[Federal Register Volume 78, Number 26 (Thursday, February 7, 2013)]
[Proposed Rules]
[Pages 9281-9306]
[FR Doc No: 2013-02794]

Vol. 78

Thursday,

No. 26

February 7, 2013

Part V

Environmental Protection Agency

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40 CFR Part 80

 Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards;
Proposed Rule

Federal Register / Vol. 78 , No. 26 / Thursday, February 7, 2013 /
Proposed Rules

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2012-0546; FRL-9678-8]
RIN 2060-AR43

Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: Under section 211(o) of the Clean Air Act, the Environmental
Protection Agency is required to set the renewable fuel standards each
November for the following year. In general the standards are designed
to ensure that the applicable volumes of renewable fuel specified in
the statute are used. However, the statute specifies that EPA is to
project the volume of cellulosic biofuel production for the upcoming
year and must base the cellulosic biofuel standard on that projected
volume if it is less than the applicable volume set forth in the Act.
EPA is today proposing a projected cellulosic biofuel volume for 2013
that is below the applicable volume specified in the Act. EPA is
proposing that the applicable volumes of advanced biofuel and total
renewable fuel would remain at the statutory levels for 2013. Finally,
today's action also proposes annual percentage standards for cellulosic
biofuel, biomass-based diesel, advanced biofuel, and renewable fuels
that would apply to all gasoline and diesel produced or imported in
year 2013.

DATES: Comments must be received on or before March 25, 2013. A request
for a public hearing must be received by February 14, 2013.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2012-0546, by one of the following methods:
     www.regulations.gov: Follow the on-line instructions for
submitting comments.
     Email<EMAIL_ADDRESS>     Mail: Air and Radiation Docket and Information Center,
Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania
Ave. NW., Washington, DC 20460.
     Hand Delivery: EPA Docket Center, EPA West Building, Room
3334, 1301 Constitution Ave. NW., Washington, DC 20460. Such deliveries
are only accepted during the Docket's normal hours of operation, and
special arrangements should be made for deliveries of boxed
information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2012-0546. EPA's policy is that all comments received will be included
in the public docket without change and may be made available online at
www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Do not submit information that you consider to
be CBI or otherwise protected through www.regulations.gov or email. The
www.regulations.gov Web site is an ``anonymous access'' system, which
means EPA will not know your identity or contact information unless you
provide it in the body of your comment. If you send an email comment
directly to EPA without going through www.regulations.gov your email
address will be automatically captured and included as part of the
comment that is placed in the public docket and made available on the
Internet. If you submit an electronic comment, EPA recommends that you
include your name and other contact information in the body of your
comment and with any disk or CD-ROM you submit. If EPA cannot read your
comment due to technical difficulties and cannot contact you for
clarification, EPA may not be able to consider your comment. Electronic
files should avoid the use of special characters, any form of
encryption, and be free of any defects or viruses. For additional
information about EPA's public docket visit the EPA Docket Center
homepage at http://www.epa.gov/epahome/dockets.htm. For additional
instructions on submitting comments, go to Section I.B of the
SUPPLEMENTARY INFORMATION section of this document.
    Docket: All documents in the docket are listed in the
www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in www.regulations.gov or in hard copy at the Air and Radiation Docket
and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution
Ave. NW., Washington, DC. The Public Reading Room is open from 8:30
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The
telephone number for the Public Reading Room is<PHONE_NUMBER>, and the
telephone number for the Air Docket is<PHONE_NUMBER>.

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>; Fax number:<PHONE_NUMBER>; Email
address<EMAIL_ADDRESS>or the public information line for
the Office of Transportation and Air Quality; telephone number (734)
214-4333; Email address<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this action apply to me?

    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 and biodiesel. 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...................................          454319            5989  Other fuel dealers.
----------------------------------------------------------------------------------------------------------------
\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.

    This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
proposed action. This table lists the types of entities that EPA is now
aware could potentially be regulated by this proposed action. Other
types of entities not listed in the table could also be regulated. To
determine whether your activities 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 preceding section.

B. What should I consider as I prepare my comments for EPA?

1. Submitting CBI
    Do not submit confidential business information (CBI) to EPA
through www.regulations.gov or email. Clearly mark the part or all of
the information that you claim to be CBI. For CBI information in a disk
or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM
as CBI and then identify electronically within the disk or CD ROM the
specific information that is claimed as CBI. In addition to one
complete version of the comment that includes information claimed as
CBI, a copy of the comment that does not contain the information
claimed as CBI must be submitted for inclusion in the public docket.
Information so marked will not be disclosed except in accordance with
procedures set forth in 40 CFR part 2.
2. Tips for Preparing Your Comments
    When submitting comments, remember to:
     Identify the rulemaking by docket number and other
identifying information (subject heading, Federal Register date and
page number).
     Follow directions--The agency may ask you to respond to
specific questions or organize comments by referencing a Code of
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree, suggest alternatives,
and substitute language for your requested changes.
     Describe any assumptions and provide any technical
information and/or data that you used.
     If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
     Provide specific examples to illustrate your concerns, and
suggest alternatives.
     Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
     Make sure to submit your comments by the comment period
deadline identified.

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Proposed Action
    B. Summary of Major Provisions in This Notice
    1. Cellulosic Biofuel Volume for 2013
    2. Advanced Biofuel and Total Renewable Fuel in 2013
    3. Proposed Standards for 2013
    4. Biomass-Based Diesel for 2014
    5. Administrative Actions
    C. Impacts of Proposed Actions
II. Projection of Cellulosic Volume for 2013
    A. Statutory Requirements
    B. Status of the Cellulosic Biofuel Industry
    C. Cellulosic Biofuel Volume Assessment for 2013
    1. Cellulosic Biofuel Facilities Considered in the 2012
Projections
    2. Facilities Not Included in 2012 Projections
    3. Other Potential Sources of Domestic Cellulosic Biofuel
    4. Imports of Cellulosic Biofuel
    5. Projections From the Energy Information Administration
    6. Summary of Volume Projections
    D. Proposed Cellulosic Biofuel Volume for 2013
III. Assessment of Advanced Biofuel and Total Renewable Fuel for
2013
    A. Statutory Requirements
    B. Assessment of Available Volumes of Advanced Biofuel
    1. Biodiesel
    2. Domestic Production of Other Advanced Biofuel
    3. Imported Sugarcane Ethanol
    C. Proposed Volume Requirements for Advanced Biofuel and Total
Renewable Fuel in 2013
    D. Consideration of the Ethanol Blendwall
IV. Proposed Percentage Standards for 2013
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
    3. Proposed Standards
V. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the agency?
VI. 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
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    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
    J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
VII. 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) which were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), resulting in the
promulgation of major revisions to the regulatory requirements on March
26, 2010.\1\
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    \1\ 75 FR 14670.
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    The volumes of renewable fuel to be used under the RFS program each
year (absent an adjustment or waiver by EPA) are specified in CAA
211(o)(2). The volumes for 2013 are shown in Table I-1.

  Table I-1--Required Applicable Volumes in the Clean Air Act for 2013
                               [Bill gal]
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel......................................         \a\ 1.0
Biomass-based diesel....................................       \b\ >=1.0
Advanced biofuel........................................        \a\ 2.75
Renewable fuel..........................................       \a\ 16.55
------------------------------------------------------------------------
\a\ Ethanol-equivalent volume.
\b\ Actual volume. The ethanol-equivalent volume would be 1.5 if
  biodiesel is used to meet this requirement.

    Under the RFS program, EPA is required to determine and publish
annual percentage standards for each compliance year by November 30 of
the previous year. The percentage standards are used by obligated
parties to calculate their individual compliance obligations. The
percentage standards are applied to the volume of gasoline and/or
diesel fuel that each obligated party produces or imports during the
specified calendar year to determine the volumes of renewable fuel that
they must cause to be used as transportation fuel, heating oil, or jet
fuel. The percentage standards are calculated so as to ensure use in
transportation fuel of the ``applicable volumes'' of four types of
biofuel (cellulosic biofuel, biomass-based diesel, advanced biofuel,
and total renewable fuel) that are either set forth in the Clean Air
Act or established by EPA in accordance with the Act's requirements.

    The cellulosic biofuel industry is transitioning from research and
development (R&D) and pilot-scale to commercial scale facilities,
leading to increases in production capacity. Construction has begun on
several facilities with multiple facilities having progressed to the
start-up phase. Based on detailed information from production companies
and a consideration of various potential uncertainties, we are
projecting that 14 million ethanol-equivalent gallons of cellulosic
biofuel will be available in 2013.
    We have evaluated the types of advanced biofuels that can be
produced or imported in 2013. Our preliminary determination is that
there should be sufficient volumes to meet the statutory applicable
volume of 2.75 billion gallons. As a result, we are proposing to use
that volume to calculate the advanced biofuel standard for 2013.
Combined with the availability of conventional biofuels such as corn
ethanol, we have preliminarily determined that there should be
sufficient total renewable fuels available in 2013 to meet the
statutory applicable volume of 16.55 billion gallons. Therefore, we are
not proposing to reduce the advanced biofuel and total renewable fuel
applicable volumes below the levels specified in the statute. However,
as described in Section III.C, there is some uncertainty in the
projected availability of advanced biofuel in 2013. Therefore, we are
requesting comment on the possibility of reducing the required volume
of advanced biofuel and total renewable fuel in 2013 to reflect this
uncertainty.

A. Purpose of This Proposed Action

    EPA is today proposing volume requirements for cellulosic biofuel,
advanced biofuel, and total renewable fuel for 2013. Table I.A-1 lists
the statutory provisions and associated criteria relevant to
determining the applicable volumes in today's proposal. We are also
proposing percentage standards for all four categories of renewable
fuel for 2013.

     Table I.A-1--Statutory Provisions for Determination of Proposed
                           Applicable Volumes
------------------------------------------------------------------------
                                                    Criteria provided in
                                  Clean Air Act         statute for
      Applicable volumes            reference         determination of
                                                     applicable volume
------------------------------------------------------------------------
Cellulosic biofuel in 2013....  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.
Advanced biofuel in 2013......  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    to the projected
                                                    volume, EPA may
                                                    reduce advanced
                                                    biofuel by the same
                                                    or lesser volume. No
                                                    other criteria
                                                    specified.
Total renewable fuel in 2013..  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    to the projected
                                                    volume, EPA may
                                                    reduce total
                                                    renewable fuel by
                                                    the same or lesser
                                                    volume. No other
                                                    criteria specified.
------------------------------------------------------------------------

    EPA must annually determine the projected volume of cellulosic
biofuel production for the following year. If the projected volume of
cellulosic biofuel production is less than the applicable volume
specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must
lower the applicable volume used to set the annual cellulosic biofuel
percentage standard to the projected volume of production. In today's
proposal, we present our analysis of cellulosic biofuel production and
proposed projected volume for 2013. The analyses that led to the
proposed 2013 applicable volume requirement were based on our
evaluation of EIA's projection for 2013 as well as individual
producers' production plans and progress to date. For the final rule,
we will also consider comments received in response to this notice of
proposed rulemaking and other information that becomes available.
    When we lower the applicable volume of cellulosic biofuel below the
volume specified in CAA 211(o)(2)(B)(i)(III), we also have the
authority to reduce the applicable volumes of advanced biofuel and
total renewable fuel by the same or a lesser amount. Today's proposal
includes our consideration of the 2013 volume requirements for these
biofuels.
    Based on the applicable volumes for cellulosic biofuel, biomass-
based diesel, advanced biofuel, and total renewable fuel presented in
today's proposal, we have calculated proposed percentage standards
(shown in Section I.B.3 below) that would apply to all producers and
importers of gasoline and diesel in 2013. The proposed percentage
standards are based on a projection of volumes of gasoline and diesel
consumption in 2013 from the Energy Information Administration (EIA).

