between years are relevant considerations. The volumes of biodiesel and
renewable diesel (including both D4 and D6 biodiesel and renewable
diesel) supplied each year from 2011 through 2015 are shown below.

[GRAPHIC] [TIFF OMITTED] TP31MY16.005

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

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

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

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

    Most biofuel types can be produced as either advanced biofuel (with
a D code of 3, 4, 5, or 7) or as conventional renewable fuel (with a D
code of 6), depending on the feedstock and production process used. Our
estimate of the supply of total renewable fuel shown in the table below
includes contributions from both advanced biofuels and conventional
renewable fuels.

 Table II.C.3-1--Volumes Used To Determine the Proposed Total Renewable
                    Fuel Volume Requirements in 2017
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------

------------------------------------------------------------------------
Ethanol....................................................       14,400
Biodiesel and renewable diesel (ethanol-equivalent volume/   4,050/2,700
 physical volume)..........................................
Biogas.....................................................          285
Other non-ethanol renewable fuels \a\......................           50
                                                            ------------
  Total renewable fuel.....................................       18,785
------------------------------------------------------------------------
\a\ Includes naphtha, heating oil, butanol, and jet fuel.

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

[GRAPHIC] [TIFF OMITTED] TP31MY16.006

D. Advanced Biofuel Volume Requirement

    As noted earlier, the CAA provides EPA with two waiver authorities.
For the 2014-2016 final rule, we used the cellulosic waiver authority
alone to reduce statutory volumes of advanced biofuel to levels we
determined to be reasonably attainable; in doing so we did not reduce
advanced biofuel by the full reduction in cellulosic biofuel. We
reduced total renewable fuel by the same amount using that authority,
and then by additional increment using the general waiver authority. As
discussed in Section II.A, EPA has broad discretion in using the
cellulosic waiver authority, since Congress did not specify the
circumstances under which it may or should be used nor the factors to
consider in determining appropriate volume reductions. We note that
increases in the statutory volume targets after 2015 are only in
advanced biofuel, and that advanced biofuel provides relatively large
GHG reductions in comparison to conventional renewable fuel. In light
of these facts, our approach in the 2014-2016 final rule was to set the
2016 advanced biofuel volume requirement at a level that was reasonably
attainable taking into account uncertainties related to such factors as
production, import, distribution, and consumption constraints
associated with these fuels. The result of that approach is that
reasonably attainable volumes of advanced biofuel will compensate for a
portion of the shortfall in cellulosic biofuel in 2016, thereby
promoting the larger RFS goals of reducing GHGs and enhancing energy
security. We are proposing to take the same approach to determining the
advanced biofuel volume requirement for 2017.
    Our proposed approach to identifying ``reasonably attainable''
volumes of advanced biofuel using the cellulosic waiver authority is
different than our proposed approach under the general waiver authority
of identifying the ``maximum reasonably achievable supply.'' In
proposing to exercise the cellulosic waiver authority in this
rulemaking, we are not required, and do not intend, to necessarily
identify the most likely ``maximum'' volumes of advanced biofuel that
can be used in 2017. We believe that in exercising our discretion under
the cellulosic waiver authority we can identify reasonably attainable
volumes in a manner that is similar to, but may be less exacting than,
a determination of inadequate domestic supply using the general waiver
authority.\40\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

  Table II.D-2--Volumes Used To Determine the Proposed Advanced Biofuel
                       Volume Requirements in 2017
          [Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel.........................................          312
Advanced biodiesel and renewable diesel (ethanol-equivalent  3,450/2,300
 volume/physical volume)...................................
Imported sugarcane ethanol.................................          200
Other non-ethanol advanced.................................           50
                                                            ------------
    Total advanced biofuel.................................        4,012
------------------------------------------------------------------------

