[Federal Register Volume 76, Number 127 (Friday, July 1, 2011)]
[Proposed Rules]
[Pages 38844-38890]
[FR Doc No: 2011-16018]

Vol. 76

Friday,

No. 127

July 1, 2011

Part IV

Environmental Protection Agency

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

40 CFR Part 80

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards;
Proposed Rule

Federal Register / Vol. 76 , No. 127 / Friday, July 1, 2011 /
Proposed Rules

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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9324-3]
RIN 2060-AQ76

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: Under the Clean Air Act Section 211(o), the Environmental
Protection Agency is required to set the renewable fuel standards each
November for the following year. In general the standards are designed
to ensure that the applicable volumes of renewable fuel specified in
the statute are used. However, the statue specifies that EPA is to
project the volume of cellulosic biofuel production for the upcoming
year and must base the cellulosic biofuel standard on that projected
volume if it is less than the applicable volume set forth in the Act.
EPA is today proposing a projected cellulosic biofuel volume for 2012
and annual standards for cellulosic biofuel, biomass-based diesel,
advanced biofuel, and renewable fuels that would apply to all gasoline
and diesel produced or imported in year 2012. In addition, today's
action proposes an applicable volume of biomass-based diesel that would
apply in 2013. This action also presents a number of proposed changes
to the RFS2 regulations that are designed to clarify existing
provisions and to address several unique circumstances that have come
to light since the RFS2 program became effective on July 1, 2010.
Finally, today's rule also proposes to make a minor amendment to the
gasoline benzene regulations regarding inclusion of transferred
blendstocks in a refinery's early benzene credit generation
calculations.

DATES: Comments must be received on or before August 11, 2011.
    Hearing: We intend to hold a public hearing on July 12, 2011 in the
Washington, DC area, Details of the time and location of the hearing be
announced in a separate notice.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2010-0133, by one of the following methods:
     http://www.regulations.gov: Follow the on-line
instructions for submitting comments.
     E-mail<EMAIL_ADDRESS>     Mail: Air and Radiation Docket and Information Center,
Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania
Ave., NW., Washington, DC 20460.
     Hand Delivery: EPA Docket Center, EPA West Building, Room
3334, 1301 Constitution Ave., NW., Washington, DC 20460. Such
deliveries are only accepted during the Docket's normal hours of
operation, and special arrangements should be made for deliveries of
boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2010-0133. EPA's policy is that all comments received will be included
in the public docket without change and may be made available online at
http://www.regulations.gov, including any personal information
provided, unless the comment includes information claimed to be
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Do not submit information that you
consider to be CBI or otherwise protected through http://www.regulations.gov or e-mail. The http://www.regulations.gov Web site
is an ``anonymous access'' system, which means EPA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an e-mail comment directly to EPA without
going through http://www.regulations.gov your e-mail address will be
automatically captured and included as part of the comment that is
placed in the public docket and made available on the Internet. If you
submit an electronic comment, EPA recommends that you include your name
and other contact information in the body of your comment and with any
disk or CD-ROM you submit. If EPA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EPA
may not be able to consider your comment. Electronic files should avoid
the use of special characters, any form of encryption, and be free of
any defects or viruses. For additional information about EPA's public
docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm. For additional instructions on submitting
comments, go to Section I.B of the SUPPLEMENTARY INFORMATION section of
this document.
    Docket: All documents in the docket are listed in the http://www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in http://www.regulations.gov or in hard copy at the Air and Radiation
Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301
Constitution Ave., NW., Washington, DC. The Public Reading Room is open
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal
holidays. The telephone number for the Public Reading Room is (202)
566-1744, and the telephone number for the Air Docket is (202) 566-
1742.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of
Transportation and Air Quality, Assessment and Standards Division,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI
48105; Telephone number:<PHONE_NUMBER>; Fax number:<PHONE_NUMBER>; E-mail
address<EMAIL_ADDRESS>or Assessment and Standards
Division Hotline; telephone number<PHONE_NUMBER>; E-mail address
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this action apply to me?

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

------------------------------------------------------------------------
                                                         Examples of
          Category            NAICS \1\   SIC \2\        potentially
                                codes      codes     regulated entities
------------------------------------------------------------------------
Industry....................     324110       2911  Petroleum
                                                     Refineries.
Industry....................     325193       2869  Ethyl alcohol
                                                     manufacturing.
Industry....................     325199       2869  Other basic organic
                                                     chemical
                                                     manufacturing.
Industry....................     424690       5169  Chemical and allied
                                                     products merchant
                                                     wholesalers.
Industry....................     424710       5171  Petroleum bulk
                                                     stations and
                                                     terminals.
Industry....................     424720       5172  Petroleum and
                                                     petroleum products
                                                     merchant
                                                     wholesalers.

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

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

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

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

Outline of This Preamble

I. Executive Summary
    A. Standards For 2012
    1. Assessment Of 2012 Cellulosic Biofuel Volume
    2. Advanced Biofuel And Total Renewable Fuel In 2012
    3. Proposed Percentage Standards For 2012
    B. Proposed 2013 Biomass-Based Diesel Volume
    C. Proposed Regulatory Changes
    D. Petition For Reconsideration
II. Projection Of Cellulosic Volume Production And Imports For 2012
    A. Statutory Requirements
    B. Cellulosic Biofuel Volume Assessment
    1. Existing Cellulosic Biofuel Facilities
    2. Potential New Facilities In 2012
    3. Imports Of Cellulosic Biofuel
    4. Summary Of Volume Projections
    C. Potential Limitations In 2012
    D. Advanced Biofuel And Total Renewable Fuel In 2012
    E. Biomass-Based Diesel In 2012
III. Proposed Percentage Standards For 2012
    A. Background
    B. Calculation Of Standards
    1. How Are The Standards Calculated?
    2. Small Refineries And Small Refiners
    3. Proposed Standards
IV. Biomass-Based Diesel Volume For 2013
    A. Statutory Requirements
    B. Factors Considered In Assessing 2013 Biomass-Based Diesel
Volumes
    1. Demand For Biomass-Based Diesel
    2. Availability Of Feedstocks To Produce 1.28 Billion Gallons Of
Biodiesel
    3. Production Capacity
    4. Consumption Capacity
    5. Biomass-Based Diesel Distribution Infrastructure
    C. Impacts Of 1.28 Billion Gallons Of Biomass-Based Diesel
    1. Climate Change
    2. Energy Security 4
    3. Agricultural Commodities And Food Prices
    4. Air Quality
    5. Transportation Fuel Cost
    6. Deliverability And Transport Costs Of Materials, Goods, And
Products Other Than Renewable Fuel
    7. Wetlands, Ecosystems, And Wildlife Habitats
    8. Water Quality And Quantity
    a. Impacts On Water Quality And Water Quantity Associated With
Soybean Production
    b. Impacts On Water Quality And Water Quantity Associated With
Biodiesel Production
    9. Job Creation And Rural Economic Development
    D. Proposed 2013 Volume For Biomass-Based Diesel
    E. 2014 And Beyond
V. Proposed Changes To Rfs2 Regulations
    A. Summary Of Amendments
    B. Technical Justification For Equivalence Value Application
    C. Changes To Definitions Of Terms
    1. Definition Of Annual Cover Crop
    2. Definition Of ``Naphtha''
    D. Technical Amendments Related To Rin Generation And Separation
    1. Rin Separation Limit For Obligated Parties
    2. Rin Retirement Provision For Error Correction
    3. Production Outlook Reports Submission Deadline
    4. Attest Procedures
    5. Treatment Of Canola And Rapeseed
    E. Technical Amendments Related To Registration
    1. Construction Discontinuance & Completion Documentation
    2. Third-Party Engineering Reviews
    3. Foreign Ethanol Producers
    F. Additional Amendments And Clarifications
    1. Third-Party Engineering Review Addendum
    2. Rin Generation For Fuel Imported From A Registered Foreign
Producer
    3. Bond Posting
    4. Acceptance Of Separated Yard Waste And Food Waste Plans
    5. Transferred Blendstocks In Early Benzene Credit Generation
Calculations
VI. Petition For Reconsideration
    A. Legal Considerations Of Petition
    B. Advanced Biofuel Standard And Delayed Rins
    C. 2011 Cellulosic Biofuel Requirement
VII. Public Participation
    A. How Do I Submit Comments?
    B. How Should I Submit Cbi To The Agency?
VIII. Statutory And Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning And Review And
Executive Order 13563: Improving Regulation And Regulatory Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism

    F. Executive Order 13175: Consultation And Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection Of Children From
Environmental Health Risks And Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, Or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address
Environmental Justice In Minority Populations And Low-Income
Populations
IX. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) which were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), resulting in the
promulgation of revised regulatory requirements on March 26, 2010.\1\
The transition from the RFS1 requirements of EPAct to the RFS2
requirements of EISA generally occurred on July 1, 2010.
---------------------------------------------------------------------------

    \1\ 75 FR 14670.
---------------------------------------------------------------------------

    Under RFS2, EPA is required to determine and publish the applicable
annual percentage standards for each compliance year by November 30 of
the previous year. As part of this effort, EPA must determine the
projected volume of cellulosic biofuel production for the following
year. If the projected volume of cellulosic biofuel production is less
than the applicable volume specified in section 211(o)(2)(B)(i)(III) of
the statute, EPA must lower the applicable volume used to set the
annual cellulosic biofuel percentage standard to the projected volume
of production. When we lower the applicable volume of cellulosic
biofuel in this manner, we are also authorized to lower the applicable
volumes of advanced biofuel and/or total renewable fuel by the same or
a lesser amount. Since these evaluations will be based on evolving
information about emerging segments of the biofuels industry, and may
result in the applicable volumes differing from those in the statute,
we believe that it is appropriate to establish the applicable volumes
through a notice-and-comment rulemaking process. Today's notice
provides our proposed evaluation of the projected production of
cellulosic biofuel for 2012, our proposed evaluation of whether to
lower the applicable volumes of advanced biofuel and total renewable
fuel, and the proposed percentage standards for compliance year 2012.
We will complete our evaluation based on comments received in response
to this proposal, the estimate of projected biofuel volumes that the
EIA is required to provide to EPA by October 31, and other information
that becomes available, and will make final determinations of
applicable volumes and percentage standards for 2012 by November 30,
2011.
    The statute also requires EPA to determine and promulgate the
applicable volume of biomass-based diesel that will be required in 2013
and beyond, as the statute does not specify the applicable volumes for
years after 2012. This determination must be made at least 14 months
prior to the year in which the volume will be required. Thus, for the
2013 compliance year, we must specify the applicable volume of biomass-
based diesel by November 1, 2011. The statute identifies a number of
factors that EPA must take into consideration in establishing the
applicable volume of biomass-based diesel for years after 2012. Today's
notice includes our proposed assessment of these factors and proposed
applicable volume of biomass-based diesel for 2013.
    Today's proposed rule does not include an assessment of the
environmental impacts of the percentage standards we are proposing for
2012. All of the impacts of the RFS2 program were addressed in the RFS2
final rule published on March 26, 2010, including impacts of the
biofuel standards specified in the statute. Today's rulemaking simply
proposes the standards for 2012 whose impacts were already analyzed
previously. However, as described more fully in Section IV.A, we are
required to analyze a specified set of environmental and economic
impacts for the biomass-based diesel volume we are proposing for 2013.
    Today's notice also proposes a number of changes to the RFS2
regulations. These changes are designed to reduce confusion among
regulated parties and streamline implementation by clarifying certain
terms and phrases and addressing unique circumstances that came to
light after the RFS2 program went into effect on July 1, 2010.
Additionally, this notice also proposes to make a minor amendment to
the gasoline benzene regulations regarding inclusion of transferred
blendstocks in a refinery's early benzene credit generation
calculations. Further discussion of all of these proposed changes can
be found in Section V.
    Finally, we note that in the RFS2 final rule we also stated our
intent to make two announcements each year:
     Set the price for cellulosic biofuel waiver credits that
will be made available to obligated parties in the event that we reduce
the volume of cellulosic biofuel below the volume required by EISA.
     Announce the results of our assessment of the aggregate
compliance approach for verifying renewable biomass requirements for
U.S. crops and crop residue, and our conclusion regarding whether the
aggregate compliance provision will continue to apply.

