[Federal Register Volume 82, Number 139 (Friday, July 21, 2017)]
[Proposed Rules]
[Pages 34206-34245]
[FR Doc No: 2017-14632]

Vol. 82

Friday,

No. 139

July 21, 2017

Part III

Environmental Protection Agency

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40 CFR Part 80

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

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

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

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

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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: Under section 211 of the Clean Air Act, the Environmental
Protection Agency (EPA) is required to set renewable fuel percentage
standards every year. This action proposes the annual percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel that apply to gasoline and diesel
transportation fuel produced or imported in the year 2018. Relying on
statutory waiver authority that is available when projected cellulosic
biofuel production volumes are less than the applicable volume
specified in the statute, the EPA is proposing volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel that are
below the statutory applicable volumes, and lower than the 2017
requirements. In this action, we are also proposing the applicable
volume of biomass-based diesel for 2019.

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

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

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of
Transportation and Air Quality, Assessment and Standards Division,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI
48105; telephone number:<PHONE_NUMBER>; email address:
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Entities potentially affected by this
proposed rule are those involved with the production, distribution, and
sale of transportation fuels, including gasoline and diesel fuel or
renewable fuels such as ethanol, biodiesel, renewable diesel, and
biogas. Potentially regulated categories include:

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

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

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Approach To Setting Volume Requirements
    2. Cellulosic Biofuel
    3. Advanced Biofuel
    4. Total Renewable Fuel
    5. Biomass-Based Diesel
    6. Annual Percentage Standards
    C. Statutory Requirement To Reset Volumes
    D. RIN Market Operation
    E. Biofuel Imports
II. Authority and Need for Waiver of Statutory Applicable Volumes
    A. Statutory Authorities for Reducing Volume Targets
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    B. Treatment of Carryover RINs
III. Cellulosic Biofuel Volume for 2018
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Cellulosic Biofuel Volume for 2018
    1. Liquid Cellulosic Biofuel
    2. CNG/LNG Derived from Biogas
    3. Total Cellulosic Biofuel in 2018
IV. Advanced Biofuel Volume for 2018
    A. Volumetric Limitation on Use of the Cellulosic Waiver
Authority
    B. Reasonably Attainable Volumes of Advanced Biofuel
    1. Imported Sugarcane Ethanol
    2. Biodiesel and Renewable Diesel
    3. Other Advanced Biofuel
    4. Total Advanced Biofuel
    C. Proposed Advanced Biofuel Volume Requirement for 2018
V. Total Renewable Fuel Volume for 2018
    A. Volumetric Limitation on Use of the Cellulosic Waiver
Authority
    B. Assessing Attainable Volumes
    1. Ethanol

    a. Ethanol Concentration in the Gasoline Pool
    b. Assessment of E0 in the Gasoline Pool
    c. Ethanol Supply Volume for Assessment of Total Renewable Fuel
    2. Biodiesel and Renewable Diesel
    3. Total Renewable Fuel Supply
    C. Market Responses to the Advanced Biofuel and Total Renewable
Fuel Volume Requirements
    D. Impacts of 2018 Standards on Costs
    1. Illustrative Cost Savings Associated With Reducing Statutory
Cellulosic Volumes
    2. Illustrative Cost Analysis Using the 2017 Baseline
VI. Biomass-Based Diesel Volume for 2019
    A. Statutory Requirements
    B. Determination of Applicable Volume of Biomass-Based Diesel
    C. Consideration of Statutory Factors Set forth in CAA Section
211(o)(2)(B)(ii)(I)-(VI) for 2019
VII. Percentage Standards for 2018
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Proposed Standards
VIII. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the agency?
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act (PRA)
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act (UMRA)
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act (NTTAA)
    J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations, and Low-Income
Populations
X. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) that were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), leading to the
publication of major revisions to the regulatory requirements on March
26, 2010.\1\ EISA's stated goals include moving the United States
toward ``greater energy independence and security [and] to increase the
production of clean renewable fuels.'' Today, nearly all of the
approximately 143 billion gallons of gasoline used for transportation
purposes contains 10 percent ethanol (E10), and on average diesel fuel
contains approximately 4 percent biodiesel and/or renewable diesel.
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    \1\ 75 FR 14670, March 26, 2010.
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    The statute includes annual volume targets, and requires EPA to
translate those volume targets (or alternative volume requirements
established by EPA in accordance with statutory waiver authorities)
into compliance obligations that obligated parties must meet every
year. In this action, we are proposing the annual percentage standards
for cellulosic biofuel, biomass-based diesel (BBD), advanced biofuel,
and total renewable fuel that would apply to all gasoline and diesel
produced or imported in 2018. We are also proposing the applicable
volume of BBD for 2019.
    Real-world challenges, such as the slower-than-expected development
of the cellulosic biofuel industry, have slowed progress towards
meeting Congressional goals for renewable fuels, even as progress has
been made in some areas. Those challenges have made the volume targets
established by Congress for 2018 beyond reach for all fuel categories
other than BBD, for which the statute specifies a minimum requirement
of 1.0 billion gallons. After careful review of the information before
us, for 2018 we propose to use the cellulosic waiver authority
provision provided by Congress to reduce the volume requirement for
cellulosic biofuel to the projected volume available in 2018, and
establish volume requirements for advanced biofuel and total renewable
fuel that are lower than the statutory targets, but nevertheless will
ensure these renewable fuels will continue to play a critical role as a
complement to our petroleum-based fuels. We are not proposing to
provide volume reductions through use of the general waiver
authority.\2\
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    \2\ See 42 U.S.C. 7545(o)(7)(A)(i-ii). See also the discussion
of the general waiver authority in Section II.A.2. below.
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    We note that while we are proposing to reduce the required volume
of all of the fuel categories other than BBD due to an anticipated
shortfall in the production of cellulosic biofuel, the proposed BBD
volume exceeds the statutory minimum and the proposed volumes of total
renewable fuel, advanced biofuel and cellulosic biofuel would achieve
the implied statutory volumes for conventional biofuel \3\ and non-
cellulosic advanced biofuel.\4\
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    \3\ Throughout this proposed rule conventional biofuel refers to
biofuel that qualifies as renewable fuel, but does not qualify as an
advanced biofuel. RINs generated for conventional biofuels have a D
code of 6.
    \4\ Throughout this proposed rule non-cellulosic advanced
biofuel refers to biofuel that qualifies as advanced biofuel, but
does not qualify as cellulosic biofuel. RINs generated for non-
cellulosic advanced biofuels have a D code of 4 or 5.
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    The proposed volume requirements for 2018 are shown in Table I-1
below. Relative to the levels finalized in 2017, the proposed 2018
volume requirements for advanced biofuel and total renewable fuel are
lower by 40 million gallons. For the first time EPA is proposing in
2018 to reduce the advanced biofuel and total renewable fuel volumes by
the same amount as we would reduce the required volume of cellulosic
biofuel. These reductions effectively preserve the implied statutory
volumes for conventional renewable fuel and non-cellulosic advanced
biofuels, rather than requiring additional volumes of non-cellulosic
advanced biofuels to backfill for some of the shortfall in cellulosic
biofuel, as EPA has done in previous years. We are proposing no
increase, relative to the finalized 2018 levels, in the volume
requirement for biomass-based diesel for 2019.

