[Federal Register Volume 81, Number 238 (Monday, December 12, 2016)]
[Rules and Regulations]
[Pages 89746-89804]
[FR Doc No: 2016-28879]

Vol. 81

Monday,

No. 238

December 12, 2016

Part IV

Environmental Protection Agency

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40 CFR Part 80

Renewable Fuel Standard Program: Standards for 2017 and Biomass-Based
Diesel Volume for 2018; Final Rule

Federal Register / Vol. 81 , No. 238 / Monday, December 12, 2016 /
Rules and Regulations

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2016-0004; FRL-9955-84-OAR]
RIN 2060-AS72

Renewable Fuel Standard Program: Standards for 2017 and Biomass-
Based Diesel Volume for 2018

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under section 211 of the Clean Air Act, the Environmental
Protection Agency (EPA) is required to set renewable fuel percentage
standards every year. This action establishes the annual percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel that apply to all motor vehicle
gasoline and diesel produced or imported in the year 2017. Relying on
statutory authority that is available when projected cellulosic biofuel
production volumes are less than the applicable volume specified in the
statute, the EPA is setting volume requirements for cellulosic biofuel,
advanced biofuel, and total renewable fuel that are below the statutory
applicable volumes, but which are nevertheless significantly higher
than past requirements. The final rule also establishes the four
percentage standards applicable to obligated parties, namely producers
and importers of gasoline and diesel, based on the corresponding volume
requirements. The final standards are expected to continue driving the
market to overcome constraints in renewable fuel distribution
infrastructure, which in turn is expected to lead to substantial growth
over time in the production and use of renewable fuels. In this action,
we are also establishing the applicable volume of biomass-based diesel
for 2018.

DATES: This final rule is effective on February 10, 2017.

ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2016-0004. All documents in the docket are
listed on the http://www.regulations.gov Web site. 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, is not placed on the
Internet and will be publicly available only in hard copy form.
Publicly available docket materials are available electronically
through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of
Transportation and Air Quality, Assessment and Standards Division,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI
48105; telephone number:<PHONE_NUMBER>; email address:
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Entities potentially affected by this 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, biodiesel, renewable diesel, and biogas.
Potentially regulated categories include:

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

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

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Approach to Setting Volume Requirements
    2. Cellulosic Biofuel
    3. Advanced Biofuel
    4. Total Renewable Fuel
    5. Biomass-Based Diesel
    6. Annual Percentage Standards
    7. Assessment of Aggregate Compliance
II. Authority and Need for Waiver of Statutory Applicable Volumes
    A. Statutory Authorities for Reducing Volume Targets
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    3. General Comments Related to Waiver Authorities
    B. Treatment of Carryover RINs
    1. Updated Projection of Carryover RIN Volume
    2. EPA's Decision
III. Cellulosic Biofuel Volume for 2017
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Projection From the Energy Information Administration
    D. Cellulosic Biofuel Volume for 2017
IV. Advanced Biofuel Volume for 2017
    A. Volumetric Limitation on Use of the Cellulosic Waiver
Authority
    B. Determination of Reasonably Attainable and Appropriate
Volumes
    1. Imported Sugarcane Ethanol
    2. Biodiesel and Renewable Diesel
    3. Other Advanced Biofuel
    4. Total Advanced Biofuel
V. Total Renewable Fuel Volume for 2017
    A. Volumetric Limitation on Use of the Cellulosic Waiver
Authority
    B. Assessing Adequacy of Supply
    1. Ethanol
    i. E0
    ii. E15
    iii. E85
    iv. Total Ethanol
    2. Biodiesel and Renewable Diesel
    i. Feedstock Availability
    ii. Biodiesel and Renewable Diesel Production Capacity
    iii. Biodiesel and Renewable Diesel Import Capacity
    iv. Biodiesel and Renewable Diesel Distribution Capacity

    v. Biodiesel and Renewable Diesel Retail Infrastructure Capacity
    vi. Biodiesel and Renewable Diesel Consumption Capacity
    vii. Biodiesel and Renewable Diesel Consumer Response
    viii. Projected Supply of Biodiesel and Renewable Diesel in 2017
    3. Total Renewable Fuel Supply
    C. Market Responses to the Advanced Biofuel and Total Renewable
Fuel Volume Requirements
    D. Impacts of 2017 Standards on Costs
VI. Biomass-Based Diesel Volume for 2018
    A. Statutory Requirements
    B. Determination of Applicable Volume of Biomass-Based Diesel
    1. BBD Production and Compliance Through 2015
    2. Interaction Between BBD and Advanced Biofuel Standards
    3. BBD Volume for 2018
    C. Consideration of Statutory Factors for 2018
VII. Percentage Standards for 2017
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Final Standards
VIII. Assessment of Aggregate Compliance
    A. Assessment of the Domestic Aggregate Compliance Approach
    B. Assessment of the Canadian Aggregate Compliance Approach
IX. Public Participation
X. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act (PRA)
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act (UMRA)
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act (NTTAA)
    J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations, and Low-Income
Populations
    K. Congressional Review Act (CRA)
XI. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) that were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), resulting in the
publication of major revisions to the regulatory requirements on March
26, 2010.\1\ EISA's stated goals include moving the United States
toward ``greater energy independence and security, to increase the
production of clean renewable fuels.'' Today, nearly all of the
approximately 142 billion gallons of gasoline used for transportation
purposes contains 10 percent ethanol (E10), and a substantial portion
of diesel fuel contains biodiesel.
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    \1\ 75 FR 14670, March 26, 2010.
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    Renewable fuels represent an opportunity for the U.S. to move away
from fossil fuels towards a set of lower lifecycle GHG transportation
fuels, and the RFS program provides incentives for these lower
lifecycle GHG fuels to grow and compete in the market. While renewable
fuels include non-advanced (conventional) corn starch ethanol, which is
the predominant renewable fuel in use to date, Congress envisioned the
majority of growth from 2014 forward to come from advanced biofuels, as
the conventional volumes remain constant in the statutory volume tables
starting in 2015 while the advanced volumes continue to grow.\2\
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    \2\ In this document we follow the common practice of using the
term ``conventional'' renewable fuel to mean any renewable fuel that
is not an advanced biofuel.
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    The statute includes annual volume targets, and requires EPA to
translate those volume targets (or alternative volume requirements
established by EPA in accordance with statutory waiver authorities)
into compliance obligations that refiners and importers must meet every
year. In this action, we are establishing the annual percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel that would apply to all gasoline and
diesel produced or imported in 2017. We are also establishing the
applicable volume of biomass-based diesel for 2018.
    The standards we are setting are designed to achieve the
Congressional intent of increasing renewable fuel use over time in
order to reduce lifecycle GHG emissions of transportation fuels and
increase energy security, while at the same time accounting for the
real-world challenges that have slowed progress toward these goals.
Those challenges have made the volume targets established by Congress
for 2017 beyond reach for all fuel categories other than biomass-based
diesel (BBD), for which the statute specifies only a minimum
requirement of 1.0 billion gallons. In setting these standards for
2017, we have used the cellulosic waiver authority provision provided
by Congress to establish volume requirements that will be lower than
the statutory targets for fuels other than biomass-based diesel, but
nevertheless represent significant growth from past years.
    The 2017 volume requirements for advanced biofuel and total
renewable fuel are higher than the levels we proposed in the NPRM,
reflecting our assessment of updated information and a review of
comments received. We are also finalizing the proposed volume
requirement for BBD for 2018. This BBD volume requirement will continue
to provide support for the BBD industry, and we expect that larger
volumes of this fuel type are likely to be used to comply with the
advanced biofuel requirement. The final volume requirements are shown
in Table I-1 below. These final volumes, when considered together with
the volumes established over the past several years of the RFS program,
indicate that the RFS program is working to deliver steady, ambitious
growth in the total amount of renewable fuel produced and used in the
United States, consistent with Congressional intent.

                               Table I-1--Proposed and Final Volume Requirements a
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                                                               2017                            2018
                                                 ---------------------------------------------------------------
                                                     Proposed          Final         Proposed          Final
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Cellulosic biofuel (million gallons)............             312             311             n/a             n/a
Biomass-based diesel (billion gallons)..........         \b\ 2.0         \b\ 2.0             2.1             2.1
Advanced biofuel (billion gallons)..............             4.0            4.28             n/a             n/a
Renewable fuel (billion gallons)................            18.8           19.28             n/a             n/a
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\a\ All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.
\b\ The 2017 BBD volume requirement was established in the 2014-2016 final rule (80 FR 77420, December 14,
  2015).

    Despite significant increases in renewable fuel use in the United
States, real-world constraints, such as the slower than expected
development of the cellulosic biofuel industry and constraints in the
marketplace related to supply of certain biofuels to consumers, have
made the timeline laid out by Congress for the growth in renewable fuel
use (other than for BBD) impossible to achieve. These challenges
continue, and are largely the same for 2017 as they were for 2016.
However, a careful review of the comments we received in response to
the May 31, 2016 Notice of Proposed Rulemaking (NPRM) and other
information that has become available since May has led us to conclude
that volume reductions for 2017 need not be as great as we had
proposed. In light of the lower reductions necessary, in this final
rule we rely exclusively on the cellulosic waiver authority to provide
reductions in both advanced biofuel and total renewable fuel volumes.
That is, we have determined that it is not necessary to provide an
additional increment of volume reduction for total renewable fuels
through use of the general waiver authority based on a finding of
inadequate domestic supply, as we had done in the final rule
establishing annual standards for 2014-2016 (``Renewable Fuel Standard
Program: Standards for 2014, 2015, and 2016 and Biomass-Based Diesel
Volume for 2017,'' (hereinafter referred to as the ``2014-2016 final
rule''),\3\ and as we also proposed to do in establishing standards for
2017.\4\
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    \3\ 80 FR 77420, December 14, 2015.
    \4\ 81 FR 34778, May 31, 2016.
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    We believe that the RFS program can and will drive renewable fuel
use, and we have considered the ability of the market to respond to the
standards we set when we assessed the amount of renewable fuel that can
be reasonably attained in 2017. Therefore, while this final rule
applies the tools Congress provided to make adjustments to the
statutory volume targets in recognition of the constraints that exist
today, we believe the standards we are setting in this action will
drive growth in renewable fuels, particularly advanced biofuels, which
achieve substantial lifecycle GHG emissions. In our view, while
Congress recognized that supply challenges may exist as evidenced by
the waiver provisions, it did not intend growth in the renewable fuels
market to be stopped by those challenges, including those associated
with the ``E10 blendwall.'' \5\ The fact that Congress chose to mandate
increasing and substantial amounts of renewable fuel clearly signals
that it intended the RFS program to create incentives to increase
renewable fuel supplies and overcome constraints in the market. The
standards we are setting in this action will provide those incentives.
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    \5\ The ``E10 blendwall'' represents the volume of ethanol that
can be consumed domestically if all gasoline contains 10% ethanol
and there are no higher-level ethanol blends consumed such as E15 or
E85.
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    The standards we are setting in this final rule are part of a
collection of actions, in both the government and private sectors, to
increase the use of renewable fuels. In addition to ongoing efforts to
evaluate new pathways for RIN generation for advanced biofuels, we have
recently proposed regulatory provisions that we believe will enhance
the ability of the market to increase not only the production of
advanced and cellulosic biofuels, but also the use of higher-level
ethanol blends such as E15 and E85.\6\ DOE and USDA are continuing to
provide funds for the development of new technologies and expansion of
infrastructure for higher ethanol blends, and the ethanol industry has
also made efforts to expand the use of higher ethanol blends through
its Prime the Pump program. These actions are expected to continue to
help clear hurdles to support the ongoing growth in the use of
renewable fuels in future years.
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    \6\ See the recently proposed Renewables Enhancement and Growth
Support (REGS) Rule (81 FR 80828, November 16, 2016). More
information about this proposed rule can be found at https://www.epa.gov/renewable-fuel-standard-program/proposed-renewables-enhancement-and-growth-support-regs-rule.
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A. Purpose of This Action

