
2012....................................................           1,737             183              90           1,465           1,000           1,500
2013....................................................           2,739             298             101           2,341           1,280           1,920

[[Page 34808]]

 
2014....................................................           2,710             126              92           2,492           1,630       \b\ 2,490
2015....................................................           2,796             133              32           2,631           1,730       \b\ 2,655
2016....................................................             N/A             N/A             N/A             N/A           1,900           2,850
2017....................................................             N/A             N/A             N/A             N/A           2,000           3,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Available BBD RINs may not be exactly equal to BBD RINs Generated minus Exported RINs and BBD RINs Retired, Non-Compliance Reasons due to rounding.
\b\ Number is not exactly equal to 1.5 times the BBD volume standard as some of the volume used to meet the biomass-based diesel standard was renewable
  diesel, which generally has an equivalence value of 1.7.

    In reviewing historical BBD RIN generation and use, we see that the 
number of RINs available for compliance purposes exceeded the volume 
required to meet the BBD standard in 2011 and 2013. Additional 
production and use of biodiesel was likely driven by a number of 
factors, including demand to satisfy the advanced biofuel and total 
renewable fuels standards, the biodiesel tax credit, and favorable 
blending economics. In 2012 the available BBD RINs were slightly less 
than the BBD standard. There are many reasons this may have been the 
case, including the temporary lapse of the biodiesel tax credit at the 
end of 2011.\75\ The number of RINs available in 2014 and 2015 was 
approximately equal to the number required for compliance in those 
years. This is because the standards for these years were finalized at 
the end of November 2015 when RIN generation data were available for 
all of 2014 and much of 2015, and we exercised our authority to 
establish the required BBD volumes for these time periods to be 
approximately equal to the number of BBD RINs that were available (for 
past time periods) or were expected to be available (for the months of 
2015 for which EPA did not yet have reliable data) in the absence of 
the influence of the RFS standards.
---------------------------------------------------------------------------

    \73\ 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.
    \74\ Each gallon of biodiesel qualifies for 1.5 RINs due to its 
higher energy content per gallon than ethanol. Renewable diesel 
qualifies for between 1.5 and 1.7 RINs per gallon.
    \75\ The biodiesel tax credit was reauthorized in January 2013. 
It applied retroactively for 2012 and for the remainder of 2013. It 
was once again extended in December 2014 and applied retroactively 
to all of 2014 as well as to the remaining weeks of 2014. In 
December 2015 the biodiesel tax credit was once authorized and 
applied retro-actively for all of 2015 as well as through the end of 
2016.
---------------------------------------------------------------------------

2. Interaction Between BBD and Advanced Biofuel Standards
    The BBD standard is nested within the advanced biofuel and total 
renewable fuel standards. This means that when an obligated party 
retires a BBD RIN (D4) to satisfy their BBD obligation, this RIN also 
counts towards meeting their advanced biofuel and total renewable fuel 
obligations. It also means that obligated parties may use BBD RINs in 
excess of their BBD obligations to satisfy their advanced biofuel and 
total renewable fuel obligations. Higher advanced biofuel and total 
renewable fuel standards, therefore, create demand for BBD, especially 
if there is an insufficient supply of other advanced or conventional 
renewable fuels to satisfy the standards, or if BBD RINs can be 
acquired at or below the price of other advanced or conventional 
biofuel RINs.
    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. 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 (see 
Table IV.B.2-1 below). In fact, the amount by which the available BBD 
RINs exceeded the 1.28 billion gallon BBD volume requirement (421 
million RINs) was larger than the amount of such excess BBD needed to 
satisfy the advanced biofuel standard (278 million RINs), suggesting 
that the additional increment was incentivized by the total renewable 
fuel standard. As discussed above, the 2014 and 2015 BBD standards were 
intended to reflect the full number of available BBD RINs in these 
years and were set in late 2015, at which point the number of available 
RINs in these years was largely known. We can therefore draw no 
conclusions about the ability for the advanced and total renewable fuel 
standards to incentivize BBD production from these years. While the 
available BBD RINs in 2012 were slightly less than the BBD standard 
despite the opportunity to contribute towards meeting the advanced and 
total renewable fuel standards, there are several factors beyond the 
RFS standards (2012 drought, expiration of the biodiesel tax credit, 
opportunities for increased ethanol blending as E10) that likely 
impacted BBD production in 2012. We continue to believe that the 
advanced biofuel and total renewable fuel standards can provide a 
strong incentive for increased BBD volume in the United States in 
excess of that required to satisfy the BBD standard (for further 
discussion on this issue see 80 FR 77492).