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

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

A. Purpose of This Action

    The national volume targets of renewable fuel that are intended to
be achieved under the RFS program each year (absent an adjustment or
waiver by EPA) are specified in CAA section

211(o)(2). The statutory volumes for 2018 are shown in Table I.A-1. The
cellulosic biofuel and BBD categories are nested within the advanced
biofuel category, which is itself nested within the total renewable
fuel category. This means, for example, that each gallon of cellulosic
biofuel or BBD that is used to satisfy the individual volume
requirements for those fuel types can also be used to satisfy the
requirements for advanced biofuel and total renewable fuel.

   Table I.A-1--Applicable 2018 Volumes Specified in the Clean Air Act
                          [Billion gallons] \a\
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel.............................................      7.0
Biomass-based diesel...........................................    >=1.0
Advanced biofuel...............................................     11.0
Renewable fuel.................................................     26.0
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\a\ All values are ethanol-equivalent on an energy content basis, except
  values for BBD which are given in actual gallons.

    Under the RFS program, EPA is required to determine and publish
annual percentage standards for each compliance year. The percentage
standards are calculated to ensure use in transportation fuel of the
national ``applicable volumes'' of the four types of biofuel
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel)
that are set forth in the statute or established by EPA in accordance
with the Act's requirements. The percentage standards are used by
obligated parties (generally, producers and importers of gasoline and
diesel fuel) to calculate their individual compliance obligations. Each
of the four percentage standards is applied to the volume of non-
renewable gasoline and diesel that each obligated party produces or
imports during the specified calendar year to determine their
individual volume obligations with respect to the four renewable fuel
types. The individual volume obligations determine the number of RINs
of each renewable fuel type that each obligated party must acquire and
retire to demonstrate compliance.
    EPA is proposing the annual applicable volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel for
2018, and for BBD for 2019.\5\ Table I.A-2 lists the statutory
provisions and associated criteria relevant to determining the national
applicable volumes used to set the percentage standards in this
proposed rule.
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    \5\ The 2018 BBD volume requirement was established in the 2017
final rule.
    \6\ CAA section 211(o)(7)(E) also authorizes EPA in consultation
with other federal agencies to issue a temporary waiver of
applicable volumes of BBD where there is a significant feedstock
disruption or other market circumstance that would make the price of
BBD fuel increase significantly.

                    Table I.A-2--Statutory Provisions for Determination of Applicable Volumes
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                                                                                Criteria provided in
                                                                                statute for
            Applicable volumes                        Clean air act reference                determination of
                                                                                applicable volume
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Cellulosic biofuel.......................  211(o)(7)(D)(i).............................  Required volume must be
                                                                                lesser of volume
                                                                                specified in CAA
                                                                                211(o)(2)(B)(i)(III)
                                                                                or EPA's projected
                                                                                volume.
                                           211(o)(7)(A)................................  EPA in consultation
                                                                                with other federal
                                                                                agencies may waive the
                                                                                statutory volume in
                                                                                whole or in part if
                                                                                implementation would
                                                                                severely harm the
                                                                                economy or environment
                                                                                of a State, region, or
                                                                                the United States, or
                                                                                if there is an
                                                                                inadequate domestic
                                                                                supply.
Biomass-based diesel \6\.................  211(o)(2)(B)(ii) and (v)....................  Required volume for
                                                                                years after 2012 must
                                                                                be at least 1.0
                                                                                billion gallons, and
                                                                                must be based on a
                                                                                review of
                                                                                implementation of the
                                                                                program, coordination
                                                                                with other federal
                                                                                agencies, and an
                                                                                analysis of specified
                                                                                factors.
                                           211(o)(7)(A)................................  EPA in consultation
                                                                                with other federal
                                                                                agencies may waive the
                                                                                statutory volume in
                                                                                whole or in part if
                                                                                implementation would
                                                                                severely harm the
                                                                                economy or environment
                                                                                of a State, region, or
                                                                                the United States, or
                                                                                if there is an
                                                                                inadequate domestic
                                                                                supply.
Advanced biofuel.........................  211(o)(7)(D)(i).............................  If applicable volume of
                                                                                cellulosic biofuel is
                                                                                reduced below the
                                                                                statutory volume to
                                                                                the projected volume,
                                                                                EPA may reduce the
                                                                                advanced biofuel and
                                                                                total renewable fuel
                                                                                volumes in CAA
                                                                                211(o)(2)(B)(i)(I) and
                                                                                (II) by the same or
                                                                                lesser volume. No
                                                                                criteria specified.
                                           211(o)(7)(A)................................  EPA in consultation
                                                                                with other federal
                                                                                agencies may waive the
                                                                                statutory volume in
                                                                                whole or in part if
                                                                                implementation would
                                                                                severely harm the
                                                                                economy or environment
                                                                                of a State, region, or
                                                                                the United States, or
                                                                                if there is an
                                                                                inadequate domestic
                                                                                supply.
Total renewable fuel.....................  211(o)(7)(D)(i).............................  If applicable volume of
                                                                                cellulosic biofuel is
                                                                                reduced below the
                                                                                statutory volume to
                                                                                the projected volume,
                                                                                EPA may reduce the
                                                                                advanced biofuel and
                                                                                total renewable fuel
                                                                                volumes in CAA
                                                                                211(o)(2)(B)(i)(I) and
                                                                                (II) by the same or
                                                                                lesser volume. No
                                                                                criteria specified.
                                           211(o)(7)(A)................................  EPA in consultation
                                                                                with other federal
                                                                                agencies may waive the
                                                                                statutory volume in
                                                                                whole or in part if
                                                                                implementation would
                                                                                severely harm the
                                                                                economy or environment
                                                                                of a State, region, or
                                                                                the United States, or
                                                                                if there is an
                                                                                inadequate domestic
                                                                                supply.
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    As shown in Table I.A-2, the statutory authorities allowing EPA to
modify or set the applicable volumes differ for the four categories of
renewable fuel. Under the statute, EPA must annually determine the
projected volume of cellulosic biofuel production for the following
year. If the projected volume of cellulosic biofuel production is less
than the applicable volume specified in section 211(o)(2)(B)(i)(III) of
the statute, EPA must lower the applicable volume used to set the
annual cellulosic biofuel percentage standard to the projected
production volume. In Section III of this proposed rule, we present our
analysis of cellulosic biofuel production and the