    The national volume targets of renewable fuel that are intended to
be achieved under the RFS program each year (absent an adjustment or
waiver by EPA) are specified in CAA section 211(o)(2). The statutory
volumes for 2017 are shown in Table I.A-1. The cellulosic biofuel and
BBD categories are nested within the advanced biofuel category, which
is itself nested within the total renewable fuel category. This means,
for example, that each gallon of cellulosic biofuel or BBD that is used
to satisfy the individual volume requirements for those fuel types can
also be used to satisfy the requirements for advanced biofuel and total
renewable fuel.

   Table I.A-1--Applicable 2017 Volumes Specified in the Clean Air Act
                           [Billion gallons] a
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Cellulosic biofuel.........................................          5.5
Biomass-based diesel.......................................        >=1.0
Advanced biofuel...........................................          9.0
Renewable fuel.............................................         24.0
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\a\ All values are ethanol-equivalent on an energy content basis, except
  values for BBD which are given in actual gallons.

    Under the RFS program, EPA is required to determine and publish
annual percentage standards for each compliance year. The percentage
standards are calculated to ensure use in transportation fuel of the
national ``applicable volumes'' of the four types of biofuel
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel)
that are set forth in the statute or established by EPA in accordance
with the Act's requirements. The percentage standards are used by
obligated parties (generally, producers and importers of gasoline and
diesel fuel) to calculate their individual compliance obligations. Each
of the four percentage standards is applied to the volume of non-
renewable gasoline and diesel that each obligated party produces or
imports during the specified calendar year to determine their
individual volume obligations with respect to the four renewable fuel
types. The individual volume obligations determine the number of RINs
of each renewable fuel type that each obligated party must acquire and
retire to demonstrate compliance.
    EPA is establishing the annual applicable volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel for
2017, and for BBD for 2018.\7\ Table I.A-2 lists the statutory
provisions and associated criteria relevant to determining the national
applicable volumes used to set the percentage standards in this final
rule.
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    \7\ The 2017 BBD volume requirement was established in the 2014-
2016 final rule.

                                        Table I.A-2--Statutory Provisions for Determination of Applicable Volumes
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                                                                                Criteria provided in statute for determination of
              Applicable volumes                              Clean air act reference                                 applicable volume
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Cellulosic biofuel...........................  211(o)(7)(D)(i).....................................  Required volume must be lesser of volume specified
                                                                                in CAA 211(o)(2)(B)(i)(III) or EPA's projected
                                                                                volume.
                                               211(o)(7)(A)........................................  EPA in consultation with other federal agencies may
                                                                                waive the statutory volume in whole or in part if
                                                                                implementation would severely harm the economy or
                                                                                environment of a State, region, or the United
                                                                                States, or if there is an inadequate domestic
                                                                                supply.
Biomass-based diesel \8\.....................  211(o)(2)(B)(ii) and (v)............................  Required volume for years after 2012 must be at
                                                                                least 1.0 billion gallons, and must be based on a
                                                                                review of implementation of the program,
                                                                                coordination with other federal agencies, and an
                                                                                analysis of specified factors.
                                               211(o)(7)(A)........................................  EPA in consultation with other federal agencies may
                                                                                waive the statutory volume in whole or in part if
                                                                                implementation would severely harm the economy or
                                                                                environment of a State, region, or the United
                                                                                States, or if there is an inadequate domestic
                                                                                supply.
Advanced biofuel.............................  211(o)(7)(D)(i).....................................  If applicable volume of cellulosic biofuel is
                                                                                reduced below the statutory volume to the
                                                                                projected volume, EPA may reduce the advanced
                                                                                biofuel and total renewable fuel volumes in CAA
                                                                                211(o)(2)(B)(i)(I) and (II) by the same or lesser
                                                                                volume. No criteria specified.
                                               211(o)(7)(A)........................................  EPA in consultation with other federal agencies may
                                                                                waive the statutory volume in whole or in part if
                                                                                implementation would severely harm the economy or
                                                                                environment of a State, region, or the United
                                                                                States, or if there is an inadequate domestic
                                                                                supply.
Total renewable fuel.........................  211(o)(7)(D)(i).....................................  If applicable volume of cellulosic biofuel is
                                                                                reduced below the statutory volume to the
                                                                                projected volume, EPA may reduce the advanced
                                                                                biofuel and total renewable fuel volumes in CAA
                                                                                211(o)(2)(B)(i)(I) and (II) by the same or lesser
                                                                                volume. No criteria specified.
                                               211(o)(7)(A)........................................  EPA in consultation with other federal agencies may
                                                                                waive the statutory volume in whole or in part if
                                                                                implementation would severely harm the economy or
                                                                                environment of a State, region, or the United
                                                                                States, or if there is an inadequate domestic
                                                                                supply.
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    As shown in Table I.A-2, the statutory authorities allowing EPA to
modify or set the applicable volumes differ for the four categories of
renewable fuel. Under the statute, EPA must annually determine the
projected volume of cellulosic biofuel production for the following
year. If the projected volume of cellulosic biofuel production is less
than the applicable volume specified in section 211(o)(2)(B)(i)(III) of
the statute, EPA must lower the applicable volume used to set the
annual cellulosic biofuel percentage standard to the projected
production volume. In Section III of this final rule, we present our
analysis of cellulosic biofuel production and the final applicable
volume for 2017. This analysis is based on information provided by the
Department of Energy's Energy Information Administration (EIA), an
evaluation of producers' production plans and progress to date
following discussions with cellulosic biofuel producers, and is
informed by comments we received in response to the NPRM.
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    \8\ Section 211(o)(7)(E) also authorizes EPA in consultation
with other federal agencies to issue a temporary waiver of
applicable volumes of BBD where there is a significant feedstock
disruption or other market circumstance that would make the price of
BBD fuel increase significantly.
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    With regard to BBD, Congress chose to set aside a portion of the
advanced biofuel standard for BBD, and CAA section 211(o)(2)(B)
specifies the applicable volumes of BBD to be used in the RFS program
only through year 2012. For subsequent years the statute sets a minimum
volume of 1 billion gallons, and directs EPA, in coordination with the
U.S. Departments of Agriculture (USDA) and Energy (DOE), to determine
the required volume after review of implementation of the renewable
fuels program and consideration of a number of factors. The BBD volume
requirement must be established 14 months before the year in which it
will apply. In the 2014-2016 final rule we established the BBD volume
for 2017. In Section VI of this preamble we discuss our assessment of
statutory and other relevant factors and our final volume requirement
for BBD for 2018, which has been developed in coordination with USDA
and DOE. We are increasing the required volume of BBD so as to provide
continued support to that important contributor to the pool of advanced
biofuel while at the same time setting the volume requirement in a
manner anticipated to provide continued incentive for the development
of other types of advanced biofuel.
    Regarding advanced biofuel and total renewable fuel, Congress
provided several mechanisms through which those volumes could be
reduced if necessary. If we reduce the applicable volume of cellulosic
biofuel below the volume specified in CAA section 211(o)(2)(B)(i)(III),
we also have the authority to reduce the applicable volumes of advanced
biofuel and total renewable fuel by the same or a lesser amount. We
refer to this as the ``cellulosic waiver authority.'' We may also
reduce the applicable volumes of any of the four renewable fuel types
using the ``general waiver authority'' provided in CAA section
211(o)(7)(A) if EPA, in consultation with USDA and DOE, finds that
implementation of the statutory volumes would severely harm the economy
or environment of a State, region, or the United States, or if there is
inadequate domestic supply. Sections II, IV, and V of this final rule
describe our use of the cellulosic waiver authority alone to reduce
volumes of advanced biofuel and total renewable fuel, and our
assessment that the resulting volumes are reasonably attainable. As
described in the NPRM, and consistent with the views that we expressed
in the 2014-2016 final rule, we continue to believe that reductions in
the statutory targets for 2017 are necessary. However, in light of our
review of updated information and consideration of comments, we are
making those reductions under the cellulosic waiver authority alone and
are not finalizing an additional

increment of reduction for total renewable fuel based on a finding of
inadequate domestic supply under the general waiver authority as we had
proposed. Despite the reductions we are finalizing today, we continue
to be mindful that the primary objective of the statute is to increase
renewable fuel use over time. While progress has taken longer than
Congress anticipated, we note that today's rule provides for 15 billion
gallons of conventional renewable fuel, the implied level envisioned
under the statute for 2017, while also providing for a substantial
increase in the required volume of advanced biofuel over past volume
requirements.