B. Summary of Major Provisions in This Notice

1. Cellulosic Biofuel Volume for 2013
    The cellulosic biofuel industry in the United States continues to
make significant advances in its progress towards large scale
commercial production. Ongoing research and development work has
resulted in increasing product yields, while at the same time lowering
enzyme and catalyst costs. New supply chains have been developed, and
several companies have reached contract agreements to provide the
necessary feedstock for large scale cellulosic biofuel production
facilities. Companies are continuing to invest significant sums of
money to further refine cellulosic biofuel production technology and to
construct the first commercial-scale facilities. From 2007 through the
second quarter of 2011 over $2.4 billion was invested in advanced
biofuel production companies by venture capitalists alone.\2\ For more
information on the current status of the cellulosic biofuel industry in
the United States and the advances being made, see Section II.B.
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    \2\ Solecki M, Rickey D, Epstein B. Advanced Biofuel Market
Report 2011: Meeting the California LCFS. Environmental
Entrepreneurs. August 22, 2011. http://www.e2.org/ext/doc/E2%20Advanced%20Biofuel%20Mkt%20Report%202011.pdf.
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    2013 is also expected to be a year of transition for the cellulosic
biofuel industry, as many companies are shifting their focus from
technology development to commercialization. This transition began in
2012 with commercial production facilities from INEOS Bio and KiOR
completing construction and scheduled to begin producing fuel in the
first quarter of 2013. Abengoa, one of the largest producers of ethanol
in the United States, is planning to begin producing cellulosic ethanol
at commercial scale by the end of 2013. Several others companies,
including DuPont and Poet, expect to be constructing their first
commercial scale facilities in 2013, with the intention of beginning
production in 2014. If these facilities are able to operate as
anticipated, the uncertainty associated with commercial-scale

cellulosic biofuel production will decrease, and the expansion of the
industry could be rapid.
    As part of our effort to estimate the volume of cellulosic biofuel
that can be made available in the U.S. in 2013, we researched all
potential production sources by company and facility. This included
sources that were still in the planning stages, those that were under
construction, and those that are already producing some volume of
cellulosic ethanol, cellulosic diesel, or some other type of cellulosic
biofuel. Facilities primarily focused on research and development 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
already produced. From this universe of potential cellulosic biofuel
sources we identified the subset that could be producing commercial
volumes of qualifying cellulosic biofuel for use as transportation fuel
in 2013. To arrive at a proposed projected volume for each facility, we
took into consideration EIA's company specific projections and factors
such as the current and expected state of funding, the status of the
technology utilized, progress towards construction and production
goals, and other significant factors that could potentially impact fuel
production or the ability of the produced fuel to generate cellulosic
Renewable Identification Numbers (RINs) in 2013. Further discussion of
these factors can be found in Section II.B.
    In our assessment we focused on domestic sources of cellulosic
biofuel. At the time of this proposal no internationally-based
cellulosic biofuel production facilities have registered under the RFS
program and therefore no volume from international producers has been
included in our projections for 2013. Of the domestic sources, we
estimated that up to four facilities may produce commercial-scale
volumes of cellulosic biofuel available for transportation use in the
U.S. in 2013. Two of these four facilities have made sufficient
progress to project that commercial scale production from these two
facilities will occur, and we have therefore included production from
them in our projected available volume for 2013. All four facilities
are listed in Table I.B.1-1 along with our estimate of the projected
2013 volume for each.

                  Table I.B.1-1--Projected Available Cellulosic Biofuel Plant Volumes for 2013
----------------------------------------------------------------------------------------------------------------
                                                                     Capacity
                                                                     (million          First         Projected
           Company                 Location         Fuel type       gallons per     production       available
                                                                       year)        (projected)     volume \a\
----------------------------------------------------------------------------------------------------------------
Abengoa......................  Hugoton, KS.....  Ethanol........              24         4Q 2013               0
Fiberight....................  Blairstown, IA..  Ethanol........               6         4Q 2013               0
INEOS Bio....................  Vero Beach, FL..  Ethanol........               8         1Q 2013               6
KiOR.........................  Columbus, MS....  Gasoline and                 11         1Q 2013               8
                                                  Diesel.
                                                                 -----------------------------------------------
    Total....................  ................  ...............              49  ..............              14
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\a\ Volumes listed in million ethanol-equivalent gallons.

The EIA projections, variation in expected start-up times, along with
the facility production capacities, company production plans, and a
variety of other factors have all been taken into account in predicting
the actual volume of cellulosic biofuel that will be produced in 2013.
For more detailed information on our projections of cellulosic biofuel
in 2013 and the companies we expect to produce this volume see Section
II.
2. Advanced Biofuel and Total Renewable Fuel in 2013
    The statute indicates that we may reduce the applicable volume of
advanced biofuel and total renewable fuel specified in the statute for
2013 if we determine that the projected volume of cellulosic biofuel
production for 2013 falls short of the statutory volume of 1.0 billion
gallons. As shown in Table I.B.1-1, we have proposed a finding that
this is the case. Therefore, we have also evaluated whether to propose
lowering the applicable volumes for advanced biofuel and total
renewable fuel. The statute provides no explicit criteria or direction
for making this determination. We have focused our evaluation on the
availability of renewable fuels that would qualify as advanced biofuel.
The CAA specifies an applicable volume of 2.75 billion gallons of
advanced biofuel for 2013. To determine whether to lower this volume,
we considered the sources that are expected to satisfy any advanced
biofuel mandate including: Cellulosic biofuel, biomass-based diesel,
other domestically-produced advanced biofuels, and imported sugarcane
ethanol.
    As described in Section II, we project that 14 mill gallons of
cellulosic biofuel will be available in 2013. This volume would fulfill
0.014 bill gal of the 2.75 bill gal advanced biofuel requirement.
    We have finalized a volume of 1.28 bill gal for 2013 biomass-based
diesel in a separate action, and we expect that the vast majority of
this requirement will be fulfilled with biodiesel. Since biodiesel has
an Equivalence Value of 1.5, 1.28 billion physical gallons of biodiesel
would provide 1.92 billion ethanol-equivalent gallons that could be
counted towards the advanced biofuel standard of 2.75 billion gallons.
    As described in more detail in Section III, we have projected that
domestic advanced biofuels are expected to grow steadily through 2013,
and would include renewable diesel that does not qualify to be biomass-
based diesel, heating oil, biogas used as CNG, and ethanol. We are
projecting that about 150 mill gal of domestic advanced biofuels is
likely to be available in 2013, which would fulfill 0.15 bill gal of
the 2.75 bill gal advanced biofuel requirement.
    After taking into account cellulosic biofuel, biomass-based diesel,
and domestic advanced biofuels, 666 mill gal of imported sugarcane
ethanol would be needed to fulfill the advanced biofuel requirement of
2.75 bill gal. As described in Section III, there is reason to believe
that this volume can be exported from Brazil to the U.S. in 2013 given
Brazilian production and consumption projections. However, we note that
there is some uncertainty in the volumes of Brazilian sugarcane ethanol
that could be imported into the U.S. in 2013. This uncertainty arises
from the possibility of poor sugarcane crop yields in the next harvest
as occurred during the previous harvest, and the interplay between
these yields and Brazilian demand for ethanol, world sugar prices, and
international demand for biofuels. While most

projections indicate that Brazilian sugarcane crop yields will be
significantly better in the coming harvest in comparison to the
previous harvest, and that as a result sufficient sugarcane ethanol
could be produced and exported to the U.S. to help meet the need for
2.75 bill gal advanced biofuel, we nevertheless request comment on
whether the advanced biofuel requirement should be reduced to account
for this uncertainty.
    We also note that in both 2011 and 2012 there was significant two-
way trade in ethanol between the United States and Brazil. According to
current EIA data, in 2011 the U.S. imported 101 million gallons of
sugarcane ethanol from Brazil and exported 396 million gallons of corn-
based ethanol to Brazil. Total fuel ethanol exports in 2011 were 1.2
billion gallons, and total exports through October 2012 were 646
million gallons.
    Finally, we believe there will be sufficient volumes of
conventional renewable fuel including corn-ethanol, combined with
advanced biofuel, to satisfy the 16.55 billion gallon applicable volume
of total renewable fuel specified in the Act. For instance, corn-
ethanol production capacity in 2012 was 14.9 bill gal, compared to the
13.8 bill gal needed to meet the RFS requirements in 2013.\3\ We are
not proposing to reduce the advanced biofuel volume requirement of 2.75
bill gal, nor the total renewable fuel volume requirement of 16.55 bill
gal. However, we are taking comment on lowering the advanced biofuel
and total renewable volumes due to various uncertainties. For example,
we currently project that 666 mill gal of sugarcane ethanol would need
to be imported in order to meet the advanced biofuel volume. However,
the recent reinstatement of the biodiesel tax credit introduced
uncertainty around those projections, since it affects the amount of
biodiesel that may be produced above the required 1.28 bill gal. In
addition, the potential for increased domestic demand in Brazil if the
25% biofuel blending requirement is reinstated also introduces
uncertainty around the projections. We seek input on these and other
such factors that are relevant to how the advanced biofuel volume
requirement would be met.
---------------------------------------------------------------------------

    \3\ ``2012 Ethanol Industry Outlook,'' Renewable Fuels
Association, http://ethanolrfa.3cdn.net/d4ad995ffb7ae8fbfe_1vm62ypzd.pdf.
---------------------------------------------------------------------------

3. Proposed Standards for 2013
    The renewable fuel standards are expressed as a volume percentage
and are used by each refiner, blender or importer to determine their
renewable fuel volume obligations. The applicable percentages are set
so that if each regulated party meets the percentages, and if EIA
projections of gasoline and diesel use for the coming year are
accurate, then the amount of renewable fuel, cellulosic biofuel,
biomass-based diesel, and advanced biofuel actually used will meet the
volumes required on a nationwide basis.
    To calculate the percentage standards for 2013, we have used the
proposed projected volume of 14 million ethanol-equivalent gallons of
cellulosic biofuel and the volume of biomass-based diesel of 1.28 bill
gal that we have finalized in a separate action. The applicable volumes
used in this proposal for advanced biofuel and total renewable fuel for
2013 are those specified in the statute. These volumes are shown in
Table I.B.3-1.

   Table I.B.3-1--Proposed Volumes Used To Determine the Proposed 2013
                        Percentage Standards \a\
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel....................  14 mill gal.
Biomass-based diesel..................  1.28 bill gal.
Advanced biofuel......................  2.75 bill gal.
Renewable fuel........................  16.55 bill gal.
------------------------------------------------------------------------
\a\ All volumes are ethanol-equivalent, except for biomass-based diesel
  which is actual.

    Four separate standards are required under the RFS program,
corresponding to the four separate volume requirements shown in Table
I.B.3-1. The specific formulas we use to calculate the renewable fuel
percentage standards are contained in the regulations at Sec.  80.1405
and repeated in Section IV.B.1. The percentage standards represent the
ratio of renewable fuel volume to projected non-renewable gasoline and
diesel volume. The projected volume of transportation gasoline and
diesel used to calculate the standards in today's proposed rule was
derived from EIA projections.\4\ At this time EPA has not approved any
small refinery or small refiner exemptions for 2013, and thus no
adjustment has been made to the proposed standards to account for such
exemptions. The proposed standards for 2013 are shown in Table I.B.3-2.
Detailed calculations can be found in Section IV, including the
projected 2013 gasoline and diesel volumes used.
---------------------------------------------------------------------------

    \4\ Letter, Adam Sieminski, Administrator, U.S. Energy
Information Administration, to Lisa P. Jackson, Administrator, U.S.
EPA, October 18, 2012.