proposed applicable volume for 2018. This analysis is based primarily
on information reported to EPA through our Electronic Moderated
Transaction System (EMTS) and an evaluation of producers' production
plans and progress to date following discussions with cellulosic
biofuel producers.
    With regard to BBD, CAA section 211(o)(2)(B) specifies the
applicable volumes of BBD to be used in the RFS program only through
year 2012. For subsequent years the statute sets a minimum volume of 1
billion gallons, and directs EPA, in coordination with the U.S.
Departments of Agriculture (USDA) and Energy (DOE), to determine the
required volume after review of implementation of the renewable fuels
program and consideration of a number of factors. The BBD volume
requirement must be established 14 months before the year in which it
will apply. In the 2017 final rule we established the BBD volume for
2018. In Section VI of this preamble we discuss our assessment of
statutory and other relevant factors and our proposed volume
requirement for BBD for 2019, which has been developed in coordination
with USDA and DOE. We are proposing an applicable volume of 2.1 billion
gallons of BBD for use in deriving the BBD percentage standard in 2019.
This volume is equal to the applicable volume of BBD established in a
prior rulemaking for 2018, and would provide continued support to an
industry that is a significant contributor to the pool of advanced
biofuel while at the same time setting the volume requirement in a
manner anticipated to provide continued incentive for the development
of other types of advanced biofuel.
    Regarding advanced biofuel and total renewable fuel, Congress
provided several mechanisms through which the statutory targets could
be reduced if necessary. If we reduce the applicable volume of
cellulosic biofuel below the volume specified in CAA section
211(o)(2)(B)(i)(III), we also have the authority to reduce the
applicable volumes of advanced biofuel and total renewable fuel by the
same or a lesser amount. We refer to this as the ``cellulosic waiver
authority.'' We may also reduce the applicable volumes of any of the
four renewable fuel types using the ``general waiver authority''
provided in CAA section 211(o)(7)(A) if EPA, in consultation with USDA
and DOE, finds that implementation of the statutory volumes would
severely harm the economy or environment of a State, region, or the
United States, or if there is inadequate domestic supply. Sections II,
IV, and V of this proposed rule describe our use of the cellulosic
waiver authority alone to derive proposed volumes of advanced biofuel
and total renewable fuel that are below the statutory target volumes,
and our assessment that the resulting volumes can be met. We believe
that reductions in the statutory targets for 2018 are necessary.
However, in light of our review of available information, we are
proposing to make those reductions under the cellulosic waiver
authority alone and are not proposing any additional increment of
reduction under the general waiver authority. Thus, the reductions
proposed can be attributed to the significant shortfall in cellulosic
biofuel production, as compared to the statutory targets. EPA, however,
solicits comment on whether it would be appropriate to exercise the
general waiver authority in the final rule, and will evaluate comments
and updated data to consider whether such an approach is warranted.

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this
proposed rule. We are proposing applicable volume requirements and
associated percentage standards for cellulosic biofuel, advanced
biofuel, and total renewable fuel for 2018; for BBD we are proposing
the percentage standard for 2018 and the applicable volume requirement
for 2019.
1. Approach to Setting Volume Requirements
    The approach we have taken in this proposed rule to project
cellulosic biofuel is modified from that presented in the 2017 final
rule, as described in further detail below. The approach we have taken
in this proposed rule of using the cellulosic waiver authority to
reduce advanced biofuel and total renewable fuel is similar to that
presented in the 2017 final rule, however, we are proposing to reduce
the advanced biofuel and total renewable fuel volume requirements by
the same amount as the cellulosic biofuel volume requirement. In
previous years we have used the cellulosic waiver authority to reduce
the advanced biofuel and total renewable fuel volume requirements by a
lesser amount than the cellulosic biofuel volume requirement to allow
reasonably attainable volumes of advanced biofuels to partially
backfill for missing cellulosic biofuel volumes. In this rule we are
proposing to reduce all three volume requirements by the same amount
after considering the greenhouse gas (GHG), energy security benefits,
and anticipated costs of advanced biofuels beyond the level proposed in
this rule.
    Section II provides a general description of our approach to
setting volume requirements in today's rule, including a review of the
statutory waiver authorities and our consideration of carryover RINs.
Section III provides our assessment of the 2018 cellulosic biofuel
volume based on a projection of production that reflects a neutral aim
at accuracy. Sections IV and V describe our assessments of advanced
biofuel and total renewable fuel, respectively. Finally, Section VI
provides our determination regarding the 2019 BBD volume requirement,
and reflects an analysis of a set of factors stipulated in CAA section
211(o)(2)(B)(ii).
2. Cellulosic Biofuel
    In the past several years the cellulosic biofuel industry has
continued to make progress towards increased commercial scale
production. Cellulosic biofuel production reached record levels in
2016, driven largely by compressed natural gas (CNG) and liquefied
natural gas (LNG) derived from biogas. Cellulosic ethanol, while
produced in much smaller quantities than CNG/LNG derived from biogas,
was produced consistently on a commercial scale in 2015. Cellulosic
ethanol production levels increased from existing facilities in 2016,
and significant work continues to be done to enable the production of
cellulosic ethanol at new facilities, as well as to increase production
volumes at existing facilities in 2017 and beyond. In this rule we are
proposing a cellulosic biofuel volume requirement of 238 million
ethanol-equivalent gallons for 2018 based on Renewable Identification
Number (RIN) generation data available to EPA through EMTS, the
information we have received regarding individual facilities'
capacities, production start dates and biofuel production plans, a
review of cellulosic biofuel production relative to EPA's projections
in previous annual rules, input from other government agencies, and
EPA's own engineering judgment. We expect to update all of this
information for the final rule, and to take into account the Energy
Information Administration's (EIA) projection of cellulosic biofuel
availability, which should be available in October 2017.
    As part of estimating the volume of liquid cellulosic biofuel that
will be made available in the U.S. in 2018, we considered all potential
production sources by company and facility. This included facilities
still in the commissioning or start-up phases, as

well as facilities already producing some volume of cellulosic
biofuel.\7\ From this universe of potential liquid cellulosic biofuel
sources, we identified the subset that is expected to produce
commercial volumes of qualifying liquid cellulosic biofuel for use as
transportation fuel, heating oil, or jet fuel by the end of 2018. To
arrive at projected volumes, we collected relevant information on each
facility. We then developed projected production ranges based on
factors such as the status of the technology being used, progress
towards construction and production goals, facility registration
status, production volumes achieved, and other significant factors that
could potentially impact fuel production or the ability of the produced
fuel to qualify for cellulosic biofuel RINs. We also used this
information to group these companies based on production history and to
select a value within the aggregated projected production ranges that
we believe best represents the most likely production volume from each
group of companies in 2018.
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    \7\ Facilities primarily focused on research and development
(R&D) were not the focus of our assessment, as production from these
facilities represents very small volumes of cellulosic biofuel, and
these facilities typically have not generated RINs for the fuel they
have produced.
---------------------------------------------------------------------------