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this final
rule. We are establishing applicable volume requirements and associated
percentage standards for cellulosic biofuel, advanced biofuel, and
total renewable fuel for 2017, as well as the percentage standard for
BBD for 2017, and the applicable volume requirement for BBD for 2018.
1. Approach to Setting Volume Requirements
    The approach we have taken in this final rule is essentially the
same as that presented in the NPRM and in the 2014-2016 final rule with
regard to establishing the cellulosic biofuel volume requirement, and
the use of the cellulosic waiver authority to reduce advanced biofuel
and total renewable fuel. However, it differs in that we have not found
it necessary to also use the general waiver authority to provide an
additional increment of reduction with respect to total renewable fuel.
While in the NPRM we proposed to determine the maximum reasonably
achievable supply of total renewable fuel, consistent with the general
waiver authority's ``inadequate domestic supply'' criterion, in this
final rule we have instead identified the total renewable fuel volume
that results from use of the cellulosic waiver authority, and have
determined that this volume of total renewable fuel is reasonably
attainable. In this assessment, we took into account the same
constraints in the supply of renewable fuel we noted in the NPRM, but
have come to a different result with respect to necessary volume
reductions in light of updated information and consideration of
comments.
    Section II provides a general description of our approach to
setting volume requirements in today's rule, including a review of the
statutory waiver authorities and our consideration of carryover RINs.
Section III provides our assessment of the 2017 cellulosic biofuel
volume based on a projection of production that reflects a neutral aim
at accuracy. Sections IV and V describe our assessment of reasonably
attainable volumes of advanced biofuel and total renewable fuel,
respectively. Finally, Section VI provides our determination regarding
the 2018 BBD volume requirement, and reflects an analysis of a set of
factors stipulated in CAA section 211(o)(2)(B)(ii).
2. Cellulosic Biofuel
    In the past several years the cellulosic biofuel industry has
continued to make progress towards increased commercial scale
production. Cellulosic biofuel production reached record levels in
2015, driven largely by compressed natural gas (CNG) and liquefied
natural gas (LNG) derived from biogas, and is expected to exceed these
volumes in 2016. Cellulosic ethanol, while produced in much smaller
quantities than CNG/LNG derived from biogas, was produced consistently
on a commercial scale for the first time in 2015. Cellulosic ethanol
production levels increased from existing facilities in 2016, and
significant work continues to be done to enable the production of
cellulosic ethanol at new facilities in 2017 and beyond. Available data
suggest that the production levels for both cellulosic CNG/LNG and
cellulosic ethanol in 2016 will exceed by a significant margin the
levels produced in 2015. In this rule we are establishing a cellulosic
biofuel volume requirement of 311 million ethanol-equivalent gallons
for 2017 based on the information we have received regarding individual
facilities' capacities, production start dates and biofuel production
plans, information received in public comments, input from other
government agencies, and EPA's own engineering judgment.
    As part of estimating the volume of cellulosic biofuel that will be
made available in the U.S. in 2017, we considered all potential
production sources by company and facility. This included facilities
still in the commissioning or start-up phases, as well as facilities
already producing some volume of cellulosic biofuel.\9\ From this
universe of potential cellulosic biofuel sources, we identified the
subset that is expected to produce commercial volumes of qualifying
cellulosic biofuel for use as transportation fuel, heating oil, or jet
fuel by the end of 2017. To arrive at projected volumes, we collected
relevant information on each facility. We then developed projected
production ranges based on factors such as the status of the technology
being used, progress towards construction and production goals,
facility registration status, production volumes achieved, and other
significant factors that could potentially impact fuel production or
the ability of the produced fuel to qualify for cellulosic biofuel
Renewable Identification Numbers (RINs). We also used this information
to group these companies based on production history and to select a
value within the aggregated projected production ranges that we believe
best represents the most likely production volume from each group of
companies in 2017. Further discussion of these factors and the way they
were used to determine our final cellulosic biofuel projection for 2017
can be found in Section III.
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    \9\ Facilities primarily focused on research and development
(R&D) were not the focus of our assessment, as production from these
facilities represents very small volumes of cellulosic biofuel, and
these facilities typically have not generated RINs for the fuel they
have produced.
---------------------------------------------------------------------------

3. Advanced Biofuel
    The conditions that compelled us to reduce the 2016 volume
requirement for advanced biofuel below the statutory target remain
relevant in 2017. As for 2016, we investigated the ability of volumes
of non-cellulosic advanced biofuels to backfill unavailable volumes of
cellulosic biofuel in 2017, through domestic production or import. We
took into account the substantial GHG emissions reduction required of
advanced biofuels, the various constraints on supply of advanced
biofuels, the ability of the standards we set to bring about market
changes in the time available, and the potential impacts associated
with diverting some feedstocks from current use to the production of
biofuel. Based on these considerations and review of the comments
received in response to the NPRM and other information that has become
available, we have determined that a portion of the shortfall in
cellulosic biofuel may appropriately be backfilled with advanced
biofuel. We are exercising our cellulosic waiver authority to reduce
the statutory applicable volume of advanced biofuel to a final volume
requirement of 4.28 billion gallons for 2017. This is somewhat higher
than the proposed level of 4.0 billion gallons. The applicable volume
for advanced biofuel that we are establishing for 2017 will result in
significant volume growth over the volume requirement for 2016, and
will require the use of more non-

cellulosic advanced biofuel (3.97 billion gallons) than would have been
required under the statutory targets (3.50 billion gallons).
4. Total Renewable Fuel
    Following our determination of the appropriate volume reduction for
advanced biofuel for 2017 using the cellulosic waiver authority, we
applied the same volume reduction to the statutory target for total
renewable fuel, resulting in a volume requirement of 19.28 billion
gallons. We then evaluated this total renewable fuel volume to
determine if it is reasonably attainable given assessments of
attainable volumes of individual fuel types, including biodiesel,
renewable diesel, ethanol (in the form of E10 or higher ethanol blends
such as E15 or E85, taking into account demand for E0), and other
renewable fuels. Based on comments received in response to the NPRM and
other information that has become available, we have determined that a
total renewable fuel volume of 19.28 billion gallons is reasonably
attainable in 2017. There is, therefore, no need to use the general
waiver authority to further reduce the total renewable fuel volume
requirement due to a finding of inadequate domestic supply.\10\
---------------------------------------------------------------------------

    \10\ The general waiver authority can also be used under a
determination that the RFS volumes would cause ``severe economic or
environmental harm.'' As described in Section II.A.2 and in more
detail in the response to comments document accompanying this rule,
EPA does not believe that the record supports a finding of severe
economic or environmental harm with respect to the volume
requirements we are finalizing today.
---------------------------------------------------------------------------

5. Biomass-Based Diesel
    In EISA, Congress specified increasing applicable volumes of BBD
through 2012. Beyond 2012 Congress stipulated that EPA, in coordination
with other agencies, was to establish the BBD volume taking into
consideration implementation of the program to date and various
specified factors, providing that the required volume for BBD could not
be less than 1.0 billion gallons. For 2013, EPA established an
applicable volume of 1.28 billion gallons. For 2014 and 2015 we
established the BBD volume requirement to reflect the actual volume for
each of these years of 1.63 and 1.73 billion gallons.\11\ For 2016 and
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons
respectively.
---------------------------------------------------------------------------

    \11\ The 2015 BBD standard was based on actual data for the
first 9 months of 2015 and on projections for the latter part of the
year for which data on actual use was not available at the time.
---------------------------------------------------------------------------

    Given current and recent market conditions, the advanced biofuel
volume requirement is driving the use of biodiesel and renewable diesel
volumes over and above volumes required through the separate BBD
standard, and we expect this to continue. Nevertheless, we continue to
believe for 2018 that it is appropriate to set increasing BBD
applicable volumes to provide a floor to support continued investment
to enable increased production and use of BBD. In doing so we also
believe in the importance of maintaining opportunities within the
advanced biofuel requirement for growth in other types of advanced
biofuel, such as renewable diesel co-processed with petroleum,
renewable gasoline blend stocks, and renewable heating oil, as well as
others that are under development.
    Thus, based on a review of the implementation of the program to
date and all the factors required under the statute, and in
coordination with USDA and DOE, we are finalizing an increase in the
applicable volume of BBD by 100 million gallons, to 2.1 billion gallons
for 2018. We believe that this increase will support the overall goals
of the program while also maintaining the incentive for development and
growth in production of other advanced biofuels. Establishing the
volumes at this level will encourage BBD producers to manufacture
higher volumes of fuel that will contribute to the advanced biofuel and
total renewable fuel requirements, while also leaving considerable
opportunity within the advanced biofuel mandate for investment in and
growth in production of other types of advanced biofuel with comparable
or potentially superior environmental or other attributes.
6. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage
and are used by each producer and importer of fossil-based gasoline or
diesel to determine their renewable fuel volume obligations. The
percentage standards are set so that if each obligated party meets the
standards, and if EIA projections of gasoline and diesel use for the
coming year prove to be accurate, then the amount of renewable fuel,
cellulosic biofuel, BBD, and advanced biofuel actually used will meet
the volume requirements used to derive the percentage standards,
required on a nationwide basis.
    Four separate percentage standards are required under the RFS
program, corresponding to the four separate renewable fuel categories
shown in Table I.A-1. The specific formulas we use in calculating the
renewable fuel percentage standards are contained in the regulations at
40 CFR 80.1405. The percentage standards represent the ratio of
renewable fuel volume to projected non-renewable gasoline and diesel
volume. The volume of transportation gasoline and diesel used to
calculate the final percentage standards was provided by the Energy
Information Administration (EIA). The final percentage standards for
2017 are shown in Table I.B.6-1. Detailed calculations can be found in
Section VII, including the projected gasoline and diesel volumes used.

             Table I.B.6-1--Final 2017 Percentage Standards
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel......................................          0.173%
Biomass-based diesel....................................           1.67%
Advanced biofuel........................................           2.38%
Renewable fuel..........................................          10.70%
------------------------------------------------------------------------

7. Assessment of Aggregate Compliance
    By November 30 of each year we are required to assess the status of
the aggregate compliance approach to land-use restrictions under the
definition of renewable biomass for both the U.S. and Canada. In
today's action we are providing the final announcements for these
administrative actions.
    As part of the RFS 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 such feedstocks used in the
production of 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 exceeds 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. As
described in Section VIII.A, based on data provided by the USDA and
using the methodology in place since 2014,

we have estimated that U.S. agricultural land totaled approximately 380
million acres in 2016 and thus did not exceed the 2007 baseline
acreage. This assessment means that the aggregate compliance provision
can continue to be used in the U.S. for calendar year 2017.
    On September 29, 2011, EPA approved the use of a similar aggregate
compliance approach for planted crops and crop residue grown in Canada.
The Government of Canada utilized several types of land use data to
demonstrate that the land included in their 124 million acre baseline
is cropland, pastureland or land equivalent to U.S. Conservation
Reserve Program land that was cleared or cultivated prior to December
19, 2007, and was actively managed or fallow and non-forested on that
date (and is therefore RFS2 qualifying land). As described in Section
VIII.B, based on data provided by Canada, we have estimated that
Canadian agricultural land totaled approximately 118.4 million acres in
2016 and thus did not exceed the 2007 baseline acreage. This assessment
means that the aggregate compliance provision can continue to be used
in Canada for calendar year 2017.

II. Authority and Need For Waiver of Statutory Applicable Volumes

    The statute provides the EPA with the authority to reduce volume
requirements below the applicable volume targets specified in the
statute under specific circumstances. This section discusses those
authorities and our use of the cellulosic waiver authority alone to set
2017 volume requirements for cellulosic biofuel, advanced biofuel, and
total renewable fuel that are below the statutory volume targets.