[[Page 34809]]



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

    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, and therefore can 
help to satisfy three RVOs, we would expect the price of BBD RINs to 
exceed that of advanced and conventional renewable RINs.\76\ If, 
however, BBD RINs are being used by obligated parties to satisfy their 
advanced biofuel and/or total renewable fuel obligations, above and 
beyond the BBD standard, we would expect the prices of conventional 
renewable fuel, advanced biofuel, and BBD RINs to converge to the price 
of the BBD RIN.\77\ When examining RIN prices data from 2013 through 
2015, shown in Figure IV.B.2-1 below, we see that throughout this 
entire time period the advanced RIN price and biomass-based diesel RIN 
prices were approximately equal. This suggests that the advanced 
biofuel standard and/or total renewable fuel standard was capable of 
incentivizing increased BBD volumes beyond the BBD standard in 
2013.\78\ While final standards were not in place throughout 2014 and 
most of 2015, EPA had issued proposed rules for both of these years. In 
each year, the market response was to supply volumes of BBD that 
exceeded the proposed BBD standard in order to satisfy the advanced 
biofuel standard. Additionally, the RIN prices in these years strongly 
suggests that obligated parties and other market participants 
anticipated the need for BBD RINs to meet their advanced biofuel 
obligations, and responded by purchasing advanced biofuel and BBD RINs 
at approximately equal prices.
---------------------------------------------------------------------------

    \76\ 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.
    \77\ We would still expect D4 RINs to be valued at a slight 
premium to D5 and D6 RINs in this case (and D5 RINs at a slight 
premium to D6 RINs) to reflect the greater flexibility of the D4 
RINs to be used towards the BBD, advanced biofuel, and total 
renewable fuel standard. This pricing has been observed over the 
past several years.
    \78\ 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 Fed Reg 38844, 38843.)

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

[[Page 34810]]

[GRAPHIC] [TIFF OMITTED] TP31MY16.008

    In establishing the BBD and cellulosic standards as nested within 
the advanced biofuel standard, Congress clearly intended to support 
development of BBD and cellulosic biofuels, while also providing an 
incentive for the growth of other non-specified types of advanced 
biofuels. That is, the advanced biofuel standard provides an 
opportunity for other advanced biofuels (advanced biofuels that do not 
qualify as cellulosic biofuel or BBD) to be used to satisfy the 
advanced biofuel standard after the cellulosic biofuel and BBD 
standards have been met. Indeed, since Congress specifically directed 
growth in BBD only through 2012, leaving development of volume targets 
for BBD to EPA for later years while also specifying substantial growth 
in the cellulosic biofuel and advanced biofuel categories, we believe 
that Congress clearly intended for EPA to evaluate in setting BBD 
volume requirements after 2012 the appropriate rate of participation of 
BBD within the advanced biofuel standard.
    When viewed in a long-term perspective, BBD can be seen as 
competing for research and development dollars with other types of 
advanced biofuels for participation as advanced biofuels in the RFS 
program. We believe that preserving space within the advanced biofuel 
standard for advanced biofuels that do not qualify as BBD or cellulosic 
biofuel provides the appropriate incentives for the continued 
development of these types of fuels. In addition to the long-term 
impact of our action in establishing the BBD volume requirements, there 
is also the potential for short-term impacts during the compliance 
years in question. By proposing BBD volume requirements at levels lower 
than the advanced biofuel volume requirements (and lower than the 
expected production of BBD to satisfy the advanced biofuel 
requirement), we are proposing to continue to allow the potential for 
some competition between BBD and other advanced biofuels to satisfy the 
advanced biofuel volume standard. We continue to believe that 
preserving space under the advanced biofuel standard for non-BBD 
advanced biofuels, as well as BBD volumes in excess of the BBD 
standard, will help to encourage the development and production of a 
variety of advanced biofuels over the long term and without reducing 
the incentive for additional volumes of BBD beyond the BBD standard in 
2017. A variety of different types of advanced biofuels, rather than a 
single type such as BBD, would positively impact energy security (e.g. 
by increasing the diversity of feedstock sources used to make biofuels, 
thereby reducing the impacts associated with a shortfall in a 
particular type of feedstock) and increase the likelihood of the 
development of lower cost advanced biofuels that meet the same GHG 
reduction threshold as BBD.\79\
---------------------------------------------------------------------------

    \79\ All types of advanced biofuel, including biomass-based 
diesel and cellulosic biofuel, must achieve lifecycle greenhouse gas 
reductions of at least 50%.