          Table I.B.3-2--Proposed Percentage Standards for 2013
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel......................................        0.008%
Biomass-based diesel....................................        1.12%
Advanced biofuel........................................        1.60%
Renewable fuel..........................................        9.63%
------------------------------------------------------------------------

4. Biomass-Based Diesel for 2014
    While Clean Air Act section 211(o)(2)(B) specifies the volumes of
biomass-based diesel through year 2012, it directs the EPA to establish
the applicable volume of biomass-based diesel for years after 2012 no
later than 14 months before the first year for which the applicable
volume will apply. EPA proposed an applicable volume of biomass-based
diesel for 2013 on July 1, 2011, and issued a final rule establishing
that applicable volume on September 27, 2012.\5\
---------------------------------------------------------------------------

    \5\ 77 FR 59458.
---------------------------------------------------------------------------

    Under 211(o)(2)(B)(ii) EPA, in coordination with the Secretary of
Energy and the Secretary of Agriculture, is to establish the applicable
volume for biomass based diesel in 2014 based on a review of
implementation of the program in prior years and analysis of a number
of factors, including biodiesel production capacity, consumption, and
infrastructure capabilities, as well as impacts on emissions, costs,
energy security, and other factors. While the industry produced around
1.15 bill physical gallons in 2012, we are still evaluating the
potential market impacts of this production level. In order to provide
sufficient time for this evaluation, as well as the other analyses we
are required to conduct, we are not proposing an applicable volume of
biomass-based diesel for 2014 in today's NPRM. Instead, we will issue a
separate proposal at a later date.
5. Administrative Actions
    By November 30 of each year we are required to make several
administrative announcements which facilitate program implementation in
the following calendar year. These announcements include the cellulosic
biofuel waiver credit price and the status of the aggregate compliance
approach to land-use restrictions under the definition of renewable
biomass for both the U.S. and Canada. Since we did not make these
announcements for 2013 by November 30 of 2012, we are here presenting
our assessments of these administrative actions. We will provide the
final announcements for these administrative actions when we finalize
the standards being proposed in today's action.

    In the event that we reduce the required volume of cellulosic
biofuel for 2013 below the applicable volume specified in the statute,
EPA is required to offer biofuel waiver credits to obligated parties
that can be purchased in lieu of acquiring cellulosic biofuel RINs.
These waiver credits are not allowed to be traded or banked for future
use, are only allowed to be used to meet the 2013 cellulosic biofuel
standard, and cannot be applied to deficits carried over from 2012.
Moreover, unlike cellulosic biofuel RINs, waiver credits may not be
used to meet either the advanced biofuel standard or the total
renewable fuel standard. For the 2013 compliance period, we estimate
that cellulosic biofuel waiver credits could be made available to
obligated parties for end-of-year compliance should they need them at a
price of $0.42 per credit.
    As part of the RFS2 regulations, EPA established an aggregate
compliance approach for renewable fuel producers who use planted crops
and crop residue from U.S. agricultural land. This compliance approach
relieved such producers (and importers of such fuel) of the individual
recordkeeping and reporting requirements otherwise required of
producers and importers to verify that feedstocks used in the
production of RIN-qualifying renewable fuel meet the definition of
renewable biomass. EPA determined that 402 million acres of U.S.
agricultural land was available in 2007 (the year of EISA enactment)
for production of crops and crop residue that would meet the definition
of renewable biomass, and determined that as long as this total number
of acres is not exceeded, it is unlikely that new land has been devoted
to crop production based on historical trends and economic
considerations. We indicated that we would conduct an annual evaluation
of total U.S. acreage that is cropland, pastureland, or conservation
reserve program land, and that if the value exceed 402 million acres,
producers using domestically grown crops or crop residue to produce
renewable fuel would be subject to individual recordkeeping and
reporting to verify that their feedstocks meet the definition of
renewable biomass. Based on data provided by the USDA, we have
estimated that U.S. agricultural land reached 384 million acres in
2012, and thus did not exceed the 2007 baseline acreage.
    On September 29, 2011, EPA approved the use of an aggregate
compliance approach to renewable biomass verification for planted crops
and crop residue grown in Canada. The Government of Canada utilized
several types of land use data to demonstrate that the land included in
their 124 million acre baseline is cropland, pastureland or land
equivalent to U.S. Conservation Reserve Program land that was cleared
or cultivated prior to December 19, 2007, and was actively managed or
fallow and nonforested on that date (and is therefore RFS2 qualifying
land). The total agricultural land in Canada in 2012 is estimated at
121 million acres. The total acreage estimate of 121 million acres does
not exceed the trigger point for further investigation.

C. Impacts of Proposed Actions

    Analyses for the March 26, 2010 RFS2 final rule indicated the GHG
benefits from cellulosic biofuels compared to the petroleum-based fuels
they displace could likely range well above the 60 percent threshold.
Therefore, EPA expects that the increase in cellulosic biofuel use that
EPA has projected for 2013 over prior year production levels would have
directionally beneficial GHG emissions impacts.
    For advanced biofuel and total renewable fuel, we are not proposing
to reduce the applicable volumes below the volumes required in the
statute. All of the impacts of the biofuel volumes specified in the
statute were addressed in the RFS2 final rule published on March 26,
2010. Today's rulemaking simply proposes the standards for 2013
advanced biofuel and total renewable fuel whose impacts were previously
analyzed. Nevertheless, we recognize that the combination of imports of
sugarcane ethanol from Brazil into the U.S. and exports of corn-ethanol
from the U.S. to Brazil that may occur as a result of the advanced
biofuel volume requirement engenders additional transport related
emissions.

II. Projection of Cellulosic Volume for 2013

    In order to project the production volume of cellulosic biofuel in
2013 for use in setting the percentage standard, we considered the EIA
projections and collected information on individual facilities that
have the potential to produce qualifying volumes for consumption as
transportation fuel, heating oil, or jet fuel in the U.S. in 2013. This
section describes the volumes that we project will be produced or
imported in 2013 as well as some of the uncertainties associated with
those volumes.
    In the past several years the cellulosic biofuel industry has made
many significant advances. The production cost of cellulosic biofuels
continues to fall as a result of ongoing technology development and
operating experience gained from many research and development and
demonstration-scale facilities across the country. These important
advances include higher biofuel yields per ton of feedstock as well as
lower enzyme and catalyst costs. As a result of these yield increases,
the projected capital costs and energy costs to produce a gallon of
cellulosic biofuel have decreased. New feedstock supply chains, which
will be necessary to provide the raw materials for anticipated
commercial facilities, have been established, and in several cases
companies have signed contracts to obtain significant quantities of
feedstocks for their first commercial facilities. These developments,
along with the increased availability of project financing, have
resulted in the construction of new commercial-scale cellulosic biofuel
production facilities. Two commercial-scale facilities are both
structurally complete and currently in the start-up phase of
operations. Several additional facilities are planning construction in
2013 and start-up in 2014. If these first facilities are successful and
operate as designed it will significantly decrease the perceived risk
associated with similar future facilities and could potentially lead to
the rapid deployment of cellulosic biofuel production facilities around
the United States.
    Despite significant advances in cellulosic biofuel production
technology in recent years, RIN-generating cellulosic biofuel
production in 2010 and 2011 was zero despite our projections that the
industry was positioned to produce about 6 million gallons in each of
those years.\6\ In 2010 the majority of the cellulosic biofuel
shortfall was met through the use of RINs generated under the RFS1
regulations, and since there were excess RFS1 cellulosic RINs many
carried over into the following year. The remaining cellulosic biofuel
requirements in 2011 were met through the purchase of cellulosic
biofuel waiver credits.\7\ A

discussion of the reasons for this disparity between our projections
and subsequent production is provided in Section II.B below.
---------------------------------------------------------------------------

    \6\ In the first half of 2010 when the RFS1 program was still
effective, some cellulosic biomass ethanol was produced and the RINs
generated were valid for demonstrating compliance with the 2010 and
2011 RFS2 cellulosic biofuel standards. However, the RFS1 cellulosic
biomass ethanol that was produced was not made from cellulosic
feedstocks, but rather was categorized as cellulosic because it was
produced in plants using waste materials to displace 90% or more of
fossil fuel use under the then-effective definition of cellulosic
biomass ethanol in CAA Section 211(o)(1)(A). See also 40 CFR
80.1101(a)(2).
    \7\ 4,248,338 cellulosic waiver credits were purchased for 2011
compliance according to the EMTS Web site (information retrieved
from the Web site on December 11, 2012) at a cost of $1.13 per
credit. The ethanol-equivalent volume of cellulosic biofuel
projected for 2011 and used to calculate the percentage standard for
that year was 6.0 million gallons.
---------------------------------------------------------------------------

    In 2012 the first cellulosic RINs were generated under the RFS2
regulations. However, cellulosic biofuel production once again fell far
short of our projections in 2012.\8\
---------------------------------------------------------------------------

    \8\ On December 31, 2012 EPA also received a request for a
waiver of the 2012 cellulosic biofuel volume requirement from the
American Fuel and Petrochemical Manufacturers.
---------------------------------------------------------------------------

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS program each
year (absent an adjustment or waiver by EPA) are specified in CAA
211(o)(2). For 2013, the statute specifies a cellulosic biofuel
applicable volume requirement of 1.0 bill gal. The statute requires
that if EPA determines, based on EIA's estimate, that the projected
volume of cellulosic biofuel production for the following year is less
than the applicable volume shown in Table II.A-1, then EPA is to reduce
the applicable volume of cellulosic biofuel to the projected volume
available during that calendar year.
    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. Our
consideration of the 2013 volume requirements for advanced biofuels and
total renewable fuel is presented in Section III.