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

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

    We note that this proposal includes an assessment of E0 (ethanol-
free gasoline) use that marks a change in how we have addressed this
issue in past standard-setting rulemaking actions. In previous years,
stakeholders have provided comment to EPA concerning the amount of E0
that is used in the United States each year for transportation fuel,
and how such information should be used in development of the annual
volume requirements. EPA has reassessed this issue, and we have found
that use of E0 in 2016 was higher than we had assumed in setting the
2016 standards. Our proposal for 2018 includes consideration of this
fact (see Section V.B.1).
5. Biomass-Based Diesel
    In EISA, Congress specified increasing applicable volumes of BBD
through 2012. Beyond 2012 Congress stipulated that EPA, in coordination
with DOE and USDA, was to establish the BBD volume taking into
consideration implementation of the program to date and various
specified factors, providing that the required volume for BBD could not
be less than 1.0 billion gallons. For 2013, EPA established an
applicable volume of 1.28 billion gallons. For 2014 and 2015 we
established the BBD volume requirement to reflect the actual volume for
each of these years of 1.63 and 1.73 billion gallons.\9\ For 2016 and
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons
respectively. Finally, for 2018 the BBD volume requirement was set a
2.1 billion gallons.
---------------------------------------------------------------------------

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

    Given current and recent market conditions, the advanced biofuel
volume requirement is driving the production and use of biodiesel and
renewable diesel volumes over and above volumes required through the
separate BBD standard, and we expect this to continue. For 2019, EPA
continues to believe that it would still be appropriate to provide a
floor above the statutory minimum of 1 billion gallons to provide a
guaranteed level of support for the continued production and use of
BBD. However, we also believe that the volume of biomass-based diesel
supplied in previous years demonstrates that the advanced biofuel
standard is capable of incentivizing additional supply of these fuels
above the volume required by the biomass-based diesel standard.
    Thus, based on a review of the implementation of the program to
date and all the factors required under the statute, and in
coordination with USDA and DOE, we are proposing to maintain the
applicable volume of BBD for 2019 at the same level finalized for 2018,
2.1

billion gallons. Maintaining the volume at this level will provide a
guaranteed level of support to BBD producers, who will also be
incentivized under the advanced and total standards to manufacture
higher volumes of fuel. This approach leaves opportunity within the
advanced biofuel mandate for investment in and growth in production of
other, potentially less costly, types of advanced biofuel with
comparable or potentially superior environmental or other attributes.
6. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage
and are used by each producer and importer of fossil-based gasoline or
diesel to determine their renewable fuel volume obligations. The
percentage standards are set so that if each obligated party meets the
standards, and if EIA projections of gasoline and diesel use for the
coming year prove to be accurate, then the amount of renewable fuel,
cellulosic biofuel, BBD, and advanced biofuel actually used will meet
the applicable volumes used to derive the percentage standards.
    Four separate percentage standards are required under the RFS
program, corresponding to the four separate renewable fuel categories
shown in Table I.A-1. The specific formulas we use in calculating the
renewable fuel percentage standards are contained in the regulations at
40 CFR 80.1405. The percentage standards represent the ratio of
renewable fuel volume to projected non-renewable gasoline and diesel
volume. The volume of transportation gasoline and diesel used to
calculate the proposed percentage standards was derived from reports
published by the EIA, and we intend to update this information for the
final rule. The proposed percentage standards for 2018 are shown in
Table I.B.6-1. Detailed calculations can be found in Section VII,
including the projected gasoline and diesel volumes used.

            Table I.B.6-1--Proposed 2018 Percentage Standards
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel............................................     0.131
Biomass-based diesel..........................................      1.74
Advanced biofuel..............................................      2.34
Renewable fuel................................................     10.62
------------------------------------------------------------------------

C. Statutory Requirement To Reset Volumes

    The Clean Air Act requires EPA to ``reset'' the statutory volume
targets for future years through 2022 if annual volume requirements are
waived (reduced) beyond one of two specified thresholds:
    (1) At least 20 percent of the statutory volume target for 2
consecutive years; or
    (2) At least 50 percent of the statutory volume target for a single
year.\10\
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    \10\ CAA section 211(o)(7)(F).
---------------------------------------------------------------------------

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

D. RIN Market Operation

    Some stakeholders have expressed concerns the current provisions
related to RIN trading render the RFS program vulnerable to market
manipulation. EPA takes such issues seriously. The RIN system was
originally designed with an open trading market in order to maximize
its liquidity and ensure a robust marketplace for RINs. However, EPA is
interested in further assessing whether and how the current trading
structure provides an opportunity for market manipulation. To that
effect, EPA seeks comment and input on potential changes to the RIN
trading system that might help address these concerns. EPA is not
soliciting comment on any aspect of the current RFS regulatory program
other than those specifically related to RIN trading, as mentioned
above, and the proposed annual standards for 2018 and biomass-based
diesel applicable volume for 2019. In particular, EPA is not re-opening
for public comment in this rulemaking the current definition of
``obligated party. '' \11\
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    \11\ Separately, EPA has received a number of petitions seeking
reconsideration of the definition of ``obligated party,'' and
solicited public comment on its proposed resolution of those
petitions. See 81 FR 83776 (November 22, 2016).
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    Separate from evaluating the RIN trading options in the RFS
program, the EPA is working with appropriate market regulators to
analyze targeted concerns of some stakeholders. For example, the EPA
has executed a memorandum of understanding with the Commodity Futures
Trading Commission (CFTC) and welcomes CFTC involvement in evaluating
RIN market concerns.
    In the meantime, EPA has continued to explore additional ways to
increase program transparency in order to support the program and share
data with all stakeholders. EPA already publishes RFS program data on
our Web site, including data related to RIN generation, sales and
holdings, and annual compliance. We are interested in providing more
information, to the extent consistent with our obligations to protect
confidential business information. EPA seeks comment on specific data
elements and posting frequency that stakeholders believe would be
useful to help with market transparency and liquidity.

E. Biofuel Imports

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

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

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

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

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

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

II. Authority and Need for Waiver of Statutory Applicable Volumes

    The statute provides the EPA with the authority to reduce volume
requirements below the applicable volume targets specified in the
statute under specific circumstances. This section discusses those
authorities and our use of the cellulosic waiver authority alone to set
2018 volume requirements for cellulosic biofuel, advanced biofuel, and
total renewable fuel that are below the statutory volume targets.
    Within this rulemaking action under CAA section 211(o)(3)(i), EPA
is using its authority under CAA section 211(o)(7) to take an
administrative action to reduce the required volumes of cellulosic
biofuel, advanced biofuel, and total renewable fuel below the statutory
volume targets.

