ethanol produced in the U.S. and the total production capacity of the
U.S. ethanol industry. If these infrastructure constraints are
addressed, domestic ethanol consumption and ultimately domestic ethanol
production could increase, and this could result in job creation, rural
economic development, higher corn prices for farmers, and a greater
supply of agricultural commodities. Alternatively, additional volumes
of conventional biodiesel and renewable diesel could be supplied in
2022, including renewable fuels that are grandfathered under 40 CFR
80.1403 and are thus not required to meet the minimum 20 percent GHG
reduction required for all qualifying renewable fuel. These fuels would
most likely be produced in foreign facilities, which may cause
additional environmental impacts and would not provide the same
benefits to domestic job creation and rural economic development, but
they could still provide energy security benefits.\85\
---------------------------------------------------------------------------

    \85\ Registered capacity to produce conventional biodiesel and
renewable diesel exists at grandfathered facilities. Because
grandfathered renewable fuels are not required to meet the GHG
reduction thresholds, the GHG impacts of these fuels are highly
uncertain.
---------------------------------------------------------------------------

    At the same time, this higher volume requirement means that
obligated parties will likely need to look to other sources of
renewable fuel beyond corn ethanol to meet their compliance obligations
for 2022. While we are proposing the non-cellulosic portion of the
advanced biofuel standard at the full implied statutory volume of 5
billion gallons, our assessment of potential supply indicates that some
additional volume will likely be used in 2022. This means that if, as
expected, the market falls short of the implied volume of conventional
renewable fuel in 2022, as has happened in several years in the past,
excess volumes of advanced biofuel beyond what is needed to meet the
advanced biofuel volume could be available to fulfill some portion of
the shortfall. Finally, as discussed for in the context of the proposed
volume requirements for 2020 and 2021, there may also be implications
of the proposed 2022 volume requirements on the carryover RIN bank.
While we are projecting that sufficient renewable diesel, both advanced
and conventional, will be available to meet the proposed 2022 volume
requirements, there is the potential that the market may fall short, in
which case the existence of sufficient carryover RINs in the carryover
RIN bank can still enable compliance. Specifically, obligated parties
may use carryover RINs to help them comply with the proposed 2022
standards. See Section IV.A for a more detailed discussion of carryover
RINs.
    We acknowledge that in lieu of maintaining the implied statutory
volumes of non-cellulosic advanced biofuel and conventional renewable
fuel and relying on higher volumes of advanced biofuel to fulfill an
expected shortfall in conventional biofuel, we could instead raise the
advanced biofuel requirement and lower the conventional biofuel volume.
However, we have chosen not to propose this. We expect that the impact
on GHG emissions of the decision not to propose a higher advanced
biofuel volume with a corresponding lower implied conventional biofuel
volume will be minimal, given that additional volumes of advanced
biofuels will likely be used to satisfy the conventional portion of the
total renewable fuel requirement. Moreover, we believe that providing
incentives for increased ethanol distribution and blending
infrastructure through the higher implied volumes of conventional
renewable fuel may result in the potential for greater renewable fuel
consumption in future years.
    We note that this approach of maintaining the statutory implied
conventional and non-cellulosic advanced biofuel volumes is inherently
consistent with the volumes Congress itself established in EISA. It is
also consistent with EPA's policy in prior years, during which we have
never established prospective volume requirements lower than the
implied statutory volume targets, with a single

exception.\86\ While we have discretion to deviate from this policy, we
continue to believe that maintaining the implied statutory volumes
strikes the proper balance based upon our consideration of the reset
factors.
---------------------------------------------------------------------------

    \86\ We prospectively established a volume for conventional
renewable fuel for 2016 (14.5 billion gallons) that was lower than
the statutory implied volume (15 billion gallons). In doing so, we
exercised our ``inadequate domestic supply'' waiver authority based
largely on the limited demand for ethanol in the United States. That
decision that was subsequently set aside by the U.S. Court of
Appeals for the District of Columbia Circuit in ACE, as exceeding
our waiver authority.
---------------------------------------------------------------------------

    We also acknowledge that we are already late in resetting the 2022
volumes. We nonetheless believe that this late exercise of our reset
authority is appropriate for similar reasons as for 2020 and for 2021.
Moreover, the proposed 2022 volumes are also independently justified
under our cellulosic waiver authority.
    The volumes of cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel we are proposing for 2022 are shown
in Table III.D-1. We request comment on these proposed volumes. (The
proposed BBD volume for 2022 is also included in Table III.D-1 for
context, although we discuss it in Section III.E)

              Table III.D-1--Proposed RFS Volumes for 2022
                             [Billion RINs]
------------------------------------------------------------------------
                                                             Proposed
                        Category                              volume
------------------------------------------------------------------------
Cellulosic Biofuel......................................            0.77
Biomass-Based Diesel....................................        \a\ 2.76
Advanced Biofuel........................................            5.77
Total Renewable Fuel....................................           20.77
------------------------------------------------------------------------
\a\ The BBD volume for 2022 is in physical gallons (rather than RINs).

    In particular, we request comment on our projection of cellulosic
biofuel for 2022. As discussed in greater detail in Chapter 4 of the
DRIA, our cellulosic biofuel projections for 2022 do not include any
volume of cellulosic ethanol produced from corn kernel fiber from
facilities that are not currently registered to generate cellulosic
RINs due to outstanding issues. If these technical and regulatory
issues are resolved, we project that as much as 210 million additional
gallons of cellulosic biofuel could be produced from corn kernel fiber
in 2022. Our projections also do not include any volumes that might
result from our proposed biointermediate regulations, as we believe the
impacts of that proposal will not occur until after 2022. We request
comment on whether we should project additional cellulosic biofuel
production from corn kernel fiber or biointermediates in 2022, and, if
so, the volume we should project.

E. Proposed Biomass-Based Diesel Volume for 2022

    As described above, we are proposing an increase of 500 million
gallons in the non-cellulosic advanced biofuel volume for 2022.
Consistent with this, we are also proposing to increase the BBD volume
requirement by the same energy-equivalent amount (330 million physical
gallons) to 2.76 billion gallons.
    As in recent years, we believe that excess volumes of BBD (above
2.76 billion gallons) will be used in 2022 to satisfy the advanced
standard. Historically, the BBD standard has not independently driven
the use of BBD in the market. This is due to the nested nature of the
standards and the competitiveness of BBD relative to other advanced
biofuels. Instead, the advanced biofuel standard, and occasionally the
total renewable fuel standard, have driven the use of BBD in the
market. We believe this trend will continue in 2022, and that the 2022
advanced standard, and potentially the total renewable fuel standard,
will drive the use of BBD in the market in 2022.
    At the same time, we think it is important to maintain space for
other advanced biofuels to participate in the RFS program. Although the
BBD industry has matured over the past decade, the production of other
advanced biofuels continues to be relatively low and uncertain.
Maintaining this space for other advanced biofuels can facilitate in
the long-term increased commercialization and use of other advanced
biofuels, which may have superior environmental benefits and lower
costs relative to BBD. Conversely, we do not think increasing the size
of this space is necessary for 2022 given that only small quantities of
these other advanced biofuels have been used in recent years relative
to the space we have already provided.
    The proposed BBD volume for 2022 is consistent with our policy in
previous annual rules, where we also set the BBD volume consistent with
the change, if any, in the advanced volume. In the 2019 final rule, we
set the 2020 BBD volume at 2.43 billion gallons. This was an increase
from the prior year's BBD volume by the same energy-equivalent amount
(330 million physical gallons) as the increase in the 2019 non-
cellulosic advanced biofuel volume (500 million ethanol-equivalent
gallons). By contrast, in the 2020 final rule, when the 2020 non-
cellulosic advanced biofuel volume did not change, we also maintained
the 2021 BBD volume at 2.43 billion gallons. In both rules, we
preserved a significant space for other advanced biofuels to compete,
approximately equal to 850 million RINs (approximately equal to 566
million physical gallons). In reality, only 334 million ethanol-
equivalent gallons of other advanced biofuel was consumed in 2020.
    We acknowledge that in proposing the 2022 BBD volume in this
action, we are proposing a late BBD volume. CAA section
211(o)(2)(B)(ii) provides that EPA shall determine the applicable
volume 14 months prior to the year for which the standard will apply.
That deadline has already passed. However, we do anticipate
establishing the 2022 BBD standard ahead of the 2022 compliance year.
The D.C. Circuit in ACE has affirmed EPA's ability to promulgate late
BBD standards as long as those standards are reasonable.\87\ In
evaluating the reasonableness of EPA's standards, the Court suggested
that EPA must ``consider[ ] various ways to minimize the hardship
caused to obligated parties.'' \88\ In this action, we are providing
obligated parties with notice of the potential 2022 BBD volume
requirement well in advance of the 2022 compliance deadline.
Additionally, we are proposing a volume requirement that is consistent
with our treatment of the BBD volume requirement in the past, i.e.,
increasing the BBD volume requirement in accordance with increases in
the implied statutory non-cellulosic advanced volume. Further, as in
this case of previous annual rules, we continue to believe that it will
be the advanced biofuel standard for 2022 that will drive the use of
BBD in the market, and thus, the BBD standard we propose to establish
is unlikely to result in additional burdens on obligated parties.
Finally, we solicit comment on whether we should instead maintain the
BBD standard for 2022 at 2.43 billion gallons. This would increase the
space allowed for other advanced biofuels, as we are proposing to
increase the advanced biofuel volume for 2022 by 500 million gallons
over the proposed 2021 volume.
---------------------------------------------------------------------------

    \87\ ACE at 721.
    \88\ Id. (quoting Monroe Energy, LLC v. EPA, 750 F.3d 909, 920
(D.C. Cir. 2014)).
---------------------------------------------------------------------------

F. Summary of the Proposed Volumes

    The proposed volumes for 2020, 2021, and 2022 are summarized in
Table III.F-1. We request comment on these volumes (excepting the 2020
and 2021 BBD volumes, which were set in the 2019 and 2020 final rules,
respectively), as well as any data or analysis that

would support alternative volumes for these years.