A. Statutory Authorities for Reducing Volume Targets

    In CAA section 211(o)(2), Congress specified increasing annual
volume targets for total renewable fuel, advanced biofuel, and
cellulosic biofuel for each year through 2022, and for biomass-based
diesel through 2012, and authorized EPA to set volume requirements for
subsequent years in coordination with USDA and DOE, and after
consideration of specified factors. However, Congress also recognized
that under certain circumstances it would be appropriate for EPA to set
volume requirements at a lower level than reflected in the statutory
volume targets, and thus provided waiver provisions in CAA section
211(o)(7).
1. Cellulosic Waiver Authority
    Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines
that the projected volume of cellulosic biofuel production for a given
year is less than the applicable volume specified in the statute, that
EPA must reduce the applicable volume of cellulosic biofuel required to
the projected production volume for that calendar year. In making this
projection, EPA must take a ``neutral aim at accuracy.'' API v. EPA,
706 F.3d 474 (D.C. Cir. 2013). Pursuant to this provision, EPA has set
the cellulosic biofuel requirement lower than the statutory volumes for
each year since 2010. As described in Section III.D, the projected
volume of cellulosic biofuel production for 2017 is less than the 5.5
billion gallon volume target in the statute. Therefore, for 2017, we
are setting the cellulosic biofuel volume requirement at a level lower
than the statutory applicable volume, in accordance with this
provision.
    Section 211(o)(7)(D)(i) also provides that ``[f]or any calendar
year in which the Administrator makes . . . a reduction [in cellulosic
biofuel volumes], the Administrator may also reduce the applicable
volume of renewable fuel and advanced biofuels . . . by the same or a
lesser volume.'' Using this authority, the reductions in total
renewable fuel and advanced biofuel can be less than or equal to, but
no more than, the amount of reduction in the cellulosic biofuel volume.
EPA used this authority to reduce applicable volumes of advanced
biofuel in 2014-16, and to reduce the total renewable fuel volumes in
those years by an equal amount. We refer to authority in Section
211(o)(7)(D)(i) to waive volumes of advanced and total renewable fuel
as the ``cellulosic waiver authority.''
    The cellulosic waiver authority was discussed by the United States
Court of Appeals for the District of Columbia Circuit, in the context
of its consideration of a judicial challenge to the rule establishing
the 2013 annual RFS standards. As the court explained,

    The Clean Air Act provides that if EPA reduces the cellulosic
biofuel requirement, as it did here, then it `may also reduce' the
advanced biofuel and total renewable fuel quotas `by the same or a
lesser volume.' 42 U.S.C. 7545(o)(7)(D)(i). There is no requirement
to reduce these latter quotas, nor does the statute prescribe any
factors that EPA must consider in making its decision. See id. In
the absence of any express or implied statutory directive to
consider particular factors, EPA reasonably concluded that it enjoys
broad discretion regarding whether and in what circumstances to
reduce the advanced biofuel and total renewable fuel volumes under
the cellulosic waiver provision. Monroe v. EPA, 750 F.3d 909, 915
(D.C. Cir. 2014).

    Some stakeholders have commented that EPA may only exercise the
cellulosic waiver authority to reduce total and advanced volumes in
circumstances described in CAA section 211(o)(7)(A) (that is, where
there is inadequate domestic supply or severe harm to the environment
or economy), or that it must in using the cellulosic waiver authority
consider the factors specified in section 211(o)(2)(B)(ii) that are
required considerations when EPA sets applicable volumes for years in
which the statute does not do so. Contrary to these comments, the Court
found in the Monroe case that the statute does not prescribe any
factors that EPA must consider in making is decision; EPA has broad
discretion under 211(o)(7)(D)(i) to determine when and under what
circumstances to reduce the advanced and total renewable fuel volumes
when it reduces the statutory applicable volume of cellulosic biofuel.
    When using the cellulosic waiver authority, we believe that there
would be substantial justification to exercise our discretion to lower
volumes of total and advanced biofuels in circumstances where there are
questions regarding the sufficiency of production or import of
potentially qualifying renewable fuels, and where there is evidence of
constraints that would limit the ability of those biofuels to be used
for purposes specified in the Act (i.e., in transportation fuel,
heating oil, or jet fuel). In addition, we believe that it is
appropriate in exercising the cellulosic waiver authority for EPA to
consider the Congressional objectives reflected in the volumes tables
in the statute, and the environmental objectives that generally favor
the use of advanced biofuels over non-advanced biofuels. For example,
in light of the larger GHG emissions reductions required for advanced
biofuels as compared to conventional biofuel, and the Congressional
objective to dramatically increase their use in the time period between
2015 and 2022, we believe that it is generally appropriate for
reasonably attainable volumes of advanced biofuel that are sourced in a
manner expected to provide significant GHG reduction benefits to
backfill for shortages in cellulosic biofuel. On the other hand, we do
not believe it would be appropriate for the gap in the availability of
cellulosic biofuel in 2017 to be filled or partially filled with non-
advanced biofuel, taking into consideration both the substantially
lower greenhouse gas emissions reductions required for non-advanced

biofuel \12\ and the Congressional intent reflected in the statutory
tables that use of these biofuels in this time period would be
limited.\13\ These considerations are consistent with EPA's past
interpretation of the cellulosic waiver authority as envisioning
equivalent reductions in the applicable volumes of advanced biofuels
and total renewable fuels.\14\ See 74 FR 24914; 78 FR 49810.
---------------------------------------------------------------------------

    \12\ Non-advanced biofuel must meet the 20% reduction in
lifecycle GHG emissions described in CAA section 211(o)(2)(A)(i),
unless they qualify for an exemption under 40 CFR 80.1403.
    \13\ Since the advanced biofuel volume requirement is nested
within the total renewable fuel volume requirement, the statutory
implied volume for conventional renewable fuel in the statutory
tables can be discerned by subtracting the applicable volume of
advanced biofuel from that of total renewable fuel. Performing this
calculation with respect to the tables in CAA section 211(o)(2)(B)
indicates a Congressional expectation that in the time period 2015-
2022, advanced biofuel volumes would grow from 5.5 to 21 billion
gallons, while the implied volume for conventional renewable fuel
would remain constant at 15 billion gallons.
    \14\ Our consistent view has been that the provision is best
interpreted and implemented to provide for equal reductions in
advanced biofuel and total renewable fuel. We believe that this
approach is consistent with the statutory language and best
effectuates the objectives of the statute, in that it allows for EPA
to determine an appropriate volume of advanced biofuel providing
meaningful GHG emissions reductions to backfill missing cellulosic
volumes, while also resulting in an implied volume for conventional
renewable fuel of no greater than 15 billion gallons as envisioned
in the statutory time period for 2015-2022.
---------------------------------------------------------------------------

    We believe, as we did in setting the volumes in the past, that the
circumstances justifying use of our cellulosic waiver authority and
thus a reduction in statutory volumes are currently present, and we are
again using our cellulosic waiver authority under 211(o)(7)(D)(i) to
reduce volume requirements for advanced biofuel and total renewable
fuel. Congress envisioned that there would be 5.5 billion gallons of
cellulosic biofuel in 2017, while our production projection, described
in detail in Section III, is for 311 million gallons. Under
211(o)(7)(D)(i), EPA must lower the required cellulosic volume to the
projected production volumes. See also API v. EPA, 706 F.3d 474 (D.C.
Cir. 2012). Doing so also provides EPA with authority to lower advanced
and total renewable fuel volumes by the same or a lesser amount.
    We have determined, as described in Section IV, that the applicable
volume for advanced biofuels specified in the statute for 2017 cannot
be achieved and, consistent with the principles described above, we are
exercising our cellulosic waiver authority to lower the applicable
volume of advanced biofuel to a level that is both reasonably
attainable and appropriate, and to provide an equivalent reduction in
the applicable volume of total renewable fuel. In addition, we have
determined that there is adequate supply to satisfy the total renewable
fuel volume derived through applying an equal volume reduction as for
advanced biofuel. Therefore, no further reductions of the total
renewable fuel volume requirement are necessary to address concerns of
inadequate supply. The resulting volume requirements provide the
benefits associated with the use of reasonably attainable and
appropriate volumes of advanced biofuels to partially backfill for
missing volumes of cellulosic biofuel in 2017, while also providing for
an implied volume requirement for conventional biofuel equal to that
envisioned by Congress for 2017.
2. General Waiver Authority
    Section 211(o)(7)(A) of the CAA provides that EPA, in consultation
with the Secretary of Agriculture and the Secretary of Energy, may
waive the applicable volume specified in the Act in whole or in part
based on petition by one or more States, by any person subject to the
requirements of the Act, or by the EPA Administrator on her own motion.
Such a waiver must be based on a determination by the Administrator,
after public notice and opportunity for comment that (1) implementation
of the requirement would severely harm the economy or the environment
of a State, a region or the United States, or (2) there is an
inadequate domestic supply. Because the general waiver provision
provides EPA the discretion to waive the statutory applicable volume
``in whole or in part,'' we interpret this section as granting EPA
authority to fully or partially waive any of the four applicable volume
requirements in appropriate circumstances. For the years 2014-2016, EPA
determined that there was an inadequate domestic supply of total
renewable fuel, and used the general waiver authority to reduce the
total renewable fuel volumes further than the reductions obtained using
the cellulosic waiver authority. In the notice of proposed rulemaking
for this rule, EPA proposed to use the general wavier authority in a
similar way, and for the same reason, in establishing the 2017 total
renewable fuel volume requirement.
    Based on further evaluation of the availability of renewable fuel
in the market, in the interim between the NPRM and this final rule, and
review of public comment, EPA has determined that it is not necessary
to use the general waiver authority. That is, we have determined that
use of the cellulosic waiver authority alone will be sufficient to
yield a volume requirement that is consistent with available
supply.\15\
---------------------------------------------------------------------------

    \15\ Some commenters noted that in addition to the authority to
reduce applicable volumes under the general waiver authority on the
basis of an ``inadequate domestic supply'' that EPA possesses the
ability to use the general waiver authority where it finds that the
RFS volumes would cause ``severe economic or environmental harm in a
State, region, or the United States.'' As described in more detail
in the response to comments document accompanying this rule, EPA
does not believe that the record supports a finding of severe
economic or environmental harm with respect to the volume
requirements we are finalizing today.
---------------------------------------------------------------------------

3. General Comments Related to Waiver Authorities
    Many commenters suggested that EPA should only use the cellulosic
waiver authority to reduce volumes of total renewable fuel in 2017.
While we do not believe this would have been possible under the
circumstances described in the proposal, in light of EPA's re-
evaluation of available supplies, as discussed in Sections IV and V, we
are today following the approach suggested by these commenters in using
the cellulosic waiver authority exclusively to reduce volumes of both
advanced biofuel and total renewable fuel.
    Some commenters said that EPA should not reduce the volume
requirements for advanced biofuel and total renewable fuel at all and
should instead set standards for 2017 based on the statutory targets.
In most cases, these commenters based their positions on the
availability of carryover RINs and an expectation that ``letting the
market work'' would be sufficient to overcome all constraints related
the production and distribution of fuels that can be used to satisfy
these standards. As described in Section II.B below, we continue to
believe that, in light of the expected volume of carryover RINs, it
would be inappropriate for 2017 to intentionally draw down the bank of
carryover RINs for the purposes of increasing the volume requirements
above levels that can be satisfied with physical volume. As for
``letting the market work,'' we believe that this view is dismissive of
the market constraints discussed in the NPRM, Table II.E. 1-1 of the
2014-2016 final rule and in Sections IV.B and V.B of this final rule.
The market is not unlimited in its ability to respond to the standards
EPA sets. While setting the standards at the statutory targets would
undoubtedly produce a significant increase in RIN prices, doing so in
light of the combined actions of all constraints shown in Table II.E.1-
1 of the 2014-2016 final rule and discussed in Sections IV.B. and V.B.
of this rule would nevertheless create a

shortfall in supply in 2017 that would likely lead to a complete draw-
down in the bank of carryover RINs, noncompliance, and/or additional
petitions for a waiver of the standards. As described in Sections IV
and V, we are authorized to use the cellulosic waiver authority in 2017
to reduce volumes of advanced and total renewable fuel, and believe it
is appropriate to do so for the reasons noted in those sections.