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

to the RFS standards. However, given the uncertainty in these
estimates, the volumes of individual types of advanced biofuel may be
higher or lower than those shown above.
    The volume of advanced biofuel that we are proposing would require
increases from current levels that are substantial yet reasonably
attainable, taking into account the constraints on supply discussed
previously, our judgment regarding the ability of the standards we set
to result in marketplace changes, and the various uncertainties we have
described. Figure II.D-1 shows that the proposed advanced biofuel
volume requirement for 2017 would be significantly higher than the
volume requirements for advanced biofuel in previous years.
[GRAPHIC] [TIFF OMITTED] TP31MY16.007

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

E. Market Responses to the Proposed Advanced Biofuel and Total
Renewable Fuel Volume Requirements

    The transportation fuel market is dynamic and complex, and the RFS
program is only one of many factors that determine the relative types
and amounts of renewable fuel that will be used. We know that to meet
the proposed volume requirements, the market would need to respond by
increasing domestic production and/or imports of those biofuels that
have fewer marketplace constraints, by expanding the infrastructure for
distributing and consuming renewable fuel, and by improving the
relative pricing of renewable fuels and conventional transportation
fuels at the retail level to ensure that they are attractive to
consumers. However, we cannot precisely predict the mix of different
fuel types that would result. Nevertheless, we can delineate a range of
possibilities, and doing so provides a means of demonstrating that the
proposed volume requirements can reasonably be satisfied through
multiple possible paths.
    We evaluated a number of scenarios with varying levels of E85/E15,
E0, imported sugarcane ethanol, advanced biodiesel and renewable
diesel, and conventional biodiesel and renewable diesel (likely to be
made from palm oil). In doing so we sought to capture the range of
possibilities for each individual source, based both on levels achieved
in the past and how the market might respond to the proposed standards.
Each of the rows in Table II.E-1 represents a scenario in which the
proposed total renewable fuel and advanced biofuel volume requirements
would be satisfied.

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

200.....................................................             800             100          14,368             400           2,731           2,159
400.....................................................             600             300          14,469             638           2,664           2,000
400.....................................................             800             100          14,500               0           2,643           2,425
400.....................................................             800             100          14,500             200           2,643           2,292
400.....................................................             800             100          14,500             400           2,643           2,159
400.....................................................             800             100          14,500             638           2,643           2,000
400.....................................................             800             300          14,480             200           2,657           2,292
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Assumes for the purposes of these scenarios that supply of other advanced biofuel other than ethanol, BBD and renewable diesel (e.g. heating oil,
  naphtha, etc.) is 50 mill gal, and that the cellulosic biofuel final standard is 312 mill gal, of which 27 mill gal is ethanol and the remainder is
  primarily biogas.
\b\ Biomass-based diesel, conventional biodiesel, and total biodiesel are given as biodiesel-equivalent volumes, though some portion may be renewable
  diesel. Other categories are given as ethanol-equivalent volumes. Biodiesel-equivalent volumes can be converted to ethanol-equivalent volumes by
  multiplying by 1.5.
\c\ For the range of total ethanol shown in this table, the nationwide pool-wide average ethanol content would range from 10.09% to 10.20%.
\d\ Includes supply from both domestic producers as well as imports.

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

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

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

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

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

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

F. Impacts of Proposed Standards on Costs

    In this section we provide illustrative cost estimates for the
proposed standards. By ``illustrative costs,'' EPA means the cost
estimates provided are not meant to be precise measures, nor do they
attempt to capture the full impacts of the proposed rule. These
estimates are provided solely for the purpose of showing how the cost
to produce a gallon of a ``representative'' renewable fuel compares to
the cost of petroleum fuel. There are a significant number of caveats
that must be considered when interpreting these cost estimates. First,
there are a number of different feedstocks that could be used to
produce ethanol and biodiesel, and there is a significant amount of
heterogeneity in the costs associated with these different feedstocks
and fuels. Some fuels may be cost competitive with the petroleum fuel
they replace; however we do not have cost data on every type of
feedstock and every type of fuel. Therefore, we do not attempt to
capture this range of potential costs in our illustrative estimates.
    Second, as discussed in the final rule establishing the 1.28
billion gallon requirement for BBD in 2013, the costs and benefits of
the RFS program as a whole are best assessed when the program is fully
mature in 2022 and beyond.\46\ We continue to believe that this is the
case, as the annual standard-setting process encourages consideration
of the program on a piecemeal (i.e., year-to-year) basis, which may not
reflect the long-term economic effects of the program. Thus, EPA did
not quantitatively assess other direct and indirect costs or benefits
of increased renewable fuel volumes such as infrastructure costs,
investment, GHG reduction benefits, air quality impacts, or energy
security benefits, which all are to some degree affected by the
proposed rule. While some of these impacts were analyzed in the 2010
final rulemaking which established the current RFS program, we have not
fully analyzed these impacts for the 2017 volume requirements being
proposed. We have framed the analyses we have performed for this
proposed rule as ``illustrative'' so as not to give the impression of
comprehensive estimates.
---------------------------------------------------------------------------

