[Federal Register Volume 75, Number 236 (Thursday, December 9, 2010)]
[Rules and Regulations]
[Pages 76790-76830]
[FR Doc No: 2010-30296]

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Part II

 Environmental Protection Agency

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40 CFR Part 80

Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards;
Final Rule

Federal Register / Vol. 75 , No. 236 / Thursday, December 9, 2010 /
Rules and Regulations

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9234-6]
RIN 2060-AQ16

Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency is required to set the
renewable fuel standards each November for the following year based on
gasoline and diesel projections from the Energy Information
Administration (EIA). Additionally, EPA is required to set the
cellulosic biofuel standard each year based on the volume projected to
be available during the following year, if the projected volume is less
than the applicable volume provided in the statute. These cellulosic
biofuel volume projections are to be based in part on EIA projections
as well as assessments of production capability from industry. This
action establishes annual percentage standards under Clean Air Act
section 211(o) for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and renewable fuels that apply to all gasoline and diesel
produced or imported in calendar year 2011. We have determined that the
applicable volume of cellulosic biofuel on which the percentage
standard should be based is 6.0 million ethanol-equivalent gallons. We
believe that available volumes of cellulosic biofuel could be
significantly higher in 2012. This action also finalizes two changes to
the Renewable Fuel Standard program regulations: modifications to the
delayed RINs provision which provides a temporary and limited means for
certain renewable fuel producers to generate RINs after they have
produced and sold renewable fuel, and a new process for parties to
petition EPA to authorize use of an aggregate approach to compliance
with the renewable biomass provision for foreign feedstocks akin to
that applicable to the U.S. Finally, this action makes two
administrative announcements, one regarding the price for cellulosic
biofuel waiver credits for 2011, and another regarding the status of
the aggregate compliance provision for domestic crops.

DATES: This final rule is effective on December 9, 2010.

ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-HQ-OAR-2010-0133. All documents in the docket are listed on the
www.regulations.gov website. 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
through 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 final rule are those involved
with the production, distribution, and sale of transportation fuels,
including gasoline and diesel fuel or renewable fuels such as ethanol
and biodiesel. Potentially regulated categories include:

------------------------------------------------------------------------
                                                          Examples of
                                 NAICS \1\   SIC \2\      potentially
            Category               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
final action. This table lists the types of entities that EPA is now
aware could potentially be regulated by this action. Other types of
entities not listed in the table could also be regulated. To determine
whether your activities will be regulated by this action, you should
carefully examine the applicability criteria in 40 CFR part 80. If you
have any questions regarding the applicability of this action to a
particular entity, consult the person listed in the preceding section.

Outline of This Preamble

I. Executive Summary
    A. Statutory Requirements for Renewable Fuel Volumes
    B. Assessment of 2011 Cellulosic Biofuel Production
    C. Advanced Biofuel and Total Renewable Fuel
    D. Final Percentage Standards
    E. 2011 Price for Cellulosic Biofuel Waiver Credits
    F. Assessment of the Aggregate Compliance Approach
II. Volume Production and Import Potential for 2011
    A. Cellulosic Biofuel
    1. Domestic Cellulosic Biofuel
    2. Imports of Cellulosic Biofuel
    3. Projections From the Energy Information Administration
    4. Overall 2011 Volume Projections
    5. Projections of Cellulosic Biofuel for 2012
    B. Advanced Biofuel and Total Renewable Fuel
    C. Biomass-Based Diesel
III. Percentage Standards for 2011
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners

IV. Cellulosic Biofuel Technology Assessment
    A. What pathways are currently valid for the production of
cellulosic biofuel?
    B. Cellulosic Feedstocks
    C. Emerging Technologies
    1. Biochemical
    a. Feedstock Handling
    b. Biomass Pretreatment
    c. Hydrolysis
    i. Acid Hydrolysis
    ii. Enzymatic Hydrolysis
    d. Fuel Production
    e. Fuel Separation
    f. Process Variations
    g. Current Status of Biochemical Conversion Technology
    h. Path to Commercialization
    2. Thermochemical
    a. Ethanol Based on a Thermochemical Platform
    b. Diesel and Naphtha Production Based on a Thermochemical
Platform
    3. Hybrid Thermochemical/Biochemical Processes
    a. Biochemical Step Following Thermochemical Step
    b. Concurrent Biochemical and Thermochemical Steps
    4. Pyrolysis and Depolymerization
    a. Pyrolysis Diesel Fuel and Gasoline
    b. Catalytic Depolymerization
    5. Catalytic Reforming of Sugars to Gasoline
V. Changes to RFS Regulations
    A. Delayed RIN Generation for New Pathways
    B. Aggregate Compliance Approach for Renewable Biomass From
Foreign Countries
    1. Criteria and Considerations
    2. Applicability of the Aggregate Approach
    3. Data Sources
    4. Petition Submission
    5. Petition Process
VI. Annual Administrative Announcements
    A. 2011 Price for Cellulosic Biofuel Waiver Credits
    B. Assessment of the Domestic Aggregate Compliance Approach
VII. Comments Outside the Scope of This Rulemaking
VIII. Public Participation
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and 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
    K. Congressional Review Act
X. Statutory Authority

I. Executive Summary

    EPA issued comprehensive regulations in 2007 to implement the
Renewable Fuel Standard (RFS1) program in Section 211(o) of the Clean
Air Act, as required by the Energy Policy Act of 2005 (EPAct). The
statutory requirements for the RFS program were subsequently modified
through the Energy Independence and Security Act of 2007 (EISA),
resulting in the publication of revised regulatory requirements (RFS2)
on March 26, 2010.\1\ In general, the transition from the RFS1
requirements of EPAct to the RFS2 requirements of EISA occurred on July
1, 2010.
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    \1\ 75 FR 14670.
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    EPA is required to determine and publish the applicable annual
percentage standards for cellulosic biofuel, biomass-based diesel,
advanced biofuel and total renewable fuel for each compliance year by
November 30 of the previous year. The determination of the applicable
cellulosic biofuel standard under RFS2 requires that EPA first project
the 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 required volume used to set the annual
cellulosic biofuel percentage standard to the projected available
volume. If we lower the applicable cellulosic biofuel volume, we must
also determine whether the advanced biofuel and/or total renewable fuel
volumes should be reduced by the same or a lesser amount. We provided
our volume projections and proposed percentage standards for 2011 in a
Notice of Proposed Rulemaking (NPRM) on July 20, 2010 (75 FR 42238).
Today's action provides our final projection of cellulosic biofuel
production for 2011, and final percentage standards for all four
categories of renewable fuel for compliance year 2011. The final 2011
standards have been based upon statutory requirements, comments
received in response to the NPRM, the estimate of projected gasoline,
diesel, and biofuel volumes that the EIA provided to EPA on October 20,
2010, and other relevant information.
    Today's rule does not include an assessment of the impacts of the
standards we are finalizing for 2011. All of the impacts of the RFS2
program associated with the applicable volumes of biofuel specified in
the statute were addressed in the RFS2 final rule published on March
26, 2010.
    Today's notice also finalizes two changes to the general RFS2
program regulations. The first change modifies a regulatory provision
for ``delayed RINs'' that we implemented through a previous action on
September 28, 2010.\2\ This provision provides a temporary and limited
means for certain renewable fuel producers to generate RINs after they
have produced and sold renewable fuel. In today's action we are
modifying this regulatory provision to be more broadly applicable as
described more fully in Section V.A. The second regulatory provision we
are finalizing today establishes a petition process and criteria for
EPA to use in determining whether to authorize the use of an aggregate
approach to verify that feedstocks from foreign countries meet the
definition of renewable biomass that would be akin to that applicable
to producers using crops and crop residue grown in the United States.
Further discussion of these provisions can be found in Section V.B.
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    \2\ 75 FR 59622.
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    Finally, in today's rulemaking we are announcing the price for
cellulosic biofuel waiver credits, and are also announcing the results
of our annual assessment of the aggregate compliance approach for U.S.
crops and crop residue. These announcements are provided in Section VI.

A. Statutory Requirements for Renewable Fuel Volumes

    The volumes of renewable fuel that must be used under the RFS2
program each year (absent an adjustment or waiver by EPA) are specified
in CAA 211(o)(2)(B). These volumes for 2011 are shown in Table I.A-1.

       Table I.A-1--Required Volumes in the Clean Air Act for 2011
                              [Billion gal]
------------------------------------------------------------------------
                                                                Ethanol
                                                     Actual   equivalent
                                                     volume      volume
------------------------------------------------------------------------
Cellulosic biofuel...............................   \a\ 0.25        0.25
Biomass-based diesel.............................       0.80        1.20
Advanced biofuel.................................       1.35        1.35
Renewable fuel...................................      13.95       13.95
------------------------------------------------------------------------
\a\ This value assumes that all cellulosic biofuel would be ethanol. If
  any portion of the renewable fuel used to meet the cellulosic biofuel
  volume mandate has a volumetric energy content greater than that for
  ethanol, this value will be lower.

    By November 30 of each year, the EPA is required under CAA
211(o)(3)(B) to determine and publish in the Federal

Register percentage standards for the following year that will ensure
that the applicable volumes of renewable fuel are used. These standards
are to be based in part on transportation fuel (i.e. gasoline and
diesel) volume estimates provided by the Energy Information
Administration (EIA). The calculation of the percentage standards is
based on the formulas in 40 CFR 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 the EPA to determine whether the projected
volume of cellulosic biofuel production for the following year is less
than the minimum applicable volume shown in Table I.A-1. If this is the
case, then the standard for cellulosic biofuel must be based upon the
projected available volume rather than the applicable volume in the
statute. In addition, if EPA reduces the applicable 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.

B. Assessment of 2011 Cellulosic Biofuel Production

    To estimate the projected available volume of cellulosic biofuel in
the U.S. in 2011, we researched 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. We considered all pilot and
demonstration plants as well as commercial plants. 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 2011. Further analysis and
investigation allowed us to determine which ones were actually in a
position to produce and make available any commercial volumes of
cellulosic biofuel in 2011. In this process we also considered factors
such as the current and expected state of funding, the status of the
technology and contracts for feedstocks or product sales, and progress
towards construction and production goals. This assessment formed the
basis of our projection for potentially available 2011 volumes.
    In our assessment we evaluated both domestic and foreign sources of
cellulosic biofuel. We determined that five U.S. facilities have the
potential to make volumes of cellulosic biofuel commercially available
for transportation use in the U.S. in 2011. We also identified three
international facilities, two in Canada and one in Germany, that we
expect will produce cellulosic biofuel in 2011. While these facilities
may also be able to produce cellulosic volume in 2011, we determined
that they are unlikely to make the fuel available to the U.S. market.
Based on our assessment for this rulemaking, we are lowering the
applicable volume of cellulosic biofuel for 2011 from the statutory
volume of 250 million gallons to 6.0 million ethanol-equivalent
gallons. This volume is the basis for the percentage standard we are
setting for cellulosic biofuel in 2011. As with any projections of
future production there is some uncertainty associated with these
volumes. These uncertainties in our 2011 cellulosic volume projection
are discussed in more detail in Section II.A. Nevertheless, we believe
that 6.0 million ethanol-equivalent gallons represents a reasonable
projection of potential 2011 cellulosic production volume for use in
setting the standard.
    EPA is currently aware of more than 20 facilities representing over
300 million gallons of production that are targeting commercial
production of cellulosic biofuels in 2012. As a result, although the
cellulosic biofuel standard we are setting for 2011 is considerably
less than the applicable volumes established in EISA, EPA believes
there is reason for optimism when looking at the plans for the
cellulosic biofuel industry in 2012 and beyond.