                          Table III.F-1--Proposed RFS Volumes for 2020, 2021, and 2022
                                                 [Billion RINs]
----------------------------------------------------------------------------------------------------------------
                            Category                                   2020            2021            2022
----------------------------------------------------------------------------------------------------------------
Cellulosic Biofuel..............................................            0.51            0.62            0.77
Biomass-Based Diesel \a\........................................        \b\ 2.43        \c\ 2.43            2.76
Advanced Biofuel................................................            4.63            5.20            5.77
Total Renewable Fuel............................................           17.13           18.52           20.77
----------------------------------------------------------------------------------------------------------------
\a\ The BBD volumes are in physical gallons (rather than RINs).
\b\ The BBD volume for 2020 was established in the 2019 final rule (83 FR 63704, December 11, 2018).
\c\ The BBD volume for 2021 was established in the 2020 final rule (85 FR 7016, February 6, 2020).

G. Impacts of the Proposed Volumes

    As explained in Chapter 2.2 of the DRIA, we have used a baseline of
the volumes actually supplied in 2020 to assess the impacts of this
proposed rule, and thus the proposed 2020 volumes have no costs or
benefits. We therefore focus on the projected impacts of the 2021 and
2022 volumes.\89\ We recognize that there are other possible baselines
that could be used as a point of comparison, and that the choice of
baseline significantly influences our impact analyses. A potential
alternative baseline that might be informative would be the volumes of
renewable fuels that would be used each year from 2020-2022 in the
absence of RFS obligations. While we have not used this alternative
baseline in this rule, Chapter 2.2 of the DRIA contains a brief
description of what such a baseline might look like. We request comment
on the volumes of renewable fuel and feedstock use that would occur in
these years in the absence of the RFS obligations.
---------------------------------------------------------------------------

    \89\ The values for both 2021 and 2022 are calculated relative
to the actual volumes of renewable fuel used in 2020. The 2022
values therefore reflect the incremental volumes for both 2021 and
2022.
---------------------------------------------------------------------------

    For two of the statutory factors (fuel costs and energy security
benefits) we were able to quantify and monetize the expected impacts of
this proposed rule.\90\ Information and specifics on how fuel costs are
calculated are presented in Chapter 9 of the DRIA, while energy
security benefits are discussed in Chapter 4 of the DRIA. A summary of
the fuel costs and energy security benefits are shown in Table III.G-1
and Table III.G-2. Other factors, such as job creation and the price
and supply of agricultural commodities, are quantified but have not
been monetized. Further information and the quantified impacts of this
proposed rule on these factors can be found in the DRIA. We were not
able to quantify many of the impacts of this rulemaking, including
impacts on many of the statutory factors such as the environmental
impacts and rural economic development.
---------------------------------------------------------------------------

    \90\ Due to the uncertainty related to the GHG emission impacts
of this proposed rule (discussed in further detail in Chapter 3.2 of
the RIA) we have not included a quantified projection of the GHG
emission impacts of this proposal. However, to provide perspective
regarding the scope of the potential benefits, Chapter 3.2.2 of the
RIA illustrates the potential GHG benefits associated with the
proposed volumes in this rule using the lifecycle GHG values
calculated in the 2010 RFS final rule and other prior actions.

                                Table III.G-1--Fuel Costs of the Proposed Volumes
                                  [2020 and nominal year dollars, millions] \a\
----------------------------------------------------------------------------------------------------------------
                                                                                Discounted
                              Year                                 Undiscounted  -------------------------------
                                                                                Rate: 7%        Rate: 3%
----------------------------------------------------------------------------------------------------------------
2021............................................................             278             278             278
2022
    Excluding Supplemental Volumes..............................           2,158           2,017           2,095
    Including Supplemental Volumes..............................           2,302           2,151           2,235
----------------------------------------------------------------------------------------------------------------
\a\ These costs represent the costs of producing and using biofuels relative to the petroleum fuels they
  displace. They do not include other factors, such as the potential impacts on soil and water quality or
  potential GHG reduction benefits.

                         Table III.G-2--Energy Security Benefits of the Proposed Volumes
                                            [2020 dollars, millions]
----------------------------------------------------------------------------------------------------------------
                                                                                Discounted
                              Year                                 Undiscounted  -------------------------------
                                                                                Rate: 7%        Rate: 3%
----------------------------------------------------------------------------------------------------------------
2021............................................................              64              64              64
2022
    Excluding Supplemental Volumes..............................             151             141             147
    Including Supplemental Volumes..............................             162             151             157
----------------------------------------------------------------------------------------------------------------

    Regardless of whether or not we were able to quantify or monetize
the impact of this proposed rule on each of the statutory factors,
consideration of these factors is still required by the statute. We
believe that the proposed standards

in this rulemaking are appropriate under our reset authority when we
balance all of the relevant factors described throughout this preamble
and the DRIA. We request comment generally on how costs and benefits
quantified in this proposed rule are calculated and accounted for, as
well as methods to quantify and monetize additional statutory factors.

IV. Interactions Between the RFS Annual Volumes

    In resetting the volumes, EPA must review the implementation of the
program. In conducting this review, we have assessed the carryover RIN
bank \91\ and carryforward deficits, which are two important compliance
mechanisms. Specifically, the RFS regulations contain provisions that
allow an obligated party to satisfy their RFS obligations for a given
year by using up to 20 percent of RINs generated in the previous
year.\92\ Similarly, the RFS regulations also allow an obligated party
to carry forward a compliance deficit from one year to the next,
provided the party meets their full RFS obligations in the following
year.\93\ These provisions operate such that any excess RINs generated
in one year, or any RIN deficits, can impact the market for RINs and
renewable fuels in the next year. As such, compliance with the RFS
standards for one year is inherently intertwined with compliance for
the prior year. This section discusses the projected volume of
carryover RINs (net of carryforward deficits) that will be available
for use towards compliance with the 2020, 2021, and 2022 RFS
obligations. We also evaluate whether we should intentionally set the
2020, 2021, and 2022 volumes at levels that would intentionally reduce
the size of the carryover RIN bank, and we propose that this would not
be appropriate.
---------------------------------------------------------------------------

    \91\ CAA section 211(o)(5) requires that EPA establish a credit
program as part of its RFS regulations, and that the credits be
valid for obligated parties to show compliance for 12 months as of
the date of generation. EPA implemented this requirement through the
use of RINs, which are generated for the production of qualifying
renewable fuels. Obligated parties can comply by blending renewable
fuels themselves, or by purchasing the RINs that represent the
renewable fuels from other parties that perform the blending. There
are different ``D'' codes representing the different RFS standards
that the various renewable fuels can be used to comply with. (e.g.,
D3 represents cellulosic biofuel that can be used to comply with the
cellulosic biofuel standard.) RINs 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 our regulations limit the use of these carryover RINs to 20
percent 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 newer vintage RINs that are then held for use in the
next year. For example, vintage 2020 carryover RINs must be used for
compliance in 2021, or they will expire. However, vintage 2021 RINs
can then be ``banked'' for use in 2022.
    \92\ 40 CFR 80.1427(a)(5).
    \93\ 40 CFR 80.1427(b).
---------------------------------------------------------------------------

    In addition, in reviewing the implementation of the program, we
recognize the difference between the ability of retroactive versus
prospective volume requirements to affect renewable fuel use. As we
explained in Section II, we anticipate that the 2020 and 2021 standards
will be largely retrospective, while the 2022 standards will be
prospective. In this section, we explain that we do not expect the
retroactive 2020 and 2021 standards to significantly affect renewable
fuel use in 2020 and 2021, respectively, but we do expect the
prospective 2022 standards to significantly affect renewable fuel use
in 2022. Given this dynamic, we generally believe that higher renewable
fuel volumes should occur in 2022 as opposed to 2020 or 2021.\94\
---------------------------------------------------------------------------

    \94\ We further discuss our review of the implementation of the
program throughout the preamble and DRIA, especially in Chapter 1 of
the DRIA.
---------------------------------------------------------------------------

A. Treatment of Carryover RINs

    Consistent with our approach in recent annual rules, we have also
considered the availability and role of carryover RINs in setting the
volume requirements for 2020, 2021, and 2022. In general, we have
authority to consider the size of the carryover RIN bank in deciding
whether and to what extent to exercise any of our discretionary waiver
authorities.\95\ EPA's approach to the consideration of carryover RINs
in exercising our cellulosic waiver authority was affirmed in Monroe
Energy and ACE.\96\
---------------------------------------------------------------------------