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

    Third, at least two different scenarios could be considered the
``baseline'' for the assessment of the costs of this rule. One scenario
would be the statutory volumes (e.g., the volumes in the Clean Air Act
211(o)(2) for 2016) in which case this proposed rule would be reducing
volumes, reducing costs as well as decreasing expected GHG benefits.
For the purposes of showing illustrative overall costs of this
rulemaking, we use the preceding year's standard as the baseline (e.g.,
the baseline for the 2017 advanced standard is the proposed 2016
advanced standard), an approach consistent with past practices in
previous annual RFS rules.
    EPA is providing cost estimates for three illustrative scenarios--
one, if the entire change in the proposed advanced standards is met
with soybean oil BBD; two, if the entire change in the proposed
advanced standards is met with sugarcane ethanol from Brazil; and
three, if the entire proposed change in the total renewable fuel volume
standards that can be satisfied with conventional biofuels (i.e., non-
advanced) is met with corn ethanol. While a variety of biofuels could
help fulfill the advanced standard beyond soybean oil BBD and sugarcane
ethanol from Brazil, these two biofuels have been most widely used in
the past. The same is true for corn ethanol vis-a-vis the non-advanced
component of the total renewable fuel standard. We believe these
scenarios provide illustrative costs of meeting the proposed standards.
    For this analysis, we estimate the per gallon costs of producing
biodiesel, sugarcane ethanol, and corn ethanol relative to the
petroleum fuel they replace at the wholesale level, then multiply these
per gallon costs by the proposed applicable volumes in this rule for
the advanced (for biodiesel and sugarcane ethanol) and non-advanced
component of the total renewable fuel (for corn ethanol) categories.
More background information on this section, including details of the
data sources used and assumptions made for each of the scenarios, can
be found in a Memorandum submitted to the docket.\47\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

III. Cellulosic Biofuel Volume for 2017

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

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

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

A. Statutory Requirements

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

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

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

B. Cellulosic Biofuel Industry Assessment

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

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

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

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

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

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

    \60\ The volume projection from CNG/LNG producers does not
represent production from a single company or facility, but rather a
group of facilities utilizing the same production technology.
    \61\ The only known exception was a small volume of fuel
produced at a demonstration scale facility exported to be used for
promotional purposes.
    \62\ ``Cellulosic Biofuel Producer Company Descriptions (April
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
---------------------------------------------------------------------------

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

3. Summary of Volume Projections for Individual Companies

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

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

    \63\ ``Cellulosic Biofuel Producer Company Descriptions (April
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
    \64\ The Facility Capacity is generally equal to the nameplate
capacity provided to EPA by company representatives or found in
publicly available information. If the facility has completed
registration and the total permitted capacity is lower than the
nameplate capacity then this lower volume is used as the facility
capacity. For companies generating RINs for CNG/LNG derived from
biogas the Facility Capacity is equal to the lower of the annualized
rate of production of CNG/LNG from the facility or the sum of the
volume of contracts in place for the sale of CNG/LNG for use as
transportation fuel (reported as the actual peak capacity for these
producers).
    \65\ Where a quarter is listed for the first production date EPA
has assumed production begins in the middle month of the quarter
(i.e., August for the 3rd quarter) for the purposes of projecting
volumes.
    \66\ For more information on these facilities see ``April 2016
Assessment of Cellulosic Biofuel Production from Biogas (2017)'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.