B. Status of the Cellulosic Biofuel Industry

    As in previous years, cellulosic biofuel production in the United
States in 2011 was limited to small-scale research and development,
pilot, and demonstration-scale facilities. Companies such as Abengoa,
BP, Coskata, DuPont Danisco, KL Energy, KiOR, Poet, and others
successfully operated small-scale facilities in 2011. Several of these
facilities, including all that were part of our 2012 volume
projections, are discussed in more detail in Section II.C below. While
there were numerous small-scale facilities producing cellulosic biofuel
in 2011, the total volume of fuel produced was very small. Because of
the R&D nature of these small facilities they are neither designed to
produce fuel for commercial sale nor required to report the small
volumes of fuel they produced. No RINs were generated for volumes that
were produced in 2011, despite all of the companies included in the
2011 projections expressing interest and/or intent in doing so.
Although EPA has not attempted to accurately assess production volumes,
based on generally available information we believe that total
production in the United States in 2011 was likely less than one
million gallons of cellulosic biofuel across the industry.
    Each of the companies included in our 2011 projections for
cellulosic biofuel production had different reasons for not generating
cellulosic RINs in 2011. DuPont had concerns about their ability to
retain the R&D status of their Vonore, TN facility if they generated
RINs and sold the cellulosic ethanol they produced from this facility.
Fiberight was unable to secure the funding required to complete the
modifications to their facility to allow for cellulosic ethanol
production. KL Energy finalized an agreement with Petrobras in the
second half of 2010 and changed the direction of their facility to
focus on using bagasse as a primary feedstock. Finally, after
completing initial production of cellulosic ethanol Range Fuels shut
down operations in January 2011 and eventually declared bankruptcy.
    While cellulosic biofuel production in the United States remains
limited, the industry continues to make significant progress towards
producing cellulosic biofuel at prices competitive with petroleum
fuels. From 2007 through the second quarter of 2011 venture capitalists
invested over $2.4 billion in advanced biofuel companies in North
America.\9\ Recent advancements in enzyme and catalyst technologies are
allowing cellulosic biofuel producers to achieve greater yields of
biofuel per ton of feedstock. These advancements have led to lower
operational costs as they have driven down the cost for feedstock,
energy, and other important inputs on a per gallon basis. For example,
the estimated cost of producing cellulosic ethanol using an enzymatic
hydrolysis process in 2007 was $4-$8 per gallon.\10\ By 2012 the
estimated cost of cellulosic ethanol production using the same process
had fallen to $2-$3.50 per gallon.\11\ The U.S. Department of Energy
similarly reports that advancements in cellulosic ethanol technology
have resulted in a decrease in modeled costs from approximately $4 per
gallon (minimum ethanol selling price) in 2007 to approximately $2.50
per gallon in 2011.\12\ The same technological advances have also
lowered the capital costs of cellulosic biofuel production facilities
per gallon of annual fuel production, as more gallons of biofuel can be
produced at a facility without additional equipment or increased
feedstock requirements.
---------------------------------------------------------------------------

    \9\ Solecki M, Rickey D, Epstein B. Advanced Biofuel Market
Report 2011: Meeting the California LCFS. Environmental
Entrepreneurs. August 22, 2011. Available Online <http://www.e2.org/ext/doc/E2%20Advanced%20Biofuel%20Mkt%20Report%202011.pdf.
    \10\ Nielsen, Peder Holk. ``The Path to Commercialization of
Cellulosic Ethanol--A Brighter Future.'' PowerPoint Presentation.
Conference Call. February 22, 2012. Available Online <http://www.novozymes.com/en/investor/events-presentations/Documents/Cellic3_conf_call_220212.pdf.
    \11\ IBID.
    \12\ Department of Energy. Biomass Multi-Year Program Plan.
April 2012. DOE/EE-0702. Available Online <http://www1.eere.energy.gov/biomass/pdfs/mypp_april_2012.pdf.
---------------------------------------------------------------------------

    As cellulosic biofuel producers gain experience and continue to
progress towards commercial-scale biofuel production, it is reasonable
to expect that the production costs and capital costs will continue to
decline. This is a pattern shown by many new technologies, including
renewable and emerging energy technologies. One example which has
several similarities to the cellulosic biofuel industry is the
experience with the dry mill corn ethanol industry. From 1983, the year
in which the first commercial volumes of dry mill ethanol were
produced, to 2005 the processing cost of corn ethanol decreased by 45%,
while the capital costs of a dry mill ethanol facility decreased by
88%.\13\ Many of the drivers for this cost reduction, such as higher
ethanol yields, reduced enzyme costs, and better fermentation
technologies \14\ are also expected to be factors in the lower
cellulosic biofuel costs expected in the future. While the cost
reduction percentages observed in the dry mill corn ethanol industry
are not directly applicable to the cellulosic biofuel industry, the
trend of decreasing production and capital costs over time is expected
to hold true.
---------------------------------------------------------------------------

    \13\ Hettinga WG, Junginger HM, Dekker SC, Hoogwijk M, McAloon
AJ, Hicks KB. Understanding the reductions in US corn ethanol
production costs: An experience curve approach. Energy Policy 37
(2009): 190-203. Available Online <http://ddr.nal.usda.gov/bitstream/10113/22550/1/IND44146988.pdf.
    \14\ IBID.
---------------------------------------------------------------------------

    Another area where significant progress has been made is that of
feedstock supply for commercial-scale cellulosic biofuel production
facilities. This issue has often been raised as a factor that could
hinder the development of the cellulosic biofuel industry as many of
the proposed facilities rely on feedstocks, such as

agricultural residues or energy crops, for which supply chains have not
previously existed. Over the past several years both Abengoa and Poet
have been reaching out to farmers in the regions surrounding their
first commercial-scale facilities to ensure the availability of the
necessary feedstock. Because corn cobs and stover are only seasonally
available, using them as a feedstock for a cellulosic biofuel
production facility would require significant feedstock storage
facilities. In the last two years Abengoa and Poet completed
construction of large-scale feedstock storage facilities to ensure
adequate supply to their cellulosic biofuel production facilities
throughout the year. Both companies successfully completed fall biomass
harvests in 2011 and have contracted with local farmers to provide
feedstock for their cellulosic ethanol facilities. This supply chain
will not only provide feedstock for their first commercial-scale
facilities, but also a model that can be re-created at future
production facilities.
    Several cellulosic biofuel producers are planning to use slash,
forest thinnings, and forest product residue or the cellulosic portions
of yard waste as feedstock. This material has many qualities that make
it desirable as a cellulosic biofuel feedstock. It is generally
inexpensive and is readily available in some regions of the United
States. It is also available year round rather than seasonally,
significantly reducing the need for large-scale feedstock storage
facilities. Securing a sufficient quantity of this feedstock for a
commercial-scale facility, however, can be challenging. In the summer
of 2011 KiOR announced it had signed a feedstock agreement with
Catchlight Energy to provide all the necessary slash, forest thinning,
and forest product residue for their first commercial-scale facility.
While KiOR plans to transition to planted trees for future facilities,
KiOR now has secured sufficient feedstock such that they can produce
cellulosic biofuel and cellulosic RINs using an existing pathway at
their first commercial-scale facility. INEOS Bio also has a long term
agreement with Indian River County to provide vegetative waste which
will serve as the feedstock for their first facility.
    Another appealing feedstock for cellulosic biofuel production is
separated municipal solid waste (MSW). MSW is already being collected
and transported to a centralized facility, is consistently available
throughout the year, and can be obtained for a very low, or even
negative cost. MSW often contains contaminants, however, that may make
it challenging to process for some cellulosic biofuel technologies. EPA
also requires that waste separation plans be submitted and approved
prior to any company generating RINs using separated MSW as a
feedstock. In June 2012 EPA approved the first waste separation plan
under the RFS program for Fiberight's facility in Blairstown, Iowa.
    Significant progress has also been made by some companies towards
funding the construction of their first commercial-scale facilities. In
the early years of the cellulosic biofuel industry several small start-
up companies announced plans to build large commercial-scale facilities
that were scheduled to begin production in the past few years. The
construction of many of these facilities was dependent on the companies
raising additional funding, either from venture capitalists, government
grants, or loans backed by government guarantees. So far few of the
companies that made these early announcements have been able to
successfully raise the necessary funds and begin construction. Securing
this funding proved difficult, and when it did not materialize the
projects were delayed or cancelled.
    The funding profiles of the companies included in our proposed
volume for 2013, as well as for many of the companies targeting
production in 2014, are markedly different. Many of these projects have
already received, and in several cases have closed on loan guarantees
and grants offered by DOE or USDA. Other companies have filed for and
successfully executed IPOs. Several cellulosic ethanol projects are
being self-financed by large companies such as Abengoa and Poet with
significant experience in the biofuel, petrochemical, and specialty
chemical markets. This solid financial backing has allowed these
companies to proceed with construction. Both of the facilities included
in our proposed volume for 2013 have already completed the construction
of their first commercial production facilities. There is therefore far
less uncertainty as to likely production from these two facilities than
has been present for most of EPA's earlier projections. The next
section provides additional details on the funding and construction
status of the projects included in our projected cellulosic biofuel
production volumes for 2013.
    If these first commercial-scale cellulosic biofuel production
facilities are successful, the potential exists for a rapid expansion
of the industry in subsequent years. Having successful commercial-scale
facilities would not only provide useful information to help maximize
the efficiency of future facilities, but would also significantly
decrease the technology and scale-up risks associated with cellulosic
biofuel production facilities and could lead to increased access to
project funding. Fiberight and ZeaChem both plan to build larger-scale
facilities (~25 mill gal per year) as soon as they are able to raise
the necessary funds. INEOS Bio plans to expand production by building
additional units near sources of inexpensive feedstock ranging in size
from 8 to 50 million gallons of ethanol per year. They are currently
exploring expansion possibilities in the United States and
internationally. KiOR has plans for a second commercial-scale facility
to be built in Natchez, MS, that will be approximately three times
larger (~30 mill gal per year) than their Columbus, MS, plant and plans
to break ground at their second facility after their first is fully
operational. Abengoa currently anticipates construction of additional
cellulosic ethanol facilities at multiple locations, likely including
co-locating with some of their existing starch facilities in the US.
Poet has a similar expansion strategy to build cellulosic ethanol
plants at their grain ethanol facilities, license their technology for
use at other grain ethanol facilities, and build cellulosic ethanol
facilities that use feedstocks such as rice straw, rice hulls, woody
biomass, or energy crops as a feedstock. Poet's goal is to be involved
in the production of 3.5 billion gallons of cellulosic ethanol per year
by 2022. Several other companies, such as DuPont and Enerkem are also
targeting 2014 for the start-up of cellulosic biofuel production
facilities and would likely look to build additional facilities
relatively quickly if successful. While many of these expansion plans
are still in the early stages and are subject to change, they do point
to the potential for cellulosic biofuel production to increase rapidly
in future years.

C. Cellulosic Biofuel Volume Assessment for 2013

    In 2011 no cellulosic biofuel RINs were generated, though some
small volumes were produced. Announcements of new projects and project
funding, changes in project plans, project delays, and cancellations
occurred. Biofuel producers faced not only the challenge of the scale-
up of innovative, first-of-a-kind technology, but also the challenge of
securing funding in a difficult economy. While the cellulosic biofuel
producer tax credit has been extended through 2013, the short-term
nature of this incentive and legal challenges to the RFS volumes