C. Advanced Biofuel and Total Renewable Fuel

    As described in Section I.A above, 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 2011 falls short of the statutory volume of 250
million gallons. Since we are setting the cellulosic biofuel standard
significantly below the statutory volume of 250 million gallons, we
also needed to evaluate whether we should lower the required volumes
for advanced biofuel and total renewable fuel.
    We first considered whether it appears likely that the required
biomass-based diesel volume of 0.8 billion gallons can be met with
existing biodiesel production potential in 2011, as biodiesel is
currently the predominant form of biomass-based diesel. As discussed in
Section II.C, we believe that the 0.8 billion gallon standard can
indeed be met. Since biodiesel has an Equivalence Value of 1.5, 0.8
billion physical gallons of biodiesel would provide 1.20 billion
ethanol-equivalent gallons that can be counted towards the advanced
biofuel standard of 1.35 billion gallons. Of the remaining 0.15 billion
gallons (150 million gallons), 6.0 million gallons will be met with
cellulosic biofuel. Based on our analysis as described in Section II.B,
we believe that there are sufficient sources of other advanced biofuel,
such as additional biodiesel, renewable diesel, or imported sugarcane
ethanol, such that the standard for advanced biofuel can remain at the
statutory level of 1.35 billion gallons. We have also determined that
there is sufficient qualifying domestic corn ethanol production
capacity to meet the balance of the total renewable fuel standard that
is not satisfied with advanced biofuel. Therefore, in today's final
rule neither the 2011 volumes for advanced biofuel nor total renewable
fuel are being lowered below the volumes specified in the statute.

D. Final Percentage Standards

    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 applicable volumes required on a nationwide
basis. To calculate the percentage standard for cellulosic biofuel for
2011, we have used the volume of 6.0 million ethanol-equivalent gallons
(representing 6.6 million physical gallons). We are also specifying
that the applicable volumes for biomass-based diesel, advanced biofuel,
and total renewable fuel for 2011 will be those specified in the
statute. These volumes are shown in Table I.D-1.

                                       Table I.D-1--Final Volumes for 2011
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                                                   Actual volume                Ethanol equivalent volume
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Cellulosic biofuel.......................  6.6 mill gal................  6.0 mill gal.
Biomass-based diesel.....................  0.80 bill gal...............  1.20 bill gal.
Advanced biofuel.........................  1.35 bill gal...............  1.35 bill gal.
Renewable fuel...........................  13.95 bill gal..............  13.95 bill gal.
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    Four separate standards are required under the RFS2 program,
corresponding to the four separate volume requirements shown in Table
I.D-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 non-renewable gasoline and diesel
volume. The projected volumes of gasoline and diesel used to calculate
the standards are provided by EIA. Because small refiners and small
refineries are also regulated parties beginning in 2011 \3\, there is
no small refiner/refinery volume adjustment to the 2011 standard as
there was for the 2010 standard. Thus, the increase in the percentage
standards relative to 2010 appears smaller than would otherwise be the
case, since more obligated parties will be participating in the
program. The final standards for 2011 are shown in Table I.D-2.
Detailed calculations can be found in Section III.
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    \3\ The Department of Energy concluded that there is no reason
to believe that any small refinery would be disproportionately
harmed by inclusion in the RFS2 program for 2011 and beyond. See DOE
report ``EPACT 2005 Section 1501 Small Refineries Exemption Study''
(January 2009). We will revisit extensions to the exemption for
small refineries if DOE revises their study and provides a different
conclusion, or we determine that an individual small refinery has
demonstrated that it will suffer a disproportionate economic
hardship under the RFS program.

            Table I.D-2--Final Percentage Standards for 2011
------------------------------------------------------------------------
                                                                Percent
------------------------------------------------------------------------
Cellulosic biofuel...........................................      0.003
Biomass-based diesel.........................................       0.69
Advanced biofuel.............................................       0.78
Renewable fuel...............................................       8.01
------------------------------------------------------------------------

E. 2011 Price for Cellulosic Biofuel Waiver Credits

    Since we are reducing the required volume of cellulosic biofuel for
2011 below the applicable volume specified in the statute, EPA is
required to offer biofuel waiver credits to obligated parties that can
be purchased in lieu of acquiring cellulosic biofuel RINs. These waiver
credits are not allowed to be traded or banked for future use, and are
only allowed to be used to meet the 2011 cellulosic biofuel standard.
Moreover, unlike cellulosic biofuel RINs, waiver credits may not be
used to meet either the advanced biofuel standard or the total
renewable fuel standard. For the 2011 compliance period, we are making
cellulosic biofuel waiver credits available to obligated parties for
end-of-year compliance should they need them at a price of $1.13 per
credit. Further discussion is provided in Section VI.A.

F. Assessment of the Aggregate Compliance Approach

    As part of the RFS2 regulations, EPA established an aggregate
compliance approach for renewable fuel producers who use planted crops
and crop residue from U.S. agricultural land. This compliance approach
relieved such producers (and importers of such fuel) of the individual
recordkeeping and reporting requirements otherwise required of
producers and importers to verify that feedstocks used in the
production of RIN-qualifying renewable fuel meet the definition of
renewable biomass. EPA determined that 402 million acres of U.S.
agricultural land was available in 2007 (the year of EISA enactment)
for production of crops and crop residue that would meet the definition
of renewable biomass, and determined that as long as this total number
of acres is not exceeded, it is unlikely that new land has been devoted
to crop production based on historical trends and economic
considerations. We indicated that we would conduct an annual evaluation
of total U.S. acreage that is cropland, pastureland, or conservation
reserve program land, and that if the value exceed 402 million acres,
producers using domestically-grown crops or crop residue to produce
renewable fuel would be subject to individual recordkeeping and
reporting to verify that their feedstocks meet the definition of
renewable biomass.
    The RFS2 regulations provide that EPA will make a finding
concerning whether the 2007 baseline amount of U.S. agricultural land
has been exceeded in a given year and will publish this finding in the
Federal Register by November 30 of the same year. Based on data
provided by the USDA, we have estimated that U.S. agricultural land
reached 398 million acres in 2010, and thus did not exceed the 2007
baseline acreage.
    We also stated in the preamble to the final RFS2 rule that if, at
any point, EPA finds that the total agricultural land is greater than
397 million acres, EPA will conduct further investigations to evaluate
validity of the domestic aggregate compliance approach. The total
acreage estimate of 398 million acres exceeds the trigger point for
further investigation, therefore EPA, with the help of USDA, will
conduct further investigations into this matter. Additional discussion
on this matter can be found in Section VI.B of this preamble.

II. Volume Production and Import Potential for 2011

    In order to project production volumes of cellulosic biofuel in
2011 for use in setting the percentage standards, we collected
information on individual facilities that have the potential to produce
qualifying cellulosic biofuel volumes for consumption as transportation
fuel, heating oil, or jet fuel in the U.S. in 2011. We also evaluated
the production and import potential for biomass-based diesels, advanced
biofuels, and other conventional renewable fuels such as corn-ethanol.
This section describes the volumes that we believe could potentially be
produced or imported in 2011. As with any projections of future
production there is some uncertainty associated with these volumes.
Many of the uncertainties associated with our projected volumes are
also discussed in this section. Section III describes the derivation of
the percentage standards that will apply to obligated parties in 2011.
    The 2011 volume projections in today's final rule are based on
information from a wide spectrum of sources. For instance, EPA received
input on our assessment of 2011 production and import volumes from
other government organizations including the Department of Energy
(DOE), Energy Information

Administration (EIA), and United States Department of Agriculture
(USDA). The EIA projections of gasoline, diesel, biomass-based diesel,
and cellulosic biofuel provided to EPA on October 20, 2010 were
particularly germane. These EIA projections are discussed in more
detail in Section II.A.3.
    We also received a number of comments related to our proposed
volume projections and the associated percentage standards. With regard
to the proposed cellulosic biofuel projections, most commenters agreed
that the proposed range of 5--17.1 million gallons (6.5--25.5 million
ethanol-equivalent gallons) was appropriate, but no commenter suggested
a specific volume for 2011 or a clear methodology for determining the
appropriate volume. However, several commenters provided qualitative
assessments. For instance, refiners suggested that the low end of the
range would be more appropriate as it would minimize the possibility
that obligated parties would be unable to procure sufficient cellulosic
biofuel RINs to meet their obligations. They further stated that the
cellulosic biofuel volume used to set the 2011 standard should be based
on existing production volumes rather than a projection of potential
volume in 2011. In contrast, several proponents of the advanced
biofuels industry stated that the cellulosic biofuel standard should be
set as high as possible in order to establish the market demand that
investors seek before funding cellulosic biofuel projects. They argued
that the cellulosic biofuels industry is unlikely to grow without
support in the form of a high cellulosic biofuel standard.
    Since commenters did not provide their own quantitative assessments
of projected cellulosic biofuel volumes for us to consider, we based
our assessment of the production capabilities of planned and existing
biofuel production facilities on projections provided by EIA as well as
data provided by other government agencies and our own contact with
many of these companies. In directing EPA to project cellulosic biofuel
production for purposes of setting the annual cellulosic biofuel
standard, Congress did not specify what degree of certainty should be
reflected in the projections. We believe that the cellulosic biofuel
standard should provide an incentive for the industry to grow according
to the goals that Congress established through EISA. However, we also
believe that the cellulosic biofuel standard that we set should be
within the range of what can be attained based on projected domestic
production and import potential. Any estimate we use to set the
cellulosic biofuel standard for 2011 will have some uncertainty in
terms of actual attainment, and the level of such uncertainty generally
rises with the volume mandate. Our intention is to balance such
uncertainty with the objective of providing an incentive for growth in
the industry. To this end, we explored the 2011 volumes for individual
companies as projected by EIA to determine not only what volumes might
be anticipated, but more importantly what volumes were potentially
attainable. Our final projected available volume of cellulosic biofuel
for 2011 reflects these considerations. Nevertheless, in the event that
the biofuel industry ultimately fails to provide sufficient volumes to
meet the 2011 standard for cellulosic biofuel, obligated parties can
purchase waiver credits from the EPA under the provisions of Sec.
80.1456. The price for such waiver credits is being established in
today's action in Section VI.A.
    In addition to the sources described above, we had intended to use
information provided through the Production Outlook Reports required
under Sec.  80.1449 for all registered renewable fuel producers and
importers. These reports were due to the Agency by September 1, 2010.
While these reports were informative for the companies that did submit
them, most potential cellulosic biofuel producers had not yet
registered under the RFS program and therefore were not required to
submit Production Outlook Reports. Moreover, only a small percentage of
the reports were both complete and correct upon initial submission, and
about one-fourth of all registered producers and importers failed to
submit a report. These issues are likely the result of this being the
first time that such reports were due and remedial actions are expected
to lead to a more complete set of valid reports later in 2010. However,
the Production Outlook Reports were of limited value for development of
the biofuel volume projections that we used to set the standards for
2011.
    In our analysis, we have focused on biofuel production as required
by Section 211(o)(7)(D)(i) of the Clean Air Act. We have not considered
the demand for biofuels as a factor in determining the appropriate
volume of cellulosic biofuel to require in 2011. However, we note that
the volumes of cellulosic biofuel that we proposed and the required
volume we are finalizing today are very small in terms of total demand
for biofuels, and are thus unlikely to impact issues related to demand
for biofuels such as infrastructure for distributing or consuming
biofuels.