    \95\ These discretionary waiver authorities include the reset
and set authorities, CAA section 211(o)(7)(F) and 211(o)(2)(B)(ii)
(both of which allow EPA to establish RFS volumes based upon a
``review of the implementation of the program''), discretionary
portion of the cellulosic waiver authority, CAA section
211(o)(7)(D)(i) (``the Administrator may also reduce the applicable
volume of renewable fuel and advanced biofuels requirement''), the
general waiver authority, CAA section 211(o)(7)(A) (``The
Administrator . . . may waive the requirements''), and the BBD
waiver authority with regard to the extent of the reduction in the
BBD volume, CAA section 211(o)(7)(E)(ii) (``the Administrator . . .
shall issue an order to reduce . . . the quantity of biomass-based
diesel . . . by an appropriate quantity'').
    \96\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014); ACE,
864 F.3d at 713.
---------------------------------------------------------------------------

    As noted in past RFS annual rules, carryover RINs are a
foundational element of the design and implementation of the RFS
program.\97\ A bank of carryover RINs is extremely important in
providing a liquid and well-functioning RIN market upon which success
of the entire program depends, and in providing obligated parties
compliance flexibility in the face of substantial uncertainties in the
transportation fuel marketplace.\98\ Carryover RINs enable parties
``long'' on RINs to trade them to those ``short'' on RINs instead of
forcing all obligated parties to comply through physical blending.
Carryover RINs also provide flexibility in the face of a variety of
unforeseeable circumstances that could limit the availability of RINs
and reduce spikes in compliance costs, including weather-related damage
to renewable fuel feedstocks and other circumstances potentially
affecting the production and distribution of renewable fuel.
---------------------------------------------------------------------------

    \97\ See, e.g., 72 FR 23904 (May 1, 2007).
    \98\ See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55
(December 12, 2016), 82 FR 58493-95 (December 12, 2017), 83 FR
63708-10 (December 11, 2018), 85 FR 7016 (February 6, 2020).
---------------------------------------------------------------------------

    Just as the economy as a whole is able to function efficiently when
individuals and businesses prudently plan for unforeseen events by
maintaining inventories and reserve money accounts, we believe that the
RFS program is able to function 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 too few 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 result in deficits and/or
noncompliance by parties without RIN reserves. Because carryover RINs
are individually and unequally held by market participants, a small RIN
bank may negatively impact the RIN market, even where the market
overall could satisfy the standards. Consequently, were market
disruptions to occur with an insufficient carryover RIN bank, it could
force the need for a new waiver of the standards, undermining the
market certainty so critical to the RFS program. For all of these
reasons, the collective carryover RIN bank provides a necessary
programmatic buffer that both facilitates individual compliance,
provides for smooth overall functioning of the program to the benefit
of all market

participants, and is consistent with the statutory provision allowing
for the generation and use of credits. We anticipate that the carryover
RIN bank will serve this very purpose for compliance with the 2019
standards, when actual biofuel use in that year is expected to have
fallen short of the RFS standards.\99\
---------------------------------------------------------------------------

    \99\ EPA extended the 2019 compliance deadline for small
refineries to November 30, 2021. See 86 FR 17073 (April 1, 2021). We
have proposed to further extend that deadline in a separate action
(86 FR 67419, November 26, 2021).
---------------------------------------------------------------------------

    EPA can also rely on the availability of carryover RINs to support
ambitious volumes that may not be able to be met with renewable fuel
production and use in that year, 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.\100\
---------------------------------------------------------------------------

    \100\ 79 FR 49793-95 (August 15, 2013).
---------------------------------------------------------------------------

1. Carryover RIN Bank Size
    We project a significant drawdown in the number of carryover RINs
as a result of compliance with the 2019 standards. After compliance
with the 2019 RFS standards, we project that there will be
approximately 1.85 billion total carryover RINs available, a decrease
of 1.62 billion RINs from the previous estimate of 3.48 billion total
carryover RINs in the 2020 final rule.\101\ Since we are proposing to
set both the 2020 and 2021 volume requirements at the actual volume of
renewable fuel produced in those years, we project that 1.85 billion
total carryover RINs would be available for compliance with the 2022
standards as well.
---------------------------------------------------------------------------

    \101\ The calculations performed to estimate the size of the
carryover RIN bank can be found in the memorandum, ``Carryover RIN
Bank Calculations for 2020-2022 Proposed Rule,'' available in the
docket for this action.
---------------------------------------------------------------------------

    However, there remains considerable uncertainty surrounding the
ultimate number of carryover RINs that will be available for compliance
with the 2020, 2021, and 2022 standards for several reasons, including
the possibility of SREs and the fact that compliance with the 2019
standards has not yet occurred for all parties. Furthermore, as
discussed in Section V, our proposed response to the remand of the 2016
rulemaking may reduce the total number of carryover RINs by up to 250
million RINs in 2022 (and up to another 250 million RINs in 2023).
Finally, we note that there have been enforcement actions in past years
that have resulted in the retirement of carryover RINs to make up for
the generation and use of invalid RINs and/or the failure to retire
RINs for exported renewable fuel. Future enforcement actions could have
similar results and require that obligated parties or renewable fuel
exporters settle past enforcement-related obligations in addition to
complying with the annual standards. In light of these uncertainties,
the net result could be a total carryover RIN bank larger or smaller
than 1.85 billion RINs.
2. EPA's Decision Regarding the Treatment of Carryover RINs
    We evaluated the volume of carryover RINs projected to be available
and considered whether we should intentionally draw down the carryover
RIN bank in setting the 2020, 2021, and 2022 volume requirements. We do
not believe that would be appropriate. As described above, the current
bank of carryover RINs provides an important and necessary programmatic
and cost spike buffer that will both facilitate individual compliance
and provide for smooth overall functioning of the program. We believe
that a balanced consideration of the possible role of carryover RINs in
achieving the statutory volumes for cellulosic biofuel, advanced
biofuel, and total renewable fuel, versus maintaining an adequate bank
of carryover RINs for important programmatic functions, is appropriate
when EPA exercises its discretion under its statutory authorities.
Furthermore, as noted earlier, after compliance with the 2019
standards, we project that there will be a significant drawdown in the
number of carryover RINs. The advanced biofuel and total renewable fuel
standards we are proposing for 2022, moreover, are significantly higher
than the volume of renewable fuel used in previous years, as well as
the volume of renewable fuel expected to be used in 2020 and 2021. As
we explain further in Sections III and V, it may be challenging for the
market to satisfy the 2022 annual standards and the 2022 supplemental
standard entirely with renewable fuel use in 2022. Given this, the
projected shortfall in RIN generation in 2019, and the uneven holding
of carryover RINs among obligated parties, we expect that further
increasing the standards with the intent to draw down the carryover RIN
bank would lead to significant deficit carryovers and potential non-
compliance by some obligated parties that own relatively few or no
carryover RINs. We do not believe this is an appropriate outcome.
Therefore, consistent with the approach we have taken in previous
annual rules, we are not proposing to set the 2020, 2021, and 2022
volume requirements at levels that would intentionally draw down in the
bank of carryover RINs.
    As noted above, it is possible the size of the RIN bank may be
different than our projection. Regardless, however, we do not believe
an intentional drawdown of the carryover RIN bank would be appropriate
for many of the reasons stated above. The carryover RIN bank would
continue to be an important compliance flexibility for obligated
parties. Moreover, the standards we are proposing for 2022, along with
the 2022 supplemental standard, are forward leaning and if the
projected growth in renewable fuel volumes do not materialize would
lead to a drawdown of the carryover RIN bank.
3. Consideration of Cellulosic Carryover RINs
    In comments on the 2020 proposed rule and supplemental proposal,
several parties suggested that EPA prospectively establish the
cellulosic biofuel volume at the volume projected to be supplied plus
the volume of available carryover RINs from the prior year.\102\ That
is, these parties argued that EPA should set the cellulosic biofuel
volume at a level that would intentionally eliminate the entire
cellulosic carryover RIN bank. Because EPA established volumes solely
under the cellulosic waiver authority that year, those parties focused
their arguments on a legal interpretation of that provision, asserting
that it required or allowed EPA to include, in its projection of the
available volume, cellulosic carryover RINs that are projected to be
available for compliance.
---------------------------------------------------------------------------

    \102\ For example, see comments from the Coalition for Renewable
Natural Gas (EPA-HQ-OAR-2019-0136-0723) and AJW and Iogen (EPA-HQ-
OAR-2019-0136-0467).
---------------------------------------------------------------------------

    Section 211(o)(7)(D)(i) of the CAA requires EPA to set the
applicable volume of cellulosic biofuel at the ``projected volume
available during [the] calendar year.'' EPA has consistently
interpreted the statutory phrase ``projected volume available'' to
refer to the volume of qualifying cellulosic biofuel projected to be
produced or imported and available for use as transportation fuel in
the U.S. in that year. This is equivalent to the projected number of
cellulosic RINs generated in the year that are available for obligated
parties to use for compliance. Since we first exercised the cellulosic
waiver authority in the 2010 annual rule, we have never included
carryover cellulosic RINs in this projection.
    Parties that requested that EPA include carryover RINs in our
projection of the available volume of cellulosic biofuel generally
argued that despite the

continued rapid growth in cellulosic biofuel volumes, excess carryover
cellulosic RINs in 2018 and 2019 resulted in low cellulosic RIN prices,
which in turn may have negatively affected investment in cellulosic
biofuel production. They further claimed that by including carryover
RINs in the projected volume available, EPA would ensure that there was
a strong market for cellulosic biofuel and cellulosic biofuel RINs in
years when cellulosic biofuel production exceeded the number of
cellulosic biofuel RINs needed by obligated parties for compliance.
Commenters stated that this increased market certainty would result in
increased investment in cellulosic biofuel production and ultimately
increased cellulosic biofuel production. One commenter suggested that
in conjunction with adding projected carryover RINs to the projected
production volume of cellulosic biofuel when establishing the
cellulosic biofuel volume, EPA could also subtract any projected
deficits to account for years when cellulosic biofuel production falls
short of EPA's projected production volume.\103\
---------------------------------------------------------------------------