have caused some technology developers and investors to question the
long term RIN value of cellulosic biofuels. The resulting uncertainty
may have had an impact on cellulosic biofuel production in 2011 and
2012.
    Despite these challenges, there are several factors indicating that
significant volumes of cellulosic biofuel are projected to be produced
in 2013. Commercial-scale cellulosic biofuel projects from INEOS Bio
and KiOR are structurally complete and expected to begin fuel
production in the first quarter of 2013 and achieve production rates at
or near their nameplate capacities by the end of 2013. Another
commercial-scale facility backed by Abengoa, a large company with
significant experience in biofuel production, is also scheduled to
begin producing cellulosic biofuel in 2013. These facilities are
indicative of a shift across the cellulosic biofuel industry from
small-scale R&D and demonstration facilities operated by small start-up
companies to large commercial-scale facilities backed by large
companies, many of which have substantial experience in related
industries.
    In order to project cellulosic biofuel production for 2013, we have
tracked the progress of more than 100 biofuel production facilities.
From this list of facilities we used publically available information,
as well as information provided by DOE and USDA, to make a preliminary
determination of which facilities are the most likely candidates to
produce cellulosic biofuel and generate cellulosic biofuel RINs in
2013. Each of these companies was investigated further in order to
determine the current status of their facilities and their likely
cellulosic biofuel production and RIN generation volumes for the coming
years. Information such as the funding status of these facilities,
current status of the production technologies, announced construction
and production rampup periods, and annual fuel production targets were
all considered when we met with senior level representatives of each
company to discuss cellulosic biofuel target production levels for
2013. Our projection of the cellulosic biofuel production in 2013 is
based on the estimate we received from EIA as well as the individual
production projections that emerged from these discussions. A brief
description can be found below for each of the companies we believe
will produce cellulosic biofuel and make it commercially available in
2013. We will continue to gather more information to help inform our
decision regarding the final cellulosic biofuel volume to be required
for 2013.
    In the sections that follow, we first discuss the cellulosic
production facilities that were part of our volume projections for the
2012 compliance year and the progress that they have made. Then we
present our consideration of additional facilities that we believe will
also produce cellulosic biofuel in 2013.
1. Cellulosic Biofuel Facilities Considered in the 2012 Projections
    In the January 9, 2012, final rule that established the required
2012 cellulosic biofuel volume, we identified six production facilities
that we projected would produce cellulosic biofuel and make that fuel
commercially available in 2012. Five of these production facilities are
currently structurally complete and one is planning to retrofit an
existing corn ethanol plant with construction beginning in the first
half of 2013. Six active facilities have completed the registration
process for the RFS program, and are currently able to generate
cellulosic RINs. The current status of each of these facilities,
including target production levels for each facility in 2013, is
discussed below.
API
    American Process Inc. (API) is developing a project in Alpena,
Michigan capable of producing up to 900,000 gallons of cellulosic
ethanol per year from woody biomass. This facility will use a
technology developed by API called GreenPower+TM. This
technology extracts the hemicellulose portion of woody biomass using
hot water and hydrolyzes it into sugars. These sugars are then
converted to ethanol or other alcohols, while the remaining portion of
the woody biomass, containing mostly cellulose and lignin, is processed
into wood paneling at a co-located facility. At future, larger-scale
facilities API anticipates burning the residual biomass in a boiler to
produce renewable steam and electricity as well as cellulosic biofuel.
    In January 2010 API received a grant from DOE for up to $18 million
for the construction of their demonstration facility. Construction of
the Alpena, Michigan facility began in March 2011 and API began
commissioning operations at their facility in the summer of 2012.
Production start-up is expected to begin in 2013.
Fiberight
    Fiberight uses an enzymatic hydrolysis process to convert the
biogenic portion of separated MSW and other waste feedstocks into
ethanol. They have successfully completed five years of development
work on their technology at their small pilot plant in Lawrenceville,
Virginia. In 2009 Fiberight purchased an idled corn ethanol plant in
Blairstown, Iowa with the intention of making modifications to this
facility to allow for the production of 6 million gallons of cellulosic
ethanol per year from separated MSW and industrial waste streams. These
modifications were scheduled to be completed in 2011, but difficulties
in securing funding have resulted in construction at this facility
being delayed. In January 2012 Fiberight was offered a $25 million loan
guarantee from USDA. Closing on this loan would provide substantially
all of the remaining funds required for Fiberight to complete the
required modifications at their Blairstown facility. Construction is
expected to begin in early spring 2013 and the company expects that it
will take approximately 6 months to complete. Additionally, Fiberight's
waste separation plan for this facility was approved in June 2012
allowing Fiberight to generate RINs for the cellulosic ethanol they
produce using separated MSW as a feedstock. Fiberight is also currently
developing a second commercial-scale project based on their MSW ``hub
and spoke'' concept. They anticipate that this facility will begin fuel
production in 2014 and will produce approximately 25 million gallons of
cellulosic ethanol per year when fully built out.
INEOS Bio
    INEOS Bio has developed a process for producing cellulosic ethanol
by first gasifying cellulosic feedstocks into a syngas and then using
naturally occurring bacteria to ferment the syngas into ethanol. In
January 2011 USDA announced a $75 million loan guarantee for the
construction of INEOS Bio's first commercial facility to be built in
Vero Beach, Florida. This loan was closed in August 2011. This was in
addition to the grant of up to $50 million INEOS Bio received from DOE
in December 2009. At full capacity, this facility will be capable of
producing 8 million gallons of cellulosic biofuel as well as 6
megawatts (gross) of renewable electricity from a variety of feedstocks
including yard, agricultural, and wood waste. The facility also plans
to use a limited quantity of separated MSW as a feedstock after initial
start-up.
    On February 9, 2011, INEOS Bio broke ground on this facility. INEOS
Bio completed construction on this facility in June 2012 and began full
commissioning of the facility. In August

2012 INEOS Bio received approval from EPA for their yard waste
separation plan and successfully registered their Vero Beach, FL
facility under the RFS program. In October 2012 the facility began
producing renewable electricity. INEOS Bio entered the start-up phase
of cellulosic ethanol production in November 2012. During this phase
the facility was not run continually as facility modifications
continued to be made, however a small volume of cellulosic ethanol was
successfully produced. INEOS Bio has reported that they plan to be
producing cellulosic ethanol at levels near the facility's capacity of
8 million gallons per year throughout 2013. This reported schedule
represents a very aggressive ramp-up period. Due to the many challenges
of starting up a first-of-a-kind facility and the history of production
delays in the cellulosic biofuel industry, EPA believes a more
conservative projection is appropriate. For this proposal we project 6
million gallons of cellulosic ethanol from INEOS Bio in 2013. This
volume is consistent with what would be expected from this facility
assuming a six month straight-line ramp-up period beginning in January
2013. EPA requests comment on the projected available volume from INEOS
Bio's facility in 2013, as well as these assumptions for the
appropriate ramp-up period for cellulosic biofuel facilities and
expectations for production during this ramp-up phase. EPA will monitor
INEOS Bio's production output in the time between this proposal and the
final rule and will consider that information, together with public
comments received in making a final projection. INEOS Bio is also
exploring several opportunities for additional cellulosic biofuel
production facilities, both in the United States and internationally.
INEOS Bio is targeting sources of inexpensive feedstock, primarily
waste materials, and sees a market for plants with production
capacities ranging from 8 to 50 million gallons per year.
KiOR
    KiOR is working to commercialize a technology capable of converting
biomass to a biocrude using a process they call Biomass Fluid Catalytic
Cracking (BFCC). BFCC uses a catalyst developed by KiOR in a process
similar to Fluid Catalytic Cracking currently used in the petroleum
industry. The first stage of this process produces a renewable crude
oil which is then upgraded to produce primarily gasoline, diesel, and
jet fuel as well as a small quantity of fuel oil, all of which are
nearly identical to those produced from petroleum.
    KiOR's first commercial-scale facility is located in Columbus,
Mississippi and is capable of producing approximately 11 million
gallons of gasoline, diesel, and jet fuel per year. Construction on
this facility began in May 2011 and was completed in September 2012.
KiOR's Columbus facility is currently in the start-up phase. They have
produced biocrude from cellulosic feedstocks that is in line with their
specifications for upgrading to finished transportation fuels.
Cellulosic biofuel RINs from this facility are expected in the first
quarter of 2013. This facility is funded, in large part, with funds
acquired through private equity raises and supplemented by KiOR's $150
million IPO in June 2011. KiOR's current expectations at their Columbus
facility are for a start-up \15\ period lasting 9-12 months during
which they estimate fuel production will be at 30%-50% of the facility
capacity after which they plan to approach full production rates at the
facility. KiOR has feedstock supply agreements in place to supply all
of the required feedstock for their Columbus facility with slash and
pre-commercial thinning. They also have off-take agreements with
several companies for all of the fuel that will be produced. KiOR has
also announced plans to begin work on their second commercial-scale
biofuel production facility in Natchez, Mississippi upon the successful
start-up of their first facility. It is unlikely this second facility
will begin production of biofuel in 2013. For 2013 our proposed
production projection is for 5 million gallons (8 million ethanol-
equivalent gallons) of cellulosic biofuel from KiOR's Columbus
facility. This volume is calculated assuming KiOR will produce at 30%
of the facility capacity for the first nine months of 2013 (consistent
with a 12 month line-out period beginning in October 2012) followed by
three months of production at the nameplate capacity of the
facility.\16\ These numbers are relatively conservative estimates based
on the low end of KiOR's production guidance. EPA believes this is an
appropriate approach for this proposal. We will continue to monitor
KiOR's production volume in the period between this proposal and the
final rule and will use this information, together with the public
comments we receive in preparing an updated projection for the final
rule.
---------------------------------------------------------------------------

    \15\ In conversations with KiOR they refer to this as a ``line-
out'' period.
    \16\ EPA is not assuming that this facility will produce at a
30% rate throughout the entire start-up period, but rather projects
that cellulosic biofuel production, when averaged over the entire
start-up period, will be 30% of the production capacity during that
period. Production will likely be very small in the first few months
and will ramp up to near full production capacity by the end of the
start-up period.
---------------------------------------------------------------------------

Blue Sugars
    Blue Sugars, formerly KL Energy, has developed a process to convert
cellulose and hemicellulose into sugars and ethanol using a combined
chemical/thermal-mechanical pretreatment process followed by enzymatic
hydrolysis, co-fermentation of C5 and C6 sugars, and distillation to
fuel-grade ethanol. This production process is versatile enough to
allow for a wide variety of cellulosic feedstocks to be used, including
woody biomass and herbaceous biomass such as sugarcane bagasse. In
August 2010 Blue Sugars announced a joint development agreement with
Petrobras America Inc. As part of the agreement Petrobras has invested
$11 million to modify Blue Sugars' 1.5 million gallons per year
demonstration facility in Upton, Wyoming to allow it to process bagasse
and other biomass feedstocks. The modifications to Blue Sugars'
facility were completed in the spring of 2011. In April 2012 Blue
Sugars generated approximately 20,000 cellulosic biofuel RINs, the
first such RINs generated under the RFS program. Blue Sugars has
indicated, however, that the cellulosic ethanol they produced was
exported to Brazil for promotional efforts at the Rio +20 conference in
Brazil. These RINs would therefore have to be retired and will not be
available to obligated parties to meet their cellulosic biofuel
requirements in 2012. The main purpose of the Upton, Wyoming facility
is to further refine Blue Sugars' technology in preparation for their
first commercial facilities which may be located in the Brazil or the
United States.
ZeaChem
    ZeaChem successfully completed construction of their demonstration-
scale facility in Boardman, Oregon, in October 2012, allowing for the
production of ethanol from sugars derived from cellulose and hemi-
cellulose. When fully operational, ZeaChem expects this facility will
be capable of producing 250,000 gallons of cellulosic ethanol per year.
ZeaChem's production process uses a combination of biochemical and
thermochemical technologies to produce ethanol and other renewable
chemicals from cellulosic materials. The feedstock is first
fractionated into two separate streams, one containing sugars derived
from cellulose and hemicellulose and