For both of these determinations, EPA will use specific sources of data
and a methodology laid out in the RFS2 final rule. Since the necessary
data for these determinations are not yet available, and the
methodology for making them is specified by rule or statute, we are not
including proposed determinations in this Notice. We will present the
results of both of these determinations in the final rule without a
prior proposal.

A. Standards for 2012

1. Assessment of 2012 Cellulosic Biofuel Volume
    To estimate the volume of cellulosic biofuel that could be made
available in the U.S. in 2012, we researched all potential production
sources by company and facility. This included sources that were still
in the planning stages, those that were under construction, and those
that are already producing some volume of cellulosic ethanol,
cellulosic diesel, or some other type of cellulosic biofuel. Facilities
primarily focused on research and development work with no intention of
marketing any fuel produced were not considered for this assessment.
From this universe of potential cellulosic biofuel sources we
identified the subset that had a possibility of producing some volume
of qualifying cellulosic biofuel for use as transportation fuel in
2012. For the final rule, we will specify the projected available
volume for 2012 that will be the basis for the percentage standard for
cellulosic biofuel. To determine this final projected available volume,
we will consider additional factors such as the current and expected
state of funding, the status of the technology, and progress towards
construction and production goals along with any other significant
factors that could potentially impact fuel production or the ability of
the produced fuel to generate cellulosic RINs. This information, to the
extent that it is publically available, is

discussed in further detail in Section II.B.
    In our assessment we focused on domestic sources of cellulosic
biofuel. While imports of cellulosic biofuels are possible and would be
eligible to generate RINs, we believe this is unlikely due to local
demand for cellulosic biofuels in the countries in which they are
produced as well as the cost associated with transporting these fuels
to the U.S. Of the domestic sources, we estimated that nine facilities
have the potential to make volumes of cellulosic biofuel available for
transportation use in the U.S. in 2012. These facilities are listed in
Table I.A.1-1 along with our estimate of the potentially available
volume.

                 Table I.A.1-1--Potentially Available Cellulosic Biofuel Plant Volumes for 2012
----------------------------------------------------------------------------------------------------------------
                                                                                Potentially
                                                                                available
                                                                                volume
                 Company                             Location                    Fuel type             (million
                                                                                ethanol-
                                                                                equivalent
                                                                                gallons)
----------------------------------------------------------------------------------------------------------------
DuPont Danisco Cellulosic Ethanol........  Vonore, TN.................  Ethanol....................         0.25
Fiberight................................  Blairstown, IA.............  Ethanol....................         3.0
Fulcrum Bioenergy........................  McCarran, NV...............  Ethanol....................         0.5
INEOS Bio................................  Vero Beach, FL.............  Ethanol....................         3.0
KiOR.....................................  Houston, TX................  Gasoline, Diesel...........         0.3
KiOR.....................................  Columbus, MS...............  Gasoline, Diesel...........         6.4
KL Energy Corp...........................  Upton, WY..................  Ethanol....................         1.0
Terrabon.................................  Port Arthur, TX............  Gasoline...................         1.0
ZeaChem..................................  Boardman, OR...............  Ethanol....................         0.25
                                          ----------------------------------------------------------------------
    Total................................  ...........................  ...........................        15.7
----------------------------------------------------------------------------------------------------------------

    The volumes in Table I.A.1-1 for each facility represent the volume
that would be produced in 2012 based upon the owner's expected month of
startup and an assumed period of production rampup to full capacity for
testing and process validation purposes. However, none of the
facilities we evaluated are currently producing cellulosic biofuel at
the rates they project for 2012. Moreover, there are other
uncertainties associated with each facility's projected volume that
could result in less production volume in 2012 than the potentially
available values shown in Table I.A.1-1. Therefore, we are proposing a
range of volumes for cellulosic biofuel for 2012, with 15.7 million
ethanol-equivalent gallons as the upper end of the range. For the lower
end of the range, we believe that a volume of 3.55 million ethanol-
equivalent gallons could be justified based on currently available
information. This volume is based on consideration of only those
facilities that are structurally complete at the time of this proposal
and that anticipate commercial production of cellulosic biofuels by the
end of 2011. More complete information on the progress of the industry
in 2011 will be available for the final rule, and will allow us to make
a more accurate projection of cellulosic biofuel volume for 2012. A
more detailed discussion of these uncertainties is presented in Section
II.B.
2. Advanced Biofuel and Total Renewable Fuel in 2012
    The statute indicates that we may reduce the applicable volume of
advanced biofuel and total renewable fuel if we determine that the
projected volume of cellulosic biofuel production for 2012 falls short
of the statutory volume of 500 million gallons. As shown in Table
I.A.1-1, we are proposing a determination that this is the case.
Therefore, we also must evaluate the need to lower the applicable
volumes for the advanced biofuel and total renewable fuel.
    To address the need to lower the advanced biofuel standard, we
first consider whether it appears likely that the biomass-based diesel
volume of 1.0 billion gallons specified in the statute can be met in
2012. As discussed in Section II.E, we believe that the 1.0 billion
gallon standard can indeed be met. Since biodiesel has an Equivalence
Value of 1.5, 1.0 billion physical gallons of biodiesel would provide
1.5 billion ethanol-equivalent gallons that can be counted towards the
advanced biofuel standard of 2.0 billion gallons. Of the remaining 0.5
bill gallons, up to 0.016 bill gallons would be met with the proposed
volume of cellulosic biofuel. Based on our analysis as described in
Section II.D, it appears likely that there will be sufficient volumes
of other advanced biofuels, such as imported sugarcane ethanol,
additional biodiesel, or renewable diesel, such that the standard for
advanced biofuel could remain at the statutory level of 2.0 billion
gallons. However, uncertainty in the potential volumes of these other
advanced biofuels coupled with the range of potential production
volumes of cellulosic biofuel could provide a rationale for lowering
the advanced biofuel standard. If we lowered the applicable volume of
advanced biofuel without simultaneously lowering the applicable volume
for total renewable fuel, the result would be that additional volumes
of conventional renewable fuel, such as corn-starch ethanol, would be
produced, effectively replacing some advanced biofuels. In today's NPRM
we are proposing that neither the required 2012 volumes for advanced
biofuel nor total renewable fuel be lowered below the statutory
volumes. However, we request comment on whether the advanced biofuel
and/or total renewable fuel volume requirements should be lowered if,
as we propose, EPA lowers the required cellulosic biofuel volume from
that specified in the Act.
3. Proposed Percentage Standards for 2012
    The renewable fuel standards are expressed as a volume percentage,
and are used by each refiner, blender or importer to determine their
renewable fuel volume obligations. The applicable percentages are set
so that if each regulated party meets the percentages, and if EIA
projections of gasoline and diesel use are accurate, then the amount of
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced

biofuel used will meet the volumes required on a nationwide basis.
    To calculate the percentage standard for cellulosic biofuel for
2012, we have used a potential volume range of 3.55-15.7 million
ethanol-equivalent gallons (representing 3.45-12.9 million physical
gallons). For the final rule, EPA intends to pick a single value from
within this range to represent the projected available volume on which
the 2012 percentage standard for cellulosic biofuel will be based. We
are also proposing that the applicable volumes for biomass-based
diesel, advanced biofuel, and total renewable fuel for 2012 will be
those specified in the statute. These volumes are shown in Table I.A.3-
1.

                Table I.A.3-1--Proposed Volumes for 2012
------------------------------------------------------------------------
                                                      Ethanol equivalent
                                     Actual volume        volume \a\
------------------------------------------------------------------------
Cellulosic biofuel..............  3.45-12.9 mill gal  3.55-15.7 mill
                                                       gal.
Biomass-based diesel............  1.0 bill gal......  1.5 bill gal.
Advanced biofuel................  2.0 bill gal......  2.0 bill gal.
Renewable fuel..................  15.2 bill gal.....  15.2 bill gal.
------------------------------------------------------------------------
\a\ Biodiesel and cellulosic diesel have equivalence values of 1.5 and
  1.7 ethanol equivalent gallons respectively. As a result, ethanol-
  equivalent volumes are larger than actual volumes for cellulosic
  biofuel and biomass-based diesel.

    Four separate standards are required under the RFS2 program,
corresponding to the four separate volume requirements shown in Table
I.A.3-1. The specific formulas we use to calculate the renewable fuel
percentage standards are contained in the regulations at Sec.  80.1405
and repeated in Section III.B.1. The percentage standards represent the
ratio of renewable fuel volume to projected non-renewable gasoline and
diesel volume. The projected volume of gasoline used to calculate the
standards in today's proposal is provided by EIA's Short-Term Energy
Outlook (STEO).\2\ The projected volume of transportation diesel used
to calculate the standards in today's proposal is provided by EIA's
2011 Annual Energy Outlook (early release version). For the final rule,
we will use updated projections of gasoline and diesel provided by EIA.
---------------------------------------------------------------------------

    \2\ The April 2011 issue of STEO was used for today's proposal.
---------------------------------------------------------------------------

    Because DOE's 2009 analysis \3\ concluded that small refineries
would not be disproportionately harmed by inclusion in the RFS program,
beginning in 2011, small refiners and small refineries participated in
the RFS program as full regulated parties, and there was no small
refiner/refinery volume adjustment to the 2011 standard as there was
for the 2010 standard. However, DOE recently re-evaluated the impacts
of the RFS program on small entities and concluded that some small
refineries would suffer a disproportionate hardship if required to
participate in the program.\4\ As a result, we are required to exempt
these few refineries from being obligated parties for a minimum of two
years, and must also exempt their gasoline and diesel volumes from the
calculation of the annual percentage standards. The proposed standards
for 2012 are shown in Table I.A.3-2 and include the adjustment for
exempt small refineries (which constitute about 2.5% of both gasoline
and diesel pools). Detailed calculations can be found in Section III.
---------------------------------------------------------------------------

    \3\ DOE report ``EPACT 2005 Section 1501 Small Refineries
Exemption Study'', (January, 2009).
    \4\ ``Small Refinery Exemption Study: An Investigation into
Disproportionate Economic Hardship,'' U.S. Department of Energy,
March 2011.

          Table I.A.3-2--Proposed Percentage Standards for 2012
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel........................  0.002 to 0.010%.
Biomass-based diesel......................  0.91%.
Advanced biofuel..........................  1.21%.
Renewable fuel............................  9.21%.
------------------------------------------------------------------------

B. Proposed 2013 Biomass-Based Diesel Volume

    While section 211(o)(2)(B) specifies the volumes of biomass-based
diesel (BBD) through year 2012, it directs the EPA to establish the
applicable volume of BBD for years after 2012 no later than 14 months
before the first year for which the applicable volume will apply. In
today's action we are proposing an applicable volume of 1.28 bill
gallons for biomass-based diesel (BBD) for 2013. This is the volume
that was projected for 2013 in the RFS2 final rulemaking, and we are
proposing it for 2013 based on consideration of the factors specified
in the statute, including a consideration of biodiesel production,
consumption, and infrastructure issues. As required under the statute,
we also assessed the likely impact of BBD production and use in a
variety of areas, including climate change, energy security, the
agricultural sector, air quality, and others. Section IV provides
additional discussion of our assessment of the proposed volume of 1.28
bill gallons of BBD.

C. Proposed Regulatory Changes

    In today's action we are also proposing a number of changes to the
RFS2 regulations. These proposed changes are intended to:
     Clarify certain provisions because we have learned that
there is some confusion among some regulated parties
     Clarify the application of certain provisions to unique
circumstances
     Provide greater specificity in the definition of certain
terms
     Correct regulatory language that inadvertently
misrepresented our intent

Today's rule also proposes to make a minor amendment to the gasoline
benzene regulations regarding inclusion of transferred blendstocks in a
refinery's early benzene credit generation calculations. A detailed
discussion of these proposed regulatory changes is provided in Section
V.