    \103\ See comment from AJW and Iogen (Docket Item No. EPA-HQ-
OAR-2019-0136-0467).
---------------------------------------------------------------------------

    In our response to these comments in the 2020 final rule,\104\ we
disagreed with parties who claimed that the statutory language of the
cellulosic waiver authority requires EPA to include carryover RINs in
establishing the required volume of cellulosic biofuel. The statutory
term ``projected volume available'' does not directly address the topic
of carryover RINs. Indeed, the cellulosic waiver provision, CAA section
211(o)(7)(D)(i), does not mention carryover RINs at all, or otherwise
refer to the statutory basis for such RINs, CAA section 211(o)(5).
Thus, we believe there are multiple reasonable interpretations of this
ambiguous statutory provision, including both the interpretation put
forward by the stakeholders as well as the interpretation adopted by
EPA in previous years.
---------------------------------------------------------------------------

    \104\ See Section 3.3 of the Response to Comments document for
the 2020 final rule (EPA-420-R-19-018, December 2019).
---------------------------------------------------------------------------

    We further stated that the interpretation EPA adopted in previous
years struck an appropriate balance between the interests of the
cellulosic producers, those obligated to purchase and use cellulosic
biofuels and cellulosic biofuel RINs, and consumers; and best ensured
the ongoing smooth implementation of the RFS program.\105\ Finally,
since the 2020 proposed rule did not raise the possibility of including
cellulosic carryover RINs in the projected volume available, we did not
think it would be appropriate to make such a change without first
giving all stakeholders an opportunity to comment.
---------------------------------------------------------------------------

    \105\ See Chevron USA, Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984).
---------------------------------------------------------------------------

    We are now providing stakeholders notice and opportunity for
comment in this proposal on whether to include cellulosic carryover
RINs as part of the projected volume available. With respect to the
volumes in this rule, were we to include cellulosic carryover RINs, it
would increase the 2020 cellulosic biofuel volume by 40 million gallons
over the currently proposed volume.\106\ It would not affect the 2021
and 2022 cellulosic biofuel volumes, since we are establishing the
cellulosic biofuel volumes based on actual supply for 2020 and 2021,
and therefore at this time we do not project that excess RINs will be
generated for carryover into 2021 or 2022.\107\
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    \106\ The calculations performed to estimate the number of
cellulosic carryover RINs can be found in the memorandum,
``Carryover RIN Bank Calculations for 2020-2022 Proposed Rule,''
available in the docket for this action.
    \107\ We acknowledge of course that our projections of the
available volume of cellulosic biofuel are inherently uncertain, and
that there may be more or fewer cellulosic RINs generated in 2020
and 2021 than what we project. However, at the time of this rule, we
have done our best to take neutral aim at accuracy of the projected
volume available.
---------------------------------------------------------------------------

    While we acknowledge that some aspects of the cellulosic category
(such as the cellulosic waiver authority and the cellulosic waiver
credits) \108\ are unique, at this time we believe the benefits of
carryover RINs, discussed in Section IV.A, also apply to cellulosic
carryover RINs. Adding carryover RINs to the volume projected to be
produced would effectively guarantee that the demand for these RINs was
always equal to the overall market supply and would likely result in
cellulosic RIN prices at or near the price of an advanced biofuel RIN
plus the price of a cellulosic waiver credit in future years. While
raising prices would increase revenue for cellulosic biofuel producers,
it may also increase the price of cellulosic biofuel. These higher
prices would be passed on to consumers, who ultimately bear these
costs.
---------------------------------------------------------------------------

    \108\ Cellulosic waiver credits may be purchased from EPA by
obligated parties in years when EPA uses the cellulosic waiver
authority to reduce the statutory volumes of cellulosic biofuel.
Regulations related to cellulosic waiver credits can be found in 40
CFR 80.1456.
---------------------------------------------------------------------------

    We also note that the legal arguments made by the previous
commenters, while still relevant, are less so in the context of this
rulemaking. The prior comments focused on an interpretation of the
cellulosic waiver authority. In this rulemaking, however, we are
concurrently exercising both our cellulosic waiver and reset
authorities. Under the reset authority, we have broad discretion to
establish volumes, including cellulosic biofuel volumes lower than the
volume required under the cellulosic waiver. Thus, regardless of
whether the prior commenters are correct about EPA's legal authority
under the cellulosic waiver, we have legal authority under reset to
establish volumes at actual supply, excluding any carryover RINs. At
the same time, however, the cellulosic waiver authority establishes the
ceiling for cellulosic biofuel volumes. If we agree with the commenters
that the cellulosic waiver mandates or allows volumes at supply plus
carryover RINs, then we may establish cellulosic biofuel volumes up to
that level. Thus, although the legal framework has changed somewhat
since the comments were submitted, their arguments remain relevant, and
EPA is soliciting comment on this issue.

B. Ability for the RFS Volumes To Impact Renewable Fuel Supply

    In developing the proposed volume requirements, we considered the
timing of this action and its ability to impact renewable fuel
production, imports, and use. Since only prospective requirements have
a significant chance of affecting actual renewable fuel use, we are
proposing to require higher volumes for 2022. Imposing higher volumes
for 2020 or 2021, in contrast, would have no effect on demand for fuels
in those years. By contrast, retroactively requiring volumes higher
than what the market has actually supplied could create market
disruption and thus interfere with program implementation without
advancing program goals. Setting 2020 and 2021 volumes at those
actually supplied reflects the fact that we are acting retroactively,
while in requiring higher volumes for 2022 we are setting prospective
obligations.
    With respect to 2020, that year has already passed, so our
retroactive revision of the RFS volumes cannot affect the production or
use of renewable fuels in 2020 or consequently the statutory reset
factors (e.g., the impacts of the use of renewable fuels on cost, the
environment, and so forth). Any actual market effects will be felt
after the rule is promulgated and mediated through the carryover RIN
bank.
    With respect to 2021, there will not be sufficient time for the
market to respond to the volumes that we finalize for 2021. The market
may also respond in a more limited fashion to this proposed rule.

Regardless, any impact on the production, import, and use of renewable
fuel in 2021 is likely to be limited, and therefore the ability for
this rule to affect the statutory factors is likewise limited.
    The situation for 2022, however, is different. The RFS standards
for 2022 will be in place throughout 2022 and should be able to affect
market decisions for renewable fuel production, import, and use in
2022, albeit still within the bounds of the lead time available.
Similarly, the ability for this action to affect the statutory factors
in 2022 will be significantly greater than in 2021 or 2020. Thus, we
believe that increased renewable fuel requirements should be imposed in
2022, when this rule has a much greater chance of actually increasing
renewable fuel use and production, as opposed to 2020 or 2021.
    Conversely, there are also disadvantages to requiring higher
volumes for 2020 and 2021 retroactively, or similarly, to maintaining
the 2020 standards in the original final rule. Notably, such higher
volumes would cause some combination of a drawdown of the carryover RIN
bank, carryforward deficits, or non-compliance by obligated parties.
While we have previously found an intentional drawdown of the carryover
RIN bank to be appropriate in one case, we do not think that this is
appropriate in this situation for reasons we describe below. We also do
not think that intentionally relying on or effectively compelling
carryforward deficits or intentionally causing non-compliance is
generally appropriate.
    Given the drastic shortfall in renewable fuel use relative to what
we projected in the 2020 final rule as discussed in Section III.B,
compliance with the original 2020 standards would likely result in a
significant drawdown in the number of carryover RINs available for use
in 2021 and 2022. As discussed in Section IV.A.1, we currently project
that as a result of compliance with the 2019 RFS standards, the number
of carryover RINs available for compliance with the 2020 standards will
be approximately 1.85 billion RINs, a considerable drop from the 3.48
billion total carryover RINs we projected in the 2020 final rule. We
expect that as a result of revising the 2020 standards to equal the
actual volume of renewable fuels consumed, the number of carryover RINs
available for compliance with the 2021 and 2022 standards will remain
at 1.85 billion RINs. Were we not to modify the 2020 standards, we
anticipate that the total number of carryover RINs available for
compliance with the 2021 and 2022 standards would decrease dramatically
to 630 million RINs, or less than 4 percent of the proposed 2021 and
2022 total renewable fuel standards.\109\ This would be the lowest
quantity of carryover RINs available since EPA began projecting the
size of the carryover RIN bank in 2013, and the relatively small
carryover RIN bank could increase the risk of disruptions in the RIN
trading market. A number of obligated parties would also likely have to
carry deficits into 2022, fail to comply with the 2021 total renewable
fuel standard if they had already carried a deficit forward from 2020,
or similarly fail to comply with the 2022 total renewable fuel
standard.\110\
---------------------------------------------------------------------------