B. Treatment of Carryover RINs

    Consistent with our approach in the 2014-2016 final rule, we have
also considered the availability and role of carryover RINs in our
decision to exercise our cellulosic waiver authority in setting the
advanced and total volume requirements for 2017.\16\ Although the
statute requires a credit program and specifies that the credits shall
be valid for a 12-month time period, neither the statute nor EPA
regulations specify how or whether EPA should consider the availability
of carryover RINs in exercising its cellulosic waiver authority.\17\ As
noted in the context of the rule establishing the 2014-16 RFS
standards, we believe that a bank of carryover RINs is extremely
important in providing obligated parties compliance flexibility in the
face of substantial uncertainties in the transportation fuel
marketplace, and in providing a liquid and well-functioning RIN market
upon which success of the entire program depends.\18\ Carryover RINs
provide flexibility in the face of a variety of circumstances that
could limit the availability of RINs, including weather-related damage
to renewable fuel feedstocks and other circumstances potentially
affecting the production and distribution of renewable fuel.\19\ On the
other hand, carryover RINs can be used for compliance purposes, and in
the context of the 2013 RFS rulemaking we noted that an abundance of
carryover RINs available in that year, together with possible increases
in renewable fuel production and import, justified maintaining the
advanced and total renewable fuel volume requirements for that year at
the levels specified in the statute.\20\
---------------------------------------------------------------------------

    \16\ The discussion of the role of carryover RINs as they relate
to the cellulosic volume standard for 2017 can be found in Section
III.D.
    \17\ CAA section 211(o)(5) requires that EPA establish a credit
program as part of its RFS regulations, and that the credits be
valid to show compliance for 12 months as of the date of generation.
EPA implemented this requirement though the use of RINs, which can
be used to demonstrate compliance for the year in which they are
generated or the subsequent compliance year. Obligated parties can
obtain more RINs than they need in a given compliance year, allowing
them to ``carry over'' these excess RINs for use in the subsequent
compliance year, although use of these carryover RINs is limited to
20% of the obligated party's RVO. For the bank of carryover RINs to
be preserved from one year to the next, individual carryover RINs
are used for compliance before they expire and are essentially
replaced with a newer vintage RIN that is then held for use in the
next year. For example, if the volume of the RIN bank is unchanged
from 2016 to 2017, then all of the vintage 2016 carryover RINs must
be used for compliance in 2017, or they will expire. However, the
same volume of 2017 RINs can then be ``banked'' for use in the next
year.
    \18\ See 80 FR 77482-77487 (December 14, 2015).
    \19\ See id., and 72 FR 23900 (May 1, 2007).
    \20\ See 79 FR 49794 (August 15, 2013).
---------------------------------------------------------------------------

    In the 2017 NPRM, EPA estimated that the likely volume of the
carryover RIN bank for 2017 would be approximately 1.72 billion
carryover RINs (including all D codes). We proposed that in light of
this relatively limited volume and the important functions provided by
the RIN bank, that we would not set the volume requirements for 2017 in
a manner that would intentionally lead to a drawdown in the bank of
carryover RINs. In their comments on the 2017 NPRM, parties generally
expressed two opposing points of view. Commenters representing
obligated parties supported EPA's proposed decision to not assume a
drawdown in the bank of carryover RINs in determining the appropriate
level of volume requirements. These commenters reiterated the
importance of maintaining the carryover RIN bank in order to provide
obligated parties with necessary compliance flexibilities, better
market trading liquidity, and a cushion against future program
uncertainty. Commenters representing renewable fuel producers, however,
contended that carryover RINs represent actual supply and should be
accounted for when establishing the annual volume standards and, in
particular, in any determination under the general waiver authority
that there is an ``inadequate domestic supply.'' They expressed concern
that obligated parties could use carryover RINs as an alternative to
RINs generated for renewable fuel produced in 2017, leading to less
demand for their product and inadequate return on investment.\21\
---------------------------------------------------------------------------

    \21\ A full description of comments received, and our detailed
responses to them, is available in the Response to Comments document
in the docket.
---------------------------------------------------------------------------

1. Updated Projection of Carryover RIN Volume
    In the NPRM, EPA estimated that the carryover RIN bank available in
2017 would be approximately 1.72 billion carryover RINs. Since that
time, obligated parties have submitted their compliance demonstrations
for the 2014 compliance year and, based on that information, we now
estimate that there will at most be 1.54 billion carryover RINs
available for possible use in complying with the standards for 2017, a
decrease of nearly 200 million RINs from the previous estimate.\22\
This is approximately 8 percent of the final 2017 total renewable fuel
volume standard and less than half of the 20 percent limit permitted by
the regulations to be carried over for use in complying with the 2017
standards. However, there remains considerable uncertainty surrounding
this number since compliance demonstrations still need to be made for
the 2015 and 2016 RFS standards, and it is unclear at this time whether
some portion of the 1.54 billion carryover RINs we estimate will be
available for the 2017 compliance demonstrations will be used for
compliance prior to 2017. In addition, we note that there have been
enforcement actions in past years that have resulted in the retirement
of RINs that were fraudulently generated and were therefore invalid,
and parties that relied on those invalid RINs for compliance were
required to acquire valid substitutes to true up their past compliance
demonstrations. Future enforcement actions could have similar results,
and require that obligated parties settle past enforcement-related
obligations in addition to the annual standards, thereby potentially
creating demand for RINs greater than can be accommodated through
actual renewable fuel blending in 2017. Collectively, the result of
satisfying RFS obligations in 2015 and 2016 and settling enforcement-
related accounts could be an effective reduction in the size of the
collective bank of carryover RINs to a level below 1.54 billion RINs.
Thus, we believe there is considerable uncertainty that a RIN bank as
large as 1.54 billion RINs will be available in 2017.
---------------------------------------------------------------------------

    \22\ The calculations performed to estimate the number of
carryover RINs available in 2017 can be found in the memorandum,
``2017 Carryover RIN Bank Calculations,'' available in the docket.
---------------------------------------------------------------------------

2. EPA's Decision
    EPA has decided to maintain the proposed approach, and not set the
volume requirements in the final rule with the intention or expectation
of drawing down the current bank of carryover RINs. In finalizing this
approach, we carefully considered the many comments received, including
on the role of carryover RINs under our waiver authorities and the
policy implications of our decision. While we have not assumed an
intentional

drawdown in the overall bank of carryover RINs owned by obligated
parties collectively in establishing the volume requirements for 2017,
we understand that some obligated parties may choose to sell or use all
or part of their individual banks of carryover RINs. To the extent that
they do so, other obligated parties would be in a position to bank
carryover RINs by using available renewable fuel or purchasing RINs
representing such fuel, with the expected net result being no effective
change in the size of the overall bank of carryover RINs that is owned
collectively by obligated parties.
    In response to those parties who argued that carryover RINs must be
considered part of the ``supply'' when EPA uses the general waiver
authority on the basis of a finding of ``inadequate domestic supply,''
we note that we are not using the general waiver authority in this
final action, so these arguments are irrelevant. We believe that a
balanced consideration of the possible role of carryover RINs in
achieving the statutory volume objectives for advanced and total
renewable fuels, versus maintaining an adequate bank of carryover RINs
for important programmatic functions, is appropriate when EPA exercises
its discretion under the cellulosic waiver authority, and that the
statute does not specify the extent to which EPA should require a
drawdown in the bank of carryover RINs when it exercises this
authority.
    An adequate RIN bank serves to make the RIN market liquid and to
avoid the possible need for adjustments to the standards. Just as the
economy as a whole functions best when individuals and businesses
prudently plan for unforeseen events by maintaining inventories and
reserve money accounts, we believe that the RFS program functions best
when sufficient carryover RINs are held in reserve for potential use by
the RIN holders themselves, or for possible sale to others that may not
have established their own carryover RIN reserves. Were there to be no
RINs in reserve, then even minor disruptions causing shortfalls in
renewable fuel production or distribution, or higher than expected
transportation fuel demand (requiring greater volumes of renewable fuel
to comply with the percentage standards that apply to all volumes of
transportation fuel, including the unexpected volumes) could lead to
the need for a new waiver of the standards, undermining the market
certainty so critical to the long term success of the RFS program.
Furthermore, many obligated parties lack the ability to separate one or
more types of RINs through blending. With a functioning liquid RIN
market this is not a problem because we expect that these obligated
parties will be able to comply by securing these RINs on the open
market. However, a significant drawdown of the carryover RIN bank
leading to a scarcity of RINs may stop the market from functioning in
an efficient manner, even where the market overall could satisfy the
standards. For all of these reasons, the collective carryover RIN bank
provides a needed programmatic buffer that both facilitates individual
compliance and provides for smooth overall functioning of the
program.\23\ With volume requirements increasing annually, and the size
of the carryover RIN bank shrinking through use of carryover RINs in
both 2013 and 2014, we believe it is prudent not to intentionally draw
down the RIN bank for 2017 that we have determined will not likely be
larger than 1.54 billion carryover RINs, and which could in fact be
smaller.
---------------------------------------------------------------------------

    \23\ Here we use the term ``buffer'' as shorthand reference to
all of the benefits that are provided by a sufficient bank of
carryover RINs.
---------------------------------------------------------------------------

    For the reasons noted above, and consistent with the approach we
took in the 2014-2016 final rule, we have determined that under current
circumstances, an intentional drawdown of the carryover RIN bank should
not be assumed in establishing the 2017 volume requirements. The
current bank of carryover RINs will provide an important and necessary
programmatic buffer that will both facilitate individual compliance and
provide for smooth overall functioning of the program. Therefore, we
are not setting renewable fuel volume requirements at levels that would
envision the drawdown in the bank of carryover RINs. However, we note
that we may or may not take a similar approach in future years; we will
assess the situation on a case-by-case basis going forward, and take
into account the size of the carryover RIN bank in the future and any
lessons learned from implementing past rules.