A. Cellulosic Biofuel

    The task of projecting the volume of cellulosic biofuels that could
be produced in 2011 is challenging. Announcements of new projects,
changes in project plans, project delays, and cancellations occur with
great regularity. 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.
    In order to project cellulosic biofuel production volumes for 2011,
EPA has tracked the progress of over 100 cellulosic biofuel production
facilities. From this large group of over 100 production facilities we
identified 35 that had planned to begin cellulosic biofuel production
by early 2012. From this smaller list of facilities we used publically
available information, as well as information provided by DOE and USDA,
to determine which facilities were the most likely candidates to
produce cellulosic biofuel and make it commercially available in 2011.
Each of these companies was then contacted to provide the most up to
date information possible on their current cellulosic biofuel
production plans for 2011. Our estimate of the projected available
cellulosic biofuel volume for 2011 is based on the information we
received in conversations with these companies as well as our own
assessment of the potential for these facilities to produce cellulosic
biofuel in the volumes indicated. Throughout this process EPA engaged
in discussions with EIA to share information and insights into
potential cellulosic biofuel production in 2011. For more details on
EIA's cellulosic biofuel projections for 2011 and a discussion of the
differences between the projections made by EPA and EIA see Section
II.A.3.
    A brief description of each of the companies we believe has the
potential to produce cellulosic biofuel and make it commercially
available can be found below. A more in-depth discussion of the
technologies used to produce cellulosic biofuels can be found in
Section IV. Based on this information, EPA projects that 6.6 million
gallons of cellulosic biofuel (corresponding to 6.0 million ethanol-
equivalent RINs) could be produced and made available in 2011. This is
the number we used as the basis for the percentage standard for 2011.
The rest of this section describes the analyses that we used as the
basis for this projected available production volume.

1. Domestic Cellulosic Biofuel
    Based on our assessment of the cellulosic biofuel industry, we
believe that there are four companies in the United States with the
potential to produce cellulosic alcohol and make it commercially
available in 2011. These companies are DuPont Danisco, Fiberight, KL
Energy Corporation, and Range Fuels. EPA also believes that a fifth
company, KiOR, will be in a position to produce some cellulosic diesel
fuel in 2011. This section will provide a brief description of each of
these companies and our assessment of their potential fuel production
in 2011 based on information we have acquired to date.
    DuPont Danisco Cellulosic Ethanol (DDCE) began start up operations
at a small demonstration facility in Vonore, Tennessee in early 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. DDCE has indicated that they could produce up
to 150,000 gallons of ethanol in 2011 from the Vonore facility.
    Fiberight is a company planning to convert MSW to ethanol.
Fiberight purchased a small corn ethanol plant in Blairstown, IA and
has modified it to produce ethanol from cellulosic biomass. They use an
enzymatic hydrolysis process to convert the cellulosic waste materials
to simple sugars and then to ethanol. Fiberight plans to initially use
a waste cellulose stream from a paper recycling facility as their
primary feedstock, and eventually complement that with a sorted MSW
stream. Fiberight started producing ethanol in the summer of 2010 and
plans to ramp up to full production capacity by late 2011. Fiberight
has provided month-by-month production targets for 2011 to EPA. Based
on these targets their projected production potential for 2011 is 2.8
million gallons of cellulosic ethanol. While there is still some
uncertainty as to whether their supply of waste cellulose from paper
recycling meets the regulatory definition of renewable biomass, fuel
from such feedstock would only account for about one-fifth of the total
ethanol expected to be produced by Fiberight in 2011. Moreover,
Fiberight's choice of feedstock for ethanol production could change
depending on whether waste cellulose from paper recycling is determined
to meet the regulatory definition of renewable biomass. For the
purposes of projecting potentially available cellulosic volume for
2011, therefore, we have included in our estimates the portion that
could be produced from waste cellulose from paper recycling.
    The third company that EPA is aware of with the potential to
produce cellulosic ethanol in 2011 is KL Energy Corporation. KL Energy
has a demonstration facility in Upton, Wyoming that uses an enzymatic
hydrolysis process to convert wood chips and wood waste to ethanol and
has just announced a partnership with Petrobras for the construction of
additional facilities. The demonstration facility has a maximum annual
production volume of 1.5 million gallons and has been operational since
the fall of 2007. Since KL Energy completed construction of this
facility they have been gradually ramping up production and gathering
information to optimize this and future ethanol production facilities.
While production levels from this facility have so far been below
capacity, KL has informed EPA that they intend to produce up to 400,000
gallons of cellulosic ethanol from their Upton, WY facility in 2011.
    A fourth company that EPA expects will produce cellulosic biofuel
in 2011 is Range Fuels. Range has a facility in Soperton, Georgia
capable of processing 125 dry tons of feedstock per day. This facility
completed commissioning in the second quarter of 2010 and began
producing cellulosic methanol in the third quarter of 2010. Range
initially plans to use wood chips as their feedstock, but will also
investigate using different types of woody biomass and herbaceous
energy crops. In Phase I of this project, Range will predominantly use
a commercial methanol catalyst, but they plan to produce some ethanol
using a proprietary mixed alcohol catalyst. No approved pathway
currently exists under the RFS program for the generation of RINs for
methanol, and the opportunities for using methanol in the
transportation fuel market are limited. However, Range does plan on
adding capabilities in Phase II that will increase the relative
production volume of ethanol versus methanol. Moreover, EPA is
evaluating possible RIN-generating pathways for cellulosic methanol,
including the potential for cellulosic methanol used in the production
of biodiesel to qualify for the generation of cellulosic biofuel RINs.
    At this time EPA projects that Range Fuels will produce 0.1 million
gallons of ethanol and 2.9 million gallons of methanol from this
facility in 2011. Given a methanol equivalence value of 0.75, this fuel
represents 2.3 million ethanol equivalent gallons. Based the potential
for Range to produce larger proportions of ethanol, and the possibility
that RIN-generating pathways for cellulosic methanol could be
identified or approved we are projecting production of 2.3 million
gallons of RIN-generating cellulosic biofuel by Range Fuels in 2011.
    The only company that EPA is aware of that may be a producer of
cellulosic diesel in 2011 is KiOR. KiOR has developed a catalytic
pyrolysis technology capable of converting cellulosic biomass directly
to a bio-crude with a low oxygen content. KiOR currently has a small
pilot facility capable of producing 10-15 barrels of bio-crude per day
in Houston, Texas. In order for this fuel to be used as a
transportation fuel it would have to go through further refining. This
could either be done at the KiOR facility if the necessary equipment is
installed, or at an existing refinery. While KiOR is not currently
producing a finished transportation fuel, this bio-oil could be
upgraded and be eligible for RIN generation under the RFS program. EPA
projects that this facility can produce 0.2 million gallons of fuel,
representing 0.3 million RINs in 2011.
    In the proposed rule we also discussed two other potential
cellulosic diesel producers, Bell BioEnergy and Cello Energy. Since the
publication of the proposed rule the project that Bell BioEnergy had
been working on that EPA had identified as a potential source of
cellulosic biofuel has been terminated. They are currently exploring
other options for locations for their first commercial facility, as
well as potential sources of funding. While we are not counting on any
volume from Bell BioEnergy for the 2011 projected available volume, it
is feasible that they could produce cellulosic diesel or jet fuel in
2011 if they are able to identify a suitable location for their
facility and secure the necessary funding in the near future.
    The other cellulosic diesel company discussed in the proposed rule
is Cello Energy. Cello has a structurally complete facility in Bay
Minette, Alabama with an annual production capacity of 20 million
gallons of diesel per year. While their facility is structurally
complete, they have experienced feedstock preparation and handling
issues that need to be resolved before they will be able to again
attempt start up and production. Litigation related to contract issues
has also provided a set-back likely delaying any potential production
from Cello's facility. On October 20, 2010 Cello Energy filed for
Chapter 11 bankruptcy, therefore no volume from this facility has been
included in our projected cellulosic biofuel volume for 2011.