    \109\ The calculations performed to project the number of
carryover RINs that would be available if we did not revise the 2020
standards can be found in the memorandum, ``Carryover RIN Bank
Calculations for 2020-2022 Proposed Rule,'' available in the docket
for this action.
    \110\ The regulations at 40 CFR 80.1427(b) allows obligated
parties to only carry forward a deficit if they did not carry
forward a deficit from the previous calendar year; thus, an
obligated party that carries forward a deficit from 2020 into 2021
may not carry forward a deficit from 2021 into 2022.
---------------------------------------------------------------------------

    If these compliance difficulties occur, we believe that the harms
would not just be felt by directly affected obligated parties but also
extend to the entire fuels market and the RFS program. Notably, if
insufficient RINs are available to obligated parties to meet their
compliance obligations, that could negatively impact the regulatory and
market certainty critical to the investments needed to increase
renewable fuel volumes in 2022 and into the future. This could in turn
diminish the expected future rate of production of renewable fuels,
impair the development of infrastructure to distribute and use
increased volumes of such fuels, and reduce the expected energy
security, job creation, and rural economic benefits associated with
higher renewable fuel use and production. Reduced business certainty
could also deter the commercialization of novel advanced biofuels,
which have the potential for lower costs and superior environmental
benefits.
    Retroactively reducing the 2020 volumes mitigates these concerns.
Specifically, our proposal to reduce the 2020 volumes to those actually
supplied preserves an estimated carryover RIN bank of 1.85 billion RINs
for use in 2021 and establishing the 2021 volumes at those actually
supplied preserves the same estimated carryover RIN bank for compliance
with the relatively aggressive 2022 standards.
    We note lesser reductions to 2020 or 2021 would give rise to the
same concerns. The magnitude of those concerns would depend on how high
the resulting volumes are. We think that some of these concerns,
moreover, would remain even were we to make offsetting reductions to
the 2022 volumes (e.g., were we to increase the proposed 2021 volumes
by 500 million gallons and decrease the proposed 2022 volumes by the
same amount). In that case, even though the aggregate incentive for
renewable fuels across all three years might remain the same,
retroactively requiring compliance for past years would be more likely
to lead more RIN bank drawdowns, carryforward deficits, and non-
compliance, and less likely to lead to actual increases in renewable
fuel use and production.
    In sum, in proposing the 2020, 2021, and 2022 volumes, we recognize
the interconnected nature of the RFS annual volume requirements. We
believe that the volume should reflect both a desire to provide the
necessary incentives for significant growth in renewable fuel
production and use and our obligation to consider and mitigate the
burdens on obligated parties associated with a retroactive rulemaking.
In general, this indicates that required growth in renewable fuel use
should occur prospectively in 2022, as opposed to retroactively in 2020
and 2021. We request comment on how EPA should consider the carryover
RIN bank in establishing RFS volume obligations.

V. Response to ACE Remand

    In addition to proposing the applicable volume requirements and
percentage standards for 2020, 2021, and 2022, in this rulemaking we
are also proposing to address the remand of the 2014-2016 annual rule
\111\ by the U.S. Court of Appeals for the D.C. Circuit in ACE.\112\ In
the 2020 proposal, we proposed to address the D.C. Circuit's remand by
retaining the original 2016 total renewable fuel standard.\113\ We
received many comments both in support of and against this
approach.\114\ In the 2020 final rule, we deferred taking action in
response to the remand.\115\ We now believe that we should address the
remand through supplemental renewable fuel volume requirements totaling
500 million gallons spread over two years. We are proposing a
supplemental renewable fuel obligation of 250 million gallons to be
applied in 2022 coupled with the intention of proposing an additional
250

million gallon supplemental standard in a subsequent action for 2023.
We propose to establish the supplemental total renewable fuel volume
requirement and the corresponding percentage standard for 2022 in this
rulemaking. This section describes the relevant aspects of the 2014-
2016 annual rule, the court's decision, EPA's responsibilities
following the court's remand, and our proposed approach.
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    \111\ 80 FR 77420 (December 14, 2015).
    \112\ 864 F.3d 691 (2017).
    \113\ 84 FR 36762 (July 29, 2019).
    \114\ See Docket No. EPA-HQ-OAR-2019-0136.
    \115\ 85 FR 7016 (February 6, 2020).
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A. Reevaluating the 2014-2016 Annual Rule

1. The 2016 Renewable Fuel Standard
    On December 14, 2015, we promulgated a rulemaking establishing the
volume requirements and percentage standards for 2014, 2015, and
2016.\116\ In establishing those standards for 2016, we utilized the
cellulosic waiver authority under CAA section 211(o)(7)(D) to lower the
cellulosic biofuel, advanced biofuel, and total renewable fuel volume
requirements, and the general waiver authority under CAA section
211(o)(7)(A) to lower total renewable fuel by an additional
increment.\117\
---------------------------------------------------------------------------

    \116\ 80 FR 77420. The rule also established BBD volumes for
2017.
    \117\ 80 FR 77439.
---------------------------------------------------------------------------

    As an initial step, under CAA section 211(o)(7)(D), we lowered the
cellulosic biofuel volume requirement by 4.02 billion gallons, to the
projected production of cellulosic biofuel for 2016, as required by the
statute.\118\ Using that same authority, we then elected to reduce the
advanced biofuel and total renewable fuel volumes. We did not reduce
the advanced biofuel volume requirement by the full 4.02 billion
gallons that was permitted under this authority, but rather by a lesser
3.64 billion gallons that resulted in an advanced biofuel volume
requirement that was ``reasonably attainable.'' \119\ This allowed some
advanced biofuel to ``backfill'' for the shortfall in cellulosic
biofuel. We then reduced the total renewable fuel volume by an amount
equivalent to the reduction in advanced biofuel in accordance with our
longstanding interpretation that when making reductions to advanced
biofuel and total renewable fuel under CAA section 211(o)(7)(D), the
best reading of the statute is to reduce them both by the same
amount.\120\
---------------------------------------------------------------------------

    \118\ See 80 FR 77499.
    \119\ 80 FR 77427.
    \120\ Id.
---------------------------------------------------------------------------

    As a second step, under CAA section 211(o)(7)(A), under a finding
of inadequate domestic supply, we further lowered the total renewable
fuel standard by 500 million gallons for 2016.\121\ In assessing
``inadequate domestic supply,'' we considered the availability of
renewable fuel to consumers. Based on such demand-side considerations,
we made the additional 500 million gallon reduction in the total
renewable fuel requirement.
---------------------------------------------------------------------------

    \121\ 80 FR 77444.
---------------------------------------------------------------------------

    The 2016 total renewable fuel standard was challenged in court. In
an opinion issued on July 28, 2017, the D.C. Circuit vacated our use of
the general waiver authority under a finding of inadequate domestic
supply to reduce the 2016 total renewable fuel standard, the second
step of setting the 2016 total renewable fuel standard.\122\ The court
in ACE held that we had improperly focused on supply of renewable fuel
to consumers, and that the statute instead requires a ``supply-side''
assessment of the volumes of renewable fuel that can be supplied to
refiners, blenders, and importers.\123\ Other components of our
interpretation of ``inadequate domestic supply'' were either upheld by
the court in ACE (e.g., EPA need not consider carryover RINs as a
``supply source of renewable fuel for purposes of determining the
supply of renewable fuel in a given year'') or were not challenged
(e.g., our consideration of biofuel imports as part of the domestic
supply). Our use of the cellulosic waiver authority to provide the
initial reduction in total renewable fuel was also upheld by the court.
In establishing volume requirements for subsequent years, EPA has
applied the court's holding and not proposed to reduce volumes under a
finding of inadequate domestic supply.\124\
---------------------------------------------------------------------------

    \122\ ACE, 864 F.3d 691.
    \123\ Id. at 696.
    \124\ We note that the precedential effect of the ACE decision
has governed subsequent RFS annual rules. Compare, e.g., 82 FR 34229
& n.82 (July 21, 2017) (2018 annual rule proposal, issued prior to
ACE) (soliciting comment on whether it would be appropriate to
exercise the inadequate domestic supply waiver authority based on
the maximum reasonably achievable volume'' of renewable fuel, which
incorporates demand-side considerations), with 82 FR 46177 (Oct. 4,
2017) (2018 annual rule availability of supplemental information and
request for comment, issued after ACE) (recognizing, under ACE, that
EPA may not consider demand-side constraints in determining
inadequate domestic supply).
---------------------------------------------------------------------------

2. Agency Responsibility
    The court in ACE upheld our volume requirements for advanced
biofuel, BBD, and cellulosic biofuel; there is, therefore, no need for
the agency to adjust those 2016 final volume requirements, or to take
further action with regard to these standards in light of the court's
decision. The court also upheld EPA's use of the cellulosic waiver
authority to reduce the 2016 total renewable fuel volume requirement.
The court only vacated our decision to further reduce that requirement
under the ``inadequate domestic supply'' waiver authority, remanding
this issue to the Agency for further consideration consistent with the
court's opinion.\125\ Our obligation is thus to reevaluate the 2016
total renewable fuel volume requirement in accordance with the court's
decision.
---------------------------------------------------------------------------

    \125\ Id. at 703.
---------------------------------------------------------------------------