D. Petition for Reconsideration

    The American Petroleum Institute (API) and the National
Petrochemical and Refiners Association (NPRA) jointly submitted a
Petition for Reconsideration of EPA's final rule establishing the RFS
standards for 2011. The petition requests that we lower the 2011
cellulosic biofuel standard to no more than 3.94 mill gallons, lower
the 2011 advanced biofuel standard in concert with the reduction in the
cellulosic biofuel standard from 250 mill gallons, and reconsider the
regulatory provision for delayed RINs. We are proposing to deny this
petition. See Section VI for further discussion.

II. Projection of Cellulosic Volume Production and Imports for 2012

    In order to project production volume of cellulosic biofuel in 2012
for use in setting the percentage standard, we collected information on
individual facilities that have the potential to produce qualifying
volumes for

consumption as transportation fuel, heating oil, or jet fuel in the
U.S. in 2012. This section describes the range of volumes that could be
produced and imported in 2012 as well as some of the uncertainties
associated with those volumes. For today's NPRM we have assessed the
range of potentially available volumes for 2012. Despite significant
advances in cellulosic biofuel production technology in recent years
the production of cellulosic biofuel remains highly uncertain. While we
expect that the volume we select in the final rule for use in setting
the 2012 cellulosic biofuel percentage standard will be within our
proposed range of volumes, we recognize the possibility that updated
information at the time of the final rule could result in the final
volume falling outside of the proposed range. Section III describes the
conversion of our proposed range of volumes for cellulosic biofuel into
a range of possible percentage standards.
    While the proposed 2012 volume projections in today's NPRM were
based on our own assessment of the cellulosic biofuel industry, by the
time we announce the final 2012 volumes and percentage standards we
will have additional information. First, in addition to comments in
response to today's proposal, we will have updated and more detailed
information about how the industry is progressing in 2011. Second, all
registered producers and importers of renewable fuel must submit
Production Outlook Reports describing their expectations for new or
expanded biofuel supply for the next five years, according to Sec.
80.1449. Finally, by October 31, 2011, the Energy Information
Administration (EIA) is required by statute to provide EPA with an
estimate of the volumes of transportation fuel, biomass-based diesel,
and cellulosic biofuel that they project will be sold or introduced
into commerce in the U.S. in 2012.

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS2 program
each year (absent an adjustment or waiver by EPA) are specified in CAA
211(o)(2). These volumes for 2012 are shown in Table II.A-1.

 Table II.A-1--Required Volumes in the Clean Air Act for 2012 (bill gal)
------------------------------------------------------------------------
                                                               Ethanol
                                                   Actual     equivalent
                                                   volume       volume
------------------------------------------------------------------------
Cellulosic biofuel............................       0.5\a\          0.5
Biomass-based diesel..........................          1.0          1.5
Advanced biofuel..............................       2.0\a\          2.0
Renewable fuel................................      15.2\a\         15.2
------------------------------------------------------------------------
\a\ These values assume that the biofuels would be ethanol. If any
  portion of the biofuels used to meet these applicable volumes has a
  volumetric energy content greater than that for ethanol, these values
  will be lower.

    By November 30 of each year, the EPA is required under CAA 211(o)
to determine and publish in the Federal Register the renewable fuel
percentage standards for the following year. These standards are to be
based in part on transportation fuel volumes estimated by the Energy
Information Administration (EIA) for the following year. The
calculation of the percentage standards is based on the formulas in
Sec.  80.1405(c) which express the required volumes of renewable fuel
as a volume percentage of gasoline and diesel sold or introduced into
commerce in the 48 contiguous states plus Hawaii.
    The statute requires that if EPA determines that the projected
volume of cellulosic biofuel production for the following year is less
than the applicable volume shown in Table II.A-1, then EPA is to reduce
the applicable volume of cellulosic biofuel to the projected volume
available during that calendar year. In addition, if EPA reduces the
required volume of cellulosic biofuel below the level specified in the
statute, the Act also indicates that we may reduce the applicable
volume of advanced biofuels and total renewable fuel by the same or a
lesser volume.
    As described in the final rule for the RFS2 program, we intend to
examine EIA's projected volumes, comments on this proposal, production
outlook reports, and other available data in making a final
determination of the appropriate cellulosic biofuel volumes to require
for 2012.

B. Cellulosic Biofuel Volume Assessment

    The task of projecting the volume of cellulosic biofuel production
for 2012 remains a difficult one. Currently there are very few, if any,
facilities consistently producing cellulosic biofuel for commercial
sale. Announcements of new projects and project funding, changes in
project plans, project delays, and cancellations occur frequently.
Biofuel producers face not only the challenge of the scale up of
innovative, first-of-a-kind technology, but also the challenge of
securing funding in a difficult economy. The cellulosic biofuel
industry also is influenced by various tax credits and subsidies, and
changes to these programs could have an impact on cellulosic biofuel
production.
    In order to project cellulosic biofuel production for 2012, EPA has
tracked the progress of over 100 biofuel production facilities. From
this list of facilities we used publically available information, as
well as information provided by DOE and USDA, to make a preliminary
determination of which facilities are the most likely candidates to
produce cellulosic biofuel and make it commercially available in 2012.
Each of these companies was investigated further in order to determine
the current status of their facilities and their likely cellulosic
biofuel production volumes for the coming years. Information such as
the funding status of these facilities, announced construction and
production ramp up periods, and annual fuel production targets were
taken into account. Our projection of the range of cellulosic biofuel
production in 2012 is based on this information as well as our own
assessment of the likelihood of these facilities successfully producing
cellulosic biofuel in the volumes indicated. A brief description of
each of the companies we believe may produce cellulosic biofuel and
make it commercially available in 2012 can be found below. We will
continue to gather more information to help inform our decision on the
final cellulosic biofuel standard for 2012, and we will specify a
single volume in the final rule that will be the basis for the
cellulosic biofuel percentage standard for 2012.
1. Existing Cellulosic Biofuel Facilities
    The rule that established the required 2011 cellulosic biofuel
volume identified five production facilities that we projected would
produce cellulosic biofuel and make the fuel commercially available in
2011. Each of these production facilities are now structurally
complete, however they are in various stages of biofuel production. All
of these facilities have either produced some volume of cellulosic
biofuel in 2011, or are on schedule to do so later in the year. Only
Range Fuels, however, has completed its registration as a cellulosic
biofuel production facility under the RFS2 program and as such they are
currently the only facility of the five listed here currently eligible
to generate cellulosic biofuel RINs. For

more background information on each of these facilities see the 2011
standards rule.\5\
---------------------------------------------------------------------------

    \5\ 75 FR 76790, December 9, 2010.
---------------------------------------------------------------------------

    DuPont Danisco Cellulosic Ethanol (DDCE) successfully started up
their small demonstration facility in Vonore, Tennessee in late 2010.
This facility has a maximum production capacity of 250,000 gallons of
ethanol per year and uses an enzymatic hydrolysis process to convert
corn cobs into ethanol. In conversations with EPA in early 2011 DDCE
indicated that they had not encountered any unexpected difficulties in
their production of cellulosic ethanol and were on target to meet their
2011 production goal of 150,000 gallons of cellulosic ethanol. It is
likely that in 2012 cellulosic biofuel production at this facility will
approach the production capacity of 250,000 gallons of cellulosic
ethanol.
    Fiberight uses an enzymatic hydrolysis process to convert the
biogenic portion of separated municipal solid waste (MSW) into ethanol.
Construction on the first stage of Fiberight's Blairstown, Iowa
facility was completed in the summer of 2010. The production capacity
of the first stage of this project is 2 million gallons of ethanol per
year. Fiberight had planned to begin production of cellulosic biofuel
from this facility in late 2010 but poor economic conditions, due in
part to low cellulosic RIN values in 2010, caused them to postpone fuel
production. Fiberight had also planned to begin construction on an
expansion of this facility in late 2010 that would increase the
production potential to 6 million gallons of ethanol per year, but were
unable to secure funding to carry out the construction as planned. They
have since secured funding and began construction on the expansion of
their Blairstown facility in April 2011. Fiberight anticipates that
they will begin fuel production in the late summer of 2012 and will
ramp up production at this facility throughout 2012, producing
approximately 3 million gallons of cellulosic ethanol in 2012.
    KiOR continues to produce a small volume of renewable crude from
agricultural residue at their demonstration facility in Houston, Texas
using a technology they call Biomass Catalytic Cracking (BCC). This
technology uses heat and a proprietary catalyst to convert biomass to a
renewable crude with a relatively low oxygen content. This facility
currently lacks the infrastructure to upgrade this renewable crude to
finished transportation fuel, however KiOR plans to add this capability
at this facility in late 2011. While KiOR has not yet registered under
the RFS2 program, their fuel, if refined to gasoline or diesel fuel
would be eligible to generate RINs. EPA currently projects a production
volume of 200,000 gallons of cellulosic fuel from KiOR, which could
potentially generate 300,000 RINs.
    KL Energy has developed a process to convert cellulose and
hemicelluloses into cellulosic sugars using a thermal-mechanical
pretreatment process followed by an enzymatic hydrolysis. They had
initially planned to used woody biomass as their feedstock for
cellulosic biofuel production; however their production process is
versatile enough to allow for a wide variety of cellulosic feedstocks
to be used. In August 2010 KL Energy announced a joint development
agreement with Petrobras America Inc. As part of the agreement
Petrobras will invest $11 million to modify KL Energy's facility in
Upton, Wyoming to allow it to process bagasse and other waste products.
These modifications are expected to be completed in 2011, and fuel
production is likely to begin soon after. If successful, Petrobras and
KL Energy plan to work together to integrate the technology into
currently existing ethanol production facilities in Brazil. KL Energy
has also indentified several sites in the United States for possible
future expansion. EPA currently projects that KL Energy could produce
up to 1 million gallons of cellulosic ethanol in 2012 in the United
States.
    Range Fuels began production of methanol at their Soperton, Georgia
facility in the third quarter of 2010. This facility uses a
thermochemical technology to produce syngas (consisting of mostly
hydrogen and carbon monoxide) from a woody biomass feedstock. The
syngas is then converted into fuel with the aid of a chemical catalyst
developed by Range. Range has developed the capability to produce both
methanol and ethanol, depending on the catalyst used. In January 2011,
after producing a small volume of ethanol from this facility and
proving this capability, Range Fuels shut down the Soperton facility in
order to work through technical difficulties they had been
experiencing. No timeline has been given for the restart of this
facility. EPA will continue to gather information and monitor progress
at the Soperton facility. At this time, however, since no timeline has
been provided for production from this facility, we are not projecting
any volume from this facility in 2012.
2. Potential New Facilities in 2012
    EPA is also aware of five new cellulosic biofuel production
facilities that are currently planning to begin commercial production
at some point in 2012. These facilities are at various stages in the
construction process, and as such have various degrees of uncertainty
associated with any projected 2012 commercial production. While it is
possible that several of these facilities will not begin production of
cellulosic biofuels until 2013, they are nevertheless considered here
since some commercial volumes can potentially be produced in 2012.
    Fulcrum Bioenergy is planning to build a facility capable of
producing 10.5 million gallons of cellulosic ethanol and 16 megawatts
of renewable electricity per year. They have developed a thermochemical
technology to produce ethanol from separated MSW via syngas using a
chemical catalyst. In November 2010 Fulcrum announced that they had
received a term sheet for a $80 million loan guarantee from DOE and
were entering into the final phase of the loan guarantee program. Prior
to that Fulcrum had announced that they had signed long term feedstock
supply contracts for this facility as well as engineering, procurement,
and construction contracts. In January 2011 Fulcrum announced they had
closed on a $75 million Series C financing that would provide the
remaining necessary capital for the construction of their first
commercial production facility pending the closing of their DOE loan
guarantee. They announced that they are now planning to begin
construction in the second quarter of 2011 and complete the facility by
late 2012. EPA currently projects a potential production volume of up
to 0.5 million gallons of cellulosic ethanol from this facility in
2012.
    INEOS Bio has developed a process for producing cellulosic ethanol
by first gasifying feedstock material into a syngas and then using
naturally occurring bacteria to ferment the syngas into ethanol. In
January 2011 USDA announced a $75 million loan guarantee for the
construction of INEOS Bio's first commercial facility to be built in
Vero Beach, Florida. This facility will be capable of producing 8
million gallons of cellulosic biofuel as well as 6 megawatts of
renewable electricity from a variety of feedstocks including yard,
agricultural, and wood waste, as well as separated MSW. On February 9,
2011 INEOS Bio broke ground on this facility. INEOS Bio expects to
complete construction on this facility in April 2012 and plans to begin
commercial production of cellulosic ethanol soon