    We are currently unaware of any companies in the United States
planning on producing cellulosic biofuel other than ethanol, methanol,
and diesel and making it commercially available in 2011. EPA is
currently tracking the efforts of 10 companies that plan to produce
fuels such as butanol, gasoline, jet fuel, dimethyl ether (DME), and
others. Many of these companies have reported that they are still
developing their technologies and waiting for funding, and that they
are not expecting to make any cellulosic fuel commercially available
until 2012 at the earliest. There are several companies with small
demonstration facilities who intend to produce biofuels from cellulosic
feedstocks, but are currently optimizing their technology with sugar or
starch feedstocks. EPA anticipates that in the future this may be a
significant source of cellulosic biofuel, however we have not counted
these potential volumes in our projections for 2011.
2. Imports of Cellulosic Biofuel
    In addition to the companies located in the United States, EPA is
also aware of three companies located in other countries with the
potential for cellulosic biofuel production in 2011. If this fuel is
produced with renewable biomass and imported into the United States for
use in transportation fuel, jet fuel, or heating oil, it would be
eligible to participate in the RFS2 program. However, for the reasons
described below, we have not included any imported cellulosic biofuel
in our projections of available U.S. volume for 2011.
    Iogen uses a steam explosion pre-treatment process followed by
enzymatic hydrolysis to produce cellulosic ethanol from wheat, oat, and
barley straw. They have a demonstration facility with an annual
production capacity of 500,000 gallons of ethanol located in Ontario,
Canada. This facility has been operational and producing small volumes
of ethanol since 2004. So far all of the ethanol produced by this
facility has been used locally and in racing and other promotional
events. In conversations with EPA Iogen has indicated that they do not
intend to export any fuel to the United States from this facility in
2011.
    Another Canadian company with the potential to produce cellulosic
ethanol in 2011 is Enerkem. Enerkem plans to use a thermo-chemical
process to gasify separated MSW and other waste products and then use a
catalyst to convert the synthesis (syn) gas into methanol and ethanol.
Enerkem finished construction on a 1.3 million gallon per year facility
in Westbury, Quebec in June 2010 and plans to begin producing methanol
and ethanol later in 2010. They are also planning a 10 million gallon
per year facility in Edmonton, Alberta, however production from this
facility is not expected until 2012. Enerkem has informed EPA that they
plan to market their products locally, and do not intend any exports to
the United States.
    A third international company that may produce commercial volumes
of cellulosic biofuel in 2011 is Choren. Choren has completed
construction of a facility in Freiberg, Germany with a production
capacity of 3.9 million gallons of diesel fuel. This facility used a
thermochemical process to convert biomass to syngas and then
catalytically converts the syngas to diesel fuel. The facility is
currently undergoing commissioning and it is unclear when they will
begin commercial production. Additionally, there is likely to be strong
local demand for the fuel. Due to these factors, EPA is not projecting
that any fuel produced by Choren will be imported into the U.S. in
2011.
    While these facilities appear to be the most likely sources of
imported cellulosic biofuel, it is possible that cellulosic biofuels
produced by other foreign companies may be imported into the United
States. One strong candidate as a potential source of cellulosic
biofuel imports is Brazil, due to its established ethanol industry and
history of importing ethanol into the United States. EPA is aware of
several companies planning commercial scale production of cellulosic
biofuel in Brazil. It is unlikely these projects will be completed in
time to supply cellulosic biofuel to the United States in 2011; however
they may be a significant source of cellulosic biofuel imports in
future years.
3. Projections From the Energy Information Administration
    Section 211(o)(3)(A) of the Clean Air Act requires EIA to ``* * *
provide to the Administrator of the Environmental Protection Agency an
estimate, with respect to the following calendar year, of the volumes
of transportation fuel, biomass-based diesel, and cellulosic biofuel
projected to be sold or introduced into commerce in the United
States.'' EIA provided these estimates to us on October 20, 2010.\4\
With regard to cellulosic biofuel, the EIA estimated that the available
volume in 2011 would be 3.94 mill gallons based on their assessment of
the utilization of production capacity. A summary of the plants they
considered is shown below in Table II.A.3-1.
---------------------------------------------------------------------------

    \4\ Letter from Richard Newell, EIA Administrator to Lisa
Jackson, EPA Administrator October 20, 2010.

                                 Table II.A.3-1--EIA's Projected Cellulosic Biofuel Plant Production Estimates for 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Expected      2011
          Company name                  Location            Feedstock               Fuel          Capacity    Facility status    utilization  Production
                                                                                (MGY)                           (Percent)      (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
DuPont Danisco..................  Vonore, TN.........  Corn cobs, then      Ethanol............       0.25  Online.............          10         0.03
                                                        switchgrass.
Fiberight.......................  Blairstown, IA.....  MSW................  Ethanol............        6.0  Online.............          46         2.76
KL Energy.......................  Upton, WY..........  Wood...............  Ethanol............        1.5  Online.............          10         0.15
Range...........................  Soperton, GA.......  Wood Waste.........  Methanol, Ethanol..          4  Online.............          25          1.0
                                 -----------------------------------------------------------------------------------------------------------------------
    Total.......................  ...................  ...................  ...................  .........  ...................  ...........        3.94
--------------------------------------------------------------------------------------------------------------------------------------------------------

    While EIA's projected cellulosic biofuel production estimate for
2011 is, with the exception of KiOR, based on an evaluation of the same
companies that EPA evaluated, the production volume assumed by EIA for
each company is lower in all cases. We believe that the difference
reflects EIA's intention to estimate volumes that each company has a
high certainty of reaching in 2011. As described in Section II.A above,
we have projected the volume of cellulosic

biofuel that we believe is attainable given the issues that each
company faces, while recognizing that there is some uncertainty in the
projected volumes. We believe that many or all of the uncertainties
associated with the potential volume production at each company can be
resolved in a positive direction.
    We have considered EIA's projection of cellulosic biofuel
production for 2011 in the context of setting the 2011 cellulosic
biofuel standard, and we believe that it represents a volume that the
industry is unlikely to fall below. However, we believe that it is
appropriate to set the applicable volume at a level that provides an
incentive for developing cellulosic biofuel facilities to come on line
as expeditiously as possible, and to provide reasonable assurance that
there will be a market for their product if they do. Moreover, we also
believe that CAA 211(o)(7)(D) is best interpreted to vest the authority
for making the projection with EPA, since it provides that the
projection is ``determined by the Administrator based on the estimate
provided [by EIA].'' If Congress intended that EPA simply adopt EIA's
projection without an independent evaluation, it would not have
specified that the projection is ``determined'' by EPA. Although the
statute provides that our determination must be ``based on the estimate
provided'' by EIA, we believe that our consideration of EIA's estimate
in deriving our own projection satisfies this statutory requirement.
For the reasons described above, we believe that EPA's projection takes
into account uncertainties in a manner that best furthers the
objectives of the statute.
4. Overall 2011 Volume Projections
    The information EPA has gathered on the potential cellulosic
biofuel producers in 2011, summarized above, allows us to project the
potential production volume of each facility in 2011. After the
appropriate equivalence value has been applied to the volumes from
these facilities, the overall projected ethanol-equivalent volume of
cellulosic biofuel for 2011 can be totaled. This information is
summarized in Table II.A.4-1 below.

                                   Table II.A.4-1--Projected Potential Volume of Cellulosic Biofuel Production in 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Projected    Ethanol
                                                                                Capacity                       potential  equivalent
           Company name                  Location             Feedstock               Fuel           (MGY)      Facility status      volume     gallons
                                                                                (MG)       (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
DuPont Danisco...................  Vonore, TN..........  Corn cobs, then      Ethanol............       0.25  Online.............       0.15        0.15
                                                          switchgrass.
Fiberight........................  Blairstown, IA......  MSW................  Ethanol............          6  Online.............        2.8         2.8
KL Energy........................  Upton, WY...........  Wood...............  Ethanol............        1.5  Online.............        0.4         0.4
KiOR.............................  Houston, TX.........  Wood Waste.........  Diesel.............        0.2  Online.............        0.2         0.3
Range............................  Soperton, GA........  Wood Waste.........  Methanol, Ethanol..          4  Online.............        3.0         2.3
                                  ----------------------------------------------------------------------------------------------------------------------
    Total........................  ....................  ...................  ...................  .........  ...................        6.6         6.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    While the production volumes in Table II.A.4-1 have some
uncertainty, we believe that a total volume of 6.0 million gallons is
attainable. By basing the 2011 cellulosic biofuel standard on the
attainable volumes rather than discounting projected volumes to account
for uncertainty, we aim to avoid the undesirable scenario in which
cellulosic biofuel production exceeds the mandated volume. Such a
scenario would result in weak demand for cellulosic biofuels and RINs.
Additionally, while obligated parties are able to purchase cellulosic
biofuel waivers credits in the event that production of cellulosic
biofuel is insufficient to meet the 2011 standard, no mechanism exists
for this standard to be raised should cellulosic biofuel production
exceed the 2011 standard. The intent of Congress in establishing the
RFS program through EISA was to provide a reliable market for renewable
fuels and in doing so to spur growth in the cellulosic biofuels
industry. EPA believes the projected available volume finalized in this
rule best reflects these intentions.
    Three commenters (Abengoa, Growth Energy, and Unica) supported the
range of 6.5-25.5 million gallons that EPA proposed in the NPRM. The
Biotechnology Industry Organization and Dupont Danisco Cellulosic
Ethanol commented that the EPA's proposed range was a reasonable
estimate, but encouraged EPA to consider ways the RFS program can serve
a risk mitigation function for the cellulosic biofuel industry. Two
commenters, American Petroleum Institute and National Petrochemical &
Refiners Association, suggested that EPA consider only companies that
have demonstrated, proven production records when setting the
cellulosic standard for the following year. The Low Carbon Synthetic
Fuels Association suggested EPA set the standard high enough so that
any cellulosic biofuel that might be produced in 2011 in the U.S. or
internationally would be included in the volume projections. They
suggest that this would mean using the high end of the proposed volume,
or even some volume above the proposed range.
    Based on our assessment of the potential production capabilities of
individual companies as described above, EPA is finalizing the
cellulosic biofuel standard for 2011 at 6.0 million ethanol-equivalent
gallons of cellulosic biofuel. This number represents the volume of
RIN-generating cellulosic biofuel that we believe can be made available
for use as transportation fuel, heating oil, or jet fuel in 2011. It
incorporates some reductions from the annual production capacity of
each facility based on when fuel production can begin and assumptions
regarding a ramp-up period to full production. We believe that a
production volume of 6.0 mill gal is attainable despite the
uncertainties, since none of the possible impediments to attaining this
volume appear insurmountable. Moreover, by setting the standard for
cellulosic biofuel based on the volumes that are attainable, we are
providing greater incentives for producers to overcome uncertainties
and greater opportunities for funding based on an established demand.
    There are also a variety of factors that could lead to production
volumes greater than those listed in Table II.A.4-1 and make up for
potential shortfalls elsewhere. For instance:
     For each of the facilities listed, with the exception of
KiOR, we are projecting that their production will be some

volume less than the capacity of their facility. It is possible,
however, that these companies could produce a greater volume of fuel
than they are currently anticipating or has been projected by EPA.
     It is possible that companies that are currently targeting
2012 for commercial production may produce cellulosic biofuel ahead of
schedule and generate RINs in 2011. None of this volume was included in
our projection for 2011.
     A high demand for cellulosic biofuels may be sufficient to
cause companies to import fuel into the United States, even if they
currently have no plans to do so. As described in Section II.A.2 above,
there are several foreign producers that are either producing
cellulosic biofuel now, or could potentially produce some cellulosic
biofuel volume in 2011.
    Finally, we note that if the actual volume of cellulosic biofuel
RINs that are available in 2011 falls short of the 6.0 million gallon
RINs used to derive the 2011 cellulosic biofuel standard, obligated
parties have other recourses:
     Purchase cellulosic biofuel waiver credits from the EPA
(see further discussion in Section VI.A).
     Carry over a deficit from 2011 into 2012 according to
Sec.  80.1427(b).
5. Projections of Cellulosic Biofuel for 2012
    In addition to the companies discussed above, EPA also assessed the
production capabilities of many other companies to determine their
ability to produce cellulosic ethanol in 2011. Many of these companies
had at some point planned to produce cellulosic ethanol at commercial
scale by 2011, but due to a variety of factors have had their plans
delayed. Despite these delays, the outlook for 2012 and later years
still looks promising.
    Although the cellulosic biofuel standard we are setting for 2011 is
considerably below the applicable volumes established in EISA, EPA
believes there is reason for optimism when looking at the plans for the
cellulosic biofuel industry in 2012 and beyond. EPA is currently aware
of more than 20 facilities representing over 300 million gallons of
production that are targeting commercial production of cellulosic
biofuels in 2012. Many companies, including Abengoa, AE Biofuels,
BlueFire Ethanol, Coskata, Fulcrum, POET, and Vercipia, are intending
to begin bringing large scale facilities online, with physical
capacities of between 10 and 100 million gallons of cellulosic biofuel
per year. There is also hope within the industry that as these first-
of-a-kind technologies prove commercially viable that new financing
opportunities will open up for both new facilities and facility
expansion alike. This could lead to rapid growth in the cellulosic
biofuel industry as many companies, in addition to those mentioned
above, have announced project plans that have been put on hold until
funding or project partners can be found.