B. Consideration of Approaches for Responding to the ACE Remand

    As discussed in the previous section, we waived 500 million gallons
of total renewable fuel volume associated with the 2016 volume
requirements. In 2017, after the compliance year had passed, and after
obligated parties had complied with those requirements, we received the
ACE court's decision rejecting our use of the general waiver authority
under a finding of inadequate domestic supply to reduce volumes as
being beyond our statutory authority, and remanded the rulemaking
action back to EPA. In this action, we propose to address the court's
remand through a supplemental standard of 250 million gallons of total
renewable fuel in 2022, with the intent of proposing an additional
supplemental volume of 250 million gallons of renewable fuel to be
required in 2023 in a subsequent action. As the court invalidated only
the 500 million gallon total renewable fuel reduction, we therefore
would limit our response to the remand to only the 2016 total renewable
fuel standard and the corresponding 500 million gallon reduction
stemming from our use of the general waiver authority. As the total
renewable fuel volume is the outermost standard in the nested renewable
fuel standards, this approach would not affect the other standards.
1. Proposed Response to the ACE Remand
    We are proposing to address the ACE decision by applying a
supplemental standard of 250 million gallons in 2022 with the intention
of proposing an additional 250-million-gallon supplemental standard in
a subsequent action for 2023. Under this approach, the original 2016
standard for total renewable fuel would remain unchanged and the
compliance demonstrations that obligated parties made for it would
likewise remain in place. A supplemental standard would thus avoid the
difficulties associated with reopening 2016 compliance, as discussed
below. This proposed supplemental standard would have the

same practical effect as increasing the 2022 total renewable fuel
volume requirement by 250 million gallons, as compliance would be
demonstrated using the same RINs as used for the 2022 standard. The
percentage standard for the supplemental standard would be calculated
the same way as the 2022 percentage standards (i.e., using the same
gasoline and diesel projections), such that the supplemental standard
would be additive to the 2022 total renewable fuel percentage standard.
The proposed approach would provide a meaningful remedy in response to
the court's vacatur and remand in ACE and would effectuate the
Congressionally determined renewable fuel volume for 2016, modified
only by the proper exercise of EPA's waiver authorities, as upheld by
the court in ACE. It is with emphasis on these considerations that we
are proposing a different approach from the one proposed in the 2020
proposal.\126\
---------------------------------------------------------------------------

    \126\ See FCC v. Fox, 556 U.S. 502 (2009), acknowledging an
agency's ability to change policy direction.
---------------------------------------------------------------------------

    We propose to treat such a supplemental standard as a supplement to
the 2022 standards, rather than as a supplement to standards for 2016,
which has passed. In order to comply with any supplemental standard,
obligated parties would need to retire available RINs; it is thus
logical to require the retirement of available RINs in the marketplace
at the time of compliance with this supplemental standard. As discussed
below, there are insufficient 2015 and 2016 RINs currently available to
meet a supplemental 2016 standard, and additional 2015 or 2016 RINs
cannot be generated. By applying the supplemental standard to 2022
instead of 2016, RINs generated in 2021 and 2022 could be used to
comply with the 2022 supplemental standard.
    In applying the supplemental standard to 2022, we would treat the
supplemental standards like a 2022 standard in all respects. That is,
producers and importers of gasoline and diesel that are subject to the
2022 standards would also be subject to the supplemental standard. The
applicable deadlines for attest engagements and compliance
demonstrations that apply to the 2022 standards would also apply to the
supplemental standard. The gasoline and diesel volumes used by
obligated parties to calculate their obligation would be their 2022
gasoline and diesel production or importation. Additionally, obligated
parties could use 2021 RINs for up to 20 percent of their 2022
supplemental standard.
    As described more fully in Section III, the proposed volume
requirements for 2022 are forward leaning, requiring a growth in
renewable fuel volumes that we believe is achievable. We also believe
that compliance with the 2022 supplemental standard in addition to the
proposed standards for 2022 is feasible. If it cannot be fully met
through the supply of additional renewable fuel volumes in 2022, it
could be met through a drawdown of the carryover RIN bank.\127\ After
compliance with the 2019 standards, the carryover RIN bank is expected
to consist of approximately 1.85 billion total carryover RINs for
compliance in 2022 as discussed in Section IV.A.\128\ We acknowledge
that the size of the carryover RIN bank may change by the time this
action is finalized. However, given the projected size of the carryover
RIN bank, we think it is very likely that more than 250 million total
carryover RINs will be available in 2022 for compliance with the
supplemental standard, enabling the market to meet the supplemental
standard entirely with carryover RINs, if necessary.
---------------------------------------------------------------------------

    \127\ See Section IV.A for a discussion of carryover RINs.
    \128\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2020-2022 Proposed Rule,''
available in the docket for this action.
---------------------------------------------------------------------------

    We believe that the potential drawdown of the carryover RIN bank by
250 million RINs is appropriate. As we stated in the 2020 final rule,
``[t]he current bank of carryover RINs provides an important and
necessary programmatic and cost spike buffer that will both facilitate
individual compliance and provide for smooth overall functioning of the
program.'' \129\ As discussed in Section IV.A, we continue to believe
that a significant carryover RIN bank is fundamental to the
functionality and success of the RFS program. Therefore, we are
reluctant to take potentially counterproductive actions which would
force any significant drawdown of its volume. However, we believe that
the important programmatic benefits of the carryover RIN bank would be
preserved even if the market were to satisfy the supplemental standard
purely by drawing down the carryover RIN bank. It is important to note
that we would only be reducing the carryover RIN bank by up to 250
million RINs per year due to the phased-in nature of our response.
---------------------------------------------------------------------------

    \129\ 85 FR 7020-22 (February 6, 2020).
---------------------------------------------------------------------------

    By phasing in the 500 million gallons of total renewable fuel
associated with the ACE remand through the implementation of two
supplemental standards over two compliance years we believe we can
maintain the functionality of the carryover RIN bank and lessen both
the disruption to the market and the burden on obligated parties.
Imposing two 250 million gallon standards in two compliance years, as
opposed to one 500 million gallon supplemental standard in a single
compliance year, provides additional notice for both obligated parties
and the renewable fuel industry about the additional volume
requirements and lessens the additional requirements for each
compliance year. This could increase the likelihood that the volumes
are met with additional renewable fuel use and, in turn, lessen the
likelihood that the carryover RIN bank be drawn down.
    In summary, we are proposing to implement a 250 million gallon
supplemental volume requirement in 2022 and intend to propose an
additional 250 million gallon supplemental volume requirement in 2023,
totaling 500 million gallons, that represent the reduction in the 2016
total renewable fuel volume improperly waived under the general waiver
authority. This approach would address our obligation to respond to the
ACE remand while accounting for the unique timing of imposing a 2016
requirement in 2022. Importantly, because there are insufficient 2015
and 2016 RINs to satisfy a supplemental standard, this approach would
allow obligated parties to comply with the 2022 supplemental standard
using 2021 and 2022 RINs. We seek comment on this approach of applying
a supplemental standard for 2022 associated with the ACE remand on top
of the proposed standards for 2022.
2. Reopening 2016 Compliance
    In the alternative, we considered an approach where EPA could have
obligated parties comply with a modified 2016 total renewable fuel
standard that requires an additional 500 million gallons of renewable
fuel relative to the 2016 standard promulgated in 2015. However, we
have determined that such an approach would be impractical if not
infeasible to implement. Under our current regulations, only 2015 and
2016 RINs can be used to demonstrate compliance with the 2016
standard.\130\ There are far fewer 2015 and 2016 RINs available today
(i.e., RINs that are valid but have not already been retired to comply
with the 2015, 2016, or 2017 standards) than would be needed to comply
with a supplemental standard commensurate

with our exercise of the general waiver authority for 2016 (i.e., 500
million gallons).\131\ Additionally, the few 2015 and 2016 RINs
available are unevenly held among obligated parties; because of the
small number of RINs, any parties that held excess 2015 and 2016 RINs
could attempt to sell them at a high price, creating dysfunction within
the RIN market. These high prices would create a burden on obligated
parties without providing any incentive for additional renewable fuel
use in 2016 since that year has already passed. Because this approach
would result in some parties being in noncompliance, we do not consider
this a viable option to respond to the court's remand.
---------------------------------------------------------------------------

    \130\ 40 CFR 80.1427(a).
    \131\ RINs have a 2-year lifespan. Based on EMTS data, 29
million 2016 RINs are still being held in obligated party accounts.
Although these RINs still show up in the database as ``available,''
it is likely that many of these RINs are not actually valid. This
simply means that these RINs have not been retired by obligated
parties as the compliance year has passed and they are expired.
---------------------------------------------------------------------------

    As we have stated in the past, we believe the burdens associated
with altering the 2016 standard are high.\132\ To illustrate the
burdens associated with such an approach, we considered the steps that
would be required to implement a revised 2016 standard. First, we would
need to rescind the 2016 standard and promulgate a new 2016 standard.
Next, we would need to return all of the RINs used for compliance to
the original owners. Once those RINs were unretired (a process that
could take several months), trading of those RINs could resume for a
designated amount of time before retirements would again be required to
demonstrate compliance. Obligated parties could then attempt to comply
with a new, higher standard that includes an adjustment to the required
total renewable fuel volume to address the ACE decision. However,
simply unretiring 2016 RINs would not result in sufficient RINs for
compliance with the higher standard. Furthermore, because the suite of
obligated parties is no longer the same as it was in 2016, with some
companies no longer in business, the distribution of unretired RINs
could be perceived as unfair as well as uneven, highlighting the
complexity of attempting to go back in time.
---------------------------------------------------------------------------

    \132\ 84 FR 36762, 36788 (July 29, 2019).
---------------------------------------------------------------------------