III. Cellulosic Biofuel Volume for 2017

    In the past several years the cellulosic biofuel industry has
continued to make progress towards increased commercial-scale
production. Cellulosic biofuel production reached record levels in
2015, driven largely by compressed natural gas (CNG) and liquefied
natural gas (LNG) derived from biogas.\24\ Cellulosic ethanol, while
produced in much smaller quantities than CNG/LNG derived from biogas,
was also produced consistently in 2015. Plans for multiple commercial
scale facilities capable of producing drop-in hydrocarbon fuels from
cellulosic biomass were also announced. This section describes our
assessment of the volume of cellulosic biofuel that we project will be
produced or imported into the United States in 2017, and some of the
uncertainties associated with those volumes.
---------------------------------------------------------------------------

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

    In order to project the volume of cellulosic biofuel production in
2017 we considered the Energy Information Administration's projections
of cellulosic biofuel production \25\ along with data reported to EPA
through the EPA Moderated Transaction System (EMTS) and information we
collected regarding individual facilities that have produced or have
the potential to produce qualifying volumes for consumption as
transportation fuel, heating oil, or jet fuel in the U.S. in 2017. In
this final rule we have updated the projected facility start-up dates,
facility capacities, production volumes, and other relevant information
with the most recent information available. However, we are using the
methodology discussed in the proposed rule to project the available
supply of cellulosic biofuel for 2017. As described in a memorandum to
the docket, the use of essentially the same methodology to generate the
applicable standards for 2016 resulted in volumes that the market is
currently on track to meet, taking into account anticipated seasonal
variation in cellulosic biofuel supply based on data from previous
years.\26\
---------------------------------------------------------------------------

    \25\ ``EIA projections of transportation fuel for 2017,'' docket
EPA-HQ-OAR-2016-0004. We note that EIA projections do not include
renewable fuel oil, imports of cellulosic biofuel from foreign
facilities, or CNG/LNG used as transportation fuel in their estimate
of cellulosic biofuel production.
    \26\ ``Assessment of the Accuracy of Cellulosic Biofuel
Production Projections in 2015 and 2016'', memorandum from Dallas
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    New cellulosic biofuel production facilities projected to be
brought online in the United States over the next few years would
significantly increase the production capacity of the cellulosic
industry. Operational experience gained at the first few commercial
scale cellulosic biofuel production facilities could also lead to
increasing production of cellulosic biofuel from existing production
facilities. The following section discusses the companies the EPA
reviewed in the process of projecting qualifying cellulosic biofuel

production in the United States in 2017. Information on these companies
forms the basis for our projection of 311 million ethanol-equivalent
gallons of cellulosic biofuel produced for use as transportation fuel,
heating oil, or jet fuel in the United States in 2017.

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS program each
year (absent an adjustment or waiver by EPA) are specified in CAA
section 211(o)(2). The volume of cellulosic biofuel specified in the
statute for 2017 is 5.5 billion gallons. The statute provides that if
EPA determines, based on EIA's estimate, that the projected volume of
cellulosic biofuel production in a given year is less than the
statutory volume, then EPA is to reduce the applicable volume of
cellulosic biofuel to the projected volume available during that
calendar year.\27\
---------------------------------------------------------------------------

    \27\ The United States Court of Appeals for the District of
Columbia Circuit evaluated this requirement in API v. EPA 706 F.3d
474. 479-480 (D.C. Cir. 2013), in the context of a challenge to the
2012 cellulosic biofuel standard. The Court stated that in
projecting potentially available volumes of cellulosic biofuel EPA
must apply an ``outcome-neutral methodology'' aimed at providing a
prediction of ``what will actually happen.''
---------------------------------------------------------------------------

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

B. Cellulosic Biofuel Industry Assessment

    In order to project cellulosic biofuel production for 2017, we have
tracked the progress of several dozen potential cellulosic biofuel
production facilities. As we have done in previous years, we have
focused on facilities with the potential to produce commercial-scale
volumes of cellulosic biofuel rather than small R&D or pilot-scale
facilities. Larger commercial-scale facilities are much more likely to
generate RINs for the fuel they produce and the volumes they produce
will have a far greater impact on the cellulosic biofuel standards for
2017. The volume of cellulosic biofuel produced from R&D and pilot-
scale facilities is quite small in relation to that expected from the
commercial-scale facilities. R&D and demonstration-scale facilities
have also generally not generated RINs for the fuel they have produced
in the past. Their focus is on developing and demonstrating the
technology, not producing commercial volumes. RIN generation from R&D
and pilot-scale facilities in previous years has not contributed
significantly to the overall number of cellulosic RINs generated.\28\
---------------------------------------------------------------------------

    \28\ While a few small R&D and pilot scale facilities have
registered as cellulosic RIN generators, total production from each
of these facilities from 2010 through September 2016 has been less
than 50,000 RINs.
---------------------------------------------------------------------------

    From this list of commercial-scale facilities we used information
from EMTS, publically available information (including press releases
and news reports), and information provided by representatives of
potential cellulosic biofuel producers, to make a determination of
which facilities are most likely to produce cellulosic biofuel and
generate cellulosic biofuel RINs in 2017. Each of these companies was
investigated further in order to determine the current status of its
facilities and its likely cellulosic biofuel production and RIN
generation volumes for 2017. Both in our discussions with
representatives of individual companies \29\ and as part of our
internal evaluation process we gathered and analyzed information
including, but not limited to, the funding status of these facilities,
current status of the production technologies, anticipated construction
and production ramp-up periods, facility registration status, and
annual fuel production and RIN generation targets.
---------------------------------------------------------------------------

    \29\ In determining appropriate volumes for CNG/LNG producers we
generally did not contact individual producers but rather relied
primarily on discussions with industry associations, and information
on likely production facilities that are already registered under
the RFS program. In some cases where further information was needed
we did speak with individual companies.
---------------------------------------------------------------------------

    Our approach for projecting the available volume of cellulosic
biofuel in 2017 is discussed in more detail in Section III.D below. The
approach is the same as the approach adopted in establishing the
required volume of cellulosic biofuel in 2016.\30\ The remainder of
this Section discusses the companies and facilities EPA expects to be
in a position to produce commercial-scale volumes of cellulosic biofuel
by the end of 2017. This information, together with the reported
cellulosic biofuel RIN generation in previous years in EMTS and EIA's
projection of liquid cellulosic biofuel production in 2017 forms the
basis for our volume requirement for cellulosic biofuel for 2017.
---------------------------------------------------------------------------

    \30\ See 80 FR 77420, 77499 (December 14, 2015).
---------------------------------------------------------------------------

1. Potential Domestic Producers
    There are a number of companies and facilities \31\ located in the
United States that have either already begun producing cellulosic
biofuel for use as transportation fuel, heating oil, or jet fuel at a
commercial scale, or are anticipated to be in a position to do so at
some time during 2017. The financial incentive provided by cellulosic
biofuel RINs,\32\ combined with the facts that to date nearly all
cellulosic biofuel produced in the United States has been used
domestically \33\ and all the domestic facilities we have contacted in
deriving our projections intend to produce fuel on a commercial scale
for domestic consumption using approved pathways, gives us a high
degree of confidence that cellulosic biofuel RINs will be generated for
any fuel produced by commercial scale facilities. In order to generate
RINs, each of these facilities must be registered under the RFS program
and comply with all the regulatory requirements. This includes using an
approved RIN-generating pathway and verifying that their feedstocks
meet the definition of renewable biomass. Most of the companies and
facilities have already successfully completed facility registration,
and many have successfully generated RINs. A brief description of each
of the companies (or group of companies for cellulosic CNG/LNG
producers) that EPA believes may produce commercial-scale volumes of
RIN generating cellulosic biofuel by the end of 2017 can be found in a
memorandum to the docket for this final rule.\34\ These descriptions
are based on a review of publicly available information and in many
cases on information provided to EPA in conversations with company
representatives. General information on each of these companies or
group of companies considered in our projection of the potentially
available volume of

cellulosic biofuel in 2017 is summarized in Table III.B.3-1 below.
---------------------------------------------------------------------------

    \31\ The volume projection from CNG/LNG producers does not
represent production from a single company or facility, but rather a
group of facilities utilizing the same production technology.
    \32\ According to data from Argus, the price for 2016 cellulosic
biofuel RINs averaged $1.84 in 2016 (through September 2016).
Alternatively, obligated parties can obtain a RIN value equivalent
to a cellulosic biofuel RIN by purchasing an advanced (or biomass-
based diesel) RIN and a cellulosic waiver credit. The price for a
2016 cellulosic waiver credit is $1.33.
    \33\ The only known exception was a small volume of fuel
produced at a demonstration scale facility exported to be used for
promotional purposes.
    \34\ ``Cellulosic Biofuel Producer Company Descriptions (October
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
---------------------------------------------------------------------------

2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located
in the United States, there are several foreign cellulosic biofuel
companies that may produce cellulosic biofuel in 2017. These include
facilities owned and operated by Beta Renewables, Enerkem, Ensyn,
GranBio, and Raizen. All of these facilities use fuel production
pathways that have been approved by EPA for cellulosic RIN generation
provided eligible sources of renewable feedstock are used and other
regulatory requirements are satisfied. These companies would therefore
be eligible to register these facilities under the RFS program and
generate RINs for any qualifying fuel imported into the United States.
While these facilities may be able to generate RINs for any volumes of
cellulosic biofuel they import into the United States, demand for the
cellulosic biofuels they produce is expected to be high in their own
local markets.
    EPA is charged with projecting the volume of cellulosic biofuel
that will be produced or imported into the United States. For the
purposes of this final rule we have considered all of the registered
foreign facilities under the RFS program to be potential sources of
cellulosic biofuel in 2017. We believe that due to the strong demand
for cellulosic biofuel in local markets, the significant technical
challenges associated with the operation of cellulosic biofuel
facilities, and the time necessary for potential foreign cellulosic
biofuel producers to register under the RFS program and arrange for the
importation of cellulosic biofuel to the United States, cellulosic
biofuel imports from facilities not currently registered to generate
cellulosic biofuel RINs are highly unlikely in 2017. We have therefore,
for purposes of our 2017 cellulosic biofuel projection evaluated in
detail only the potential for foreign cellulosic biofuel production
from facilities that are currently registered. Two foreign facilities
that have registered as cellulosic biofuel producers have already
generated cellulosic biofuel RINs for fuel exported to the United
States; projected volumes from each of these facilities are included in
our projection of available volumes for 2017. Two additional foreign
facilities have registered as a cellulosic biofuel producer, but have
not yet generated any cellulosic RINs. EPA contacted representatives
from these facilities to inquire about their intentions to export
cellulosic biofuel to the United States in 2017. In one case, company
representatives indicated they intended to export cellulosic biofuel to
the United States, and EPA believes that there is sufficient reason to
believe imports of cellulosic biofuel from this company are likely. EPA
has included potential volumes from this facility in our 2017 volume
production projection (see Table III.B.3-1 below).
3. Summary of Volume Projections for Individual Companies
    The information we have gathered on cellulosic biofuel producers
forms the basis for our projected volumes of cellulosic biofuel
production for each facility in 2017. As discussed above, we have
focused on commercial-scale cellulosic biofuel production facilities.
Each of these facilities is discussed further in a memorandum to the
docket.\35\
---------------------------------------------------------------------------

    \35\ ``Cellulosic Biofuel Producer Company Descriptions (October
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.