A. Statutory Authorities for Reducing Volume Targets

    In CAA section 211(o)(2), Congress specified increasing annual
volume targets for total renewable fuel, advanced biofuel, and
cellulosic biofuel for each year through 2022, and for BBD through
2012, and authorized EPA to set volume requirements for subsequent
years in coordination with USDA and DOE, and after consideration of
specified factors. However, Congress also recognized that under certain
circumstances it would be appropriate for EPA to set volume
requirements at a lower level than reflected in the statutory volume
targets, and thus provided waiver provisions in CAA section 211(o)(7).
1. Cellulosic Waiver Authority
    Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines
that the projected volume of cellulosic biofuel production for a given
year is less than the applicable volume specified in the statute, that
EPA must reduce the applicable volume of cellulosic biofuel required to
the projected production volume for that calendar year. In making this
projection, EPA must take a ``neutral aim at accuracy.'' API v. EPA,
706 F.3d 474 (D.C. Cir. 2013). Pursuant to this provision, EPA has set
the cellulosic biofuel requirement lower than the statutory volumes for
each year since 2010. As described in Section III.D, the projected
volume of cellulosic biofuel production for 2018 is less than the 7.0
billion gallon volume target in the statute. Therefore, for 2018, we
are proposing to set the cellulosic biofuel volume requirement at a
level lower than the statutory applicable volume, in accordance with
this provision.
    CAA section 211(o)(7)(D)(i) also provides EPA with the authority to
reduce the applicable volume of total renewable fuel and advanced
biofuel in years where it reduces the applicable volume of cellulosic
biofuel. The reduction must be less than or equal to the reduction in
cellulosic biofuel. For 2018, we are also proposing to reduce
applicable volumes of advanced biofuel and total renewable fuel under
this authority.
    The cellulosic waiver authority is discussed in detail in the
preamble to the 2017 final rule. See also, API v. EPA, 706 F.3d 474
(D.C. Cir. 2013) (requiring that EPA's cellulosic biofuel projections
reflect a neutral aim at accuracy) and Monroe Energy v. EPA, 750 F.3d
909 (D.C. Cir. 2014) (affirming EPA's broad discretion under the
cellulosic waiver authority to reduce volumes of advanced biofuel and
total renewable fuel).
    EPA is proposing an equal reduction from the statutory volume
targets for advanced biofuels and total renewable fuel, as was our
approach in using the cellulosic waiver authority for the 2014-2017
standards. EPA's reasoning for an equal reduction is explained in the
2017 final rule.\15\ We are proposing, as described in Section IV, that
the applicable volume for advanced biofuels specified in the statute
for 2018 cannot be achieved and we are proposing to exercise our
cellulosic waiver authority to lower the applicable volume of advanced
biofuel to a level that is both reasonably attainable and appropriate,
and to provide an equal reduction in the applicable volume of total
renewable fuel. In addition, we have determined that there is likely to
be adequate supply to satisfy the total renewable fuel volume derived
through applying an equal volume reduction as for advanced biofuel.
Therefore, we are proposing that no further reductions of the total
renewable fuel volume requirement are necessary to address supply
concerns. The resulting volume requirements provide for an implied
volume requirement for conventional biofuel

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

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

2. General Waiver Authority
    Section 211(o)(7)(A) of the CAA provides that EPA, in consultation
with the Secretary of Agriculture and the Secretary of Energy, may
waive the applicable volumes specified in the Act in whole or in part
based on a petition by one or more States, by any person subject to the
requirements of the Act, or by the EPA Administrator on his own motion.
Such a waiver must be based on a determination by the Administrator,
after public notice and opportunity for comment that (1) implementation
of the requirement would severely harm the economy or the environment
of a State, a region or the United States, or (2) there is an
inadequate domestic supply.
    Based on a preliminary evaluation of the availability of renewable
fuel in the market, regarding which we seek public comment, EPA is not
proposing to use the general waiver authority to further reduce volumes
for 2018. However, EPA solicits comments on whether it is appropriate
to exercise the general waiver authority and will evaluate comments and
updated data in considering whether such an approach is warranted.

B. Treatment of Carryover RINs

    Consistent with our approach in the 2013, 2014-16, and 2017 final
rules, we have also considered the availability and role of carryover
RINs in evaluating whether we should exercise our discretion to use the
cellulosic waiver authority in setting the cellulosic, advanced, and
total volume requirements for 2018. Neither the statute nor EPA
regulations specify how or whether EPA should consider the availability
of carryover RINs in exercising its cellulosic waiver authority.\16\ As
noted in the context of the rules establishing the 2014-16 and 2017 RFS
standards, we believe that a bank of carryover RINs is extremely
important in providing obligated parties compliance flexibility in the
face of substantial uncertainties in the transportation fuel
marketplace, and in providing a liquid and well-functioning RIN market
upon which success of the entire program depends.\17\ Carryover RINs
provide flexibility in the face of a variety of circumstances that
could limit the availability of RINs, including weather-related damage
to renewable fuel feedstocks and other circumstances potentially
affecting the production and distribution of renewable fuel.\18\ On the
other hand, carryover RINs can be used for compliance purposes, and in
the context of the 2013 RFS rulemaking we noted that an abundance of
carryover RINs available in that year, together with possible increases
in renewable fuel production and import, justified maintaining the
advanced and total renewable fuel volume requirements for that year at
the levels specified in the statute.\19\
---------------------------------------------------------------------------

    \16\ CAA section 211(o)(5) requires that EPA establish a credit
program as part of its RFS regulations, and that the credits be
valid to show compliance for 12 months as of the date of generation.
EPA implemented this requirement though the use of RINs, which can
be used to demonstrate compliance for the year in which they are
generated or the subsequent compliance year. Obligated parties can
obtain more RINs than they need in a given compliance year, allowing
them to ``carry over'' these excess RINs for use in the subsequent
compliance year, although use of these carryover RINs is limited to
20% of the obligated party's renewable volume obligation. For the
bank of carryover RINs to be preserved from one year to the next,
individual carryover RINs are used for compliance before they expire
and are essentially replaced with newer vintage RINs that are then
held for use in the next year. For example, if the volume of the
collective carryover RIN bank is to remain unchanged from 2016 to
2017, then all of the vintage 2016 carryover RINs must be used for
compliance in 2017, or they will expire. However, the same volume of
2017 RINs can then be ``banked'' for use in the next year.
    \17\ See 80 FR 77482-87 (December 14, 2015) and 81 FR 89754-55
(December 12, 2016).
    \18\ See id., and 72 FR 23900 (May 1, 2007).
    \19\ See 79 FR 49794 (August 15, 2013).
---------------------------------------------------------------------------

    An adequate RIN bank serves to make the RIN market liquid. Just as
the economy as a whole functions best when individuals and businesses
prudently plan for unforeseen events by maintaining inventories and
reserve money accounts, we believe that the RFS program functions best
when sufficient carryover RINs are held in reserve for potential use by
the RIN holders themselves, or for possible sale to others that may not
have established their own carryover RIN reserves. Were there to be no
RINs in reserve, then even minor disruptions causing shortfalls in
renewable fuel production or distribution, or higher than expected
transportation fuel demand (requiring greater volumes of renewable fuel
to comply with the percentage standards that apply to all volumes of
transportation fuel, including the unexpected volumes) could lead to
the need for a new waiver of the standards, undermining the market
certainty so critical to the RFS program. However, a significant
drawdown of the carryover RIN bank leading to a scarcity of RINs may
stop the market from functioning in an efficient manner, even where the
market overall could satisfy the standards. For all of these reasons,
the collective carryover RIN bank provides a needed programmatic buffer
that both facilitates individual compliance and provides for smooth
overall functioning of the program.\20\
---------------------------------------------------------------------------

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

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

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

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

    Therefore, for the reasons noted above, and consistent with the
approach we took in the 2014-2016 and 2017 final rules, we are
proposing that, under current circumstances, an intentional drawdown of
the carryover RIN bank should not be assumed in establishing the 2018
volume requirements. The current bank of carryover RINs will provide an
important and necessary programmatic buffer that will both facilitate
individual compliance and provide for smooth overall functioning of the
program. Therefore, we are not proposing to set the renewable fuel
volume requirements at levels that would envision a drawdown in the
bank of carryover RINs.