the other containing lignin. The sugars are fermented into an
intermediate chemical, acetic acid, using a naturally occurring
acetogen. The acetic acid is then converted into ethyl acetate, which
can then be hydrogenated into ethanol. The hydrogen necessary for this
process is produced by gasifying the lignin stream from the cellulosic
biomass. Work is currently underway to add additional process modules
that will enable ZeaChem to convert the cellulosic ethanol to jet and
diesel fuel beginning in 2013.
    ZeaChem's process is flexible and is capable of producing a wide
range of renewable chemicals and fuels from many different feedstocks.
They plan to use both agricultural residues and wood waste at their
demonstration facility and have contracts in place for these
feedstocks, as well as purpose-grown wood, at their first commercial-
scale facility. In January 2012 ZeaChem announced that they had
received a $232.5 million conditional loan guarantee offer from USDA
for the construction of their first commercial-scale facility, which
will have a capacity of at least 25 million gallons per year. ZeaChem
currently has agreements in place to provide all of the necessary
feedstock for this facility. This facility, however, is not expected to
begin producing cellulosic biofuel until late 2014 at the earliest.
2. Facilities Not Included in 2012 Projections
    In addition to the facilities that were included in our cellulosic
biofuel volume projections for the 2012 compliance year, there is one
additional facility that we believe will produce volumes in 2013.
Several other large production facilities are planning to begin
production of cellulosic biofuel in 2014.
Abengoa
    Abengoa, a large international biofuels company, is one of two new
cellulosic biofuels producers expected to begin the production of
cellulosic biofuels and RINs from a commercial-scale facility in 2013.
Abengoa plans to use an enzymatic hydrolysis technology to convert corn
stover and other agricultural waste feedstocks into ethanol. After
successfully testing and refining their technology at a pilot-scale
facility in York, Nebraska as well as in a demonstration-scale facility
in Salamanca, Spain, Abengoa is now working towards the completion of
their first commercial-scale cellulosic ethanol facility in Hugoton,
Kansas. Abengoa has contracts in place to provide the majority of
feedstocks necessary for this facility for the next 10 years and
successfully completed their first biomass harvest in the fall of 2011.
Construction at this facility, which began in September 2011, is
expected to take 24 months and be completed in the fourth quarter of
2013. All of the major process equipment for this project has been
purchased and all of the required permits for construction have been
approved. Abengoa's Hugoton facility is being partially funded by a
$132 million Department of Energy (DOE) loan guarantee.
    When completed, the Hugoton plant will be capable of processing 700
dry tons of corn stover per day, with an expected annual ethanol
production capacity of approximately 24 million gallons. Abengoa plans
to begin ramping up production at the facility shortly after completing
construction in late 2013 and to be producing fuel at rates near the
nameplate capacity in the second quarter of 2014. After successfully
proving their technology at commercial-scale in Hugoton, Abengoa
currently plans to construct additional similar cellulosic ethanol
production facilities, either on greenfield sites or co-locating these
new facilities with their currently existing starch ethanol facilities
around the United States. While this facility could produce up to 1
million gallons of cellulosic ethanol in 2013 even a slight delay would
result in no fuel being produced in 2013. Given the history of delays
in the cellulosic biofuels industry we are not including any volume
from Abengoa's Hugoton, KS facility in our proposed projected available
volume for 2013.
Poet
    Poet has also developed an enzymatic hydrolysis process to convert
cellulosic biomass into ethanol. Poet has been investing in the
development of cellulosic ethanol technology for more than a decade and
began producing small volumes of cellulosic ethanol at pilot-scale at
their plant in Scotland, SD in late 2008. In January 2012, Poet formed
a joint venture with Royal DSM of the Netherlands called Poet-DSM
Advanced Biofuels to commercialize and license their cellulosic ethanol
technology.
    The joint venture's first commercial-scale facility, called Project
LIBERTY, will be located in Emmetsburg, Iowa. This facility is designed
to process 770 dry tons of corn cobs, leaves, husks, and some stalk per
day into cellulosic ethanol. The facility is projected to have an
annual production capacity beginning at approximately 20 million
gallons per year, increasing over time to 25 million gallons per year.
In anticipation of the start-up of this facility, Poet constructed a
22-acre biomass storage facility and had its first commercial harvest
in 2010, collecting 56,000 tons of biomass.
    Site prep work for Project LIBERTY began in the summer of 2011, and
vertical construction of the facility began in the spring of 2012. Poet
was awarded a $105 million loan guarantee offer for this project from
DOE in July 2011, but with the joint venture decided to proceed without
the loan guarantee. This project is expected to be completed by the end
of 2013, however at this time EPA is not expecting any commercial
cellulosic ethanol production from this facility until 2014. After the
completion of Project LIBERTY, Poet plans to build cellulosic ethanol
facilities at all of their existing corn ethanol plants. They are also
planning to license their technology for use at other grain ethanol
plants, as well as build additional plants that will process wheat
straw, rice hulls, woody biomass or herbaceous energy crops. By 2022
Poet has a goal of producing 3.5 billion gallons of cellulosic ethanol
per year.
Other Companies
    There are several more companies planning to begin producing
cellulosic biofuel from commercial-scale facilities in 2014. Companies
such as DuPont, Enerkem, and several others are all currently targeting
2014 for the start-up of their first commercial facilities. These
facilities represent approximately 100 million gallons of additional
cellulosic biofuel production capacity. As with the companies discussed
above, most of these companies have already begun to develop plans for
their successive facilities after the successful completion of their
initial projects. While they will not contribute any volume in 2013,
and have therefore not been included in our proposed volume, they are a
further indication of the potential for the significant growth of the
cellulosic biofuel industry in the United States in the near future.
3. Other Potential Sources of Domestic Cellulosic Biofuel
    Each of the companies listed in the previous two sections is
planning to generate cellulosic biofuel RINs using one of the valid
RIN-generating pathways listed in Table 1 to Sec.  80.1426. We are also
aware of several companies who may be in a position to produce
cellulosic biofuel in 2013 but intend to use a production pathway that
is not currently approved for RIN generation. Pathways that are
currently under evaluation by EPA include transportation fuels derived
from

landfill biogas such as CNG and cellulosic ethanol produced from corn
kernel fiber. If these or other cellulosic biofuel pathways are
approved by EPA, they may be used to generate cellulosic biofuel RINs
in 2013. Because the date of any final determination on these pathways
is uncertain, however, no volume of cellulosic fuel from these pathways
has been included in our proposed 2013 cellulosic biofuel projection.
4. Imports of Cellulosic Biofuel
    While domestically produced cellulosic biofuels are the most likely
source of cellulosic biofuel available in the United States in 2013,
imports of cellulosic biofuel produced in other countries may also
generate RINs and participate in the RFS program. While the RFS program
does provide a financial incentive for companies to import cellulosic
biofuels into the United States, the combination of local demand,
financial incentives from other governments, and transportation costs
for the cellulosic biofuel has resulted in no cellulosic biofuel being
imported to the United States thus far. We believe this situation is
likely to continue in the near future and have not included any
cellulosic biofuel imports in our projections of available volume in
2013.
    As in the United States, the production of cellulosic biofuels
internationally is currently limited to small-scale research and
development, pilot, and demonstration facilities. This is likely to
continue to be the case throughout 2013. Two notable exceptions are
facilities built and operated by Beta Renewables and Enerkem. Beta
Renewables completed construction of their first commercial-scale
facility located in Crescentino, Italy in the summer of 2012. This
facility is designed to produce approximately 20 million gallons of
cellulosic ethanol per year. Beta Renewables uses an enzymatic
hydrolysis process to produce ethanol from local agricultural residues
and herbaceous energy crops.
    Enerkem is also in the process of building their first commercial-
scale facility in Edmonton, Alberta and plans to begin operations in
early 2013. Enerkem's facility will use a thermochemical process to
produce syngas from MSW and then catalytically convert the syngas to
methanol. The methanol can then be sold directly or upgraded to ethanol
or other chemical products. At full capacity this facility will be
capable of producing 10 million gallons of cellulosic ethanol per year.
At this point, neither Beta Renewables nor Enerkem have registered
their facilities under the RFS program, a necessary step that must be
completed before these companies can generate RINs for any fuel they
import into the United States. Both are planning to locate additional
plants in the United States in the future and are likely to generate
RINs for production from domestic facilities in future years.
5. Projections From the Energy Information Administration
    Section 211(o)(3)(A) of the Clean Air Act requires EIA to `` * * *
provide to the Administrator of the Environmental Protection Agency an
estimate, with respect to the following calendar year, of the volumes
of transportation fuel, biomass-based diesel, and cellulosic biofuel
projected to be sold or introduced into commerce in the United
States.'' EIA provided these estimates to us on October 18, 2012.\17\
With regard to cellulosic biofuel, the EIA estimated that the available
volume in 2013 would be 9.6 million gallons (13.1 million ethanol-
equivalent gallons). A summary of the commercial scale plants they
considered and associated production volumes is shown below in Table
II.C.5.
---------------------------------------------------------------------------

    \17\ Letter from Adam Sieminski, EIA Administrator to Lisa
Jackson, EPA Administrator October 18, 2012.

                                   Table II.C.5--Cellulosic Biofuel Plants Expected To Generate Biofuel RINs for 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                EIA forecast
                                                                                --------------------------------------
                                                                                Ethanol-
      Mechanical  completion               Company              Location               Product           Design                  Production   equivalent
                                                                                capacity   Utilization    (million    production
                                                                                (percent)    gallons)     (million
                                                                                gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012..............................  INEOS Bio...........  Vero Beach, FL......  Ethanol.............            8           50          4.0          4.0
2012..............................  KiOR................  Columbus, MS........  Liquids.............           11           50          5.5          9.0
Various...........................  Various Pilot Plants  Various.............  Ethanol.............            1           10          0.1          0.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Capacity and Production for 2013..........................................................           20           48          9.6         13.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    EIA's projections of cellulosic biofuel production in 2013 are very
similar to EPA's projections discussed above and summarized in Section
II.C.6 below. The lists of companies that EIA and EPA expect to
generate cellulosic biofuel RINS in 2013 are the same. There are,
however, differences in the volumes of cellulosic biofuel expected to
be produced at the production facilities listed. EPA has higher
projections of cellulosic biofuel production for INEOS Bio (6 million
gallons vs. 4 million gallons) and lower projections for KiOR (8
million ethanol-equivalent gallons vs. 9 million ethanol equivalent
gallons). These variations are a result of different methodologies used
by EIA and EPA to project biofuel production in future years. Both
INEOS Bio and KiOR are structurally complete commercial scale
facilities that plan to operate throughout 2013. In their projections
EIA has used a utilization rate of 50% for both of these facilities.
Rather than use utilization rates to project production, EPA has
estimated ramp-up schedules for the both INEOS Bio and KiOR. The ramp-
up schedules estimated for these facilities differ from each other and
were developed based on information received from the companies and
EPA's knowledge of the production processes used by each company. We
believe these different ramp-up schedules, which correspond to
different effective utilization rates, are appropriate due to the
significant differences in the technologies used by INEOS Bio and KiOR
to produce cellulosic biofuel. EPA and EIA both considered the timing
of the anticipated start up of these facilities along with anticipated
ramp-up schedules/utilization rates in projecting volume production for
2013.