                                           Table III.B.3-1--Projected Producers of Cellulosic Biofuel by 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Facility capacity  Construction start   First production
          Company name                 Location            Feedstock             Fuel             (MGY) \36\             date                \37\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \38\..........  Various (US and     Biogas............  CNG/LNG...........  Various...........  N/A...............  August 2014.
                                   Canada).
DuPont..........................  Nevada, IA........  Corn Stover.......  Ethanol...........  30................  November 2012.....  End 2016.
Edeniq..........................  Various...........  Corn Kernel Fiber.  Ethanol...........  Various...........  Various...........  Fall 2016.
Ensyn...........................  Renfrew, ON,        Wood Waste........  Heating Oil.......  3.................  N/A...............  2014.
                                   Canada.
GranBio.........................  S[atilde]o Miguel   Sugarcane bagasse.  Ethanol...........  21................  Mid 2012..........  September 2014.
                                   dos Campos,
                                   Brazil.
Poet............................  Emmetsburg, IA....  Corn Stover.......  Ethanol...........  24................  March 2012........  4Q 2015.
QCCP............................  Galva, IA.........  Corn Kernel Fiber.  Ethanol...........  4.................  Late 2013.........  October 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Projection 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 EPA on October 19, 2016.\39\
With regard to cellulosic biofuel, the EIA estimated that the available
volume in 2017 would be 10 million gallons.
---------------------------------------------------------------------------

    \36\ The Facility Capacity is generally equal to the nameplate
capacity provided to EPA by company representatives or found in
publicly available information. If the facility has completed
registration and the total permitted capacity is lower than the
nameplate capacity then this lower volume is used as the facility
capacity. For companies generating RINs for CNG/LNG derived from
biogas the Facility Capacity is equal to the lower of the annualized
rate of production of CNG/LNG from the facility or the sum of the
volume of contracts in place for the sale of CNG/LNG for use as
transportation fuel (reported as the actual peak capacity for these
producers).
    \37\ Where a quarter is listed for the first production date EPA
has assumed production begins in the middle month of the quarter
(i.e., August for the 3rd quarter) for the purposes of projecting
volumes.
    \38\ For more information on these facilities see ``October 2016
Assessment of Cellulosic Biofuel Production from Biogas (2017)'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.
    \39\ ``EIA projections of transportation fuel for 2017,'' docket
EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    In their letter, EIA did not identify the facilities on which their
estimate of cellulosic biofuel production was based. EIA did, however,
indicate in their letter that they did not include estimates for
cellulosic biofuel produced from biogas from landfills, municipal
wastewater treatment facilities, separated MSW digesters, or
agricultural digesters or those producing renewable heating oil, which
represent approximately 96% of our projected cellulosic biofuel volume
for 2017. They also did not include projections for facilities located
outside of the United States that we project will export cellulosic
biofuel into the United

States in 2017. When limiting the scope of our projection to the
companies assessed by EIA, we note that while our volume projections
are not identical, they are very similar. EPA projects approximately 11
million gallons of liquid cellulosic biofuel will be produced
domestically in 2017 (when excluding heating oil, as EIA did in their
estimate of cellulosic biofuel production). EIA did not provide detail
on the basis of their projections, so we cannot say precisely why EPA
and EIA's projections differ. We further note that if we used EIA's
projections for domestic liquid cellulosic biofuel production without
modification in place of our own assessment of these facilities the
impact on the cellulosic biofuel standard overall for 2017 would be
less than 1%.

D. Cellulosic Biofuel Volume for 2017

    For our 2017 cellulosic biofuel projection, we have used the same
methodology used in the final rule establishing the cellulosic biofuel
volume standard for 2016.\40\ We believe this methodology produces a
production projection that is consistent with EPA's charge to project
volumes with a ``neutral aim at accuracy,'' and that cellulosic RIN
generation data in 2015 and 2016 demonstrate that the use of this
methodology has produced reasonable projections in these years.\41\ We
also received comments on our projection methodology, some of which are
discussed below, with the remainder discussed in the response to
comment document. Some commenters objected to the use of the same
methodology used to establish the cellulosic biofuel volume for 2015
and 2016, arguing that this methodology has consistently over-estimated
cellulosic RIN generation.\42\ In this final rule we considered
modifying several of the individual components of our production
projection methodology (such as the start-up date, ramp-up period,
expected production volume with the projected ranges, etc.), but
ultimately decided to use the same methodology as proposed, as we
believe this methodology resulted in reasonably accurate projection of
cellulosic biofuel RIN generation in the final three months of 2015,
and will likely result in a reasonably accurate projection for 2016
based on the available data that is currently available.\43\ While this
methodology overestimated portions of the cellulosic biofuel pool (such
as the production of liquid cellulosic biofuels from new facilities),
it also underestimated production for other portions of the cellulosic
biofuel pool (production of CNG/LNG derived from biogas). Modifying
individual components of the past methodology may seem justified based
on a narrow consideration of each factor, but we do not believe that
there is currently sufficient information to support these changes.
Adjusting each individual component of the methodology each year based
on the most recent information would result in an increasingly complex
and unpredictable methodology, and would not necessarily project
overall cellulosic biofuel production more accurately. This is
especially true in an industry at the early stages of
commercialization. We do not believe it would be reasonable to
establish a methodology where the success or failure of a small group
of companies, and in some cases a single company, would have a dramatic
impact on the methodology used to project volumes from other companies
the following year, especially where the methodology overall has been
demonstrably successful. Therefore, for this year we have decided to
use the same methodology that worked successfully in 2015 and 2016. We
will continue to evaluate this methodology on an annual basis, and will
adjust the methodology if it ceases to provide reasonably accurate
projections in future years.
---------------------------------------------------------------------------

    \40\ See 80 FR 77499 for additional detail.
    \41\ ``Assessment of the Accuracy of Cellulosic Biofuel
Production Projections in 2015 and 2016'', memorandum from Dallas
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.
    \42\ As support for these claims, commenters reviewed EPA's
projections of cellulosic biofuel production going back to 2010. We
note that we used a substantially different methodology to project
volumes for 2015 and 2016 than we used in previous years, and we
therefore do not believe that overestimates of cellulosic biofuel
production in years prior to 2015 are relevant in assessing the
reasonableness of the current methodology.
    \43\ ``Assessment of the Accuracy of Cellulosic Biofuel
Production Projections in 2015 and 2016'', memorandum from Dallas
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.
---------------------------------------------------------------------------

    To project cellulosic biofuel production in 2017 we separated the
list of potential producers of cellulosic biofuel into four groups
according to whether they are producing liquid cellulosic biofuel or
CNG/LNG from biogas, and whether or not the facilities have achieved
consistent commercial-scale production and cellulosic biofuel RIN
generation (See Table III.D-1 through Table III.D-3). We next defined a
range of likely production volumes for each group of potential
cellulosic biofuel producers. The low end of the range for each group
of producers reflects actual RIN generation data over the last 12
months for which data are available (October 2015--September 2016). The
low end of the range for companies that have not yet begun commercial-
scale production (or in the case of CNG/LNG producers have not yet
generated RINs for fuel sold as transportation fuel in the United
States) is zero.
    To calculate the high end of the projected production range for
each group of companies we considered each company individually. To
determine the high end of the range of expected production volumes for
companies producing liquid cellulosic biofuel we considered a variety
of factors, including the expected start-up date and ramp-up period,
facility capacity, and fuel off-take agreements. As a starting point,
EPA calculated a production volume for these facilities using the
expected start-up date, facility capacity, and a benchmark of a six-
month straight-line ramp-up period representing an optimistic ramp-up
scenario.\44\ Generally we used this calculated production volume as
the high end of the potential production range for each company. The
only exceptions were cases where companies provided us with production
projections (or projections of the volume of fuel they expected to
export to the United States in the case of foreign producers) that were
lower than the volumes we calculated as the high end of the range for
that particular company. In these cases, the projected production
volume (or import volume) provided by the company was used as the high
end of the potential production range rather than the volume calculated
by EPA. For CNG/LNG producers, the high end of the range was generally
equal RIN production projections for 2017 provided to EPA by the
renewable natural gas industry.\45\ The high end of the ranges for all
of the individual companies within each group were added together to
calculate the high end of the projected production range for that
group.
---------------------------------------------------------------------------

    \44\ We did not assume a six-month straight-line ramp-up period
in determining the high end of the projected production range for
CNG/LNG producers. This is because these facilities generally have a
history of CNG/LNG production prior to producing RINs, and therefore
do not face many of the start-up and scale-up challenges that impact
new facilities. For further information on the methodology used to
project cellulosic RIN generation from CNG/LNG producers see
``October 2016 Assessment of Cellulosic Biofuel Production from
Biogas (2017)'', memorandum from Dallas Burkholder to EPA Air Docket
EPA-HQ-OAR-2016-0004.
    \45\ For additional detail on the methods used to project
cellulosic biofuel production for CNG/LNG producers see ``October
2016 Assessment of Cellulosic Biofuel Production from Biogas
(2017)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-
HQ-OAR-2016-0004.

   Table III.D-1--2017 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
DuPont..................................               0               7
Edeniq..................................               0               6
GranBio.................................               0               2
Poet....................................               0              18
Aggregate Range.........................               0              33
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.

   Table III.D-2--2017 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                            (Million gallons)
------------------------------------------------------------------------
                                          Low end of the    high end of
                                               range       the range \a\
------------------------------------------------------------------------
Ensyn...................................           \b\ X               3
Quad County Corn Processors.............           \b\ X               4
Aggregate Range.........................             3.5               7
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
\b\ The low end of the range for each individual company is based on
  actual production volumes and is therefore withheld to protect
  information claimed to be confidential business information.

 Table III.D-3--2017 Production Ranges for CNG/LNG Produced From Biogas
                            [Million gallons]
------------------------------------------------------------------------
                                          Low end of the    High end of
                                             range \a\     the range \a\
------------------------------------------------------------------------
CNG/LNG Producers (New Facilities)......               0             178
CNG/LNG Producers (Currently generating              174             221
 RINs)..................................
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.