B. Advanced Biofuel and Total Renewable Fuel

    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.A above, we are indeed projecting the volume
of cellulosic biofuel production for 2011 at significantly below the
statutory applicable volume of 250 million gallons. Therefore, we must
consider whether and to what degree to lower the advanced biofuel and
total renewable fuel applicable volumes for 2011.
    As described in the NPRM, because cellulosic biofuel is used to
satisfy both the cellulosic biofuel standard and the advanced biofuel
standard, it is possible that a required volume of cellulosic biofuel
for a given year that is less than the volume specified in the statute
could lead to a situation where there is insufficient volume of
advanced biofuels to satisfy the applicable volume of advanced biofuel
volume set forth in the statute. However, it is also possible that
other advanced biofuels, such 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 use the applicable volume of advanced biofuel set forth in
the statute to derive the advanced biofuel standard 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.
    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 6.0
million gallons, then 1,206 million gallons of the 1,350 million gallon
advanced biofuel mandate would be satisfied automatically through the
satisfaction of the cellulosic and biomass based diesel standards. An
additional 144 million ethanol-equivalent gallons of additional
advanced biofuels would be needed. See Table II.B-1.

  Table II.B-1--Projected Fuel Mix if Only Cellulosic Biofuel Volume is
                            Adjusted in 2011
                             [mill gallons]
------------------------------------------------------------------------
                                          Ethanol-
                                         equivalent     Physical volume
                                           volume
------------------------------------------------------------------------
Total renewable fuel.................          13,950      13,500-13,549
Conventional renewable fuel a........          12,600             12,600
Total advanced biofuel...............           1,350            903-951
Cellulosic biofuel...................             6.0                6.6
Biomass-based diesel.................           1,200                800
Other advanced biofuel b.............             144           c 96-144
------------------------------------------------------------------------
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 biodiesel. To determine if there are
likely to be sufficient volumes of these biofuels to meet the need for
144 million gallons of other advanced biofuel, we examined historical
data on ethanol imports and EIA projections for 2011. For instance, as
shown in Table II.B-2 below, recent annual import volumes of ethanol
were

higher than what would be needed in 2011.

     Table II.B-2--Historical Imports of Ethanol (mill gallons) \5\
------------------------------------------------------------------------

------------------------------------------------------------------------
2007.......................................................          439
2008.......................................................          530
2009.......................................................          194
------------------------------------------------------------------------

    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. These historical import volumes
demonstrate that Brazil has significant export potential under the
appropriate economic circumstances. However, as shown above, ethanol
import volumes decreased significantly in 2009. Moreover, they have
dropped to nearly zero in the first half of 2010 according to EIA's
Short Term Energy Outlook. Some have speculated that this decline in
imports is related to the cessation of the duty drawback that became
effective on October 1, 2008, and to changes in world sugar prices.\6\
However, Brazil is second worldwide in the production of ethanol,
reaching about 6.5 billion gallons in 2008.\7\ Thus, by establishing an
increased U.S. demand for 144 million gallons of other advanced biofuel
in 2011, we believe it may once again be economical for Brazilian
producers to export at least this volume of sugarcane ethanol to the
U.S. Moreover, California's Low Carbon Fuel Standard goes into effect
in 2011, and may compel some refiners to import additional volumes of
sugarcane ethanol from Brazil into California. These same volumes could
count towards the federal RFS2 program as well.
---------------------------------------------------------------------------

    \5\ ``Monthly U.S. Imports of Fuel Ethanol,'' EIA, released 4/8/
2010.
    \6\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End;
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News,
Issue 45, November 4, 2008.
    \7\ Renewable Fuels Association (RFA), ``2008 World Fuel Ethanol
Production,'' http://www.ethanolrfa.org/pages/statistics#E, March
31, 2009.
---------------------------------------------------------------------------

    We also examined the potential for excess biodiesel to help meet
the need for 144 million gallons of advanced biofuel. The applicable
volume of biomass-based diesel established in the statute for 2011 is
800 million gallons (which corresponds to 1,200 ethanol equivalent
gallons). As discussed more fully in Section II.C below, we believe
that the biodiesel industry has the potential for producing significant
volumes above 800 million gallons if demand for such volume exists.
    Finally, there are also other potential sources of advanced
biofuels that could contribute to compliance with the advanced biofuels
standard in 2011, such as diesel fuel additives made from waste cooking
oil or restaurant grease. Given all of these potential sources, we
believe that there are likely to be sufficient volumes of advanced
biofuels such that the advanced biofuel standard need not be lowered
below the 1.35 billion gallon level specified in the Act. Thus, we are
not reducing the applicable volume of advanced biofuel for 2011.
    If we were reducing the applicable volume of advanced biofuel for
2011, it would follow that there could be a shortfall of RINs capable
of satisfying the general renewable fuel volume requirements. However,
we are not doing so, and thus there is no need to lower the applicable
volume of total renewable fuel below the statutory volume of 13.95
billion gallons.
    In response to the NPRM, biodiesel producers, advanced biofuel
producers, and UNICA (representing importers of sugarcane ethanol)
supported our proposal to maintain the applicable volume of advanced
biofuel at 1.35 bill gallons for 2011. They generally agreed that there
exists sufficient potential sources of advanced biofuel to make up for
the reduction of the applicable volume of cellulosic biofuel for 2011,
and that the very existence of a demand for this volume will lead these
sources to provide sufficient volume to meet that demand. Other
commenters, such as refiners and proponents of corn-ethanol, opposed
our proposal for leaving the 2011 applicable volume of advanced biofuel
at 1.35 bill gallons on the grounds that other sources of advanced
biofuel sufficient to make up for the reduction in the applicable
volume of cellulosic biofuel were too uncertain.
    We disagree with the suggestion that volumes of other advanced
biofuels are too uncertain and that the applicable volume of advanced
biofuel should be lowered. As described above, we believe that there
are sufficient potential sources of other advanced biofuel to make up
for the reduction in the applicable volume of cellulosic biofuel.
Moreover, our authority to lower the advanced biofuel and/or total
renewable fuel applicable volumes is discretionary, and we believe that
actions to lower these volumes should only be taken if it appears that
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.
Since this is not the case for 2011, we do not believe that the
advanced biofuel applicable volume of 1.35 bill gallons or the total
renewable fuel applicable volume of 13.95 billion gallons should be
reduced.
    Although refiners and proponents of corn-ethanol agreed on the
treatment of advanced biofuel for 2011, they differed in their views of
how the total renewable fuel standard should be treated. Refiners
stated that the advanced biofuel standard and the total renewable fuel
standard should be lowered in concert and by the same amount.
Proponents of corn-ethanol, on the other hand, stated that the total
renewable fuel standard of 13.95 bill gal should be maintained while
the advanced biofuel standard should be lowered to reflect the
projected shortfall. They argued that excess volumes of corn-ethanol
were more certain than excess volumes of advanced biofuel, and that
their suggested approach would effectively result in a demand for corn-
ethanol above 12.6 billion gallons (see Table II.B-1). They further
argued that this approach would generate more GHG reductions than if
the advanced biofuel and total renewable fuel standards were lowered in
concert. One commenter explicitly opposed any changes to the advanced
biofuel and total renewable fuel standards that would increase the
demand for corn-ethanol under RFS2 above 12.6 billion gallons (see
Table II.B-1).
    We agree that there is sufficient corn-ethanol production capacity
and feedstocks to produce more than 12.6 bill gallons in 2011. Indeed
EIA projects that corn-ethanol production in 2010 will exceed 13
billion gallons.\8\ However, as described above, we disagree with the
suggestion that there is insufficient volume of advanced biofuels to
justify maintaining the advanced biofuel applicable volume at the level
specified in the statute. Moreover, since there is no need to waive any
portion of the advanced biofuel applicable volume, there is likewise no
need to consider the possibility of corn ethanol making up for a
shortfall in advanced biofuel volumes. As a result, the demand for corn
ethanol will not be greater as a result of today's action than it would
be if all applicable volumes as specified in the statute were used in
deriving the 2011 standards.
---------------------------------------------------------------------------

    \8\ EIA STEO, September 2010, Table 8.
---------------------------------------------------------------------------

C. Biomass-Based Diesel

    While the statutory requirement that we project volumes of
cellulosic biofuel for next year does not explicitly apply to biomass-
based diesel, we must, as

discussed above, determine whether the required volumes of advanced
biofuel and/or total renewable fuel should be reduced at the same time
that we reduce the required volume of cellulosic biofuel. The amount of
biomass-based diesel that we project can be available directly affects
our consideration of adjustments to the volumetric requirements for
advanced biofuel and total renewable fuel discussed above in Section
II.B.
    Although there are a variety of potential fuel types that can
qualify as biomass-based diesel, biodiesel is by far the predominant
type. To project biodiesel production volumes for 2011, we examined
historical and recent production and export rates as well as the
production potential of the industry. As shown in Table II.C-1,
domestic production of biodiesel in 2007-2009 has ranged from 490 to
678 million gallons.

          Table II.C-1--Historical Biodiesel Production, Net Exports, and Consumption (Million Gallons)
                                [Source: EIA Monthly Energy Review, August 2010]
----------------------------------------------------------------------------------------------------------------
                                                                     Domestic                        Domestic
                                                                    production      Net exports     consumption
----------------------------------------------------------------------------------------------------------------
2007............................................................             490             132             358
2008............................................................             678             362             316
2009............................................................             505             189             315
----------------------------------------------------------------------------------------------------------------

    The variations in production and net exports appear to be
correlated to availability of the U.S. tax subsidy that was effective
from 2004 to 2009, ``splash-and-dash'' activities, and European Union
(EU) action to impose duties on exported U.S. biodiesel. In splash-and-
dash, biodiesel producers took advantage of the U.S. tax credit for
biodiesel even though the biodiesel was not consumed in the U.S.,
instead exporting the biodiesel to Europe. As can be seen in Figure
II.C-1, the EU took action beginning in March 2009 to apply duties/
tariffs to biodiesel from the U.S. Exports of biodiesel from the U.S.,
as well as domestic production volumes, immediately fell following this
EU action. Production also fell following the expiration of the
biodiesel tax credit at the end of 2009.