As both facilities plan to start production at approximately the same
time, the difference in the effective utilization rates represented by
EPA's projected volumes for these companies is the result of
anticipated ramp-up schedules. More information on the ramp-up
schedules used by EPA in our projected production volumes for INEOS Bio
and KiOR can be found in Section II.C.1 above.
    While the cellulosic biofuel volume projections for 2013 provided
by EIA are not identical to those being finalized in this rule EPA
believes that they are similar enough to support the volumes we are
finalizing. Where differences exist they are due to differences in the
ramp-up schedules estimated by EPA and the utilization factors used by
EIA for the two companies expected to produce cellulosic biofuel in
2013. As discussed above, EPA believes the approach we have taken is
appropriate. EPA has interpreted section CAA 211(o)(7)(D) as vesting
the authority for making the projection with EPA, and is not re-opening
that interpretation for comment in today's proposal. As described in
past rulemakings, the statute provides that the projection is
``determined by the Administrator based on the estimate provided [by
EIA].'' Congress did not intend that EPA simply adopt EIA's projection
without an independent evaluation. EPA's consideration of EIA's
estimate in developing this proposal is consistent with EPA's
consideration of EIA's estimate in the past rulemakings involving a
reduction of the volume standard for cellulosic biofuel. EPA's
interpretation and implementation of the obligation to base its
projection on the EIA estimate recently was upheld in API v. EPA, No.
12-1139, slip op. at 5-9 (D.C. Cir. January 25, 2013).
6. Summary of Volume Projections
    The information we have gathered on cellulosic biofuel producers,
described above, allows us to project production volumes for each
facility in 2013. For the purposes of this proposed rulemaking we have
focused on commercial-scale cellulosic biofuel production facilities.
We believe our focus on commercial-scale facilities is appropriate as
the industry transitions from small-scale R&D and pilot facilities to
large-scale commercial production. It is likely that several small-
scale facilities such as API, KL Energy, ZeaChem, and others will also
produce some cellulosic biofuel in 2013. Indeed, EIA's projection from
such facilities was only 0.1 million gallons in 2013. This volume is
quite small in relation to that expected from the two commercial-scale
facilities for which we have projected volumes in 2013 (see Table
II.C.6-1 below). Additionally, while RINs may be generated for any
cellulosic biofuel produced from these small R&D and pilot facilities,
historically many have chosen not to do so for a variety of reasons. We
are therefore not proposing to include a volume projection from these
facilities. We invite comment on this issue.
    In 2013 as many as four domestic cellulosic biofuel production
facilities have the potential to produce fuel at commercial scale. Each
of these facilities is discussed above, and the facility production
targets for each are summarized in Table II.C.6-1 below. Two of the
companies that have the potential to produce cellulosic biofuel in
2013, Abengoa and Fiberight, are not planning on beginning fuel
production until late in the year. Even a small delay in their expected
production timeline could result in their failure to produce any
cellulosic biofuel in 2013. For the purpose of this proposal,
therefore, we are not projecting production from these facilities in
2013 consistent with EIA.
    When added together, the total projected production volume from
commercial-scale production facilities in the United States in 2013 is
11 million gallons (14 million ethanol-equivalent gallons). This number
represents the expected fuel production from each facility, taking into
account the EIA estimates and the many factors described in detail
above.

                                             Table II.C.6-1--Projected Available Cellulosic Biofuel for 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                2013
                                                                                Design        First production      projected
           Company name                  Location              Feedstock               Fuel             capacity         (projected)         available
                                                                                (MGY)                             volume (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abengoa..........................  Hugoton, KS.........  Corn Stover.........  Ethanol.............              24  4th Quarter 2013...               0
Fiberight........................  Blairstown, IA......  MSW.................  Ethanol.............               6  4th Quarter 2013...               0
INEOS Bio........................  Vero Beach, FL......  Vegetative Waste....  Ethanol.............               8  1st Quarter 2013...               6
KiOR.............................  Columbus, MS........  Wood Waste..........  Gasoline and Diesel.              11  1st Quarter 2013...               8
Various Pilot/Demo Plants........  N/A.................  N/A.................  N/A.................             N/A  N/A................               0
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total..........................................................................................              49  ...................              14
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Proposed Cellulosic Biofuel Volume for 2013

    In today's NPRM we are proposing a volume for the 2013 cellulosic
biofuel standard that is based on EIA's estimate, production volumes
developed in consultation with the companies expected to produce
cellulosic biofuel from commercial-scale facilities in 2013, and EPA's
judgment. Many factors have been taken into consideration in developing
these projections, such as the EIA estimate, the current status of
project funding, the status of the production facility, anticipated
construction timelines, the anticipated start-up date and ramp-up
schedule, feedstock supply, intent to generate RINs, and many others.
Moreover, all of the companies included in our 2013 volume projections
have invested a significant amount of time and resources developing
their technologies at R&D and demonstration-scale facilities prior to
the design and construction of their first commercial-scale facilities.
The projects have solid financial backing; for example the INOES Bio
project is backed by federal loan guarantees. By the time of our final
rule the facilities owned by KiOR and INEOS Bio are scheduled to have
already begun fuel production, making our 2013 projections more
reliable than prior year projections. We believe the sum of these
individual projected available volumes (14 million ethanol-equivalent
gallons) is a reasonable representation of expected production. This
projection reflects EPA's best estimate of what will actually happen in
2013.\18\
---------------------------------------------------------------------------

    \18\ See API v. EPA, No. 12-1139, slip op. at 10 (D.C. Cir.
January 25, 2013).

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

    It is important to note that the final cellulosic biofuel standard
for 2013 may be set at a volume that differs from the proposed volume.
This could happen for a variety of reasons, including unexpected
project modifications or cancellations or the inclusion of volumes of
cellulosic biofuel from sources other than those listed above. For
example, the proposed projected available volume of cellulosic biofuel
in 2013 discussed above (14 million ethanol-equivalent gallons) does
not include potential contributions from cellulosic ethanol produced
from corn fiber or transportation fuels derived from landfill biogas
such as CNG. Together, these pathways could generate several tens of
millions of gallons of ethanol-equivalent renewable fuel. However,
since it is uncertain when our evaluation of these pathways will be
completed we have not included their volumes in our 2013 projection in
this NPRM. If any of these pathways are approved prior to the final
rule, additional volume from these sources may be added to the target
production volumes listed in Table II.C.5-1 for the final rule.
    We will continue to monitor the progress of the cellulosic biofuel
industry, in particular the progress of the companies which form the
basis of our proposed 2013 volume projection. As time progresses and we
are able to track whether or not the cellulosic biofuels producers are
able to meet the construction and ramp-up schedules they have
presented, and after considering public comments we receive on this
proposal, we will have a clearer idea of the appropriate volume of fuel
that we can reasonably expect to be produced and made commercially
available in 2013.

III. Assessment of Advanced Biofuel and Total Renewable Fuel for 2013

    As described in Section I, the volumes of renewable fuel to be used
under the RFS2 program each year (absent an adjustment or waiver by
EPA) are specified in CAA 211(o)(2). For 2013, the applicable volume of
advanced biofuel is 2.75 bill gal and the applicable volume of total
renewable fuel is 16.55 bill gal. However, the statute gives EPA the
discretion to reduce these volume requirements in the event that the
cellulosic biofuel volume requirement is reduced. While we are not
proposing to reduce the required volumes of advanced biofuel and total
renewable fuel for 2013, we request comment on whether and to what
extent a reduction is warranted. We have the discretion to reduce the
advanced biofuel volume and the total renewable requirements for 2013
by up to the amount that the cellulosic biofuel volume requirement is
reduced (986 mill gal in today's proposal). This section discusses our
evaluation of these two volume requirements.

A. Statutory Requirements

    According to CAA 211(o)(7)(D)(i), if EPA determines that the
projected volume of cellulosic biofuel production for the following
year is less than the applicable volume provided in the statute, then
EPA must reduce the applicable volume of cellulosic biofuel to the
projected volume available during that calendar year. Under such
circumstances, EPA also has the discretion to reduce the applicable
volumes of advanced biofuel and total renewable fuel by an amount not
to exceed the reduction in cellulosic biofuel.
    Section 211(o)(7)(D)(i) provides that ``For any calendar year in
which the Administrator makes such a reduction, the Administrator may
also reduce the applicable volume of renewable fuel and advanced
biofuels requirement established under paragraph (2)(B) by the same or
a lesser volume.'' Thus Congress authorized EPA to reduce the volume of
total renewable fuel ``and'' advanced biofuels. This indicates a clear
Congressional intention that EPA may reduce both the total renewable
and advanced biofuel volume together, not one or the other.
    This is consistent with the structure of the national volume
standards, where the volume standards are nested and are not separate,
unrelated standards. Congress established the advanced biofuel standard
and its subsets as integral parts of the total renewable fuel standard.
The volume requirements are interrelated and work together to achieve
the goals of increasing the displacement of fossil fuel and increasing
the use of fuels that reduce greenhouse gases. As described in the NPRM
for the RFS2 program, we do not believe it would be appropriate to
lower the advanced biofuel standard but not the total renewable
standard, as doing so would allow conventional biofuels to effectively
be used to meet the standards that Congress specifically set for
advanced biofuels. See 74 FR 24915, May 26, 2009. EPA interprets this
provision as authorizing EPA to reduce both total renewable fuel and
advanced biofuel, by the same amounts, if EPA reduces the volume of
cellulosic biofuel. The reductions in total renewable fuel and advanced
biofuel can be up to but no more than the amount of reduction in the
cellulosic biofuel volume.
    Since cellulosic biofuel is also used to satisfy the advanced
biofuel standard and the total renewable fuel standard, any reductions
in the applicable volume of cellulosic biofuel will also affect the
means through which obligated parties comply with these two other
standards. Congress established the volume requirements for advanced
biofuel and total renewable fuel in conjunction with the specified
cellulosic biofuel volumes, as interrelated standards. Therefore it is
appropriate to consider a possible reduction in the advanced biofuel
and total renewable fuel applicable volumes when EPA reduces the
cellulosic biofuel volume below the applicable volume for cellulosic
biofuel set forth in the statute.
    In 2013 the applicable volume of cellulosic biofuel specified in
the statute represents more than a third of the advanced biofuel volume
(1.0 bill gal out of 2.75 bill gal), a higher fraction than in any
previous year. A substantial reduction in the applicable volume of
cellulosic biofuel could potentially also have a substantial impact on
the sufficiency of volumes to meet the advanced biofuel and total
renewable fuel standards. As described in Section II.D above, we are
indeed proposing a projected available volume of cellulosic biofuel for
2013 at significantly below the statutory applicable volume of 1.0
billion gallons. If we were to finalize a cellulosic biofuel applicable
volume of 14 mill gallons for 2013, we would have the discretion to
reduce the advanced biofuel and total renewable fuel applicable volumes
by up to 986 mill gallons (ethanol-equivalent). Therefore, we believe
that an investigation into the availability of advanced biofuel and
total renewable fuel is warranted.
    The statute does not provide any explicit criteria that must be met
or factors that must be considered when making a determination as to
whether and to what degree to reduce the advanced biofuel and total
renewable fuel applicable volumes when we have the discretion under CAA
211(o)(7)(D)(i) to do so. However, in general we believe that it would
not be consistent with the energy security \19\ and greenhouse gas
reduction goals of the statute to reduce the applicable volume of
advanced biofuel set forth in the statute if there are sufficient
volumes of advanced biofuels available, even if those volumes do not
include the amount of cellulosic biofuel that Congress may have
desired.
---------------------------------------------------------------------------

    \19\ The energy security analysis took into account both
domestic and foreign sources of advanced biofuel.
---------------------------------------------------------------------------

    Due to its relevance to RFS volume requirements, we note here that
in the summer of 2012 and in light of drought

conditions affecting much of the country, Governors from several States
and a number of organizations requested a waiver of the national volume
requirements for the RFS pursuant to Section 211(o)(7)(A) of the Clean
Air Act. The general waiver authority granted in this part of the
statute is different from the authority granted in Section 211(o)(7)(D)
that allows the advanced biofuel and total renewable fuels volume
requirements to be reduced in the event that the cellulosic biofuel
volume is reduced. After extensive analysis, review of thousands of
comments, and consultation with the Department of Agriculture and the
Department of Energy, the EPA on November 27, 2012 published a Federal
Register decision denying the requests for a waiver.\20\ The Federal
Register notice contains a detailed description of the analysis EPA
conducted in conjunction with DOE and USDA, along with a discussion of
relevant comments we received through our public comment process.
---------------------------------------------------------------------------

    \20\ 77 FR 70752, November 27, 2012.
---------------------------------------------------------------------------

B. Assessment of Available Volumes of Advanced Biofuel

    Renewable fuels that can be used to meet the standard for advanced
biofuel include those with Renewable Identification Number (RIN) codes
of 3, 4, 5, or 7. Table III.B-1 shows the number of each of these types
of RIN that was generated in 2011. For the final rule, we will update
our analysis with estimates from 2012.
---------------------------------------------------------------------------