after construction is complete. EPA currently projects a potential
production volume of up to 3 million gallons of cellulosic ethanol from
this facility in 2012.
    After successful operation of their demonstration plant in Houston,
Texas KiOR is planning to begin construction on their first commercial
scale facility in early 2011. This facility, located in Columbus,
Mississippi, will convert biomass to a low oxygen biocrude using a
process KiOR calls Biomass Catalytic Cracking (BCC). BCC uses a
catalyst developed by KiOR in a process similar to Fluid Catalytic
Cracking currently used in the petroleum industry. KiOR's Columbus
facility will also be capable of upgrading this biocrude into finished
gasoline and diesel as well as a small quantity of fuel oil. KiOR plans
to begin production from this facility sometime in the first half of
2012. KiOR has also announced plans to construct several more
commercial scale biofuel production facilities in Mississippi and
across the southeastern United States. However, it is unlikely any of
these facilities will begin production of biofuel in 2012. Given this
timeline EPA currently projects a potential production of up to 4.0
million gallons of gasoline and diesel (6.4 million ethanol equivalent
gallons) from the Columbus facility in 2012.
    Terrabon completed construction of a small demonstration scale
facility for the conversion of MSW and other waste materials into
gasoline in 2010 and is planning to begin production at their first
commercial scale facility in 2012. Terrabon utilizes a unique
production process that can be used to produce gasoline, diesel, or jet
fuel. Feedstock is first fermented into carboxylic acids by a variety
of micro organisms. These carboxylic acids are then neutralized to form
carboxylate salts that are dewatered, dried, and thermally converted to
ketones. Finally, the ketones are hydrogenated to form alcohols which
can then be refined into gasoline, diesel, or jet fuel. While currently
no pathway exists for the generation of RINs representing cellulosic
gasoline in the RFS2 regulations, EPA is planning to initiate a
rulemaking to create such a pathway in our regulations. This would
allow for facilities such as Terrabon and others who may produce
cellulosic gasoline in the future to register and generate RINs under
the RFS2 program (provided they meet the fuel registration, renewable
biomass, and other requirements of the program as well). EPA currently
projects the production of up to 0.7 million gallons (1.0 million
ethanol equivalent gallons) of cellulosic gasoline in 2012 from
Terrabon's first commercial facility.
    ZeaChem has begun construction on a small demonstration scale
facility in Boardman, Oregon capable of producing 250,000 gallons of
cellulosic ethanol per year. Their production process uses a
combination of biochemical and thermochemical technologies to produce
ethanol and other renewable chemicals from cellulosic materials. The
feedstock is first fractionated into two separate streams containing
cellulosic sugars and lignin. The cellulosic sugars are fermented into
ethyl acetate using a naturally occurring acetogen, which can then be
hydrogenated into ethanol. The hydrogen necessary for this process is
produced by gasifying the lignin stream from the cellulosic biomass.
ZeaChem's process is flexible and is capable of producing a wide range
of renewable chemical and fuel molecules in addition to ethanol.
ZeaChem plans to begin production of cellulosic ethanol from their
facility in Boardman, Oregon in late 2011, and EPA currently projects a
potential production volume of up to 0.25 million gallons of ethanol
from this facility in 2012.
    Another potential source of cellulosic biofuel in 2012 is a
technology being developed by EdeniQ. EdeniQ is developing a suite of
enzymes capable of breaking down cellulose into simple sugars that can
then be fermented into ethanol. Rather than build their own production
facilities EdeniQ plans to license their enzymes to existing corn
ethanol facilities. Such licensing would be accompanied by the
Cellunator, an advanced milling device they have developed to reduce
the particle size of corn kernels to enable greater conversion of
starch to ethanol as well as the conversion of cellulose to simple
sugars. EdeniQ claims that their technology would allow corn ethanol
facilities to increase ethanol production by 1-2% by converting the
cellulosic portion of the corn kernel into ethanol. They are also
working to increase the effectiveness of their enzymes in order to
enable ethanol production increases of 3-4% from the cellulose in the
corn kernel in the future. EdeniQ plans to begin commercial trials of
their technology in the second half of 2011. This technology has the
potential to be implemented rapidly and produce significant amounts of
cellulosic ethanol in 2012 as it requires relatively small capital
additions to already existing corn ethanol facilities. While this
technology is promising, there is currently no pathway in the RFS2
regulations for the generation of cellulosic biofuel RINs using the
cellulosic portion of the corn kernel as a feedstock. Moreover, EdeniQ
has not announced any agreements with corn ethanol producers to install
this technology to enable the production of cellulosic ethanol. For
these reasons, EPA has not included any cellulosic ethanol production
from EdeniQ's technology in our 2012 projections. We will continue to
monitor their process in the coming months for signs of progress
towards commercialization of their technology and will consider adding
production volumes from EdeniQ into our final projections if
appropriate.
    In addition to the facilities mentioned above, EPA is also aware of
three companies planning to begin the production of cellulosic biofuels
in early 2013. Coskata, Enerkem, and Poet are planning on completing
construction on their first commercial scale cellulosic biofuel
facilities in late 2012 or early 2013 and producing commercial volumes
of biofuels in 2013. While it is possible that construction of any of
these facilities could be completed ahead of schedule and a small
volume of fuel could be produced in 2012, history in this industry
suggests that this is unlikely. EPA has therefore not projected that
any volume of cellulosic biofuel will be produced from these facilities
in 2012. These facilities, along with several other commercial
cellulosic biofuel facilities planning to begin production in 2013,
notably the first commercial scale facilities from Abengoa and Mascoma,
indicate that the potential exists for the rapid expansion of
production volumes in future years.
3. Imports of Cellulosic Biofuel
    While domestically produced cellulosic biofuels are the most likely
source of cellulosic biofuel available in the United States, producers
and/or importers of cellulosic biofuel produced in other countries may
also generate RINs and participate in the RFS2 program. While the RFS2
program does provide a financial incentive for companies to import
cellulosic biofuels into the United States, the combination of local
demand, financial incentives from other governments, and transportation
costs for the cellulosic biofuel has resulted in no cellulosic biofuel
being imported to the United States thus far. EPA believes this
situation is likely to continue in the near future. Additionally, the
majority of internationally based cellulosic biofuel facilities that
currently exist or plan to complete construction by the end of 2012 are
small research and development or pilot facilities not designed for the
commercial production of fuel.

    Two notable exceptions, both located in Canada, are Enerkem and
Iogen. Enerkem has a currently existing commercial production facility
in Westbury, Quebec and is expecting to complete construction on a
second facility in Edmonton, Alberta in late 2011. Iogen has a small
demonstration facility in Ottawa and is currently exploring the
possibility of building their first commercial facility near Prince
Albert, Saskatchewan. The large expected production volumes and
relatively small distance this fuel would have to be transported to
reach the United States make these facilities the most likely
candidates to import cellulosic biofuel into the United States. In
conversations with EPA, however, both companies indicated that they had
no current intentions of importing fuel from their Canadian production
facilities into the United States. On September 1, 2010 the government
of Canada finalized regulations requiring all gasoline sold in Canada
to have a renewable content of 5% and all diesel fuel and heating oil
to have a renewable content of 2%. These regulations will further
increase local demand for any cellulosic biofuel produced from these
two facilities and decrease the likelihood of any of this fuel being
exported to the United States. For these reasons we have not included
any cellulosic biofuel production from foreign facilities in our
projections of cellulosic biofuel availability in 2012.
4. Summary of Volume Projections
    The information EPA has gathered on the potential cellulosic
biofuel producers in 2012, described above, allows us to identify
potential volumes that could be achieved by each facility in 2012. This
information is summarized in Table II.B.4-1 below.

                                          Table II.B.4-1--Cellulosic Biofuel 2012 Potentially Available Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                2012
                                                                                Capacity    Earliest     Potentially     Ethanol
          Company name                  Location              Feedstock                Fuel            (MGY)     production     available    equivalent
                                                                                volume (MG)  gallons (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
DuPont Danisco Cellulosic        Vonore, TN...........  Corn Stover..........  Ethanol.............       0.25     Online             0.25          0.25
 Ethanol.
Fiberight \a\..................  Blairstown, IA.......  MSW..................  Ethanol.............          6     Online             3.0           3.0
Fulcrum Bioenergy..............  McCarran, NV.........  MSW..................  Ethanol.............       10.5  Late 2012             0.5           0.5
INEOS Bio......................  Vero Beach, FL.......  Ag Residue, MSW......  Ethanol.............          8   May 2012             3.0           3.0
KiOR...........................  Houston, TX..........  Ag Residue...........  Gasoline, Diesel....        0.2     Online             0.2           0.3
KiOR...........................  Columbus, MS.........  Pulp Wood............  Gasoline, Diesel....         10   Mid 2012             4.0           6.4
KL Energy......................  Upton, WY............  Wood Waste...........  Ethanol.............        1.5     Online             1.0           1.0
Terrabon.......................  Port Arthur, TX......  MSW..................  Gasoline............        1.3       2012             0.7           1.0
ZeaChem........................  Boardman, OR.........  Planted Trees........  Ethanol.............       0.25       2011             0.25          0.25
                                                                                ----------------------------------------------------
    Total......................  .....................  .....................  ....................  .........  ............         12.9          15.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Based on company estimate.

    The potentially available volume of 12.9 million gallons of
cellulosic biofuel, or 15.7 million ethanol equivalent gallons,
represents the higher end of the range of cellulosic biofuel volumes
that EPA believes at this time could reasonably be expected to be
produced or imported and made available for use as transportation fuel,
heating oil, or jet fuel in 2012. It incorporates reductions from the
annual production capacity of each facility based on when the
facilities anticipate fuel production will begin and assumptions
regarding a ramp up period to full production. Other factors such as
the funding status, risks associated with new technologies, and the
current status of project construction were considered for each
facility.
    For the lower end of the range, we believe that a volume of 3.55
million ethanol-equivalent gallons could be justified based on
currently available information. This volume is based on a
consideration of only those facilities that are structurally complete
at the time of this proposal and which have indicated that they
anticipate commercial production of cellulosic biofuels by the end of
2011. The production facilities meeting these criteria include Dupont
Danisco Cellulosic Ethanol, Fiberight (2 million gallon per year first
stage), KiOR (Houston, TX facility), and KL Energy. While there is
still some uncertainty regarding the projected volumes from these
facilities, by completing construction and anticipating fuel production
by the end of 2011 there is less uncertainty associated with these
facilities than for the others listed as potential cellulosic biofuel
producers for 2012.
    Therefore, in today's NPRM we are proposing a range of values, from
3.55 million ethanol equivalent gallons to 15.7 million ethanol
equivalent gallons for the 2012 cellulosic biofuel standard. The low
end of the range represents a projection of higher confidence and less
uncertainty, with greater emphasis placed on established/demonstrated
production capacity. The high end of the range represents a projection
of less confidence and higher uncertainty, with greater emphasis placed
on productions plans. As time progresses and we are able to track
whether or not the cellulosic biofuels producers are able to meet the
construction and ramp up schedules they have presented, and as we
consider public comments on this proposal and the EIA estimated 2012
volume of cellulosic biofuel production that they are required to
provide to us by October 31 of this year, we will have a better idea of
the appropriate volume of fuel that we can reasonably expect to be
produced and made commercially available in 2012. Congress did not
specify the degree of certainty that should be reflected in our
projections of cellulosic biofuel volumes. We expect that the volume
that we project in the final rule for 2012 will represent a reasonable
balance of the degree of uncertainty or confidence in the projected
production volume and the risk of unnecessarily reducing the applicable
volumes set forth in the Act.
    Although we are proposing a range of values from 3.55 to 15.7
million ethanol equivalent gallons based on information available at
the time of this NPRM, we also request comment on alternative

options for setting the 2012 cellulosic biofuel volume requirement at a
higher level. It is possible that a cellulosic biofuel volume
requirement which reduces less of the 500 mill gallon applicable volume
from the statute could spur additional near and longer-term cellulosic
biofuel production capacity. We recognize that any method must take
into account the uncertainty in estimating future production potential.
Nevertheless, the purpose of setting a mandate is to stimulate more
rapid increases in the rate of production than the cellulosic biofuel
industry would likely experience in the absence of the mandate. We
request comment on whether a higher volume requirement for cellulosic
biofuel than we are proposing today would provide additional
stimulation of production volumes of cellulosic biofuel, and the basis
for setting such a higher volume requirement.