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

[[Page 34811]]

    While a single-minded focus on the ability of the advanced and 
total renewable fuel standards to incentivize increasing production of 
the lowest cost qualifying biofuels, regardless of fuel type, would 
suggest that a flat or even decreasing BBD volume requirement may be 
the optimal solution, this is not the only consideration. Despite many 
of these same issues being present in previous years, we have 
consistently increased the BBD standard each year. Our decisions to 
establish increasing BBD volumes each year have been made in light of 
the fact that while cellulosic biofuel production has fallen far short 
of the statutory volumes, the available supply of BBD in the United 
States has grown each year. This growing supply of BBD allowed EPA to 
establish higher advanced biofuel standards, and to realize the GHG 
benefits associated with greater volumes of advanced biofuel, than 
would otherwise have been possible in light of the continued shortfall 
in the availability of cellulosic biofuel. It is in this context that 
we determined that steadily increasing the BBD requirements was 
appropriate to encourage continued investment and innovation in the BBD 
industry, providing necessary assurances to the industry to increase 
production, while also serving the long term goal of the RFS statute to 
increase volumes of advanced biofuels over time.
    Although the BBD industry has performed well in recent 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, many factors that impact the 
viability of the BBD industry in the United States, such as commodity 
prices and the biodiesel tax credit, remain uncertain. Continuing to 
increase the BBD volume requirement should help to provide market 
conditions that allow these BBD production facilities to operate with 
greater certainty. This result is consistent with the goals of the Act 
to increase the production and use of advanced biofuels (for further 
discussion of these issues see 80 FR 77492).
3. Proposed BBD Volume for 2018
    With the considerations discussed in Section IV.B.2 in mind, as 
well as our analysis of the factors specified in the statute, we are 
proposing the applicable volume of BBD at 2.1 billion gallons for 2018. 
This volume represents an annual increase of 100 million gallons over 
the applicable volume of BBD in 2017. We believe this is appropriate 
for the same reasons reflected in the December 14, 2015 final rule: To 
provide additional support for the BBD industry while allowing room 
within the advanced biofuel volume requirement for the participation of 
non-BBD advanced fuels. Although we are not proposing an advanced 
biofuel applicable volume for 2018 at this time, we anticipate that the 
2018 advanced biofuel requirement will be larger than the proposed 2017 
advanced biofuel volume requirement, and the proposed 2018 BBD volume 
requirement reflects this anticipated approach. Our assessment of the 
required statutory factors, summarized in the next section and in a 
memorandum to the docket, supports this proposal.\80\
---------------------------------------------------------------------------

    \80\ ``Memorandum to docket: Draft Statutory Factors Assessment 
for the 2018 Biomass-Based Diesel (BBD) Applicable Volumes.''
---------------------------------------------------------------------------

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

C. Consideration of Statutory Factors for 2018

    In this section we discuss our consideration of the statutory 
factors set forth in CAA section 211(o)(2)(B)(ii)(I)-(VI). As noted 
earlier in Section IV.B.2, the BBD volume requirement is nested within 
the advanced biofuel requirement and the advanced biofuel requirement 
is, in turn, nested within the total renewable fuel volume requirement. 
This means that any BBD produced beyond the mandated BBD volume can be 
used to satisfy both these other applicable volume requirements. The 
result is that in considering the statutory factors we must consider 
the potential impacts of increasing BBD in comparison to other advanced 
biofuels.\81\ 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.
---------------------------------------------------------------------------

    \81\ 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 proposed 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.E-1.
---------------------------------------------------------------------------