III. Cellulosic Biofuel Volume for 2018

    In the past several years the cellulosic biofuel industry has
continued to make progress towards increased commercial-scale
production. Cellulosic biofuel production reached record levels in
2016, driven largely by CNG and LNG derived from biogas.\24\ While
multiple large cellulosic ethanol facilities struggled to achieve
consistent commercial scale production, several facilities consistently
produced cellulosic ethanol from corn kernel fiber at a smaller scale
during 2016 and the first few months of 2017. This section describes
our assessment of the volume of cellulosic biofuel that we project will
be produced or imported into the United States in 2018, and some of the
uncertainties associated with those volumes.
---------------------------------------------------------------------------

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

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

A. Statutory Requirements

    The volumes of renewable fuel to be produced and used as
transportation fuel under the RFS program each year (absent an
adjustment or waiver by EPA) are specified in CAA section 211(o)(2).
The volume of cellulosic biofuel specified in the statute for 2018 is 7
billion gallons. The statute provides that if EPA determines, based on
EIA's estimate, that the projected volume of cellulosic biofuel
production in a given year is less than the statutory volume, then EPA
shall reduce the applicable volume of cellulosic biofuel to the
projected volume available during that calendar year.\25\
---------------------------------------------------------------------------

    \25\ The United States Court of Appeals for the District of
Columbia Circuit evaluated this requirement in API v. EPA 706 F.3d
474, 479-480 (D.C. Cir. 2013), in the context of a challenge to the
2012 cellulosic biofuel standard. The Court stated that in
projecting potentially available volumes of cellulosic biofuel EPA
must apply an ``outcome-neutral methodology'' aimed at providing a
prediction of ``what will actually happen.''
---------------------------------------------------------------------------

    In addition, if EPA reduces the required volume of cellulosic
biofuel below the level specified in the statute, the Act also
indicates that we may reduce the applicable volumes of advanced
biofuels and total renewable fuel by the same or a lesser volume, and
we are required to make cellulosic waiver credits available.\26\ Our
consideration of the 2018 volume requirements for advanced biofuel and
total renewable fuel is presented in Sections IV and V of this rule.
---------------------------------------------------------------------------

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

B. Cellulosic Biofuel Industry Assessment

    In order to project cellulosic biofuel production for 2018, we have
tracked the progress of several dozen potential cellulosic biofuel
production facilities. As we have done in previous years, we have
focused on facilities with the potential to produce commercial-scale
volumes of cellulosic biofuel rather than small R&D or pilot-scale
facilities. Larger commercial-scale facilities are much more likely to
generate RINs for the fuel they produce and the volumes they produce
will have a far greater impact on the cellulosic biofuel standard for
2018. The volume of cellulosic biofuel produced from R&D and pilot-
scale facilities is quite small in relation to that expected from the
commercial-scale facilities. R&D and demonstration-scale facilities
have also generally not generated RINs for the fuel they have produced
in the past. Their focus is on developing and demonstrating the
technology, not producing commercial volumes. RIN generation from R&D
and pilot-scale facilities in previous years has not contributed
significantly to the overall number of cellulosic RINs generated.\27\
---------------------------------------------------------------------------

    \27\ While a few small R&D and pilot scale facilities have
registered as cellulosic RIN generators, total production from each
of these facilities from 2010 through March 2017 has been less than
100,000 RINs.
---------------------------------------------------------------------------

    From this list of commercial-scale facilities we used information
from EMTS, publically available information (including press releases
and news reports), and information provided by representatives of
potential cellulosic

biofuel producers, to make a determination of which facilities are most
likely to produce cellulosic biofuel and generate cellulosic biofuel
RINs in 2018. Each of these companies was investigated further in order
to determine the current status of its facilities and its likely
cellulosic biofuel production and RIN generation volumes for 2018. Both
in our discussions with representatives of individual companies and as
part of our internal evaluation process we gathered and analyzed
information including, but not limited to, the funding status of these
facilities, current status of the production technologies, anticipated
construction and production ramp-up periods, facility registration
status, and annual fuel production and RIN generation targets.
    The methodology used by EPA to project cellulosic biofuel
production in 2015-2017 has resulted in a total cellulosic biofuel
production projection that was lower than the actual number of
cellulosic RINs made available in 2015,\28\ and higher than the actual
number of RINs generated in 2016.\29\ This methodology is most recently
described in the 2017 final rule.\30\ The fact that the projections in
both years proved somewhat inaccurate, under-estimating the actual
number of RINs made available one year and over-estimating the next,
reflects the inherent difficulty with projecting cellulosic biofuel
production.
---------------------------------------------------------------------------

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

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

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

    For the final rule we intend to review all available data with
respect to cellulosic biofuel production in 2017 for the months for
which data will be available. We will consider that information,
together with comments received and updated information on the status
of potential production facilities, to make any appropriate adjustments
to the methodology and/or projected production volume in the final
rule. The remainder of this Section discusses the companies and
facilities EPA expects to be in a position to produce commercial-scale
volumes of cellulosic biofuel by the end of 2018 and describes in more
detail the methodology EPA is proposing to use to project cellulosic
biofuel production in 2018 (including a review of cellulosic biofuel
production and the accuracy of the projection methodology in previous
years). This information forms the basis for the proposed applicable
volume for cellulosic biofuel for 2018.
1. Potential Domestic Producers
    There are a number of companies and facilities \32\ located in the
United States that have either already begun producing cellulosic
biofuel for use as transportation fuel, heating oil, or jet fuel at a
commercial scale, or are anticipated to be in a position to do so at
some time during 2018. The financial incentive provided by cellulosic
biofuel RINs,\33\ combined with the facts that to date nearly all
cellulosic biofuel produced in the United States has been used
domestically \34\ and all the domestic facilities we have contacted in
deriving our projections intend to produce fuel on a commercial scale
for domestic consumption using approved pathways, gives us a high
degree of confidence that cellulosic biofuel RINs will be generated for
any fuel produced by commercial scale facilities. In order to generate
RINs, each of these facilities must be registered under the RFS program
and comply with all the regulatory requirements. This includes using an
approved RIN-generating pathway and verifying that their feedstocks
meet the definition of renewable biomass. Most of the companies and
facilities considered in our assessment of potential cellulosic biofuel
producers in 2018 have already successfully completed facility
registration, and many have successfully generated RINs.\35\ A brief
description of each of the companies (or group of companies for
cellulosic CNG/LNG producers) that EPA believes may produce commercial-
scale volumes of RIN generating cellulosic biofuel by the end of 2018
can be found in a memorandum to the docket for this