C. Potential Limitations in 2012

    In addition to production capacity, a variety of other factors have
the potential to limit the amount of cellulosic biofuel that can be
produced and used in the U.S. For instance, there may be limitations in
the availability of qualifying cellulosic feedstocks at reasonable
prices. Most of the cellulosic biofuel producers that we anticipate
will produce commercial volumes in 2012 have indicated that they will
use some type of cellulosic waste, such as separated municipal solid
waste, wastes from the forestry industry, and agricultural residues.
Based on the analyses of cellulosic feedstock availability in the RFS2
final rule, we believe that there will be significantly more than
enough sources of these feedstocks for 2012. For producers that intend
to use dedicated energy crops, we do not believe that the amount of
qualifying cropland for renewable fuel production under RFS2 will limit
production in 2012. We plan to continue to evaluate the availability of
valid feedstocks in future years as the required volumes of cellulosic
biofuel increase.
    We anticipate that the relatively small incremental increase in
total biofuel volumes in 2012 that would be attributed to cellulosic
biofuels can be accommodated by the fuel distribution system. The RFS2
final rule analysis concluded that biofuel distribution challenges as
the RFS2 volume requirements ramp up could be overcome in a timely
fashion. In the RFS2 final rule analysis, we assumed that most
cellulosic biofuel production facilities would be constructed in the
nation's heartland similar to corn ethanol production facilities. Based
on more recent information, we now believe that cellulosic production
facilities will be more geographically dispersed. This is the case for
the specific cellulosic biofuels production facilities that we expect
would produce fuel in 2012. The greater geographic dispersion would
tend to lessen the distance to transport biofuels to petroleum
terminals, thereby reducing the overall distribution burden. We believe
that the cellulosic biofuel volumes that would be produced in 2012
could be accommodated by fuel retailers without necessitating the
installation of new refueling infrastructure such as that which would
be needed for E85.

D. Advanced Biofuel and Total Renewable Fuel in 2012

    Under CAA 211(o)(7)(D)(i), EPA has the discretion to reduce the
applicable volumes of advanced biofuel and total renewable fuel in the
event that the projected volume of cellulosic biofuel production is
determined to be below the applicable volume specified in the statute.
As described in Section II.B above, we are indeed projecting the volume
of cellulosic biofuel production for 2012 at significantly below the
statutory applicable volume of 500 million gallons. Because cellulosic
biofuel is used to satisfy the cellulosic biofuel standard, the
advanced biofuel standard, and the total renewable fuel standard, any
reductions in the applicable volume of cellulosic biofuel will also
affect the means through which obligated parties comply with the
advanced biofuel standard and the total renewable fuel standard.
Therefore, we have considered whether and to what degree to propose
lowering the advanced biofuel and total renewable fuel applicable
volumes for 2012.
    If the required volume of cellulosic biofuel for a given year is
less than the volume specified in the statute, it is important to
evaluate whether there would be sufficient volume of advanced biofuels
to satisfy the applicable volume of advanced biofuel volume set forth
in the statute. Even with a reduced volume of cellulosic biofuel, other
advanced biofuels, such as biomass-based diesel, sugarcane ethanol, or
other biofuels, may be available in sufficient volumes to make up for
the shortfall in cellulosic biofuel. We believe that it would be
consistent with the energy security and greenhouse gas reduction goals
of EISA to not reduce the applicable volume of advanced biofuel set
forth in the statute if there are sufficient volumes of advanced
biofuels available, even if those volumes do not include the amount of
cellulosic biofuel that Congress may have desired. Our authority to
lower the advanced biofuel and/or total renewable fuel applicable
volumes is discretionary, and in general we believe that actions to
lower these volumes should only be taken if insufficient volumes of
qualifying biofuel can be made available, based on such circumstances
as insufficient production capacity, insufficient feedstocks, competing
markets, constrained infrastructure, or the like. As discussed below,
we project that sufficient volumes of advanced biofuel can be made
available in 2012 such that the 2.0 bill gallon advanced biofuel
requirement need not be reduced.
    If we were to maintain the advanced biofuel, biomass-based diesel,
and total renewable fuel volume requirements at the levels specified in
the statute, while also lowering the cellulosic biofuel standard to
3.55-15.7 million ethanol-equivalent gallons, then 1,504-1,516 million
gallons of the 2.0 billion gallon advanced biofuel mandate would be
satisfied automatically through the satisfaction of the cellulosic and
biomass based diesel standards. An additional 484-496 million ethanol-
equivalent gallons of additional advanced biofuels would be needed. See
Table II.D-1.

  Table II.D-1--Projected Fuel Mix If Only Cellulosic Biofuel Volume is
                            Adjusted in 2012
                             [Mill gallons]
------------------------------------------------------------------------
                                  Ethanol-equivalent
                                        volume          Physical volume
------------------------------------------------------------------------
Total renewable fuel............              15,200       14,536-14,701
Conventional renewable fuel \a\.              13,200              13,200
Total advanced biofuel..........               2,000         1,336-1,501
Cellulosic biofuel..............           3.55-15.7           3.45-12.9
Biomass-based diesel............               1,500               1,000

Other advanced biofuel \b\......             484-496         \c\ 323-496
------------------------------------------------------------------------
\a\ Predominantly corn-starch ethanol.
\b\ Rounded to nearest million gallons for simplicity.
\c\ Physical volume is a range because other advanced biofuel may be
  ethanol, biodiesel, or some combination of the two.

    The most likely sources of additional advanced biofuel would be
imported sugarcane ethanol and biomass-based diesel, though there may
also be some volumes of other types of advanced biofuel available as
discussed below. To determine if there are likely to be sufficient
volumes of these biofuels to meet the need for 484-496 million gallons
of other advanced biofuel, we first examined historical data on ethanol
imports and projections from EIA and USDA for 2012. Brazilian imports
have made up a sizeable portion of total ethanol imported into the U.S.
in the past, and these volumes were predominantly produced from
sugarcane. Ethanol imports averaged about 380 million gallons per year
over the last five years, and reached an all-time high of 730 million
gallons in 2006.\6\ These historical import volumes demonstrate that
Brazil has significant export potential under the appropriate economic
circumstances. However, ethanol imports were significantly lower in
2010 than in previous years. This decline in imports may be related to
the cessation of the duty drawback that became effective on October 1,
2008, or to changes in world sugar prices.\7\ However, Brazil continues
to be second worldwide in the production of ethanol, producing a total
of 6.9 bill gallons in 2009.\8\ By establishing an increased U.S.
demand for 484-496 million gallons of other advanced biofuel in 2012,
we would be re-establishing an export market for Brazillian sugarcane
ethanol that could compete with the use of sugarcane to produce sugar,
and thus it can once again be economical for Brazilian producers to
export higher volumes of sugarcane ethanol to the U.S. Moreover,
California's Low Carbon Fuel Standard went into effect in 2010, and may
result in some refiners importing additional volumes of sugarcane
ethanol from Brazil into California in 2012. These same volumes could
count towards the Federal RFS2 program as well.
---------------------------------------------------------------------------

    \6\ ``Monthly U.S. Imports of Fuel Ethanol,'' EIA, released 3/
30/2011.
    \7\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End;
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News,
Issue 45, November 4, 2008.
    \8\ Portal Brasil, Energy Matrix for Ethanol, http://www.brasil.gov.br/sobre/economy/energy-matrix/ethanol/br_model1?set_language=en.
---------------------------------------------------------------------------

    Future projections from other sources also suggest that a large
portion of the 484-496 million gallons of advanced biofuel needed could
be supplied by imported sugarcane ethanol. For instance, in the Early
Release of its Annual Energy Outlook 2011, EIA projects ethanol imports
of approximately 400 million gallons for 2012.\9\ Similarly, the
university-based Food and Agricultural Policy Research Institute
(FAPRI) released its 2010 U.S. and World Agricultural Outlook report in
which it projects 2012 ethanol imports of 317 million gallons.\10\ The
volumes of imported ethanol projected by both of these sources is very
likely to be sugarcane ethanol, since this is by far the predominant
form of imported ethanol to date and is expected to continue to be so
for the foreseeable future.
---------------------------------------------------------------------------

    \9\ Table 11 of AEO2011 Early Release, Report Number DOE/EIA-
0383ER(2011). http://www.eia.doe.gov/forecasts/aeo/tables_ref.cfm.
    \10\ Table ``Ethanol trade'', World Biofuels, FAPRI 2010 U.S.
and World Agricultural Outlook. http://www.fapri.iastate.edu/outlook/2010/.
---------------------------------------------------------------------------

    We also examined the potential for excess biodiesel to help meet
the need for 484-496 million gallons of advanced biofuel. The
applicable volume of biomass based diesel established in the statute
for 2012 is 1.0 billion gallons (which corresponds to 1500 ethanol-
equivalent gallons). As discussed more fully in Section II.E below, we
believe that the biodiesel industry has the potential for producing
volumes above 1.0 billion gallons if demand for such volume exists,
potentially up to an additional several hundred million gallons.
    Another potential source of advanced biofuels is electricity
generated from renewable biomass that is used as a transportation fuel.
EIA data indicates that in 2009, the most recent year for which data is
available, 35.6 million megawatt-hours of electricity was generated
from wood and wood derived fuels, and an additional 18.4 million
megawatt-hours was generated from other biomass in the United
States.\11\ If all of this electricity were used as a transportation
fuel it would represent nearly 2.4 billion ethanol equivalent gallons
of advanced biofuel. While not all the feedstocks used to generate the
electricity included in these totals would meet the RFS2's renewable
biomass definition this remains a very large potential source of
advanced biofuel RINs.
---------------------------------------------------------------------------

    \11\ Table ES1 of Electric Power Industry 2009: Year in Review.
Available online: http://www.eia.doe.gov/cneaf/electricity/epa/epayir.pdf.
---------------------------------------------------------------------------

    In addition to verifying that the feedstocks used to generate
renewable electricity meet the renewable biomass definition producers
would also be required to document that the electricity they produce is
used as a transportation fuel in order to be eligible to generate RINs.
Until recently there were very few vehicles capable of using
electricity as a transportation fuel. Expected increases in the number
of vehicles with this capability, such as electric vehicles and plug in
hybrids, has the potential to dramatically increase the degree to which
electricity is able to be used as a transportation fuel. Verifying that
the renewable electricity produced is used as a transportation fuel
would still remain a challenge, however the potential for capitalizing
on the RIN value, without the necessity of making major changes in the
areas of fuel production, distribution, or end use, may be a large
enough incentive to overcome this challenge. While the many
uncertainties associated with the generation of advanced biofuel RINs
from renewable electricity prevent EPA from making a quantitative
projection for 2012, such RINs may nevertheless play a role in meeting
the advanced biofuel standard.
    Finally, there are also other potential sources of advanced
biofuels. For instance, several companies are making progress on
opening advanced biofuel production facilities as early as 2012. Gevo
purchased a dry mill corn ethanol plant in Minnesota and is in the
process of converting it to produce up to 10 million gallons of
biobutanol per year. Solazyme produced over 150,000

gallons of algal oil in 2010-2011 that was then converted to jet fuel
by UOP and is planning for increased production in 2012. LS9 purchased
a fermentation facility in Florida that will enable them to produce
50,000 to 100,000 gallons of diesel fuel per year and plan to have this
facility full operational by 2012. Several other companies are also
planning on producing advanced biofuels using a variety of feedstocks,
including sugars, sweet sorghum, waste cooking oil or restaurant
grease, algal oils, and many others that have the potential to achieve
commercial production by the end of 2012. Insofar as such fuels are
registered under 40 CFR part 79 and meet all the requirements for RIN
generation under the RFS program, they could contribute to compliance
with the advanced biofuels standard in 2012.
    By adding up the potential volumes of imported sugarcane ethanol,
excess biodiesel, and other sources of advanced biofuel, there are
likely to be sufficient volumes of advanced biofuels to meet the need
for 484-496 million gallons. As a result, we do not believe that the
advanced biofuel standard need be lowered below the 2.0 billion gallon
level specified in the Act. Thus, we are not proposing to reduce the
applicable volume of advanced biofuel for 2012. In addition, since we
are not proposing to lower the advanced biofuel standard for 2012, we
do not believe that there is a need to lower the total renewable fuel
standard. Nevertheless, since there is some uncertainty in both the
availability of advanced biofuels in 2012 and the market conditions
which would support their availability, we request comment on whether
the advanced biofuel and total renewable fuel standards should be
lowered, and the basis for such a reduction in the applicable volumes
from the statute.