[GRAPHIC] [TIFF OMITTED] TR09DE10.000

    Although biodiesel production appears to have been significantly
affected by both the EU tariff on biodiesel from the U.S. and the
expiration of the biodiesel tax credit, the fact that the U.S.
biodiesel industry has produced higher volumes when it was economic for
it to do so suggests that the industry may have the capability to
produce greater volumes in the future under the appropriate
circumstances. According to information from the biodiesel industry,
only 52 biodiesel facilities with a production capacity totalling 600
million gallons have been idled. The total biodiesel production
capacity at facilities that are still

operating is 2.4 billion gallons.\9\ Ramping up production will require
some time and potentially some reinvestment, but based on feedback from
industry we nevertheless believe that it can occur in time to meet a
production goal of 800 million gallons.
---------------------------------------------------------------------------

    \9\ Plant List from Biodiesel Magazine (http://www.biodieselmagazine.com/plant-list.jsp.)
---------------------------------------------------------------------------

    In response to the NPRM, some commenters suggested that the 2011
volume requirement for biomass-based diesel should be lowered because
the biodiesel industry is expected to produce insufficient volumes in
2010 to meet the 2009/2010 biomass-based diesel standard based on an
applicable volume of 1.15 billion gallons. This, they argued,
demonstrates that the biodiesel industry cannot be expected to meet
demand of 800 million gallons in 2011. However, for the first five
months of 2010, the average production rate was about 32 million
gallons per month.\10\ If this production rate continued through the
rest of 2010, the total annual production of biodiesel would be
approximately 380 million gallons. As described in EPA's Question and
Answer document,\11\ EPA estimated that the 1.15 bill gal standard for
biomass-based diesel in 2010 would generate a demand for about 345 mill
gallons of qualifying biodiesel and renewable diesel in 2010. The
remaining portion of the 1.15 bill gal standard would be met with
previous-year RINs. Thus, an annual production volume of 380 million
gallons should be sufficient to enable obligated parties to meet the
2010 biomass-based diesel standard if exports are kept to a minimum. In
fact net exports of biodiesel have gone down every year since 2008, due
in part to fewer cost-effective opportunities for sale of biodiesel in
Europe.
---------------------------------------------------------------------------

    \10\ EIA Monthly Energy Review for August 2010, Table 10.4.
    \11\ 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.
---------------------------------------------------------------------------

    Moreover, we do not believe that the activities of the biodiesel
industry in 2009 and 2010 are necessarily an appropriate indicator of
its potential for 2011. A regulatory mandate for biomass-based diesel
did not exist in 2009, and the mandate for biomass-based diesel in 2010
was a unique circumstance that allowed a significant number of 2008 and
2009 biodiesel RINs to be used for compliance in 2010. Current
biodiesel production rates actually suggest that the industry is
positioned to put idled capacity into production when demand for
greater volumes exist. For instance, despite the expiration of the
biodiesel tax credit at the end of 2009, monthly domestic consumption
of biodiesel was actually higher in the first 5 months of 2010 than it
was during the same period in 2009. One possible reason for this is
that 2010 was the first year that the biomass-based diesel standard was
in effect. Moreover, for the three years prior to 2010, the monthly
average production in the second half of the year was higher than in
the first half of the year. Thus, although the annual production total
for 2010 would be projected to be 380 mill gal based on monthly
production rates between January and May, it could be 500 million
gallons or more by year's end if production rates increase in the
second half of the year as they have done in the past. An increase in
monthly biodiesel production rates later in 2010 would also be
consistent with the fact that obligated parties are not required to
demonstrate compliance with the 2010 biomass-based diesel standard
until February 28, 2011. Thus, the presence of a requirement for
biomass-based diesel in 2010 seems to be providing the incentive for
greater consumption of biodiesel, which in turn is encouraging higher
production volumes.
    In addition to current production rates, the biodiesel industry's
production potential also supports a finding that it can more than
satisfy the applicable volume of biomass based diesel specified in the
statute for 2011. In July of 2010, over 1.8 billion gallons of
production capacity had been registered under the RFS2 program.\12\ As
of September 2010, the aggregate production capacity of biodiesel
plants in the U.S. was estimated at 2.6 billion gallons per year across
approximately 170 facilities.\13\ Indications from the biodiesel
industry are that idled facilities can be brought back into production
with a relatively short leadtime. Imports of biodiesel from foreign
countries also has the potential to increase the volume available for
consumption in the U.S.
---------------------------------------------------------------------------

    \12\ Comments from National Biodiesel Board on the July 20, 2010
NPRM. Submitted to docket EPA-HQ-OAR-2010-0133 on August 19, 2010.
    \13\ Figures taken from National Biodiesel Board's Member Plant
List as of September 13, 2010. http://biodiesel.org/buyingbiodiesel/plants/showall.aspx.
---------------------------------------------------------------------------

    Finally, we believe that there will be sufficient sources of
qualifying renewable biomass to more than meet the needs of the
biodiesel industry in 2011. The largest sources of feedstock for
biodiesel in 2011 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,
comments we received from a large rendering company after the May 2009
RFS2 proposed rule suggest that there will be adequate fats and greases
feedstocks to supply biofuels production as well as other historical
uses.\14\
---------------------------------------------------------------------------

    \14\ See Federal Register v.74 n.99 p.24903. Comments are
available in docket EPA-HQ-OAR-2005-0161.
---------------------------------------------------------------------------

    In order to meet a 2011 biomass-based diesel volume requirement of
800 million gallons to be consumed in the United States, approximately
725 million gal of biodiesel would need to be consumed. This value
accounts for the production of 75 million gallons of renewable diesel
at one renewable diesel facility in Geismar, Louisiana, set to begin
operations by 2011.\15\ Assuming net exports continue at a rate
equivalent to that in the first five months of 2010, biodiesel
production in the U.S. would need to total approximately 835 million
gal in 2011. Based on the modeling used by EIA to project volumes for
its Short-Term Energy Outlook, EIA projects that the 800 mill gallon
mandate would be binding, and that this level of consumption would be
unlikely to occur in the absence of a mandate. However, the biodiesel
industry has demonstrated that it is capable of meeting historic demand
for biodiesel, and is in a position to produce significantly more than
it has in recent years.
---------------------------------------------------------------------------

    \15\ Project status updates are available via the Syntroleum Web
site, http://dynamicfuelsllc.com/wp-news/.
---------------------------------------------------------------------------

    Based on our review of current biodiesel production rates, the
production potential of the biodiesel industry, and the availability of
qualifying feedstocks, we believe that substantially more than the 800
million gallons needed to satisfy the biomass based diesel standard can
be produced in 2011. Today's rule therefore includes a final biomass-
based diesel standard that, as proposed, is based on the 800 million
gallon applicable volume specified in the Act. We also believe that the
excess production capacity can be utilized to help satisfy the 2011
advanced biofuel standard we are finalizing today.
    In response to the NPRM, several parties supported our proposal to
set the 2011 standard based on the 800 million gallon applicable volume
specified in the Act. One party requested that we raise the biomass-
based diesel standard for 2011 above the 800 million gallon statutory
mandate based on the significantly higher production capacity in the
industry. However, the statute specifies the applicable volumes of
biomass based diesel that we are to use

in setting the annual standards through 2012. We do not have the
authority to raise the applicable volume above the level specified in
the statute for 2011.
    Another commenter requested that the standard for biomass-based
diesel should be tied to the biodiesel tax credit and projections of
likely consumption in 2011 assuming no mandate. We disagree. Demand for
biomass-based diesel will be a function of the RFS standard we set for
2011. The authority provided under CAA 211(o)(7)(A) to waive any
portion of the statutory biomass-based diesel volume mandate is limited
to cases in which we determine that the mandate would severely harm the
economy or environment, or that there is inadequate domestic supply.
Under CAA 211(o)(7)(E) we may also order a reduction in required use of
biomass based diesel if we find that there is a significant renewable
feedstock disruption or other market circumstances that would make the
price of biomass-based diesel fuel increase significantly. No commenter
has suggested that any of these conditions exist. The expiration of the
biodiesel tax credit is, by itself, an insufficient basis for a waiver,
and we do not have the authority to waive a portion of the standard
based on projections of what demand would be in the absence of a
mandate.

III. Percentage Standards for 2011

A. Background

    The renewable fuel standards are expressed as a volume percentage,
and are used by each obligated party 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.A.4, the cellulosic biofuel volume
requirement for 2011 is 6.6 million gallons (6.0 million ethanol
equivalent gallons). This volume is used as the basis for setting the
percentage standard for cellulosic biofuel for 2011. We have also
decided that the advanced biofuel and total renewable fuel volumes will
not be reduced below the volumes set forth in the statute. The 2011
volumes used to determine the four percentage standards are shown in
Table III.A-1.

                                   Table III.A-1--Volume Requirements for 2011
----------------------------------------------------------------------------------------------------------------
                                                   Actual volume                Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.......................  6.6 mill gal................  6.0 mill gal.
Biomass-based diesel.....................  0.80 bill gal...............  1.20 bill gal.
Advanced biofuel.........................  1.35 bill gal...............  1.35 bill gal.
Renewable fuel...........................  13.95 bill gal..............  13.95 bill gal.
----------------------------------------------------------------------------------------------------------------

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] TR09DE10.001

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 2011, this value is zero. 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 2011, this value is zero. See further discussion
in Section III.B.2 below.