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

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

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

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

    \68\ We did not assume a six-month straight-line ramp-up period
in determining the high end of the projected production range for
CNG/LNG producers. This is because these facilities generally have a
history of CNG/LNG production prior to producing RINs, and therefore
do not face many of the start-up and scale-up challenges that impact
new facilities. For further information on the methodology used to
project cellulosic RIN generation from CNG/LNG producers see ``April
2016 Assessment of Cellulosic Biofuel Production from Biogas
(2017)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-
HQ-OAR-2016-0004.
    \69\ For additional detail on the methods used to project
cellulosic biofuel production for CNG/LNG producers see ``April 2016
Assessment of Cellulosic Biofuel Production from Biogas (2017)'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.

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

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

   Table III.C-2--2017 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
Ensyn...................................           \b\ X               3
Poet....................................           \b\ X              24
Quad County Corn Processors.............           \b\ X               5
                                         -------------------------------
    Aggregate Range.....................               3              32
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
\b\ The low end of the range for each individual company is based on
  actual production volumes and is therefore withheld to protect
  information claimed to be confidential business information.

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

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

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

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

    We believe our range of projected production volumes for each
company (or group of companies for cellulosic CNG/LNG producers)
represents the range of what is likely to actually happen, and that
projecting overall production in 2017 in the manner described above
results in a neutral estimate (neither biased to produce a projection
that is unreasonably high or low) of likely cellulosic biofuel
production in 2017 (312 million gallons). A brief overview of
individual companies we believe will produce cellulosic biofuel and
make it commercially available in 2017 can be found in a memorandum to
the docket.\71\ In the case of cellulosic biofuel produced from CNG/LNG
we have discussed the production potential from these facilities as a
group rather than individually. EPA believes it is appropriate to
discuss these facilities as a group since they are using a proven
production technology and face many of the same challenges related to
demonstrating that the fuel they produce is used as transportation fuel
and therefore eligible to generate RINs under the RFS program.\72\ We
request comment on the methodology used to project cellulosic biofuel
production in 2017, as well as on the group of companies listed as
potential cellulosic biofuel producers and the volume of cellulosic
biofuel projected to be produced in 2017.
---------------------------------------------------------------------------

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

IV. Biomass-Based Diesel Volume for 2018

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

A. Statutory Requirements

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

B. Determination of Applicable Volume of Biomass-Based Diesel

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

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

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

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

    \73\ Net BBD RINs Generated and BBD RINs Retired for Non-
Compliance Reasons information from EMTS. Biodiesel Export
information from EIA.http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_a.htm.
    \74\ Each gallon of biodiesel qualifies for 1.5 RINs due to its
higher energy content per gallon than ethanol. Renewable diesel
qualifies for between 1.5 and 1.7 RINs per gallon.
    \75\ The biodiesel tax credit was reauthorized in January 2013.
It applied retroactively for 2012 and for the remainder of 2013. It
was once again extended in December 2014 and applied retroactively
to all of 2014 as well as to the remaining weeks of 2014. In
December 2015 the biodiesel tax credit was once authorized and
applied retro-actively for all of 2015 as well as through the end of
2016.
---------------------------------------------------------------------------