E. Biomass-Based Diesel in 2012

    As described more fully in Section II.D above, we must determine
whether the required volumes of advanced biofuel and/or total renewable
fuel should be reduced if we reduce the required volume of cellulosic
biofuel. The amount of biomass-based diesel that we project will be
available directly affected our proposed consideration for this NPRM of
adjustments to the volumetric requirements for advanced biofuel and
total renewable fuel.
    To evaluate whether the applicable volume of 1.0 bill gallons for
biomass-based diesel is achievable in 2012, and whether even greater
volumes could be produced, we examined recent production rates,
production capacity of the industry, and projections for future
production. Although there are a variety of potential fuel types that
can qualify as biomass-based diesel, biodiesel is by far the
predominant type. Thus, our assessment focused primarily on biodiesel,
though we also investigated potential volumes of renewable diesel.
    According to the Energy Information Administration, biodiesel
production in 2010 reached 311 mill gallons.\12\ However, we believe
that this value underestimates the volume of biomass-based diesel
actually produced in 2010 since it is based primarily on feedstocks
used in the production of biodiesel. Based on information from the EPA-
Moderated Transaction System (EMTS) and RIN generation reports
submitted to EPA from producers, we estimate that the volume of
biomass-based diesel produced in 2010 was about 380 mill gallons. While
this is higher than the 345 mill gallons that we projected would be
needed for compliance with the 2010 biomass-based diesel standard,\13\
there were also exports of biodiesel that would have reduced the
availability of RINs for compliance purposes. To the degree that the
volume of biomass-based diesel fell short of the 345 mill gallons that
we estimated would be needed, obligated parties would have needed to
carry a deficit into 2011.
---------------------------------------------------------------------------

    \12\ Monthly Energy Review, May 2011. http://www.eia.doe.gov/emeu/mer/pdf/pages/sec10_8.pdf.
    \13\ See question 6.7 in EPA's ``Questions and Answers on
Changes to the Renewable Fuel Standard Program (RFS2)'', http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-aq.htm#6.
---------------------------------------------------------------------------

    However, many of the activities of the biodiesel industry in 2010
were due to unique circumstances that may not apply in 2012. It is
likely that a contributing factor to the lower production volumes in
2010 was the expiration of the biodiesel tax credit at the end of 2009,
and the uncertainty throughout 2010 regarding whether and when it might
be reinstated. This situation may have led to hesitation on the part of
obligated parties for establishing binding contracts for purchases of
biodiesel.
    Historical production of biodiesel has varied significantly
depending on market demand as shown in Figure II.E-1 below.

[GRAPHIC] [TIFF OMITTED] TP01JY11.000

The fact that the U.S. biodiesel industry has produced higher volumes
when demand for it existed suggests that the industry has the
capability to produce greater volumes than it did in 2010 under the
appropriate circumstances. For instance, information from the EPA-
Moderated Transaction System (EMTS) indicates that monthly production
volumes of biodiesel have increased steadily in the first few months of
2011, reaching 74 mill gallons by April.\14\ This trend demonstrates
that the industry is responding to the higher demand created by the 800
mill gal biomass-based diesel volume requirement under the RFS program
in 2011.
---------------------------------------------------------------------------

    \14\ 2011 RIN Generation and Renewable Fuel Volume Production,
http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfsdata.htm.
---------------------------------------------------------------------------

    The biodiesel industry's production potential supports the view
that it can more than satisfy the applicable volume of biomass-based
diesel specified in the statute for 2012. As of January, 2011, the
aggregate production capacity of biodiesel plants in the U.S. was
estimated at 2.8 billion gallons per year across approximately 170
facilities. \15\ Of this aggregate production capacity, at least 1.8
billion gallons of production capacity has been registered under the
RFS2 program.\16\ Although some facilities are currently idle, and
ramping up production will require some time and potentially some
reinvestment, based on feedback from industry we nevertheless believe
that it can occur in time to meet a production goal of 1.0 billion
gallons in 2012.
---------------------------------------------------------------------------

    \15\ Figures taken from National Biodiesel Board's Member Plant
List as of January 27, 2011. http://biodiesel.org/buyingbiodiesel/plants/showall.aspx.
    \16\ Comments from National Biodiesel Board on the July 20, 2010
NPRM proposing the RFS standards for 2011. See Docket EPA-HQ-OAR-
2010-0133.
---------------------------------------------------------------------------

    Projections of production for 2012 strongly suggest that 1.0 bill
gallons of biomass-based diesel is achievable. For instance, the U.S.
Department of Agriculture projects that over 400 mill gallons of
biodiesel will be produced from soybean oil in 2012, and adds that
``Although some other first-use vegetable oils are also used to produce
biodiesel, most of the remaining biodiesel production needed to reach
the 1-billion-gallon mandate of the 2007 Energy Act uses animal fats or
recycled vegetable oil as the feedstock.'' \17\ This projection is
further supported by the Agricultural Marketing Resource Center at Iowa
State University, which projects that soy-oil biodiesel production may
reach as high as 470 mill gallons and that non-soy biodiesel may reach
as high as 460 mill gallons.\18\ Both of these sources project more
growth in non-soy oil feedstock volumes than soy oil. Finally, EIA
projects that the total volume of biodiesel in 2012 would be about 840
mill gallons.\19\ While all of these projections suggest that volumes
of biodiesel may fall short of 1.0 bill gallons, we believe that
sufficient additional volumes of renewable diesel can also be available
to meet the 1.0 bill gal requirement for biomass-based diesel. For
instance, Dynamic Fuels has constructed one plant in Geismar, Louisiana
that started production of renewable diesel in November, 2010.\20\ In
the final RFS2 rule, we projected that annual renewable diesel
production could reach 150 mill gallons based on feedstock
availability. Since renewable diesel can also be produced at existing
refineries with little or no modification to processing equipment, we
believe

that 150 mill gallons of renewable diesel could be produced in 2012.
Thus, we currently believe that the total production volume of both
biodiesel and renewable diesel can reach 1.0 bill gal in 2012.
---------------------------------------------------------------------------

    \17\ USDA Agricultural Projections to 2020, Long-Term
Projections Report OCE-2011-1, February 2011. See Table 24. Assumes
7.68 lb/gal.
    \18\ Soybean Oil and Biodiesel Usage Projections and Balance
Sheet, updated 2/18/2011. http://www.extension.iastate.edu/agdm/crops/outlook/soybeanbalancesheet.pdf. Values cited are for the
``High'' case.
    \19\ Short-Term Energy Outlook, February 2011. Table 8.
    \20\ Project status updates are available via the Syntroleum Web
site, http://dynamicfuelsllc.com/wp-news/.
---------------------------------------------------------------------------

    We also believe that there will be sufficient sources of qualifying
renewable biomass to more than meet the needs of the biodiesel industry
in 2012. The largest sources of feedstock for biodiesel in 2012 are
expected to be soy oil, canola oil, rendered fats, and potentially some
corn oil extracted during production of fuel ethanol, as this
technology continues to proliferate. Moreover, information we received
from a large rendering company suggests that there will be adequate
fats and greases feedstocks to supply biofuels production as well as
other historical uses.\21\
---------------------------------------------------------------------------

    \21\ See Federal Register v. 74 n. 99 p. 24903. Comments are
available in docket EPA-HQ-OAR-2005-0161.
---------------------------------------------------------------------------

    Based on our review of the production potential of the biodiesel
industry, and projections from several sources, and our assessment of
available feedstocks, we believe that the 1.0 billion gallons needed to
satisfy the applicable volume of biomass-based diesel specified in the
statute can be produced in 2012. Therefore, we are not proposing to
lower the biomass-based diesel standard of 1.0 billion gallons that is
specified in the Act. Moreover, based on production capacity and
availability of feedstocks, we believe that volumes of biomass-based
diesel in excess of 1.0 bill gallons could be made available given
sufficient market demand.

III. Proposed Percentage Standards for 2012

A. Background

    The renewable fuel standards are expressed as a volume percentage,
and are used by each refiner, blender or importer to determine their
renewable volume obligations (RVO). Since there are four separate
standards under the RFS2 program, there are likewise four separate RVOs
applicable to each obligated party. Each standard applies to the sum of
all gasoline and diesel produced or imported. The applicable percentage
standards are set so that if each regulated party meets the
percentages, then the amount of renewable fuel, cellulosic biofuel,
biomass-based diesel, and advanced biofuel used will meet the volumes
required on a nationwide basis.
    As discussed in Section II.B.4, we are proposing a required volume
of cellulosic biofuel for 2012 in the range of 3.45-12.9 million
gallons (3.55-15.7 million ethanol equivalent gallons). The single
volume we select for the final rule will be used as the basis for
setting the percentage standard for cellulosic biofuel for 2012. We are
also proposing that the advanced biofuel and total renewable fuel
volumes would not be reduced below the applicable volumes specified in
the statute. The proposed 2012 volumes used to determine the four
percentage standards are shown in Table III.A-1.

                                    Table III.A-1--Proposed Volumes for 2012
----------------------------------------------------------------------------------------------------------------
                                                   Actual volume                  Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel....................  3.45-12.9 mill gal.................  3.55-15.7 mill gal.
Biomass-based diesel..................  1.0 bill gal.......................  1.5 bill gal.
Advanced biofuel......................  2.0 bill gal.......................  2.0 bill gal.
Renewable fuel........................  15.2 bill gal......................  15.2 bill gal.
----------------------------------------------------------------------------------------------------------------

    The formulas used in deriving the annual renewable fuel standards
are based in part on estimates of the volumes of gasoline and diesel
fuel, for both highway and nonroad uses, that will be used in the year
in which the standards will apply. Producers of other transportation
fuels, such as natural gas, propane, and electricity from fossil fuels,
are not subject to the standards, and volumes of such fuels are not
used in calculating the annual standards. Since the standards apply to
producers and importers of gasoline and diesel, these are the
transportation fuels used to set the standards, and then again to
determine the annual volume obligations of an individual gasoline or
diesel producer or importer.