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

    \32\ The volume projection from CNG/LNG producers does not
represent production from a single company or facility, but rather a
group of facilities utilizing the same production technology.
    \33\ According to data from Argus, the price for 2017 cellulosic
biofuel RINs averaged $2.67 in 2017 (through March 2017).
Alternatively, obligated parties can obtain a RIN value equivalent
to a cellulosic biofuel RIN by purchasing an advanced (or biomass-
based diesel) RIN and a cellulosic waiver credit. The price for 2017
advanced biofuel RINs averaged $0.94 in 2017 (through March 2017)
while the price for a 2017 cellulosic waiver credit is $2.00.
    \34\ The only known exception was a small volume of fuel
produced at a demonstration scale facility exported to be used for
promotional purposes.
    \35\ All of the facilities listed in Table III.B.3-1 are
registered to produced cellulosic (D3 or D7) RINs with the exception
of several of the producers of CNG/LNG derived from biogas, many of
the facilities projected to produce cellulosic ethanol using
Edeniq's technology, and Ensyn's Port-Cartier, Quebec facility.
    \36\ ``Cellulosic Biofuel Producer Company Descriptions (May
2017)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2017-0091.
---------------------------------------------------------------------------

2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located
in the United States, there are several foreign cellulosic biofuel
companies that may produce cellulosic biofuel in 2018. These include
facilities owned and operated by Beta Renewables, Enerkem, Ensyn,
GranBio, and Raizen. All of these facilities use fuel production
pathways that have been approved by EPA for cellulosic RIN generation
provided eligible sources of renewable feedstock are used and other
regulatory requirements are satisfied. These companies would therefore
be eligible to register these facilities under the RFS program and
generate RINs for any qualifying fuel imported into the United States.
While these facilities may be able to generate RINs for any volumes of
cellulosic biofuel they import into the United States, demand for the
cellulosic biofuels they produce is expected to be high in their own
local markets.
    EPA is charged with projecting the volume of cellulosic biofuel
that will be produced or imported into the United States. For the
purposes of this proposed rule we have considered all of the registered
foreign facilities under the RFS program to be potential sources of
cellulosic biofuel in 2018. We believe that due to the strong demand
for cellulosic biofuel in local markets, the significant technical
challenges associated with the operation of cellulosic biofuel
facilities, and the time necessary for potential foreign cellulosic
biofuel producers to register under the RFS program and arrange for the
importation of cellulosic biofuel to the United States, cellulosic
biofuel imports from foreign facilities not currently registered to
generate cellulosic biofuel RINs are generally highly unlikely in 2018.
For purposes of our 2018 cellulosic biofuel projection we have, with
only one exception (described below) excluded from our proposal
potential volumes from foreign cellulosic biofuel production facilities
that are not currently registered under the RFS program. Two foreign
facilities (Ensyn's Renfrew facility and the CNG/LNG facility Complexe
Enviro Progressive Ltee) that have registered as cellulosic biofuel
producers have already generated cellulosic biofuel RINs for fuel
exported to the United States; projected volumes from each of these
facilities are included in our projection of available volumes for
2018. Three additional foreign facilities (Gran Bio's Bioflex
Agroindustrial S/A, Saint-Thomas Biomethane Plant, and Raizen's Costa
Pinto) have registered as cellulosic biofuel producers, but have not
yet generated any cellulosic RINs. EPA attempted to contact
representatives from these facilities to inquire about their intentions
to export cellulosic biofuel to the United States in 2018. In two cases
(Gran Bio's Bioflex Agroindustrial S/A and Saint-Thomas Biomethane
Plant), company representatives indicated they intended to export
cellulosic biofuel to the United States, and EPA believes that there is
sufficient reason to believe imports of cellulosic biofuel from these
companies are likely. Finally, EPA has included projected volume from
one foreign facility (Ensyn's Port-Cartier, Quebec facility) that is
not currently registered to generate cellulosic biofuel RINs under the
RFS program. We believe that it is appropriate to include volume from
this facility in light of the facility's proximity to the United
States, the proven technology used by the facility, the volumes of
cellulosic biofuel exported to the United States by the company in
previous years, and the company's stated intention to market all of the
fuel produced at this facility to qualifying markets in the United
States. All of the facilities included in EPA's cellulosic biofuel
projection for 2018 are listed in Table III.B.3-1 below.
3. Summary of Volume Projections for Individual Companies
    General information on each of the cellulosic biofuel producers (or
group of producers in the case of producers of CNG/LNG derived from
biogas and facilities using Edeniq's technology) that factored into our
projection of cellulosic biofuel production for 2018 is shown in Table
III.B.3-1. This table includes both facilities that have already
generated cellulosic RINs, as well as those that have not yet generated
cellulosic RINs, but are projected to do so by the end of 2018. As
discussed above, we have focused on commercial-scale cellulosic biofuel
production facilities. Each of these facilities (or group of
facilities) is discussed further in a memorandum to the docket.\37\ In
addition to the facilities (or groups of facilities) discussed in Table
III.B.3-1 below, EPA is aware of two additional technologies that may
be used to produce qualifying cellulosic biofuel in 2018. Multiple
companies, in addition to Edeniq and Quad County Corn Processors, are
working to commercialize technology to convert corn kernel fiber to
cellulosic ethanol at existing corn ethanol facilities. At this point,
however, none of these companies have successfully registered a
facility to generate cellulosic RINs using their technology.\38\
Several other companies are seeking to register to generate cellulosic
biofuel RINs for anaerobic digesters that produce CNG/LNG from a
variety of waste feedstocks.\39\ If the outstanding technical issues
related to these processes are resolved prior to the final rule, EPA
anticipates including production projections from these technologies in
our projection of cellulosic biofuel production for 2018.
---------------------------------------------------------------------------

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

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

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

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

    \40\ The Facility Capacity is generally equal to the nameplate
capacity provided to EPA by company representatives or found in
publicly available information. If the facility has completed
registration and the total permitted capacity is lower than the
nameplate capacity then this lower volume is used as the facility
capacity. For companies generating RINs for CNG/LNG derived from
biogas the Facility Capacity is equal to the lower of the annualized
rate of production of CNG/LNG from the facility at the time of
facility registration or the sum of the volume of contracts in place
for the sale of CNG/LNG for use as transportation fuel (reported as
the actual peak capacity for these producers).
    \41\ Where a quarter is listed for the first production date EPA
has assumed production begins in the middle month of the quarter
(i.e., August for the 3rd quarter) for the purposes of projecting
volumes.
    \42\ For more information on these facilities see ``June 2017
Assessment of Cellulosic Biofuel Production from Biogas (2018)'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