2. Interaction Between BBD and Advanced Biofuel Standards
    The BBD standard is nested within the advanced biofuel and total
renewable fuel standards. This means that when an obligated party
retires a BBD RIN (D4) to satisfy their BBD obligation, this RIN also
counts towards meeting their advanced biofuel and total renewable fuel
obligations. It also means that obligated parties may use BBD RINs in
excess of their BBD obligations to satisfy their advanced biofuel and
total renewable fuel obligations. Higher advanced biofuel and total
renewable fuel standards, therefore, create demand for BBD, especially
if there is an insufficient supply of other advanced or conventional
renewable fuels to satisfy the standards, or if BBD RINs can be
acquired at or below the price of other advanced or conventional
biofuel RINs.
    In reviewing the implementation of the RFS program to date, it is
apparent that the advanced and/or total renewable fuel requirements
were in fact helping grow the market for volumes of biodiesel above the
BBD standard. In 2013 the number of advanced RINs generated from fuels
other than BBD was not large enough to satisfy the implied standard for
``other advanced'' biofuel (advanced biofuel needed to satisfy the
advanced biofuel standard after the BBD and cellulosic biofuel
standards are met), and additional volumes of BBD filled the gap (see
Table IV.B.2-1 below). In fact, the amount by which the available BBD
RINs exceeded the 1.28 billion gallon BBD volume requirement (421
million RINs) was larger than the amount of such excess BBD needed to
satisfy the advanced biofuel standard (278 million RINs), suggesting
that the additional increment was incentivized by the total renewable
fuel standard. As discussed above, the 2014 and 2015 BBD standards were
intended to reflect the full number of available BBD RINs in these
years and were set in late 2015, at which point the number of available
RINs in these years was largely known. We can therefore draw no
conclusions about the ability for the advanced and total renewable fuel
standards to incentivize BBD production from these years. While the
available BBD RINs in 2012 were slightly less than the BBD standard
despite the opportunity to contribute towards meeting the advanced and
total renewable fuel standards, there are several factors beyond the
RFS standards (2012 drought, expiration of the biodiesel tax credit,
opportunities for increased ethanol blending as E10) that likely
impacted BBD production in 2012. We continue to believe that the
advanced biofuel and total renewable fuel standards can provide a
strong incentive for increased BBD volume in the United States in
excess of that required to satisfy the BBD standard (for further
discussion on this issue see 80 FR 77492).

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

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

    \76\ This is because when an obligated party retires a BBD RIN
to help satisfy their BBD obligation, the nested nature of the BBD
standard means that this RIN also counts towards satisfying their
advanced and total renewable fuel obligations. Advanced RINs count
towards both the advanced and total renewable fuel obligations,
while conventional RINs (D6) count towards only the total renewable
fuel obligation.
    \77\ We would still expect D4 RINs to be valued at a slight
premium to D5 and D6 RINs in this case (and D5 RINs at a slight
premium to D6 RINs) to reflect the greater flexibility of the D4
RINs to be used towards the BBD, advanced biofuel, and total
renewable fuel standard. This pricing has been observed over the
past several years.
    \78\ Although we did not issue a rule establishing the final
2013 standards until August of 2013, we believe that the market
anticipated the final standards, based on EPA's July 2011 proposal
and the volume targets for advanced and total renewable fuel
established in the statute. (76 Fed Reg 38844, 38843.)

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

[GRAPHIC] [TIFF OMITTED] TP31MY16.008

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

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

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

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

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

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

C. Consideration of Statutory Factors for 2018

    In this section we discuss our consideration of the statutory
factors set forth in CAA section 211(o)(2)(B)(ii)(I)-(VI). As noted
earlier in Section IV.B.2, the BBD volume requirement is nested within
the advanced biofuel requirement and the advanced biofuel requirement
is, in turn, nested within the total renewable fuel volume requirement.
This means that any BBD produced beyond the mandated BBD volume can be
used to satisfy both these other applicable volume requirements. The
result is that in considering the statutory factors we must consider
the potential impacts of increasing BBD in comparison to other advanced
biofuels.\81\ For a given advanced biofuel standard, greater or lesser
applicable volumes of BBD do not change the amount of advanced biofuel
used to displace petroleum fuels; rather, increasing the BBD applicable
volume may result in the displacement of other types of advanced
biofuels that could have been used to meet the advanced biofuels volume
requirement.
---------------------------------------------------------------------------