B. Calculation of Standards

1. How are the standards calculated?
    The following formulas are used to calculate the four percentage
standards applicable to producers and importers of gasoline and diesel
(see Sec.  80.1405):

[GRAPHIC] [TIFF OMITTED] TP01JY11.004

Where:

StdCB,i = The cellulosic biofuel standard for year i, in
percent.
StdBBD,i = The biomass-based diesel standard (ethanol-
equivalent basis) for year i, in percent.
StdAB,i = The advanced biofuel standard for year i, in
percent.
StdRF,i = The renewable fuel standard for year i, in
percent.
RFVCB,i = Annual volume of cellulosic biofuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
RFVBBD,i = Annual volume of biomass-based diesel required
by section 211(o) of the Clean Air Act for year i, in gallons.
RFVAB,i = Annual volume of advanced biofuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
RFVRF,i = Annual volume of renewable fuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
Gi = Amount of gasoline projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
Di = Amount of diesel projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
RGi = Amount of renewable fuel blended into gasoline that
is projected to be consumed in the 48 contiguous states and Hawaii,
in year i, in gallons.
RDi = Amount of renewable fuel blended into diesel that
is projected to be consumed in the 48 contiguous states and Hawaii,
in year i, in gallons.
GSi = Amount of gasoline projected to be used in Alaska
or a U.S. territory in year i if the state or territory opts-in, in
gallons.
RGSi = Amount of renewable fuel blended into gasoline
that is projected to be consumed in Alaska or a U.S. territory in
year i if the state or territory opts-in, in gallons.
DSi = Amount of diesel projected to be used in Alaska or
a U.S. territory in year i if the state or territory opts-in, in
gallons.
RDSi = Amount of renewable fuel blended into diesel that
is projected to be consumed in Alaska or a U.S. territory in year i
if the state or territory opts-in, in gallons.
GEi = The amount of gasoline projected to be produced by
exempt small refineries and small refiners in year i, in gallons, in
any year they are exempt per Sec. Sec.  80.1441 and 80.1442,
respectively. For 2012, this value is 3.27 bill gal. See further
discussion in Section III.B.2 below.
DEi = The amount of diesel projected to be produced by
exempt small refineries and small refiners in year i, in gallons, in
any year they are exempt per Sec. Sec.  80.1441 and 80.1442,
respectively. For 2012, this value is 1.23 bill gal. See further
discussion in Section III.B.2 below.

    The four separate renewable fuel standards for 2012 are based on
the 49-state gasoline and diesel consumption volumes projected by EIA.
The Act requires EPA to base the standards on an EIA estimate of the
amount of gasoline and diesel that will be sold or introduced into
commerce for that year. The projected volume of gasoline used to
calculate the final 2012 percentage standards will be provided directly
by EIA. For the purposes of this proposal, we have used the April 2011
issue of STEO for the gasoline projection. The projected volume of
transportation diesel used to calculate the final 2012 percentage
standards will be provided by EIA. For the purposes of this proposal,
we have used the Early Release version of AEO2011. Gasoline and diesel
volumes are adjusted to account for renewable fuel contained in the EIA
projections. The projected volumes of ethanol and biodiesel used to
calculate the final percentage standards will be provided by EIA; for
2011, the final values were based on EIA's Short-Term Energy Outlook
(STEO). For the purposes of this proposal, we have used the April 2011
values for ethanol and biodiesel provided in the STEO. Although EIA
will be providing fuel consumption projections for the final rule,
using the most recent available EIA data for purposes of this proposal
allows us to provide the affected industries with a reasonable estimate
of the standards for planning purposes.
2. Small Refineries and Small Refiners
    In CAA section 211(o)(9), enacted as part of the Energy Policy Act
of 2005, Congress provided a temporary exemption to small refineries
(those refineries with a crude throughput of no more than 75,000
barrels of crude per day) through December 31, 2010. In RFS1, we
exercised our discretion under section 211(o)(3)(B) and extended this
temporary exemption to the few remaining small refiners that met the
Small Business Administration's (SBA) definition of a small business
(1,500 employees or less company-wide) but did not meet the statutory
small refinery definition as noted above. Because EISA did not alter
the small refinery exemption in any way, the RFS2 program regulations
exempted gasoline and diesel produced by small refineries and small
refiners in 2010 from the

renewable fuels standard (unless the exemption was waived), see 40 CFR
80.1141.
    Under the RFS program, Congress provided two ways that small
refineries can receive a temporary extension of the exemption beyond
2010. One is based on the results of a study conducted by the
Department of Energy (DOE) to determine if small refineries would face
a disproportionate economic hardship under the RFS program. The other
is based on EPA determination of disproportionate economic hardship on
a case-by-case basis in response to refiner petitions.
    In January 2009, DOE issued a study which did not find that small
refineries would face a disproportionate economic hardship under the
RFS program.\22\ The conclusions were based in part on the expected
robust availability of RINs and EPA's ability to grant relief on a
case-by-case basis. As a result, beginning in 2011 small refiners and
small refineries were required to participate in the RFS program as
obligated parties, and there was no small refiner/refinery volume
adjustment to the 2011 standard as there was for the 2010 standard.
---------------------------------------------------------------------------

    \22\ DOE report ``EPACT 2005 Section 1501 Small Refineries
Exemption Study'', (January, 2009).
---------------------------------------------------------------------------

    Following the release of DOE's 2009 small refinery study, Congress
directed DOE to complete a reassessment and issue a revised report. DOE
recently re-evaluated the impacts of the RFS program on small entities
and concluded that some small refineries would suffer a
disproportionate hardship if required to participate in the
program.\23\ As a result, these refineries will be exempt from being
obligated parties for a minimum of two additional years, 2011 and
2012.\24\ The proposed 2012 standards reflect the exemption of these
refineries. In addition, and separate from the DOE determination, EPA
may extend the exemption for individual small refineries on a case-by-
case basis if they demonstrate disproportionate economic hardship. A
few refineries have satisfactorily made this demonstration, and EPA has
acted on their requests. The gasoline and diesel volumes of those
refineries have been appropriately accounted for in the development of
the proposed standards. If additional individual refinery requests for
exemptions are approved following the release of this NPRM, the final
standards will be adjusted to account for those exempted volumes of
gasoline and diesel. However, any requests for exemptions that are
approved after the release of the final 2012 RFS standards will not
affect the 2012 standards. 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.'' Thus, after the 2012 standards are finalized, any additional
exemptions issued will not affect those standards.
---------------------------------------------------------------------------

    \23\ ``Small Refinery Exemption Study: An Investigation into
Disproportionate Economic Hardship,'' U.S. Department of Energy,
March 2011.
    \24\ Since the standards are applied on an annual basis, the
exemptions are likewise on an annual basis even though the
determination of which refineries would receive an extension to
their exemption did not occur until after January 1, 2011.
---------------------------------------------------------------------------

3. Proposed Standards
    As finalized in the March 26, 2010 RFS2 rule, the standards are
expressed in terms of energy-equivalent gallons of renewable fuel, with
the cellulosic biofuel, advanced biofuel, and total renewable fuel
standards based on ethanol equivalence and the biomass-based diesel
standard based on biodiesel equivalence. However, all RIN generation is
based on ethanol-equivalence. More specifically, the RFS2 regulations
provide that production or import of a gallon of biodiesel will lead to
the generation of 1.5 RINs. In order to ensure that demand for 1.0
billion physical gallons of biomass-based diesel will be created in
2012, the calculation of the biomass-based diesel standard provides
that the required volume be multiplied by 1.5. The net result is a
biomass-based diesel gallon being worth 1.0 gallons toward the biomass-
based diesel standard, but worth 1.5 gallons toward the other
standards.\25\
---------------------------------------------------------------------------

    \25\ 75 FR 14716, March 26, 2010.
---------------------------------------------------------------------------

    The levels of the percentage standards would be reduced if Alaska
or a U.S. territory chooses to participate in the RFS2 program, as
gasoline and diesel produced in or imported into that state or
territory would then be subject to the standard. Neither Alaska nor any
U.S. territory has chosen to participate in the RFS2 program at this
time, and thus the value of the related terms in the calculation of the
standards is zero.
    Note that the terms for projected volumes of gasoline and diesel
use include gasoline and diesel that has been blended with renewable
fuel. Because the gasoline and diesel volumes estimated by EIA include
renewable fuel use, we must subtract the total renewable fuel volume
from the total gasoline and diesel volume to get total non-renewable
gasoline and diesel volumes. The values of the variables described
above are shown in Table III.B.3-1.\26\ Terms not included in this
table have a value of zero.
---------------------------------------------------------------------------

    \26\ 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
most recent (2009) EIA State Energy Data, Transportation Sector
Energy Consumption Estimates. The gasoline and transportation
distillate fuel oil fractions are approximately 0.2% and 0.8%,
respectively. Ethanol use in Alaska is estimated at 8.4% of its
gasoline consumption (based on the same State data), and biodiesel
use is assumed to be zero.

    Table III.B.3-1--Values for Terms in Calculation of the Standards
                               [Bill gal]
------------------------------------------------------------------------
                         Term                                 Value
------------------------------------------------------------------------
RFVCB,2012............................................    0.00355-0.0157
RFVBBD,2012...........................................               1.0
RFVAB,2012............................................               2.0
RFVRF,2012............................................             15.20
G2012.................................................            139.98
D2012.................................................             44.47
RG2012................................................             14.17
RD2012................................................              0.83
------------------------------------------------------------------------

    Using the volumes shown in Table III.B.3-1, we have calculated the
proposed percentage standards for 2012 as shown in Table III.B.3-2.

         Table III.B.3-2--Proposed Percentage Standards for 2012
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel........................  0.002% to 0.010%.
Biomass-based diesel......................  0.91%.
Advanced biofuel..........................  1.21%.
Renewable fuel............................  9.21%.
------------------------------------------------------------------------

IV. Biomass-Based Diesel Volume for 2013

    In today's action we are proposing an applicable volume for
biomass-based diesel for 2013, based on the statutory requirement to
establish the applicable volume of biomass-based diesel for years after
2012 no later than 14 months before the first year for which the
applicable volume will apply. To do this, we have reviewed RFS program
implementation to date and analyzed a number of factors specified in
the statute as part of this effort. We have investigated what the
demand for biomass-based diesel is likely to be in 2013 taking into
consideration the applicable advanced biofuel volume specified in the
statute, the analyses we

conducted in the RFS2 final rulemaking, and a consideration of
biodiesel production, consumption, and infrastructure issues. In these
investigations, biodiesel was the primary focus since it is expected to
be the predominant type of biomass-based diesel through at least the
next few years. However, renewable diesel may also play a role in
meeting the biomass-based diesel standard. When appropriate, we have
discussed renewable diesel separately from biodiesel.
    Note that, in proposing the 2013 applicable volume of biomass-based
diesel, we are not at this time proposing the percentage standards that
would apply to obligated parties in 2013. Instead, the percentage
standards will be determined after projections of gasoline and diesel
volume are provided by the Energy Information Administration (EIA) in
the fall of 2012, and will be announced by November 30, 2012. Moreover,
in today's proposal we are not addressing potential exemptions for
small refineries and/or small refiners in 2013, since such exemptions
are only relevant in the context of specifying the percentage standards
and their applicability. Finally, we are not proposing any applicable
volumes of biomass-based diesel for 2014 or later years.

A. Statutory Requirements

    Section 211(o)(2)(B)(i) of the Clean Air Act specifies the
applicable volumes of renewable fuel on which the annual percentage
standards must be based, unless the applicable volumes are waived or
adjusted by EPA in accordance with specific authority and directives
specified in the statute.\27\ Applicable volumes are provided in the
statute for years through 2022 for cellulosic biofuel, advanced
biofuel, and total renewable fuel. For biomass-based diesel, applicable
volumes are provided through 2012. For years after those specified in
the statute (i.e. 2013+ for biomass-based diesel and 2023+ for all
others), EPA is required to determine the applicable volume, 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 applicable
volumes, and an analysis of the following:
---------------------------------------------------------------------------

    \27\ For example, EPA may waive a given standard in whole or in
part following the provisions at 211(o)(7).
---------------------------------------------------------------------------

     The impact of the production and use of renewable fuels on
the environment, including on air quality, climate change, conversion
of wetlands, ecosystems, wildlife habitat, water quality, and water
supply;
     The impact of renewable fuels on the energy security of
the United States;
     The expected annual rate of future commercial production
of renewable fuels, including advanced biofuels in each category
(cellulosic biofuel and biomass-based diesel);
     The impact of renewable fuels on the infrastructure of the
United States, including deliverability of materials, goods, and
products other than renewable fuel, and the sufficiency of
infrastructure to deliver and use renewable fuel;
     The impact of the use of renewable fuels on the cost to
consumers of transportation fuel and on the cost to transport goods;
and
     The impact of the use of renewable fuels on other factors,
including job creation, the price and supply of agricultural
commodities, rural economic development, and food prices.