    The four separate renewable fuel standards for 2011 are based in
part on the 49-state gasoline and diesel consumption volumes projected
by EIA. The projected volumes of gasoline, ethanol, and biodiesel used
to calculate the final percentage standards are provided by the EIA's
Short-Term Energy Outlook (STEO), while the projected volume of
transportation diesel used to calculate the final percentage standards
is provided by the most recent Annual Energy Outlook (AEO). In the
proposal, we used the March 2010 issue of STEO and the Early Release
version of AEO2010. For this final rule, we have used the volumes of
transportation fuel provided by EIA under CAA 211(o)(3)(A) in a letter
dated October 20, 2010.\16\ This letter aggregates volume projections
from several EIA sources including the most recently available versions
of STEO and AEO. Gasoline and diesel volumes are adjusted in the
formulas to account for renewable fuel contained in the STEO and AEO
projections. Beginning in 2011, gasoline and diesel volumes produced by
small refineries and small refiners will generally no longer be exempt,
and thus there is no adjustment to the gasoline and diesel volumes in
today's final rule to account for such an exemption. However, as
discussed more fully in Section III.B.2 below, depending upon the
results of a Congressionally-mandated DOE study, it is possible that
the exemption for some small refineries could be extended. In addition,
we may extend the exemption for individual small refineries on a case-
by-case basis if they demonstrate disproportionate economic hardship.
If any small refinery exemptions for 2011 are approved after this final
rulemaking, the parties in question would be exempt but we would not
intend to modify the applicable percentage standards and announce new
standards for 2011. 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.
---------------------------------------------------------------------------

    \16\ Letter from Richard Newell, EIA Administrator to Lisa
Jackson, EPA Administrator.
---------------------------------------------------------------------------

    As described in the March 26, 2010 RFS2 final 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 0.8
billion physical gallons of biomass-based diesel will be created in
2011, the calculation of the biomass-based diesel standard provides
that the required volume be multiplied by 1.5 under the assumption that
biodiesel will predominate the biomass-based diesel market. The net
result is that a physical gallon of biodiesel will be worth 1.0 gallons
toward the biomass-based diesel standard, but worth 1.5 gallons toward
the other standards.
    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 equation's terms for projected volumes of gasoline
and diesel use include gasoline and diesel that has been blended with
renewable fuel. In the equation, the total renewable fuel volume is
subtracted from the total gasoline and diesel volume to get total non-
renewable gasoline and diesel volumes (because the gasoline and diesel
volumes provided by EIA include renewable fuel use), The values of the
equation variables for 2011 are shown in Table III.B.1-1.\17\ Terms not
included in this table have a value of zero.
---------------------------------------------------------------------------

    \17\ 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 (2008) EIA State Energy Data, Transportation Sector
Energy Consumption Estimates. The gasoline and distillate fuel oil
fractions are approximately 0.2% and 0.7%, respectively. Ethanol use
in Alaska is estimated at 5% of its gasoline consumption (based on
the same State data), and biodiesel use is assumed to be zero.

 Table III.B.1-1--Values for Terms in Calculation of the Standards (Bill
                                  Gal)
------------------------------------------------------------------------
                             Term                                Value
------------------------------------------------------------------------
RFVCB,2011...................................................      0.006
RFVBBD,2011..................................................       0.80
RFVAB,2011...................................................       1.35
RFVRF,2011...................................................      13.95
G2011........................................................     139.07
D2011........................................................      49.21
RG2011.......................................................      13.45
RD2011.......................................................       0.71
------------------------------------------------------------------------

    Using the volumes shown in Table III.B.1-1, we have calculated the
percentage standards for 2011 as shown in Table III.B.1-2.

             Table III.B.1-2--Percentage Standards for 2011
------------------------------------------------------------------------
                                                                Percent
------------------------------------------------------------------------
Cellulosic biofuel...........................................      0.003
Biomass-based diesel.........................................       0.69
Advanced biofuel.............................................       0.78
Renewable fuel...............................................       8.01
------------------------------------------------------------------------

2. Small Refineries and Small Refiners
    In CAA section 211(o)(9), enacted as part of EPAct, 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 exempt
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 Sec.  80.1441.
    Under the RFS program, Congress has provided two ways that small
refineries can receive an extension of the temporary 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 evaluation of claims of disproportionate economic
hardship, the DOE study, and other economic factors on a case-by-case
basis in response to small refinery petitions.
    In January 2009, DOE issued a Small Refineries Exemption Study
which did not find that small refineries would face a disproportionate
economic hardship under the RFS program. The conclusions were based in
part on the expected robust availability of RINs; DOE further noted
that, if the RIN market were to change, individual refineries still
have a statutory right to apply for relief on a case-by-case basis.
Subsequently, the Senate Appropriations Committee ``directed [DOE] to
reopen and reassess the Small Refineries Exemption Study by June 30,
2010,'' listing a number of factors that the Committee intended DOE to
consider in the revised study. The Final Conference Report to the
Energy & Water Development Appropriations Act added that the conferees
``support the study requested by the Senate on RFS and expect the
Department to undertake the requested economic review.'' DOE was
directed to complete a reassessment and issue a revised report by June
30, 2010. A revised study had not been issued at the time of the RFS2
final rulemaking, or at the time of this writing.
    We have received three petitions from small refineries requesting
an extension of their exemption from the RFS2 requirements. In
evaluating these petitions, EISA requires that EPA ``* * * consider the
findings of the [DOE] study * * * and other economic factors.''
Although the DOE study issued in January 2009 would satisfy the
statutory requirement that we consider the DOE study before acting, we
believe that our evaluation of these three petitions will be better
informed if we consider the findings of the forthcoming revised DOE
study. Since the revised study is not yet available, we have assumed
that all small refineries and small refiners will be subject to the
RFS2 standards in 2011 for the purposes of calculating those standards.
If, subsequent to announcing the 2011 standards, we make a
determination that one or more hardship petitions should be approved,
we do not intend to revise the 2011 standards applicable to other
obligated parties to require that they make up for volumes that will
not be attained by the exempt refineries.
    We received only three comments on the treatment of small
refineries in the RFS2 program, and all supported the inclusion of
small refineries and small refiners as obligated parties beginning in
2011. API additionally requested that any consideration of extending
the exemption for any small refinery into 2011 also take into account
the impact that such an action would have on other refineries,
specifically with regard to the ethanol blendwall. However, we do not
believe that the extension of any small refinery exemptions into 2011
will have a significant impact on the ethanol blendwall. Since the
total volume of renewable fuel required under RFS2 is the same
regardless of whether any small refineries are exempt or not, such
exemptions will have no impact on the relative volumes of ethanol and
gasoline in the nationwide transportation fuels market. Thus, the
timing of the onset of the nationwide blendwall will not be affected by
any small refinery exemptions. We do recognize that any exemption for a
small refinery will result in a proportionally higher percentage
standard for remaining obligated parties, and that this will affect the
degree to which individual obligated parties can acquire sufficient
RINs for compliance through blending ethanol into gasoline that they
produce. This may be of particular concern to obligated parties whose
gasoline production volume is higher than the volume of gasoline that
they market, since such parties may have fewer opportunities to blend
renewable fuels into their own gasoline and diesel. In such cases,
obligated parties also have the option of marketing E85 for use in
FFVs, extending their operations to include more gasoline marketing, or
purchasing RINs on the open market.

IV. Cellulosic Biofuel Technology Assessment

    In projecting the volumes of cellulosic biofuel for 2011, we
conducted a technical assessment of the production technologies that
are under consideration by the broad universe of companies we
investigated. Many of these companies are still in the research phase,
resolving outstanding issues with specific technologies, and/or in the
design phase to implement those technologies for the production of
commercial-scale volumes of cellulosic biofuel. A subset of the
companies we investigated have moved beyond the research and design
phase and are actively preparing for production. This smaller group of
companies formed the basis for our projection of potential 2011 volumes
of cellulosic biofuel.
    This section discusses the full range of cellulosic biofuel
technologies being considered among producers, with reference to those
individual companies that are focusing on each technology and those we
project will be most likely to use those technologies to produce
cellulosic biofuel in 2011.

A. What pathways are currently valid for the production of cellulosic
biofuel?

    In determining the appropriate volume of cellulosic biofuel on
which to base the percentage standard for 2011, it is important to
consider the ability of the biofuel to generate cellulosic RINs under
the RFS2 program. As of this writing, there are three valid pathways
available as shown in Table IV.A-1 below.

                      Table IV.A-1--Cellulosic Biofuel Pathways for Use in Generating RINs
----------------------------------------------------------------------------------------------------------------
                                                                         Production process
            Fuel type                           Feedstock                   requirements            D-Code
----------------------------------------------------------------------------------------------------------------
Ethanol..........................  Cellulosic Biomass from crop         Any................  3 (cellulosic
                                    residue, slash, pre-commercial                            biofuel).
                                    thinnings and tree residue, annual
                                    covercrops, switchgrass, and
                                    miscanthus; cellulosic components
                                    of separated yard waste;
                                    cellulosic components of separated
                                    food waste; and cellulosic
                                    components of separated MSW.
Cellulosic Diesel, Jet Fuel and    Cellulosic Biomass from crop         Any................  7 (cellulosic
 Heating Oil.                       residue, slash, pre-commercial                            diesel).
                                    thinnings and tree residue, annual
                                    covercrops, switchgrass, and
                                    miscanthus; cellulosic components
                                    of separated yard waste;
                                    cellulosic components of separated
                                    food waste; and cellulosic
                                    components of separated MSW.
Cellulosic Naphtha...............  Cellulosic Biomass from crop         Fischer-Tropsch      3 (cellulosic
                                    residue, slash, pre-commercial       process.             biofuel).
                                    thinnings and tree residue, annual
                                    covercrops, switchgrass, and
                                    miscanthus; cellulosic components
                                    of separated yard waste;
                                    cellulosic components of separated
                                    food waste; and cellulosic
                                    components of separated MSW.
----------------------------------------------------------------------------------------------------------------

    Of the five facilities that we currently believe could contribute
to the volume of commercially available cellulosic biofuel in 2011,
four would produce alcohols from cellulosic biomass and one would
produce diesel from cellulosic biomass. None of the facilities we have
evaluated would produce cellulosic naphtha through a Fischer-Tropsch
process. In 2011 the primary biofuel Range fuels has indicated will be
produced from their facility is methanol. While there is currently no
pathway for cellulosic methanol to generate RINs, Range has engaged EPA
in discussion regarding the addition of a pathway for cellulosic
methanol.
    Two of the facilities shown in Table II.A.4-1, KL Energy and Range
Fuels, intend to use wood as the primary feedstock. The only types of
wood that are currently allowed as a valid feedstock are those derived
from various types of waste. If either of these two companies choose to
use trees from a tree plantation instead of qualifying waste wood, its
pathway would not fall into the any of the pathways currently listed in
Table 1 to Sec.  80.1426. However, as described more fully in Section
V.A, we are currently evaluating the lifecycle GHG impacts of biofuel
made from pulpwood, including wood from tree plantations. If such a
pathway is determined to meet the 60% GHG threshold required for
cellulosic biofuel, it will be added to Table 1 to Sec.  80.1426 and
producers can then make use of it to generate cellulosic RINs.
    As described in Section II.A, Range Fuels will begin making
predominantly methanol, and no approved pathway currently exists under
the RFS program to generate RINs for methanol. However, Range has been
in discussions with EPA concerning a petition under Sec.  80.1416 for
the generation of RINs for methanol made from woody biomass as well as
the generation of cellulosic RINs for the portion of biodiesel made
from cellulosic methanol. These pathways are similar to pathways we
have modeled in the past. For the purposes of projecting cellulosic
volumes for 2011, we believe that the methanol from Range Fuels has the
potential for being approved for generation of cellulosic RINs and is
therefore appropriate for being included in the volumes that we believe
are potentially attainable in 2011.