    To remedy the insufficient 2016 RINs used for compliance with the
2016 standard, we also considered an approach where 2016 RINs used for
compliance with the 2017 standards could be unretired and used for
compliance with the increased 2016 standard, but this would essentially
also reopen 2017 compliance, with cascading impacts on each subsequent
year's compliance. Reopening compliance would impose a significant
burden on both obligated parties and EPA as described above. Moreover,
stakeholders have expressed strong desires for consistent compliance
requirements on an annual basis. Having compliance demonstrations for
the prior year complete before requiring compliance with the subsequent
year is considered essential to allow obligated parties to properly
account for the vintage of the various RINs in their holdings as they
develop their compliance strategies and avoid having RINs expire.
Therefore, we do not find that it would be appropriate or reasonable to
reopen compliance with the 2016 total renewable fuel standard.
    Aside from the paucity of available 2015 and 2016 RINs, applying a
supplemental standard to the 2016 compliance year would require us to
consider whether the obligated gasoline and diesel volumes used in the
calculation of the percentage standards would be derived from the
projected volumes used in the rulemaking that established the 2016
standards, or instead the actual obligated gasoline and diesel volumes
in 2016. Of these two choices, using the actual obligated gasoline and
diesel volumes would more accurately result in the full volume of the
adjustment being realized through the retirement of RINs.\133\ However,
using the actual obligated gasoline and diesel volumes for the
supplemental standard would make it inconsistent with the other 2016
standards, and call into question whether the other percentage
standards should also be revised to account for actual obligated 2016
gasoline and diesel volumes and compliance revised for all obligated
parties. We do not believe that it would be appropriate to revise the
other 2016 percentage standards when only the total renewable fuel
standard is at issue under the ACE remand. Applying the supplemental
standard to 2022 and 2023 would avoid this issue.
---------------------------------------------------------------------------

    \133\ The projected 2016 non-renewable gasoline volume and
diesel volume used in the rulemaking that set the 2016 standards was
179.33 billion gallons. According to EIA's May 2021 STEO, the actual
non-renewable gasoline and diesel consumption volume in 2016 was
179.16 billion gallons.
---------------------------------------------------------------------------

C. Demonstrating Compliance With the 2022 Supplemental Standard

    We intend to prescribe formats and procedures as specified in 40
CFR 80.1451(j) for how obligated parties would demonstrate compliance
with the 2022 supplemental standard that simplifies the process in this
unique circumstance.\134\ Although the proposed 2022 supplemental
standard would be a regulatory requirement separate from and in
addition to the 2022 total renewable fuel standard, we intend that
obligated parties would submit a single annual compliance report for
both the 2022 annual standards and the supplemental standard. Under
this intended approach, obligated parties would only report a single
number for their total renewable fuel obligation in the 2022 annual
compliance report.\135\ Obligated parties would also only need to
submit a single annual attest engagement report for the 2022 compliance
period that covers both the 2022 annual standards and 2022 supplemental
standard.\136\ If we set a 2023 supplemental standard as intended, we
would intend to use the same approach for annual compliance
demonstrations for both the 2022 and 2023 compliance periods.
---------------------------------------------------------------------------

    \134\ We note that we are not proposing to change the reporting
regulations at 40 CFR 80.1451(a) as we do not believe that
regulatory changes are needed to accommodate annual compliance
demonstration for the proposed 2022 supplemental standard. Any
comments suggesting changes to such reporting regulations will be
considered outside the scope of this rulemaking.
    \135\ Obligated parties demonstrate annual compliance by
following the reporting instructions entitled, ``Instructions for
RFS0304: RFS Annual Compliance Report'' (RFS0304 report). A copy of
these reporting instructions is available in the docket of this
action. Under our intended approach, obligated parties would combine
the 2022 total renewable fuel standard with the 2022 supplemental
standard in ``Field 18'' of the RFS0304 report. This combined value
would then be multiplied by the obligated gasoline and diesel fuel
volume reported as specified in reporting instructions for ``Field
20'' of the RFS0304 report.
    \136\ The deadline for the attest engagement reports for the
2022 compliance period is June 1, 2023, and we are not proposing to
modify that deadline in this action.
---------------------------------------------------------------------------

    To assist obligated parties with this unique compliance situation,
we intend to issue guidance with instructions on how to calculate and
report the values to be submitted in the 2022 compliance reports.

D. Authority and Consideration of the Benefits and Burdens

    In establishing the 2016 total renewable fuel standard, EPA waived
the required volume of total renewable fuel by 500 million gallons
using the inadequate domestic supply general waiver authority. The use
of that waiver authority was vacated by the court in ACE and the rule
was remanded to the EPA. In order to remedy our improper use of the
inadequate domestic supply general waiver authority, we find that it is
appropriate to treat our authority to

propose a supplemental volume requirement at this time as the same
authority used to establish the 2016 total renewable fuel volume
requirement--CAA section 211(o)(3)(B)(i), which requires EPA to
establish percentage standard requirements by November 30 of the year
prior to which the standards will apply and to ``ensure'' that the
volume requirements ``are met.'' EPA exercised this authority for the
2016 standards once already. However, the effect of the ACE vacatur is
that there remain 500 million gallons of total renewable fuel from the
2016 statutory volumes that were not included under the original
exercise of EPA's authority under CAA section 211(o)(3)(B)(i).
Therefore, EPA has retained authority for the remaining 500 million
gallons. EPA also has authority under CAA section 211(o)(2)(A)(i). The
D.C. Circuit in NPRA noted Congress granted EPA authority to ``
`ensure' that `at least' the set volumes were used each year.'' \137\
---------------------------------------------------------------------------

    \137\ NPRA, 630 F.3d at 157.
---------------------------------------------------------------------------

    We have sought to mitigate the burdens of a late or retroactive
standard in part by proposing a supplemental standard that applies for
the 2022 compliance year. Although we established a total renewable
fuel standard in 2016, we did so while erroneously waiving 500 million
gallons of total renewable fuel through the use of our general waiver
authority. In this action, we are proposing to begin to remedy that
error by requiring an additional 250 million gallon total renewable
fuel volume requirement in the 2022 compliance year.\138\
---------------------------------------------------------------------------

    \138\ As noted earlier, we intend to propose an additional
supplemental volume of 250 million gallon for 2023 in a subsequent
action.
---------------------------------------------------------------------------

    As noted in Section II.C, in ACE and two prior cases, the court
upheld EPA's authority to issue late renewable fuel standards, even
those applied retroactively, so long as EPA's approach is
reasonable.\139\ EPA must consider and mitigate the burdens on
obligated parties associated with a delayed rulemaking.\140\ When
imposing a late or retroactive standard, we must balance the burden on
obligated parties of a retroactive standard with the broader goal of
the RFS program to increase renewable fuel use.\141\ The approach we
are proposing in this action would implement a late standard as
described in these cases. Obligated parties made their RIN acquisition
decisions in 2016 based on the standards as established in 2016 and
they may have made different decisions had we not reduced the 2016
total renewable fuel standard by 500 million gallons using the general
waiver authority. Were EPA to create a supplemental standard for 2016
designed to address the use of the general waiver authority in 2016, we
would be imposing a wholly retroactive standard on obligated parties,
but because the proposed supplemental standard will be complied with in
the 2022 compliance year, it will instead be a late standard. Pursuant
to the court's direction, we have carefully considered the benefits and
burdens of our approach and considered and mitigated the burdens to
obligated parties caused by the lateness.
---------------------------------------------------------------------------

    \139\ See ACE, 864 F.3d at 718; Monroe Energy, LLC v. EPA, 750
F.3d at 920; NPRA, 630 F.3d at 154-58.
    \140\ ACE, 864 F.3d at 718.
    \141\ NPRA, 630 F.3d at 154-58.
---------------------------------------------------------------------------

    We acknowledge that in the 2020 proposal, we stated that a
supplemental standard would ``impose a significant burden on obligated
parties'' that would ``be unduly burdensome and inappropriate'' and
lack ``any corresponding benefit as any additional standard cannot
result in additional renewable fuel use in 2016.'' \142\ We seek
comment on whether the approach described in this document mitigates
the associated burdens or even entirely avoids most of the burdens we
described in the 2020 proposal (such as those associated with allowing
only 2015 and 2016 RINs to be used for compliance). We seek comment on
whether the current size of the carryover RIN bank is sufficient to
mitigate the burden on obligated parties from a supplemental standard
as well as whether the proposal to spread the 500 million gallon volume
over two compliance years also mitigates the burdens on the carryover
RIN bank. In short, we seek comment on whether this approach would
reasonably balance the benefits and burdens and whether it would
provide appropriate and meaningful relief in response to the ACE
remand.
---------------------------------------------------------------------------

    \142\ 84 FR 36788 (July 29, 2019).
---------------------------------------------------------------------------