While EPA is given the authority to determine the appropriate volume of
renewable fuel for those years that are not specified in the statute
based on a review of program implementation and analysis of the factors
listed above, the statute also specifies that the applicable volume of
biomass-based diesel cannot be less than the applicable volume for
calendar year 2012, which is 1.0 bill gallons.
    It is useful to note that the statutory provisions described above
are silent in two important areas. First, the statute does not provide
numerical criteria or thresholds that must be attained in the
determination of applicable volumes (other than specifying a minimum
volume of 1.0 bill gal), nor does it describe any overarching goals
such as maximizing GHG or energy security benefits or minimizing cost.
The EPA, in coordination with DOE and USDA, is thus effectively charged
with making a determination of the applicable volumes based on a
judgment of their reasonableness in the context of a review of program
implementation and analysis of the factors described above. Second, the
statute does not provide authority to raise the applicable volumes of
advanced biofuel or total renewable fuel above those specified in the
statute for years up to and including 2022. Thus, any increase in the
biomass-based diesel volume requirement above that specified for 2012
would not have any impact on the advanced biofuel or total renewable
fuel volume requirements. Rather, increasing the biomass-based diesel
volume requirement above 1.0 bill gallons would likely result in a
change in the makeup of biofuels used to meet the advanced biofuel and
the total renewable fuel standards, but would not change the total
required volumes of those fuels (in terms of ethanol-equivalent
gallons).
    Finally, the statute also specifies the timeframe within which
these volumes must be promulgated: The rules establishing the
applicable volumes must be finalized no later than 14 months before the
first year for which such applicable volume will apply. For the
biomass-based diesel volume that would apply beginning on January 1,
2013, then, we must finalize the applicable volume by November 1, 2011.

B. Factors Considered in Assessing 2013 Biomass-Based Diesel Volumes

    As described in Section IV.A, we are required to review the
implementation of the RFS program for years prior to 2013, and to use
information from this review in determining the applicable volume of
biomass-based diesel for 2013. However, given the short history of the
RFS program, we believe this review is of limited value. Prior to the
beginning of the RFS2 program on July 1, 2010, the RFS1 program had no
volume requirement specific to biomass-based diesel. Although RINs were
generated for biodiesel under the RFS1 program and those RINs were
available for use in satisfying obligated parties' RFS1 total renewable
fuel Renewable Volume Obligation (RVO), we do not believe that the RFS1
program contributed significantly to producers' production decisions.
Rather, biodiesel production was driven by market demand apart from the
RFS program requirements coupled with a tax credit for biodiesel
blends. We believe that little can be discerned from the RFS1 history
about the operation of the biodiesel industry under a future RFS2
volume mandate.
    In the short time since the RFS2 program went into effect,
biodiesel production volumes have not increased substantially above
historical levels due most likely to factors such as the availability
of carryover RINs from 2008 and 2009 and the expiration of the
biodiesel tax credit (which was reinstituted at the end of 2010).
Domestic biodiesel consumption varied little in the 2008-2010
timeframe, averaging about 330 mill gallons each year.
    Given the increases in the biomass-based diesel volumes that are
required in the statute for 2011 and 2012, we expect production and
consumption volumes of biodiesel to increase

substantially above these recent historic levels. A review of the RFS
program during 2011 and 2012 will, therefore, provide more relevant
information regarding implementation of the RFS program for purposes of
helping us to evaluate how the industry, as well as feedstock supplies
and infrastructure, can respond to potential requirements in 2014 and
beyond. For the purposes of proposing the 2013 biomass-based diesel
applicable volume in today's NPRM, however, this information is not
available.
    With the limited information available on the current and
historical operation of the RFS program, we believe it would be prudent
for 2013 to consider only moderate increases above the statutory
minimum of 1.0 bill gallons. One possible benchmark is provided by the
increments and growth pattern of those increments that Congress
established for the years 2009-2012, shown in Table IV.B-1.

   Table IV.B-1--Incremental Increases in Biomass-Based Diesel in the
                                 Statute
                               [Bill gal]
------------------------------------------------------------------------
                                               Applicable     Increment
                                               volume of        from
                                             biomass-based    previous
                                                 diesel         year
------------------------------------------------------------------------
2009.......................................           0.5            n/a
2010.......................................           0.65          0.15
2011.......................................           0.80          0.15
2012.......................................           1.0           0.20
------------------------------------------------------------------------

These increments provide a precedent for evaluating a reasonable
mandatory minimum growth pattern for 2013. The increments increased in
magnitude over the four-year period specified in the statute,
increasing from 0.15 bill gal to 0.20 bill gal. If this trend were to
continue, the 2013 volume could be more than 0.20 bill gal higher than
the 2012 volume. Thus our intention is to consider an incremental
increase in the applicable volume of biomass-based diesel between 2012
and 2013 that is not a dramatic change from the trend in increments
shown above.
    In the final rulemaking establishing the RFS2 program, we developed
renewable fuel volume scenarios for all years between 2010 and 2022.
For 2013, we estimated a biomass-based diesel volume of 1.28 bill
gallons. This volume was based primarily on a projection of the
qualifying feedstocks that could be available. Our analyses of
feedstock availability in the RFS2 final rule concluded that the 2013
minimum biomass-based diesel volume of 1.0 bill gallons could be met
and, indeed, that 1.28 billion gallons could be reasonably
produced.\28\ The value of 1.28 bill gallons assumed for 2013 in the
RFS2 final rule appears to roughly follow the pattern in incremental
growth shown in Table IV.B-1 above. Moreover, this biomass-based diesel
volume has already been partially evaluated in the RFS2 rule.
Therefore, EPA decided to evaluate the appropriateness of proposing an
applicable volume for 2013 of 1.28 bill gallons. To this end, we
considered whether 1.28 bill gal of biomass-based diesel was reasonable
given likely market demand, availability of feedstocks, production
capacity, limitations related to storage and consumption,
infrastructure, and the impacts of biomass-based diesel in a variety of
areas as required under the statute. These impacts are discussed in the
subsequent Section IV.C.
---------------------------------------------------------------------------

    \28\ Renewable Fuel Standard Program (RFS2) Regulatory Impact
Analysis. EPA-420-R-10-006, February 2010. See Table 1.2-3.
---------------------------------------------------------------------------

1. Demand for Biomass-Based Diesel
    The demand for biomass-based diesel in 2013 will be a function of
not only the biomass-based diesel standard, but also the advanced
biofuel standard, since the standards under the RFS2 program are
nested. That is, every RIN that is valid for meeting the biomass-based
diesel standard is also valid for meeting the advanced biofuel
standard. Moreover, there are currently only a small number of biofuels
that are likely to be available for meeting the advanced biofuel
standard. In addition to biomass-based diesel, these would include any
RINs used to meet the cellulosic biofuel standard, coprocessed
renewable diesel, and sugarcane ethanol. To the degree that there are
limits in these other advanced biofuels, additional biomass-based
diesel may be needed to make up any shortfall.
    Since the advanced biofuel standard is an important factor in
determining the demand for biomass-based diesel in 2013, we considered
how it should be treated in light of the fact that we must determine
the applicable 2013 volume for biomass-based diesel this year, but we
will not set the 2013 standards (including the advanced biofuel
standard for 2013) until next year. EPA has the authority to reduce the
applicable volume of advanced biofuel in the event that it reduces the
applicable volume of cellulosic biofuel. EPA will consider using this
authority at the time it evaluates whether the 2013 applicable volume
of cellulosic biofuel set in the statute should be lowered in light of
projected production volumes. In both 2010 and 2011 EPA lowered the
applicable volume of cellulosic biofuel without lowering the applicable
volume of advanced biofuel. EPA is today proposing the same approach
for 2012. In light of this history, and the fact that EPA cannot
finally evaluate the issue of potentially lowering the applicable
volume of advanced biofuel for 2013 until it sets the 2013 standards in
November of 2012, we assume for purposes of today's evaluation of
biomass-based diesel demand in 2013 that the applicable volume of 2.75
bill gallons of advanced biofuel specified in the statute for 2013 will
be used in setting the 2013 advanced biofuel standard.
    As described in Section II, the cellulosic biofuel industry
continues to develop, with numerous projects under development, planned
or underway. Nevertheless, the actual production volumes continue to
fall far below the applicable volumes specified in the statute. For
instance, we are proposing a cellulosic biofuel volume of 3.55-15.7
mill gallons for 2012, compared to the applicable volume of 500 mill
gal specified in the statute. In 2013, the applicable volume doubles to
1.0 bill gallons. While we have not projected specific volumes of
cellulosic biofuel that may be available in 2013, it is highly likely
that they will fall significantly short of 1.0 bill gallons, and are
likely to comprise only a small portion of the 2.75 bill gal applicable
volume for advanced biofuel in 2013.
    Imported sugarcane ethanol can also be used to meet the advanced
biofuel standard. Between years 2000 and 2009, the volume of ethanol
imported into the U.S. has ranged from 46-730 million gallons per year,
or on average, approximately 200 million gallons per year. These
volumes were comprised almost exclusively of sugarcane ethanol from
Brazil. In 2010, imports of ethanol into the U.S. were among the lowest
in the past 10 years, reaching only 17 million gallons.\29\ Some of
this recent decline in ethanol imports may be due to extremely wet
weather in 2009/10 and dry conditions in 2010/11 which cut into
Brazilian supplies of sugarcane and reduced sugar content. In addition,
some Brazilian sugarcane mills have the ability to switch between
producing sugars for sweetener markets and extracting sugars for
ethanol markets. The international price of sweetener was so attractive
in 2010 that mills may have given greater priority to sugar. Another
factor is the expanding sales of flex fuel vehicles in Brazil, which
has

continued to increase Brazilian domestic ethanol demand, thus likely
limiting amounts available for exports. Therefore, history shows that
the volume of imported ethanol can fluctuate greatly due to a variety
of market influences.
---------------------------------------------------------------------------

    \29\ Official Statistics of the U.S. Department of Commerce U.S.
International Trade Commission. Data only available from January-
November 2010.
---------------------------------------------------------------------------

    Longer-term market projections can help to better understand the
potential outlook for imports of sugarcane ethanol as a function of
international agricultural and energy markets. One source that
evaluates trends and issues for U.S. energy markets is the U.S. Energy
Information Administration's (EIA) Annual Energy Outlook (AEO).\30\
This report projects U.S. net ethanol imports in 2013 to be 332 million
gallons. Another source for U.S. and world commodity projections is the
Food and Agricultural Policy Research Institute's (FAPRI) U.S. and
World Agricultural Outlook. The most current version of the outlook,
the FAPRI 2010 Agricultural Outlook, projects for the year 2013 that
the U.S. will have net ethanol imports of 333 million gallons.\31\ In
comparison, for the RFS2 final rulemaking, we assumed 190 million
gallons of imported sugarcane ethanol could be available in 2013 based
on EIA's AEO2007.
---------------------------------------------------------------------------

    \30\ U.S. Energy Information Administration (EIA). ``AEO2011
Early Release,'' December 2010. http://www.eia.doe.gov/forecasts/aeo/index.cfm.
    \31\ Food and Agricultural Policy Research Institute. ``FAPRI
2010 U.S. and World Agricultural Outlook: World Biofuels,'' http://www.fapri.iastate.edu/outlook/2010/text/15Biofuels.pdf.