B. Cellulosic Feedstocks

    Cellulosic biofuel technologies are different from other biofuel
technologies because they convert the cellulose and other very
difficult to convert compounds into biofuels. Unlike grain feedstocks
where the major carbohydrate is starch (very simply combined sugars),
lignocellulosic biomass is composed mainly of cellulose (40-60%) and
hemicellulose (20-40%).\18\ Cellulose and hemicellulose are made up of
sugars linked together in long chains called polysaccharides. Once
hydrolyzed, they can be fermented into ethanol. The remainder of
cellulosic feedstocks consists primarily of lignin, a complex polymer
which serves as a stiffening and hydrophobic (water-repelling) agent in
cell walls. Currently, lignin cannot be fermented into ethanol, but
could be burned as a by-product to generate electricity.
Thermochemical, pyrolysis and depolymerization processing, however, can
convert some or even most of the lignin, in addition to the cellulosic
and hemicellulose, into biofuels.
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    \18\ DOE. ``Biomass Program: ABC's of Biofuels''. Accessed at:
http://www1.eere.energy.gov/biomass/abcs_biofuels.html#content.
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C. Emerging Technologies

    When evaluating the array of biofuel technologies which could
produce one or more fuels from cellulosic feedstocks that could qualify
under RFS2, we found that it is helpful to organize them into fuel
technology categories. Organizing them into categories eases the task
of understanding the technologies, and also simplifies our evaluation
of these technologies because similar technologies likely have similar
cost and lifecycle impacts. The simplest organization is by the fuel
produced. However, we frequently found that additional subdivisions
were also helpful. Table IV.C-1 provides a list of technologies, the
fuels produced, and a list of many of the companies which we learned
are pursuing the technology (or something very similar to the
technology listed in the category). EPA is currently tracking the
progress of more than 100 cellulosic biofuel projects, many of which
are not listed in the following table. The inclusion of a specific
company in the table or technical discussion that follows should not be
interpreted as an endorsement of the listed company. The cellulosic
biofuel industry continues to progress at a rapid pace and many
companies not listed in this assessment may still produce significant
volumes of cellulosic fuel in future years.

    Table IV.C-1--List of Technology Categories, the Fuels Produced Through Each Type of Technology, and the
                                             Companies Pursuing Them
----------------------------------------------------------------------------------------------------------------
      Technology category             Technology            Fuels produced                  Companies
----------------------------------------------------------------------------------------------------------------
Biochemical...................  Enzymatic Hydrolysis..  Ethanol...............  Abengoa, AE Fuels, DuPont
                                                                                Danisco, Florida Crystals,
                                                                                Gevo, Poet, ICM, Iogen, BPI,
                                                                                Energy, Fiberight, KL Energy.
                                Acid Hydrolysis.......  Ethanol...............  Agresti, Arkenol, Blue Fire,
                                                                                Pencor, Pangen, Raven Biofuels.
                                Dilute Acid, Steam      Ethanol...............  Verenium, BP, Central Minnesota
                                 Explosion of                                    Ethanol Coop.
                                 Cellulose.
                                Consolidated            Ethanol...............  Mascoma, Qteros.
                                 Bioprocessing (one
                                 step hydrolysis and
                                 fermentation) of
                                 Cellulose.
                                Conversion of           Ethanol, Gasoline, Jet  Terrabon, Swift Fuels.
                                 Cellulose via           Fuel, Diesel Fuel.
                                 carboxylic acid.
                                One step Conversion of  Diesel, Jet Fuel or     Bell Bioenergy, LS9.
                                 Cellulose to            Naphtha.
                                 distillate.
Thermochemical................  Thermochemical/Fischer  Diesel Fuel and         Choren, Flambeau River Biofuels,
                                 Tropsch.                Naphtha.                Baard, Clearfuels, Gulf Coast
                                                                                Energy, Rentech, TRI, Nature's
                                                                                Fuel.
                                Thermochemical/Fischer  DME...................  Chemrec, New Page.
                                 Tropsch.
                                Thermochemical/         Ethanol...............  Range Fuels, Pearson
                                 Catalytic conversion                            Technologies, Fulcrum
                                 of syngas to alcohols.                          Bioenergy, Enerkem, and Gulf
                                                                                Coast Energy.
Hybrid........................  Thermochemical w/       Ethanol...............  Coskata, INEOS Bio, Lanzatech.
                                 Biochemical catalyst.
                                Acid Hydrolysis of      Ethanol, Other          Zeachem.
                                 cellulose to            alcohols.
                                 intermediate;
                                 hydrogenation using
                                 Thermochemical syngas
                                 from non-cellulose
                                 fraction.
Depolymerization..............  Catalytic               Diesel, Jet Fuel or     Cello Energy, Covanta, Green
                                 Depolymerization of     Naphtha.                Power.
                                 Cellulose.
                                Pyrolysis of Cellulose  Diesel, Jet Fuel, or    Envergent (UOP/Ensyn),
                                                         Gasoline.               Dynamotive, Petrobras, Univ. of
                                                                                Mass, KIOR.
Other.........................  Catalytic Reforming of  Gasoline..............  Virent.
                                 Sugars from Cellulose.
----------------------------------------------------------------------------------------------------------------

    Of the technologies listed above, many of them are considered to be
``second generation'' biofuels or new biofuel technologies capable of
meeting either the advanced biofuel or cellulosic biofuel RFS standard.
The following sections describe specific companies and the new biofuel
technologies which the companies have developed or are developing. This
summary is not meant to be a comprehensive list of all new biofuel
technologies, but rather a description of some of the more prominent of
the new biofuel technologies that serve to provide a sense of the
technology categories listed above. The process technology summaries
are based on information provided by the respective companies. EPA has
not been able to confirm all of the information, statements, process
conditions, and the process flow steps necessary for any of these
processes and companies.
1. Biochemical
    Biochemical conversion refers to a broad grouping of processes that
use biological organisms to convert cellulosic feedstocks into
biofuels. While no two processes are identical, many of these processes
follow a similar basic pathway to convert cellulosic materials to
biofuel. The general process of most biochemical cellulosic biofuel
processes consists of five main steps: Feedstock handling,
pretreatment, hydrolysis, fermentation/fuel conversion, and
distillation/separation. The feedstock handling step reduces the
particle size of the incoming feedstock and removes any contaminants
that may negatively impact the rest of the process. In the pretreatment
step the structure of the lignin and hemicellulose is disrupted,
usually using some combination of heat, pressure, acid, or base, to
allow for a more effective hydrolysis of the cellulosic material to
simple sugars. In the hydrolysis stage the cellulose and any remaining
hemicellulose is converted into simple sugars, usually using an enzyme
or strong acid. In the fermentation or fuel conversion step, the simple
sugars are converted to the desired fuel by a biological organism. In
the final step the fuel that is produced is separated from the water
and other byproducts by distillation or some other means. A basic
diagram of the biochemical conversion process can be found in Figure
IV.C.1-1 below.
BILLING CODE 6560-50-P

[GRAPHIC] [TIFF OMITTED] TR09DE10.002

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    \19\ Image From: http://www.afdc.energy.gov/afdc/ethanol/production_cellulosic.html.
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BILLING CODE 6560-50-C

While this diagram shows the production of ethanol from cellulosic
biomass, it is possible to use the same process to produce other fuels
or specialty chemicals using different biological organisms.

    The following sections will discuss each of these steps in greater
detail, some of the variations to this general process, and some of the
advantages and disadvantages of the biochemical process of producing
biofuel from cellulosic materials as compared to other fuel production
processes.
    Three of the five companies that EPA believes may produce
cellulosic biofuel in 2011 plan to use a biochemical process to produce
biofuels. All three of these companies, Dupont Danisco Cellulosic
Ethanol, Fiberight, and KL energy, all plan to use an enzymatic
hydrolysis. One of the biggest appeals of the biochemical pathway is
the relatively low capital costs of these projects compared to other
cellulosic biofuel facilities. Biochemical projects are also less
dependent on economies of scale for profitability, making smaller and
less capital intensive commercial facilities more feasible.
a. Feedstock Handling
    The first step of the biochemical conversion process is to insure
that the biomass stream can be utilized by the rest of the conversion
process. This most often takes the form of size reduction, either by
grinding or chipping as appropriate for the type of biomass. While this
is a relatively simple process it is essential to allow the following
steps of the process to function as designed. It is also a potentially
energy intensive process. It may be possible for biofuel producers to
purchase cellulosic material that is already of the appropriate size,
however we believe that in the near term this is unlikely and most
biofuel producers will have to invest in equipment to reduce the size
of the material they receive as needed for their process. In coming
years, as the market for cellulosic materials expands, purchasing
feedstock that has already been ground or chipped may be possible and
cost effective, as these processes increase the density of this
material and may reduce transportation costs. While this may provide
financial benefits for the cellulosic biofuel producer, it will not
impact the lifecycle green house gas emissions of the process.
    In addition to size reduction, steps must also be taken to remove
any material from the feedstock that might be detrimental to the fuel
production process. Contaminants in the feedstock, such as dirt, rocks,
plastics, metals, and other non-biogenic materials, would at best
travel through the fuel production process unchanged, resulting in
reduced fuel production capacity. Depending on the type of contaminant
they may also be converted to undesired byproducts that must be
separated from the fuel. They could also be toxic to the biological
organisms being used to convert the sugars to fuel, necessitating a
shut down and restart of the plant. Any of these scenarios would result
in a significant cost to the fuel producer. Feedstocks such as
agricultural residues, wood chips, or herbaceous or woody energy crops
are likely to contain far fewer contaminants than more heterogeneous
feedstocks such as municipal solid waste (MSW).
b. Biomass Pretreatment
    The purpose of the biomass pretreatment stage is to disrupt the
structure of the cellulosic biomass to allow for the hydrolysis of the
cellulose and hemicellulose into simple sugars. The ideal pretreatment
stage would allow for a high conversion of the cellulose and
hemicellulose to simple sugars, minimize the degradation of these
sugars to undesired forms that reduce fuel yields and inhibit
fermentation, not require especially large or expensive reaction
vessels, and be a relatively robust and simple process. No single
biomass pretreatment method has yet been discovered that meets all of
these goals, but rather a variety of options are being used by various
cellulosic fuel producers, each with their own strengths and
weaknesses. Dilute acid pretreatment and alkaline pretreatment are two
methods currently being used that attack the hemicellulose and lignin
portions of the cellulosic biomass respectively. Other methods, such as
steam explosion and ammonia fiber expansion, seek to use high
temperature and pressure, followed by rapid decompression to disrupt
the structure of the cellulosic biomass and allow for a more efficient
hydrolysis of the cellulose and hemicellulose to simple sugars. Each of
these methods is discussed in more detail in a technical memo that has
been added to the docket.\20\ The cost and characteristics of the
cellulosic feedstock being processed is likely to have a significant
impact on the pretreatment process that is used.