    EPA received comments from biofuels producers stating that
production projections we receive from companies should be used as the
basis for the mean value of any projected production range. They argue
that EPA should defer to the technical expertise of the cellulosic
biofuel manufacturers who provide these projections, and that it is
inappropriate to use these projections as the high end of a projected
range, with the low end of the projected range based on previous
production data. EPA understands that the volume projections provided
by companies included in our projection are intended to represent the
companies' expectations for production, rather than the high end of a
potential production range. We also acknowledge the technical expertise
of these companies and the significant amount of investment that has
gone into the development of these biofuel production processes as they
have progressed from R&D through demonstration and pilot scale in
preparation for the first commercial scale facilities. While
acknowledging these facts, we do not believe it would be appropriate to
ignore the history of the cellulosic biofuel industry. Each year since
2010, EPA has gathered information, including volume production
projections, from companies with the potential to produce cellulosic
biofuel. Each of these companies supported these projections with
successful pilot and demonstration scale facilities as well as other
supporting documentation. In the majority of these cases, due to a
variety of circumstances, the companies were unable to meet their own
volume projections, and in some cases were unable to produce any RIN-
generating cellulosic biofuel.
    We believe our methodology reasonably projects the range of
potential production volumes for each company. A brief overview of each
of the companies we believe will produce cellulosic biofuel and make it
commercially available in 2017 can be found in a memorandum to the
docket.\46\ In the case of cellulosic biofuel produced from CNG/LNG we
have discussed these facilities as a group rather than individually.
EPA believes it is appropriate to discuss these facilities as a group
since they are utilizing proven production technologies and the
uncertainties and challenges they face relate primarily to linking
their production to ultimate use as transportation fuel that is
eligible to generate RINs under the RFS program.\47\
---------------------------------------------------------------------------

    \46\ ``Cellulosic Biofuel Producer Company Descriptions (October
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2016-0004.
    \47\ For individual company information see ``October 2016
Cellulosic Biofuel Individual Company Projections for 2017 (CBI)'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2016-
0004.
---------------------------------------------------------------------------

    After defining likely production ranges for each group of companies
we projected a likely production volume from each group of companies
for 2017. We used the same percentile values to project a production
volume within the established ranges for 2017 as we did in the final
rule establishing the cellulosic biofuel standards for 2014-2016; the
50th and 25th percentiles respectively for liquid cellulosic biofuel
producers with and without a history of consistent cellulosic biofuel
production and RIN generation, and the 75th and 50th percentiles
respectively for producers of CNG/LNG from biogas with and without

a history of consistent commercial-scale production and RIN generation.
As discussed in the final rule establishing the 2014-2016 cellulosic
biofuel standards, we believe these percentages appropriately reflect
the uncertainties associated with each of these groups of
companies.\48\ We further believe that the progress to date in 2015 and
2016 supports the use of these percentile values.\49\ We also note that
these percentile values are used to project a likely production volume
within the projected range for each group of companies. In most cases,
especially for companies that have not yet consistently produced
cellulosic RINs, the high end of these projected ranges are not
necessarily the nameplate capacities of the facilities, as the
projected start-up dates and ramp-up periods have been taken into
consideration in developing the likely production ranges for each
company. This means that our percentile values are not directly
comparable to the ``utilization rates'' calculated or projected by some
commenters, which calculate a percentage using the facility capacity
rather than the high end of the ranges in the tables below. After
calculating a likely production volume for each group of companies in
2017, the volumes from each group are added together to determine the
total projected production volume of cellulosic biofuel in 2017.
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    \48\ For a further discussion of the percentile values used to
projected likely production from each group of companies see 80 FR
77499.
    \49\ ``Assessment of the Accuracy of Cellulosic Biofuel
Production Projections in 2015 and 2016'', memorandum from Dallas
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.

                          Table III.D-4--Projected Volume of Cellulosic Biofuel in 2017
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                     range \a\     the range \a\    Percentile      volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers                 0              33            25th               8
 without Consistent Commercial Scale Production.
Liquid Cellulosic Biofuel Producer; Producers                  4               7            50th               5
 with Consistent Commercial Scale Production....
CNG/LNG Producers; New Facilities...............               0             178            50th              89
CNG/LNG Producers; Consistent Production........             174             221            75th             209
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A             311
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.

    EPA received comments requesting that we assess each potential
cellulosic biofuel production facility individually, in a way that
reflects the circumstances of each facility, rather than grouping
facilities together. We continue to believe that grouping the potential
cellulosic biofuel producers using the criteria of whether or not they
have achieved consistent commercial-scale production is appropriate for
the purposes of projecting a likely production volume. While each of
these groupings contains a diverse set of companies with their own
production technologies and challenges, we believe there is sufficient
commonality in the challenges related to the funding, construction,
commissioning, and start-up of commercial-scale cellulosic biofuel
facilities to justify aggregating these company projections into a
single group for the purposes of projecting the most likely production
volume of cellulosic biofuel. The challenges new production facilities
face are also significantly different than those of facilities ramping
up production volumes to the facility capacity and maintaining
consistent production. Finally, we believe that the level of
uncertainty associated with production volumes from any individual
facility is sufficiently high that assessing facilities individually,
rather grouping them together as done in this final rule, would not
necessarily result in more accurate volume projections.
    Several commenters claimed that EPA had underestimated the
potential production of cellulosic RINs from cellulosic CNG/LNG in
2017. Some commenters noted the large quantity of biogas that is
currently produced at landfills, or the development of new digesters
designed to produce CNG/LNG from biogas to support their claims. Others
stated that because biogas collection from landfills or production in
digesters was an established technology EPA should not discount
projections from these producers, but rather should assume these
volumes can be produced. While we acknowledge that these factors reduce
the uncertainty related to cellulosic biofuel production for CNG/LNG
derived from biogas, they do not eliminate the uncertainties associated
with these fuels. RINs can only be generated for CNG/LNG derived from
biogas if the RIN generator can verify (in accordance with the
regulations) that an equivalent volume of CNG/LNG was used as
transportation fuel. The limited demand for CNG/LNG as transportation
fuel is a significant source of uncertainty related to the generation
of cellulosic RINs for CNG/LNG for biogas. We believe that the
percentile values used in the proposed rule to project cellulosic RIN
generation for CNG/LNG from biogas (75th percentile for facilities that
have previously generated RINs and 50th percentile for new facilities)
is appropriate, and that this is supported by the RIN generation data
for cellulosic RINs from CNG/LNG in 2015 and 2016.\50\ We also note
that in comments on the proposed rule a group of organizations
representing CNG/LNG producers supported this methodology as doing a
``reasonable job at projecting production with a neutral aim at
accuracy.'' \51\
---------------------------------------------------------------------------

    \50\ ``Assessment of the Accuracy of Cellulosic Biofuel
Production Projections in 2015 and 2016'', memorandum from Dallas
Burkholder to EPA Air Docket EPA-HQ-OAR-2016-0004.
    \51\ See comments from David Cox, General Counsel, Coalition for
Renewable Natural Gas et al. EPA-HQ-OAR-2016-0004-1732.
---------------------------------------------------------------------------

    EPA also received comments claiming that the proposed cellulosic
biofuel volumes were unreasonably high. These commenters generally
claimed that in light of the inability of cellulosic biofuel companies
to achieve their projected production volumes, start-up dates, and
ramp-up schedules in previous years EPA should instead rely solely on
historical production data to project volumes for future years. They
suggested that EPA should project future production volumes based on
available cellulosic RIN generation data

from previous months. EPA believes this would be inconsistent with our
charge to project available cellulosic biofuel volume by taking a
neutral aim at accuracy. Adopting such an approach would effectively
mean ignoring the potential for facilities that have not generated RINs
in the past to contribute volumes in the future. It would also ignore
the potential for facilities that have begun producing RINs to increase
their fuel production rates. This would be inconsistent with our
expectations for an industry that has shown substantial growth over the
last several years, and is anticipated to continue to grow in 2017.
Most importantly, the significant year-over-year increases in the
supply of cellulosic biofuel in recent years demonstrates that this
suggested method is inappropriately conservative.\52\ We recognize that
in the past we have both overestimated and underestimated cellulosic
RIN generation but we do not believe that our current methodology is
fundamentally biased to either an overestimate or an underestimate of
total cellulosic RIN production.
---------------------------------------------------------------------------

    \52\ Total RIN generation in July-September of 2014 (likely the
last 3 months for which EPA would have data available to use in a
rule establishing annual volume for 2015) was 11 million ethanol-
equivalent gallons, indicating an annual standard of 44 million
ethanol-equivalent gallons for 2015 if this was the only information
considered in establishing the standard. Actual cellulosic RIN
supply in 2015 (RINs generated less those retired for reasons other
than compliance) was 141 million ethanol-equivalent gallons.
Similarly, total RIN generation in July-September of 2015 was 39.2
million ethanol-equivalent gallons, indicating an annual standard of
157 million ethanol-equivalent gallons for 2016 if this was the only
information considered in establishing the standard. Actual
cellulosic RIN supply for 2016 (RINs generated less those retired
for reasons other than compliance) has already surpassed 127 million
RINs and in the first 9 months of the year and is expected to meet
the 2016 standard of 230 million ethanol-equivalent gallons.
---------------------------------------------------------------------------

    Some commenters suggested that after projecting the cellulosic
biofuel production volume for 2017, EPA should add to this number the
number of available carryover RIN generated in previous years available
for use in 2017. These commenters argued that these RINs should be
viewed as part of the available supply of cellulosic biofuel, and that
a failure to include these RINs in our projection of available volume
could have negative impacts on the price of cellulosic RINs and
ultimately the cellulosic biofuel industry. EPA does not believe it
would be appropriate to add an estimate of carryover RINs available for
use in 2017 to our projection of cellulosic biofuel production in 2017
for the purposes of establishing the 2017 cellulosic biofuel standard.
Because the compliance deadlines for 2015 and 2016 occur after the
finalization of this rule it is impossible to know precisely the number
of carryover RINs that will be available for use in 2017. While the
compliance data for 2014 indicate that there are likely to be
approximately 12 million cellulosic biofuel carryover RINs from that
year,\53\ and cellulosic RIN generation in 2015 exceeded the standard
by 17 million RINs,\54\ it is possible that cellulosic RIN generation
in 2016 may fall short of the standard, and that many of these RINs may
be used to off-set that shortfall. While it is uncertain to what extend
RINs representing past production could lawfully be included in the
projection of future cellulosic biofuel production required under
211(o)(7)(D), EPA has not seen any evidence that the existence of RINs
generated in previous years that may be used towards satisfying
cellulosic biofuel obligations in future years has had a negative
impact on cellulosic RIN prices.\55\ This suggests that any cellulosic
biofuel RINs in excess of the standard are being used by obligated
parties in much the same way as other types of carryover RINs; aiding
market liquidity and reducing the price volatility and potential
impacts of short-term supply disruptions. While we do not believe it
would be appropriate to add an estimate of available cellulosic
carryover RINs for use in 2017 to the projected production volume, EPA
remains committed to the success of the cellulosic biofuels industry
and will continue to carefully monitor the market for both cellulosic
biofuels and cellulosic biofuel RINs, and will re-evaluate this issue
in future years.