    EPA's primary assessment of the statutory factors for the proposed 
2018 BBD applicable volume is that because the proposed BBD requirement 
is nested within the advanced biofuel volume requirement, we expect 
that the 2018 advanced volume requirement will largely determine the 
level of BBD production and imports; the same volume of BBD would 
likely be supplied regardless of the BBD volume that we require for 
2018. This assessment is based, in part, on our review of the RFS 
program implementation to date, as discussed in Section IV.B.1. While 
we are not proposing the 2018 advanced biofuel volume requirement in 
this action, our proposal for the BBD volume requirement for 2018 is 
nevertheless not expected to impact the volume of BBD that is actually 
produced and imported during this time period. Thus 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 proposed approach of setting BBD volume requirements 
at a higher level in 2018, while still at a volume level lower than 
anticipated overall production and consumption of BBD, is consistent 
with our evaluation of statutory factors 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.
    Even though we are proposing only the 2018 BBD volume requirement 
at this time and not the 2018 advanced biofuel requirement, we believe 
that our primary assessment with respect to the 2018 BBD volume 
requirement is appropriate, as is clear from the fact that

[[Page 34812]]

the reasoning and analysis would apply even if we did not increase the 
2018 advanced biofuel requirement above 2017 levels.\82\ Nevertheless, 
we anticipate that the 2018 advanced biofuel requirement will be set to 
reflect reasonably attainable volumes in the use of all advanced 
biofuels and that the advanced biofuel volume standard will be larger 
in 2018 than in 2017.
---------------------------------------------------------------------------

    \82\ As explained in Section II, in deriving the proposed 2017 
advanced biofuel applicable volume requirement, we assumed that 2.3 
billion gallons of BBD (3.45 billion RINs) would be used to satisfy 
the proposed 4.00 bill gal advanced biofuel requirement. Thus the 
proposed 2018 BBD applicable volume is less than we anticipate will 
actually be used in 2017.
---------------------------------------------------------------------------

    As an additional supplementary assessment, we have considered the 
potential impacts of selecting an applicable volume of BBD other than 
2.1 billion gallons in 2018 based on the assumption that in 
guaranteeing the BBD volume at any given level there could be greater 
use of BBD and a corresponding decrease in the use of other types of 
advanced biofuels. However, setting a BBD volume requirement higher or 
lower than 2.1 billion gallons in 2018 would only be expected to impact 
BBD volumes on the margin, protecting to a lesser or greater degree BBD 
from being outcompeted by other advanced biofuels. In this 
supplementary assessment we have considered all of the statutory 
factors found in CAA 211(2)(B)(ii), and as described in a memorandum to 
the docket,\83\ our assessment does not appear, based on available 
information, to provide a reasonable basis for setting a higher or 
lower volume requirement for BBD than 2.1 billion gallons for 2018.
---------------------------------------------------------------------------

    \83\ ``Memorandum to docket: Draft Statutory Factors Assessment 
for the 2018 Biomass-Based Diesel (BBD) Applicable Volumes.''
---------------------------------------------------------------------------

    In proposing the 2018 advanced biofuel volume requirement, we have 
assumed reasonably attainable volumes of BBD and other advanced 
biofuels. After determining that it is in the interest of the goals of 
the program to propose a 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 
petroleum based diesel.\84\ The only way for our proposed 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 in satisfying the increment of the advanced biofuel 
standard that is not guaranteed to BBD.
---------------------------------------------------------------------------

    \84\ The possibility for competition between BBD and other types 
of advanced biofuels is not precluded by our setting the advanced 
biofuel requirement at a level that reflects reasonably attainable 
volumes of all advanced biofuel types, or by our setting the total 
renewable fuel applicable volume at a level that reflects that 
maximum reasonably achievable volume of all fuel types. Any of our 
estimates related to a particular fuel type could prove to be either 
an over or under estimate. We are confident that the sum of all 
individual estimates used in setting the applicable volumes are 
reasonable, and more accurate than our individual estimates for any 
particular fuel type. It is at the margin where our estimates 
regarding production and import of individual fuel types may be in 
error that competition between qualifying fuels can take place.
---------------------------------------------------------------------------

    Overall and as described in our memorandum to the docket, we have 
determined that both the primary assessment and the supplemental 
assessment of the statutory factors specified in CAA section 
211(o)(2)(B)(ii)(I)-(VI) for the year 2018 does not provide significant 
support for setting the BBD standard at a level higher or lower than 
2.1 billion gallons in 2018.