    EPA also considered whether it would be appropriate to modify other
individual components of the past methodology for liquid cellulosic
biofuel based on a narrow consideration of each factor, but we do not
believe there is currently sufficient information to support these
changes. Making the single proposed adjustment to the percentile values
used in the methodology should, we believe, provide an appropriate
adjustment to the methodology that reflects recent past experience. We
acknowledge, however, that using the calculated percentile values from
previous years to project liquid cellulosic biofuel production in
future years does not eliminate the possibility that actual production
will differ from our projections. This is especially true for the
liquid cellulosic biofuel industry, which is currently in the early
stages of commercialization. We will continue to evaluate the success
of this methodology, including a consideration of the data on
cellulosic biofuel production in 2017 available at the time of the
final rule, and will consider adjusting the methodology if it appears
warranted. If the methodology appears to be projecting volumes that are
significantly higher or lower than actual production volumes for months
in 2017 for which data is available (after taking into account the
seasonality of RIN generation and the expected ramp-up of production
volumes in the latter half of 2017) we may consider adjustments to the
methodology used in the final rule, such as further adjusting the
percentile values used to project liquid cellulosic biofuel production
within the projected range for a group of companies, or creating new
groupings of companies with similar types and levels of risk associated
with cellulosic biofuel production. We request comment on our
methodology and adjustments that could be made to increase the accuracy
of the projection.
    Consistent with our approach for 2016 and 2017, to project liquid
cellulosic biofuel production in 2018 we separated the list of
potential producers of cellulosic biofuel into two groups according to
whether or not the facilities have achieved consistent commercial-scale
production and cellulosic biofuel RIN generation (See Table III.C.1-2
through Table III.C-.1-3). We next defined a range of likely production
volumes for each group of potential cellulosic biofuel producers. The
low end of the range for each group of producers reflects actual RIN
generation data over the last 12 months for which data are available at
the time our technical assessment was completed (April 2016-March
2017). For potential producers that have not yet generated any
cellulosic RINs, the low end of the range is zero. For the high end of
the range of production volumes for companies expected to produce
liquid cellulosic biofuel we considered a variety of factors, including
the expected start-up date and ramp-up period,\47\ facility capacity,
and fuel off-take agreements. The projected ranges for each of the
companies considered in our 2018 cellulosic biofuel projection are
shown in Tables III.C.1-2 and III.C.1-3 below.\48\
---------------------------------------------------------------------------

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

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

  Table III.C.1-3--2018 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                                 Low end of  High end of
                                                 the range    the range
------------------------------------------------------------------------
Edeniq (Active Facilities)....................        \a\ X            5
Ensyn.........................................        \a\ X            3
Poet..........................................        \a\ X           20
Quad County Corn Processors...................        \a\ X            3
Aggregate Range...............................          3.9           31
------------------------------------------------------------------------
\a\ The low end of the range for each individual company is based on
  actual production volumes and is therefore withheld to protect
  information claimed to be confidential business information.

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

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

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

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

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

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

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

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

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

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

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

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

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

IV. Advanced Biofuel Volume for 2018

    The national volume targets for advanced biofuel to be used under
the RFS program each year through 2022 are specified in CAA section
211(o)(2)(B)(i)(II). Congress set annual renewable fuel volume targets
that envisioned growth at a pace that far exceeded historical growth
and, for years after 2011, prioritized that growth as occurring
principally in advanced biofuels (contrary to previous growth patterns
where most growth was in conventional renewable fuel, principally corn-
ethanol). Congressional intent is evident in the fact that the portion
of the total renewable fuel volume target in the statutory volume
tables that is not required to be advanced biofuel is 15 billion
gallons for all years after 2014, while the advanced volumes, driven by
growth in cellulosic volumes, continue to grow through 2022 to a total
of 21 billion gallons.
    We have evaluated the capabilities of the market and are proposing
to find that the 11.0 billion gallons specified in the statute for
advanced biofuel cannot be reached in 2018. This is primarily due to
the expected continued shortfall in cellulosic biofuel; production of
this fuel type has consistently fallen short of the statutory targets
by 95 percent or more, and as described in Section III, it will fall
far short of the statutory target of 7.0 billion gallons again in 2018.
In addition, although for the 2016 and 2017 standards we determined
that the projected reasonably attainable supply of non-cellulosic
advanced biofuel and other considerations justified establishing
standards that include a partial backfill of the shortfall in
cellulosic biofuel, for reasons described in this section we are not
proposing such partial backfilling for 2018.
    In previous years when exercising the cellulosic waiver authority
to determine the required volume of advanced biofuel, we have taken
into account the availability of advanced biofuels, their energy
security and GHG benefits, and the apparent intent of Congress as
reflected in the statutory volumes tables to substantially increase the
use of advanced biofuels over time, as well as factors such as
increased costs associated with the use of advanced biofuels and the
environmental and food competition concerns raised by some commenters.
In considering these factors, in those years, we have concluded that it
was appropriate to set the advanced biofuel standard in a manner that
would allow the partial backfilling of missing cellulosic volumes with
non-cellulosic advanced biofuels. For purposes of this NPRM we are
focusing primarily on the availability of advanced biofuels, their GHG
and energy security benefits, and the costs associated with increased
advanced biofuel mandates to propose no such backfilling with non-
cellulosic advanced biofuel volumes in 2018. In other words, we propose
to reduce the statutory volume target for advanced biofuel by the same
amount as our proposed reduction in cellulosic biofuel. This action
takes into account the fact that the substantial growth in advanced
biofuel volumes after 2015 that was anticipated by Congress, and
reflected in the statutory tables, was to be driven primarily by
increases in cellulosic biofuel as opposed to non-cellulosic advanced
biofuels. In addition, we recognize that the proposed approach involves
placing a greater reliance on cost considerations than we have in past
rulemakings. We believe this proposed new approach to balancing
relevant considerations and exercising our discretion under the
cellulosic waiver authority is permissible under the statute, and
consistent with the principles articulated in FCC v. Fox TV Stations,
556 U.S. 502, 514-15 (2009), regarding circumstances when an agency may
appropriately depart from prior policy. We will, as in past years,
consider comments on these factors, their appropriate balancing, and
any other factors identified by commenters that are relevant to the
exercise of our cellulosic waiver authority in finalizing this rule,
and will consider making appropriate adjustments for the final rule.
    We note that the predominant non-cellulosic advanced biofuels
available in the near term are advanced biodiesel and renewable diesel.
We expect a decreasing rate of growth in the availability of feedstocks
used to

produce these fuel types. To the extent that higher advanced biofuel
requirements cannot be satisfied through growth in the production of
advanced biofuel feedstocks, they would instead be satisfied through a
re-direction of advanced feedstocks from competing uses, leading to
lower overall GHG emission benefits. There would also likely be market
disruptions and increased burden associated with shifting feedstocks
among the wide range of companies that are relying on them today and