    \81\ While excess BBD production could also displace
conventional biofuel under the total renewable standard, as long as
the BBD applicable volume is lower than the advanced biofuel
applicable volume our proposed action in setting the BBD applicable
volume is not expected to displace conventional biofuels under the
total renewable standard, but rather other advanced biofuels. See
Table II.E-1.
---------------------------------------------------------------------------

    EPA's primary assessment of the statutory factors for the proposed
2018 BBD applicable volume is that because the proposed BBD requirement
is nested within the advanced biofuel volume requirement, we expect
that the 2018 advanced volume requirement will largely determine the
level of BBD production and imports; the same volume of BBD would
likely be supplied regardless of the BBD volume that we require for
2018. This assessment is based, in part, on our review of the RFS
program implementation to date, as discussed in Section IV.B.1. While
we are not proposing the 2018 advanced biofuel volume requirement in
this action, our proposal for the BBD volume requirement for 2018 is
nevertheless not expected to impact the volume of BBD that is actually
produced and imported during this time period. Thus we do not expect
our decision to result in a difference in the factors we are required
to consider pursuant to CAA section 211(o)(2)(B)(ii)(I)-(VI). However,
we note that our proposed approach of setting BBD volume requirements
at a higher level in 2018, while still at a volume level lower than
anticipated overall production and consumption of BBD, is consistent
with our evaluation of statutory factors 211(o)(2)(B)(ii) (I), (II) and
(III), since we believe that our decision on the BBD volume requirement
can have a positive impact on the future development and marketing of
other advanced biofuels and can also result in potential environmental
and energy security benefits, while still sending a supportive signal
to potential BBD investors, consistent with the objectives of the Act
to support the continued growth in production and use of renewable
fuels.
    Even though we are proposing only the 2018 BBD volume requirement
at this time and not the 2018 advanced biofuel requirement, we believe
that our primary assessment with respect to the 2018 BBD volume
requirement is appropriate, as is clear from the fact that

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

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

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

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

    In proposing the 2018 advanced biofuel volume requirement, we have
assumed reasonably attainable volumes of BBD and other advanced
biofuels. After determining that it is in the interest of the goals of
the program to propose a BBD volume requirement at a level below
anticipated BBD production and imports, so as to provide continued
incentives for research and development of alternative advanced
biofuels, it is apparent that excess BBD above the BBD volume
requirement will compete with other advanced biofuels, rather than
petroleum based diesel.\84\ The only way for our proposed BBD volume
requirement to result in a direct displacement of petroleum-based
fuels, rather than other advanced biofuels, would be if the BBD volume
requirement were set larger than the total renewable fuel requirement.
However, since BBD is a type of advanced biofuel, and advanced biofuel
is a type of renewable fuel, the BBD volume requirement could never be
larger than the advanced requirement and the advanced biofuel
requirement could never be larger than the total renewable fuel
requirement. Thus, EPA continues to believe that it is appropriate to
evaluate the impact of its action in setting the BBD volume
requirements by evaluating the impact of using BBD as compared to other
advanced biofuels in satisfying the increment of the advanced biofuel
standard that is not guaranteed to BBD.
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    \84\ The possibility for competition between BBD and other types
of advanced biofuels is not precluded by our setting the advanced
biofuel requirement at a level that reflects reasonably attainable
volumes of all advanced biofuel types, or by our setting the total
renewable fuel applicable volume at a level that reflects that
maximum reasonably achievable volume of all fuel types. Any of our
estimates related to a particular fuel type could prove to be either
an over or under estimate. We are confident that the sum of all
individual estimates used in setting the applicable volumes are
reasonable, and more accurate than our individual estimates for any
particular fuel type. It is at the margin where our estimates
regarding production and import of individual fuel types may be in
error that competition between qualifying fuels can take place.
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    Overall and as described in our memorandum to the docket, we have
determined that both the primary assessment and the supplemental
assessment of the statutory factors specified in CAA section
211(o)(2)(B)(ii)(I)-(VI) for the year 2018 does not provide significant
support for setting the BBD standard at a level higher or lower than
2.1 billion gallons in 2018.