V. Percentage Standards for 2017

    The renewable fuel standards are expressed as volume percentages 
and are used by each obligated party to determine their Renewable 
Volume Obligations (RVOs). Since there are four separate standards 
under the RFS program, there are likewise four separate RVOs applicable 
to each obligated party. Each standard applies to the sum of all non-
renewable gasoline and diesel produced or imported. The percentage 
standards are set so that if every obligated party meets the 
percentages by acquiring and retiring an appropriate number of RINs, 
then the amount of renewable fuel, cellulosic biofuel, biomass-based 
diesel (BBD), and advanced biofuel used will meet the applicable volume 
requirements on a nationwide basis.
    Sections II, III, and IV provide our rationale and basis for the 
proposed volume requirements for advanced biofuel and total renewable 
fuel, cellulosic biofuel, and BBD, respectively. The volumes used to 
determine the proposed percentage standards are shown in Table V-1.

   Table V-1--Proposed Volumes for Use in Setting the 2017 Applicable
                          Percentage Standards
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel (million gallons)....................             312
Biomass-based diesel (billion gallons) \a\..............             2.0
Advanced biofuel (billion gallons)......................             4.0
Renewable fuel (billion gallons)........................            18.8
------------------------------------------------------------------------
\a\ Represents physical volume.

A. Calculation of Percentage Standards

    The formulas used to calculate the percentage standards applicable 
to producers and importers of gasoline and diesel are provided in Sec.  
80.1405. The formulas rely on estimates of the volumes of gasoline and 
diesel fuel, for both highway and nonroad uses, which are projected to 
be used in the year in which the standards will apply. The projected 
gasoline and diesel volumes are provided by EIA, and include ethanol 
and biodiesel used in transportation fuel. Since the percentage 
standards apply only to the non-renewable gasoline and diesel produced 
or imported, the volumes of ethanol and biodiesel are subtracted out of 
the EIA projections of gasoline and diesel.
    Transportation fuels other than gasoline or diesel, such as natural 
gas, propane, and electricity from fossil fuels, are not currently 
subject to the standards, and volumes of such fuels are not used in 
calculating the annual percentage standards. Since under the 
regulations the standards apply only to producers and importers of 
gasoline and diesel, these are the transportation fuels used to set the 
percentage standards, as well as to determine the annual volume 
obligations of an individual gasoline or diesel producer or importer.
    As specified in the March 26, 2010 RFS2 final rule, the percentage 
standards are based on energy-equivalent gallons of renewable fuel, 
with the cellulosic biofuel, advanced biofuel, and total renewable fuel 
standards based on ethanol equivalence and the BBD standard based on 
biodiesel equivalence. However, all RIN generation is based on ethanol-
equivalence. For example, the RFS regulations provide that production 
or import of a gallon of qualifying biodiesel will lead to the 
generation of 1.5 RINs. In order to ensure that demand for the required 
physical volume of BBD will be created in each year, the

[[Page 34813]]

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.

B. Small Refineries and Small Refiners

    In CAA section 211(o)(9), enacted as part of the Energy Policy Act 
of 2005, and amended by the Energy Independence and Security Act of 
2007, Congress provided a temporary exemption to small refineries \85\ 
through December 31, 2010. Congress provided that small refineries 
could receive a temporary extension of the exemption beyond 2010 based 
either on the results of a required DOE study, or based on an EPA 
determination of ``disproportionate economic hardship'' on a case-by-
case basis in response to small refinery petitions.\86\ In reviewing 
petitions, EPA, in consultation with the Department of Energy, 
evaluates the impacts petitioning refineries would likely face in 
achieving compliance with the RFS requirements and how compliance would 
affect their ability to remain competitive and profitable.
---------------------------------------------------------------------------

    \85\ A small refiner that meets the requirements of 40 CFR 
80.1442 may also be eligible for an exemption.
    \86\ 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 has granted some exemptions pursuant to this process in the 
past. However, at this time, no exemptions have been approved for 2017, 
and therefore we have calculated the proposed percentage standards for 
this year without an adjustment for exempted volumes. Any requests for 
exemptions for 2017 that are approved prior to the final rule will be 
reflected in the relevant standards in the final rule, as provided in 
the formulas described in the preceding section. 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.'' \87\ Thus, any exemptions for 
small refineries that are issued after the release of the final 2017 
standards will not affect those standards.
---------------------------------------------------------------------------