    \21\ 2011 data from the EPA-Moderated Transaction System (EMTS)

               Table III.B-1--2011 RINs That Qualified To Meet the Advanced Biofuel Standard \21\
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                Renewable      Biogas and
       D code                  Category               Ethanol        Biodiesel        diesel        heating oil
----------------------------------------------------------------------------------------------------------------
3..................  Cellulosic biofuel.........               0               0               0               0
4..................  Biomass-based diesel.......               0           1,600              76               0
5..................  Advanced biofuel...........             186               0              27               8
7..................  Cellulosic diesel..........               0               0               0               0
                                                 ---------------------------------------------------------------
                     Total......................                               1,895
----------------------------------------------------------------------------------------------------------------

    The total of 1,895 mill ethanol-equivalent gallons is significantly
higher than the 1,350 mill gal required in 2011 and nearly as high as
the 2012 advanced biofuel requirement of 2,000 mill gal. This result
supports our projection in the rulemaking setting the 2012 standards
\22\ that there was no need to reduce the 2012 advanced biofuel
requirement despite the significant reduction in the applicable volume
of cellulosic biofuel.
---------------------------------------------------------------------------

    \22\ 77 FR 1320, published on January 9, 2012.
---------------------------------------------------------------------------

    The statutory volume requirement for advanced biofuel in 2013 is
2,750 mill gal, an increase of 750 mill gal over the 2012 requirement
of 2,000 mill gal. In order to determine the sufficiency of advanced
biofuel volumes to meet a requirement for 2,750 mill gal in 2013, we
first accounted for biomass-based diesel and cellulosic biofuels that
would be required under the standards we are proposing today. As shown
in Table III.B-2, the result is that there would need to be 816 mill
ethanol-equivalent gallons of other advanced biofuels in order to meet
the total advanced biofuel requirement of 2,750 mill gal.

 Table III.B-2--Necessary Volume of Advanced Biofuel (Mill gal ethanol-
                               equivalent)
------------------------------------------------------------------------

------------------------------------------------------------------------
2013 Advanced biofuel applicable volume.................           2,750
Cellulosic biofuel requirement..........................              14
Biomass-based diesel requirement........................       \a\ 1,920
Necessary volume of excess biodiesel, other domestic                 816
 advanced biofuels, and/or imported sugarcane ethanol...
------------------------------------------------------------------------
\a\ In 2011, a substantial majority of biomass-based diesel was
  biodiesel. Moreover, we expect further increases in biomass-based
  diesel to be met primarily with expanded biodiesel. Therefore, for
  this analysis we have assumed that the 1.28 bill gal requirement is
  composed entirely of biodiesel with an equivalence value of 1.5.

    We have identified a variety of sources of advanced biofuel that
could meet the need for 816 mill gal of additional advanced biofuel,
including the following:

 Biodiesel in excess of that required to meet the volume
requirement of 1.28 bill gal
 Domestically produced advanced biofuels such as renewable
diesel that does not qualify as biomass-based diesel, heating oil and
qualifying fuel oil, and ethanol and other qualifying renewable fuels
from separated food wastes
 Imported sugarcane ethanol

We have investigated each of these sources as discussed below.
1. Biodiesel
    In a separate action, we have finalized a biomass-based diesel
volume of 1.28 bill gal for 2013. However, biomass-based diesel volumes
above 1.28 bill gal are possible. As of October 2012, the aggregate
production capacity of biodiesel plants in the U.S. is estimated to be
2.1 billion gallons per year across 107 facilities.\23\ This includes
idled plants, those producing at less than full capacity, and those
that are producing products other than biodiesel. We expect the time
and reinvestment required to ramp up biodiesel production at existing
facilities to be likely on the order of 1-2 months, significantly less
than the time required to build and begin production at new plants,
which takes about a year on average.\24\ Thus, restarting idled plants
is likely to be a cost-effective way of exceeding the applicable
volumes of 1.28 bill gal in 2013 if a demand for such production
exists.
---------------------------------------------------------------------------

    \23\ Figures taken from Table 4, ``Monthly Biodiesel Production
Report,'' EIA, December 2012.
    \24\ Based on construction times for new plants listed in
Biodiesel Magazine from July 2006 through May 2009.
---------------------------------------------------------------------------

    Moreover, the biodiesel industry has demonstrated that it can
increase production quickly under appropriate circumstances. Total
production of biomass-based diesel in 2011 exceeded 1.0 bill gal,
compared to a 2010

production of about 380 mill gallons.\25\ In response to the NPRM
published on July 1, 2011, some stakeholders expressed doubts that such
increases could occur by 2012.\26\ Nevertheless, based on the single-
year increase of more than 600 mill gal in 2011 and the total capacity
of existing plants described above, it is possible that the industry
could achieve increases in production of both the 280 mill gallon
increment that is reflected in the biomass-based diesel requirement for
2013 as well as some ``excess'' production.
---------------------------------------------------------------------------

    \25\ All values from EMTS. 2010 estimate consists of
approximately 209 mill gallons as recorded through EMTS for volume
produced under the RFS2 regulations in July through December of
2010, and approximately 171 mill gallons as recorded through RIN
generation reports submitted by producers for volume produced under
the RFS1 regulations in January through June of 2010.
    \26\ See comments in docket EPA-HQ-OAR-2010-0133 from the
American Petroleum Institute, Marathon Petroleum Company, and the
National Petrochemical Refiners Association.
---------------------------------------------------------------------------

    Recently, the tax credit for biodiesel was reinstated after having
expired at the end of 2011.\27\ This tax credit, applicable
retroactively to 2012 and through the end of 2013, may provide
additional incentives to produce and consume biodiesel volumes in
excess of the 1.28 bill gal requirement. EPA is requesting comment on
what effect the tax credit will have on the advanced biofuel production
volumes and the whether this would affect the incentives to import
sugarcane ethanol and to what extent.
---------------------------------------------------------------------------

    \27\ ``Congress Votes to Reinstate Biodiesel Tax Incentive,''
January 2, 2013. http://biodiesel.org/news/biodiesel-news/news-display/2013/01/02/congress-votes-to-reinstate-biodiesel-tax-incentive.
---------------------------------------------------------------------------

    Nevertheless, there are a variety of factors that make the
potential for 2013 biodiesel volumes in excess of 1.28 bill gal
uncertain. For instance, despite the significant excess production
capacity, the industry may not make the necessary preparations for
excess production above 1.28 bill gal, such as restarting idled plants
or establishing contracts for feedstocks supply, until such time as it
becomes clear what the demand for excess biodiesel might be. This might
not occur until later in 2013. Moreover, biodiesel production rates are
currently and will continue to be at a historic high. The industry that
supplies feedstocks for biodiesel production will be adjusting supplies
and distribution routes to ensure that the 1.28 bill gal volume
requirement is met, and biodiesel distribution and blending
infrastructure is being upgraded to ensure that those volumes can be
consumed. However, it is unclear if those adjustments and upgrades will
be designed to accommodate biodiesel production in 2013 of volumes
above 1.28 bill gal. We request comment on the degree to which
biodiesel volumes in excess of the 1.28 bill gal requirement might be
expected.
2. Domestic Production of Other Advanced Biofuel
    Pathways that have been approved for the generation of RINs are
provided in the regulations in Table 1 to Sec.  80.1426. Apart from
ethanol made from sugarcane which is permitted to generate advanced
biofuel RINs, there are currently three pathways through which advanced
biofuel RINs can be generated. These three are shown in Table III.B.2-
1.

             Table III.B.2-1--Pathways for Advanced Biofuel
------------------------------------------------------------------------
                                                     Production process
          Fuel type                 Feedstock           requirements
------------------------------------------------------------------------
Ethanol.....................  Grain Sorghum.......  Dry mill process,
                                                     using only biogas
                                                     from landfills,
                                                     waste treatment
                                                     plants, and/or
                                                     waste digesters for
                                                     process energy and
                                                     for on-site
                                                     production of all
                                                     electricity used at
                                                     the site other than
                                                     up to 0.15 kWh of
                                                     electricity from
                                                     the grid per gallon
                                                     of ethanol
                                                     produced,
                                                     calculated on a per
                                                     batch basis.
Biodiesel, renewable diesel   Soy bean oil; Oil     One of the
 \28\.                         from annual           following:
                               covercrops; Algal    Trans-
                               oil; Biogenic waste   Esterification.
                               oils/fats/greases;   Hydrotreating.
                               Non-food grade corn  Includes only
                               oil.                  processes that co-
                                                     process renewable
                                                     biomass and
                                                     petroleum.
Ethanol, renewable diesel,    The non-cellulosic    Any.
 jet fuel, heating oil, and    portions of
 naphtha.                      separated food
                               waste.
Biogas......................  Landfills \29\,       Any.
                               sewage waste
                               treatment plants,
                               manure digesters.
------------------------------------------------------------------------

In addition to producers of biomass-based diesel and cellulosic
biofuel, there are many companies either producing or developing
technologies to produce ``other advanced biofuels.'' In order to
estimate the volumes of other advanced biofuels that could be produced
by these companies in 2013, we investigated three sources of data:
---------------------------------------------------------------------------

    \28\ Our final action on the 2013 biomass-based diesel renewable
fuel volume provides further details with regards to which
feedstocks we believe will be used to meet that volume. See 77 FR
59458, September 27, 2012.
    \29\ Biogas from landfills could be generated from separated
food waste or yard waste.

    Production Outlook Reports. Required under Sec.  80.1449 for all
registered producers, these reports contain projections of renewable
fuel production for each of the next five years.\30\
---------------------------------------------------------------------------

    \30\ While the individual reports have not been published since
they include company-specific information that could impact the
competitive nature of the industry, we are providing aggregate
results in this NPRM.
---------------------------------------------------------------------------

    2011 producers. Data from the EPA-Moderated Transaction System
(EMTS) was reviewed to identify parties that produced some RIN-
generating advanced biofuel in 2011. Insofar as such parties did not
provide a projected 2013 volume in a Production Outlook Report, they
were contacted to update their 2013 projected production volume. We
will update this analysis with information from 2012 for the final
rule.
    Additional registered producers. We identified parties that were
registered as producers of advanced biofuel under the RFS program,
but neither produced RIN-generating volume in 2011 nor provided a
projection of 2013 production volume in a Production Outlook Report.
We contacted such parties to determine what, if any, volume could be
expected in 2013.

Based on these investigations, we identified twenty domestic companies
that are expected to produce some other advanced biofuel in 2013. The
total projected production volume for these companies in 2013 is about
115 mill

actual gallons, or 150 million ethanol-equivalent gallons, as shown in
Table III.B.2-2.

                Table III.B.2-2--Projected Domestic Production of Other Advanced Biofuel in 2013
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                     Renewable
                                      Ethanol         diesel        Heating oil         CNG            Total
----------------------------------------------------------------------------------------------------------------
Production Outlook Reports......              31              35               4               0              70
2011 producers..................              18              18               0               5              41
Other registered producers......               0              15              15               9              39
                                 -------------------------------------------------------------------------------
    Total.......................              49              68              19              14             150
----------------------------------------------------------------------------------------------------------------

    A projected volume of 150 mill ethanol-equivalent gallons of other
advanced biofuel in 2013 is also consistent with a 2011 report released
by E2/Environmental Entrepreneurs \31\ which estimated that the
production capacity of domestic advanced biofuels in 2012 would be
about 180 mill gal.
---------------------------------------------------------------------------

    \31\ Solecki, Mary et al, ``Advanced Biofuel Market Report 2011,