V. Percentage Standards for 2017

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

   Table V-1--Proposed Volumes for Use in Setting the 2017 Applicable
                          Percentage Standards
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel (million gallons)....................             312
Biomass-based diesel (billion gallons) \a\..............             2.0
Advanced biofuel (billion gallons)......................             4.0
Renewable fuel (billion gallons)........................            18.8
------------------------------------------------------------------------
\a\ Represents physical volume.

A. Calculation of Percentage Standards

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

calculation of the BBD standard provides that the applicable physical
volume be multiplied by 1.5. The net result is a BBD gallon being worth
1.0 gallon toward the BBD standard, but worth 1.5 gallons toward the
other standards.

B. Small Refineries and Small Refiners

    In CAA section 211(o)(9), enacted as part of the Energy Policy Act
of 2005, and amended by the Energy Independence and Security Act of
2007, Congress provided a temporary exemption to small refineries \85\
through December 31, 2010. Congress provided that small refineries
could receive a temporary extension of the exemption beyond 2010 based
either on the results of a required DOE study, or based on an EPA
determination of ``disproportionate economic hardship'' on a case-by-
case basis in response to small refinery petitions.\86\ In reviewing
petitions, EPA, in consultation with the Department of Energy,
evaluates the impacts petitioning refineries would likely face in
achieving compliance with the RFS requirements and how compliance would
affect their ability to remain competitive and profitable.
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    \85\ A small refiner that meets the requirements of 40 CFR
80.1442 may also be eligible for an exemption.
    \86\ For 2011 and 2012, 13 small refineries were granted an
extension to the statutory exemption based on the findings of a
Department of Energy investigation into the disproportionate
economic hardship experienced by small refineries.
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    EPA has granted some exemptions pursuant to this process in the
past. However, at this time, no exemptions have been approved for 2017,
and therefore we have calculated the proposed percentage standards for
this year without an adjustment for exempted volumes. Any requests for
exemptions for 2017 that are approved prior to the final rule will be
reflected in the relevant standards in the final rule, as provided in
the formulas described in the preceding section. As stated in the final
rule establishing the 2011 standards, ``EPA believes the Act is best
interpreted to require issuance of a single annual standard in November
that is applicable in the following calendar year, thereby providing
advance notice and certainty to obligated parties regarding their
regulatory requirements. Periodic revisions to the standards to reflect
waivers issued to small refineries or refiners would be inconsistent
with the statutory text, and would introduce an undesirable level of
uncertainty for obligated parties.'' \87\ Thus, any exemptions for
small refineries that are issued after the release of the final 2017
standards will not affect those standards.
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    \87\ See 75 FR 76804 (December 9, 2010).
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C. Proposed Standards

    The formulas in Sec.  80.1405 for the calculation of the percentage
standards require the specification of a total of 14 variables covering
factors such as the renewable fuel volume requirements, projected
gasoline and diesel demand for all states and territories where the RFS
program applies, renewable fuels projected by EIA to be included in the
gasoline and diesel demand, and exemptions for small refineries. The
values of all the variables used for this proposal are shown in Table
V.C-1.\88\
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    \88\ To determine the 49-state values for gasoline and diesel,
the amounts of these fuels used in Alaska is subtracted from the
totals provided by DOE. The Alaska fractions are determined from the
June 24, 2015 EIA State Energy Data System (SEDS), Energy
Consumption Estimates.

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

    Projected volumes of gasoline and diesel, and the renewable fuels
contained within them, were derived from the April, 2016 version of
EIA's Short-Term Energy Outlook (STEO). These projections reflect EIA's
judgment of future demand volumes in 2017, accounting for the low oil
price environment in early 2016.
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    \89\ See ``Calculation of proposed % standards for 2017'' in
docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

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

           Table V.C-2--Proposed Percentage Standards for 2017
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel......................................           0.173
Biomass-based diesel....................................            1.67
Advanced biofuel........................................            2.22
Renewable fuel..........................................           10.44
------------------------------------------------------------------------

VI. Public Participation