    \87\ See 75 FR 76804 (December 9, 2010).
---------------------------------------------------------------------------

C. Proposed Standards

    The formulas in Sec.  80.1405 for the calculation of the percentage 
standards require the specification of a total of 14 variables covering 
factors such as the renewable fuel volume requirements, projected 
gasoline and diesel demand for all states and territories where the RFS 
program applies, renewable fuels projected by EIA to be included in the 
gasoline and diesel demand, and exemptions for small refineries. The 
values of all the variables used for this proposal are shown in Table 
V.C-1.\88\
---------------------------------------------------------------------------

    \88\ 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.C-1--Values for Terms in Calculation of the Proposed 2017
                             Standards \89\
                            [Billion gallons]
------------------------------------------------------------------------
              Term                     Description             Value
------------------------------------------------------------------------
RFVCB..........................  Required volume of                0.312
                                  cellulosic biofuel.
RFVBBD.........................  Required volume of                  2.0
                                  biomass-based diesel.
RFVAB..........................  Required volume of                  4.0
                                  advanced biofuel.
RFVRF..........................  Required volume of                 18.8
                                  renewable fuel.
G..............................  Projected volume of              142.05
                                  gasoline.
D..............................  Projected volume of               54.58
                                  diesel.
RG.............................  Projected volume of               14.21
                                  renewables in gasoline.
RD.............................  Projected volume of                2.35
                                  renewables in diesel.
GS.............................  Projected volume of                   0
                                  gasoline for opt-in
                                  areas.
RGS............................  Projected volume of                   0
                                  renewables in gasoline
                                  for opt-in areas.
DS.............................  Projected volume of                   0
                                  diesel for opt-in
                                  areas.
RDS............................  Projected volume of                   0
                                  renewables in diesel
                                  for opt-in areas.
GE.............................  Projected volume of                0.00
                                  gasoline for exempt
                                  small refineries.
DE.............................  Projected volume of                0.00
                                  diesel for exempt
                                  small refineries.
------------------------------------------------------------------------

    Projected volumes of gasoline and diesel, and the renewable fuels 
contained within them, were derived from the April, 2016 version of 
EIA's Short-Term Energy Outlook (STEO). These projections reflect EIA's 
judgment of future demand volumes in 2017, accounting for the low oil 
price environment in early 2016.
---------------------------------------------------------------------------

    \89\ See ``Calculation of proposed % standards for 2017'' in 
docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

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

           Table V.C-2--Proposed Percentage Standards for 2017
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................           0.173
Biomass-based diesel....................................            1.67
Advanced biofuel........................................            2.22
Renewable fuel..........................................           10.44
------------------------------------------------------------------------

VI. Public Participation

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

A. How Do I Submit Comments?

    We are opening a formal comment period by publishing this document. 
We will accept comments during the period indicated under the DATES 
section above. If you have an interest in the proposed standards, we 
encourage you to comment on any aspect of this rulemaking. We also 
request comment on specific topics identified throughout this proposal.
    Your comments will be most useful if you include appropriate and 
detailed supporting rationale, data, and analysis. Commenters are 
especially encouraged

[[Page 34814]]

to provide specific suggestions for any changes that they believe need 
to be made. You should send all comments, except those containing 
proprietary information, to our Docket (see ADDRESSES section above) by 
the end of the comment period.
    You may submit comments electronically through the electronic 
public docket, www.regulations.gov, by mail to the address shown in 
ADDRESSES, or through hand delivery/courier. To ensure proper receipt 
by EPA, identify the appropriate docket identification number in the 
subject line on the first page of your comment. Please ensure that your 
comments are submitted within the specified comment period. Comments 
received after the close of the comment period will be marked ``late.'' 
EPA is not required to consider these late comments. If you wish to 
submit Confidential Business Information (CBI) or information that is 
otherwise protected by statute, please follow the instructions in 
Section VI.B below.

B. How should I submit CBI to the agency?

    Do not submit information that you consider to be CBI 
electronically through the electronic public docket, 
www.regulations.gov, or by email. Send or deliver information 
identified as CBI only to the following address: U.S. Environmental 
Protection Agency, Assessment and Standards Division, 2000 Traverwood 
Drive, Ann Arbor, MI, 48105, Attention Docket ID EPA-HQ-OAR-2016-0004. 
You may claim information that you submit to EPA as CBI by marking any 
part or all of that information as CBI (if you submit CBI on disk or 
CD-ROM, mark the outside of the disk or CD-ROM as CBI and then identify 
electronically within the disk or CD-ROM the specific information that 
is CBI). Information so marked will not be disclosed except in 
accordance with procedures set forth in 40 CFR part 2.
    In addition to one complete version of the comments that include 
any information claimed as CBI, a copy of the comments that does not 
contain the information claimed as CBI must be submitted for inclusion 
in the public docket. This non-CBI version of your comments may be 
submitted electronically, by mail, or through hand delivery/courier. If 
you submit the copy that does not contain CBI on disk or CD-ROM, mark 
the outside of the disk or CD-ROM clearly that it does not contain CBI. 
Information not marked as CBI will be included in the public docket 
without prior notice. If you have any questions about CBI or the 
procedures for claiming CBI, please consult the person identified in 
the FOR FURTHER INFORMATION CONTACT section.

VII. Statutory and Executive Order Reviews

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

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

B. Paperwork Reduction Act (PRA)

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

C. Regulatory Flexibility Act (RFA)

    I certify that this proposed action would not have a significant 
economic impact on a substantial number of small entities under the 
RFA. In making this determination, the impact of concern is any 
significant adverse economic impact on small entities. An agency may 
certify that a rule will not have a significant economic impact on a 
substantial number of small entities if the rule relieves regulatory 
burden, has no net burden, or otherwise has a positive economic effect 
on the small entities subject to the rule.
    The small entities directly regulated by the RFS program are small 
refiners, which are defined at 13 CFR 121.201. We have evaluated the 
impacts of this proposal on small entities from two perspectives; as if 
the proposed 2017 standards were a standalone action or if they are a 
part of the overall impacts of the RFS program as a whole.
    When evaluating the proposed standards as if they were a standalone 
action separate and apart from the original rulemaking which 
established the RFS2 program, then the proposed standards could be 
viewed as increasing the volumes required of obligated parties between 
2016 and 2017. To evaluate the proposed rule from this perspective, EPA 
has conducted a screening analysis \90\ to assess whether it should 
make a finding that this action would not have a significant economic 
impact on a substantial number of small entities. Currently-available 
information shows that the impact on small entities from implementation 
of this rule would not be significant. EPA has reviewed and assessed 
the available information, which suggests that obligated parties, 
including small entities, are generally able to recover the cost of 
acquiring the RINs necessary for compliance with the RFS standards 
through higher sales prices of the petroleum products they sell than 
would be expected in the absence of the RFS program.91 92 
This is true whether they acquire RINs by purchasing renewable fuels 
with attached RINs or purchase separated RINs. Even if we were to 
assume that the cost of acquiring RINs were not recovered by obligated 
parties, and we used the maximum values of the illustrative costs 
discussed in Section II.F and the gasoline and diesel fuel volume 
projections and wholesale prices from the April 2016 version of EIA's 
Short-Term Energy Outlook, and current wholesale fuel prices, a cost-
to-sales ratio test shows that the costs to small entities of the RFS 
standards are far less than 1% of the value of their sales.
---------------------------------------------------------------------------

    \90\ ``Screening Analysis for the Proposed Renewable Fuel 
Standard Program Renewable Volume Obligations for 2017'', memorandum 
from Dallas Burkholder and Tia Sutton to EPA Air Docket EPA-HQ-OAR-
2016-0004.
    \91\ 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.
    \92\ Knittel, Christopher R., Ben S. Meiselman, and James H. 
Stock. ``The Pass-Through of RIN Prices to Wholesale and Retail 
Fuels under the Renewable Fuel Standard.'' Working Paper 21343. NBER 
Working Paper Series. Available online http://www.nber.org/papers/w21343.pdf.
---------------------------------------------------------------------------

    While the screening analysis described above supports a 
certification that this proposed rule would not have a significant 
economic impact on small refiners, we continue to believe that it is 
more appropriate to consider the proposed standards as a part of, and 
ongoing implementation of the overall RFS program. When considered this 
way the impacts of the RFS program as a whole on small entities were 
addressed in the RFS2 final rule (75 FR 14670, March 26, 2010), which 
was 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

[[Page 34815]]

that took place prior to the 2010 rule was also for the entire RFS 
program and looked at impacts on small refiners through 2022.
    For the SBREFA process for the RFS2 final rule, EPA conducted 
outreach, fact-finding, and analysis of the potential impacts of the 
program on small refiners which are all described in the Final 
Regulatory Flexibility Analysis, located in the rulemaking docket (EPA-
HQ-OAR-2005-0161). This analysis looked at impacts to all refiners, 
including small refiners, through the year 2022 and found that the 
program would not have a significant economic impact on a substantial 
number of small entities, and that this impact was expected to decrease 
over time, even as the standards increased. 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 proposed rule would not impose any 
additional requirements on small entities beyond those already 
analyzed, since the impacts of this proposed rule are not greater or 
fundamentally different than those already considered in the analysis 
for the RFS2 final rule assuming full implementation of the RFS 
program. As shown above in Tables I-1 and I.A-1 (and discussed further 
in Sections II and III), this rule proposes the 2017 volume 
requirements for cellulosic biofuel, advanced biofuel, and total 
renewable fuel at levels significantly below the statutory volume 
targets. This exercise of EPA's waiver authorities reduces burdens on 
small entities, as compared to the burdens that would be imposed under 
the volumes specified in the Clean Air Act in the absence of waivers--
which are the volumes that we assessed in the screening analysis that 
we prepared for implementation of the full program. Regarding the 
biomass-based diesel standard, we are proposing an increase in the 
volume requirement for 2018 over the statutory minimum value of 1 
billion gallons. However, this is a nested standard within the advanced 
biofuel category, for which we are proposing significant reductions 
from the statutory volume targets. As discussed in Section IV, we are 
proposing to set 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 proposed in this action is a reduction in burden as compared to 
implementation of the statutory volume targets, as was assumed in the 
RFS2 final rule analysis.
    While the rule would not have a significant economic impact on a 
substantial number of small entities, there are compliance 
flexibilities in the program that can help to reduce impacts on small 
entities. These flexibilities include being able to comply through RIN 
trading rather than renewable fuel blending, 20% RIN rollover allowance 
(up to 20% of an obligated party's RVO can be met using previous-year 
RINs), and deficit carry forward (the ability to carry over a deficit 
from a given year into the following year, providing that the deficit 
is satisfied together with the next year's RVO). In the RFS2 final 
rule, we discussed other potential small entity flexibilities that had 
been suggested by the SBREFA panel or through comments, but we did not 
adopt them, in part because we had serious concerns regarding our 
authority to do so.
    Additionally, as we realize that there may be cases in which a 
small entity experiences hardship beyond the level of assistance 
afforded by the program flexibilities, the program provides hardship 
relief provisions for small entities (small refiners), as well as for 
small refineries.\93\ 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 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, EPA successfully implemented these provisions by 
evaluating 16 petitions for exemptions from small refineries (one was 
later withdrawn).
---------------------------------------------------------------------------

    \93\ See CAA section 211(o)(9)(B).
---------------------------------------------------------------------------

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

D. Unfunded Mandates Reform Act (UMRA)

    This proposed 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 
discussed above in Section II.F. This action implements mandates 
specifically and explicitly set forth in CAA section 211(o) and we 
believe that this action represents the least costly, most cost-
effective approach to achieve the statutory requirements of the rule.
    This action is not subject to the requirements of section 203 of 
UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

E. Executive Order 13132: Federalism

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

[[Page 34816]]

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

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

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

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

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

I. National Technology Transfer and Advancement Act (NTTAA)

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

VIII. Statutory Authority

    Statutory authority for this proposed 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: May 18, 2016.
Gina McCarthy,
Administrator.
    For the reasons set forth in the preamble, EPA proposes to amend 40 
CFR part 80 as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

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

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

Subpart M--[Amended]

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


Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) * * *
    (8) Renewable Fuel Standards for 2017.
    (i) The value of the cellulosic biofuel standard for 2017 shall be 
0.173 percent.
    (ii) The value of the biomass-based diesel standard for 2017 shall 
be 1.67 percent.
    (iii) The value of the advanced biofuel standard for 2017 shall be 
2.22 percent.
    (iv) The value of the renewable fuel standard for 2017 shall be 
10.44 percent.
* * * * *
[FR Doc. 2016-12369 Filed 5-27-16; 8:45 am]
 BILLING CODE 6560-50-P