    We believe that the approach proposed in this action, if finalized,
could provide benefits that outweigh potential burdens. Consistent with
the 2016 renewable fuel volume established by Congress, our proposed
and intended supplemental standards for 2022 and 2023, respectively,
are in total equivalent to the volume of total renewable fuel that we
inappropriately waived for the 2016 total renewable fuel standard. The
use of these supplemental standards phased across two compliance years
would provide a meaningful remedy to the D.C. Circuit's vacatur of
EPA's use of the general waiver authority and remand of the 2016 rule
in ACE.
    We have carefully considered and designed this approach to mitigate
any burdens on obligated parties. We have considered the availability
of RINs to satisfy this additional requirement. We are soliciting
comment on the feasibility of the proposed 250-million-gallon
supplemental standard in 2022. As explained earlier, there are
insufficient 2015 and 2016 RINs available to satisfy the proposed 250-
million-gallon standard.\143\ Instead, we are proposing a supplemental
volume requirement to the 2022 standards that will apply in the 2022
compliance year. Doing so would allow 2021 and 2022 RINs to be used for
compliance with the 2022 supplemental standard, in keeping with
existing RFS regulations. We believe there would be a sufficient number
of 2021 and 2022 RINs to satisfy the 2022 supplemental standard.
Although it is possible that the supplemental standard could be met
through additional renewable fuel production, we generally believe that
requiring volumes for the 2022 annual standards beyond those we are
proposing in this action results in increasing difficulty in the
standards being met through additional renewable fuel production. We
believe that potential drawdown of the carryover RIN bank as a result
of compliance with the proposed supplemental standard would be
appropriate in light of the projected size of the carryover RIN bank in
2022 and the desire to provide a meaningful remedy to the court's
remand and the Congressional intent evidenced by the statutory 2016
total renewable fuel standard.
---------------------------------------------------------------------------

    \143\ As also described above, it is likely that some amount of
the existing carryover RIN bank represents RINs generated but not
used for compliance in 2016, as the market over complied with the
total renewable fuel standard that year.
---------------------------------------------------------------------------

    Second, we provide significant lead-time for obligated parties by
proposing this standard as supplemental to the 2022 standard: More than
one year prior to the 2022 compliance deadline.
    Third, we are proposing multiple mechanisms to mitigate the
potential compliance burden. One step is to designate that the response
to the ACE remand will be a supplement to the 2022 standards. This
approach would not only allow the use of 2021 and 2022 RINs for
compliance with the 2022 standard, as described earlier, but it would
also avoid the need for obligated parties to revise their 2016 (and
potentially 2017, 2018, 2019, etc.) compliance demonstrations, which
would be a burdensome and time-consuming process. In addition, our
proposal allows obligated parties to

satisfy both the 2022 standards and the supplement in a single set of
compliance and attest engagement demonstrations. We are also proposing
to extend the same compliance flexibility options already available for
the 2022 standards to the 2022 supplemental standard, including
allowing the use of carryover RINs and deficit carry forward subject to
the conditions of 40 CFR 80.1427(b)(1). We also intend to spread out
the 500-million-gallon obligation over two compliance years as
described above. This will allow obligated parties and renewable fuel
producers additional lead time to meet the standard because the RFS
program will phase in the requirement, thus providing about a year of
lead time for the second 250 million gallon requirement.
    Lastly, we have carefully considered alternatives, including
retaining the 2016 total renewable fuel volume as described in the 2020
proposal. We seek comment on this alternative, as well as on any other
alternative approaches for addressing the ACE remand.
    On balance, we find that requiring an additional 500 million
gallons of total renewable fuel to be complied with through two
supplemental standards spread over two years would be an appropriate
response to the court's vacatur and remand of our use of the general
waiver authority to waive the 2016 total renewable fuel standard by 500
million gallons. We seek comment on this approach.

E. Calculating a Supplemental Percentage Standard for 2022

    The formulas in 40 CFR 80.1405(c) for calculating the applicable
percentage standards were designed explicitly to associate a percentage
standard for a particular year with the volume requirement for that
same year. The formulas are not designed to address the approach that
we are proposing in this action, namely the use of a 2016 volume
requirement to calculate a 2022 percentage standard. Nonetheless, we
can apply the same general approach to calculating a supplemental
percentage standard for 2022.
    If this proposed approach to the ACE remand in finalized, the
numerator in the formula in 40 CFR 80.1405(c) would be the supplemental
volume of 250 million gallons of total renewable fuel. The values in
the denominator would remain the same as those used to calculate the
proposed 2022 percentage standards in Section VI.C, which can be found
in Table VI.C-1.\144\ As described in Section VI.C, the resulting
supplemental renewable fuel standard percentage standard for a 250
million gallon volume requirement in 2022 would be 0.14-0.15 percent,
depending on the projection of exempt volume of gasoline and diesel.
---------------------------------------------------------------------------

    \144\ We intend to update the values in the denominator, such as
the projected gasoline and diesel volumes, based on updated
information available at the time of the final rule.
---------------------------------------------------------------------------

    The proposed supplemental standard for 2022 would be a requirement
for obligated parties separate from and in addition to the 2022
standard for total renewable fuel. The two percentage standards would
be listed separately in the regulations at 40 CFR 80.1405(a), but in
practice obligated parties would demonstrate compliance with both at
the same time. Thus, the two percentage standards would effectively be
additive (e.g., 11.76% + 0.14% = 11.90%, using the low end of the
proposed percentage standards in Section VI.C).

VI. Percentage Standards

    EPA implements the nationally applicable volume requirements by
establishing percent standards that apply to obligated parties. The
obligated parties are producers and importers of gasoline and diesel,
as defined by 40 CFR 80.1406(a). The standards are expressed as volume
percentages. Each obligated party multiplies the percentage standards
by sum of all non-renewable gasoline and diesel they produce or import
to determine their Renewable Volume Obligations (RVOs).\145\ The RVOs
are the number of RINs that the obligated party is responsible for
procuring to demonstrate compliance with the RFS rule for that year.
Since there are four separate standards under the RFS program, there
are likewise four separate RVOs applicable to each obligated party for
each year.
---------------------------------------------------------------------------

    \145\ 40 CFR 80.1407.
---------------------------------------------------------------------------

    The volumes used to determine the proposed 2020, 2021, and 2022
percentage standards are described in Section III and are shown in
Table VI-1.

             Table VI-1--Volumes for Use in Determining the Proposed Applicable Percentage Standards
                                                 (billion RINs)
----------------------------------------------------------------------------------------------------------------
                            Standard                                   2020            2021            2022
----------------------------------------------------------------------------------------------------------------
Cellulosic Biofuel..............................................            0.51            0.62            0.77
Biomass-Based Diesel \a\........................................        \b\ 2.43        \c\ 2.43            2.76
Advanced Biofuel................................................            4.63            5.20            5.77
Total Renewable Fuel............................................           17.13           18.52           20.77
Supplemental Standard...........................................             n/a             n/a            0.25
----------------------------------------------------------------------------------------------------------------
\a\ The BBD volumes are in physical gallons (rather than RINs).
\b\ The BBD volume requirement for 2020 was established in the 2019 standards rulemaking (83 FR 63704, December
  11, 2018).
\c\ The BBD volume requirement for 2021 was established in the 2020 standards rulemaking (85 FR 7016, February
  6, 2020).

A. Calculation of Percentage Standards

    The formulas used to calculate the percentage standards applicable
to obligated parties are provided in 40 CFR 80.1405(c). The formulas
apply to the estimates of the volumes of non-renewable gasoline and
diesel fuel, for both highway and nonroad uses, which are projected to
be used in the year in which the standards will apply. EIA provides
projected gasoline and diesel volumes, but these include projections of
ethanol and biomass-based diesel used in transportation fuel. Since the
percentage standards apply only to the non-renewable gasoline and
diesel, the volumes of renewable fuel are subtracted out of the EIA
projections of gasoline and diesel. In addition, transportation fuels
other than gasoline or diesel, such as natural gas, propane, and
electricity from fossil fuels, are not currently subject to the
standards, and volumes of such fuels are not used in calculating the
annual percentage standards or obligated parties' RVOs.
    As specified in the 2010 RFS2 final rule,\146\ the percentage
standards are based on energy-equivalent gallons of renewable fuel,
with the cellulosic biofuel, advanced biofuel, and total renewable fuel
standards based on ethanol equivalence and the BBD

standard based on biodiesel equivalence. However, all RIN generation is
based on ethanol-equivalence. To effectuate this difference between BBD
and the other three standards, the formula used to calculate the
percent standard for BBD in 40 CFR 80.1405 includes a factor of 1.5 to
convert physical volumes of BBD into ethanol-equivalent volumes.
However, as discussed more fully in Section VII.A, based on updated
data regarding BBD use, we are proposing to change this factor from 1.5
to 1.55.
---------------------------------------------------------------------------

    \146\ See 75 FR 14670 (March 26, 2010).
---------------------------------------------------------------------------

B. Small Refineries and Small Refiners

    In CAA section 211(o)(9), Congress exempted small refineries from
RFS compliance temporarily through December 31, 2010. Congress also
provided that small refineries could receive an extension of the
exemption beyond 2010 based either on the results of a required
Department of Energy (DOE) study or in response to individual small
refinery petitions demonstrating ``disproportionate economic
hardship.'' CAA section 211(o)(9)(B)(i).
    In the 2020 final rule, EPA revised certain definitions in the
percentage standards formulae at 40 CFR 80.1405(c) to account for a
projection of the total exempted volume of gasoline and diesel produced
at small refineries, including for those exemptions granted after the
final rule. In this proposed action, we are applying these revised
definitions to calculate the projected exemptions for 2020, 2021, and
2022 and proposing a range of values. On the low end, we are proposing
that the exempted volume is zero; on the high end, we are proposing to
project the volume using the same methodology used in the 2020 final
rule and updating values with more recent data.
    The low end of the range of applicable percentage standards would
be based on the fact that on January 24, 2020, the United States Court
of Appeals for the Tenth Circuit ruled in RFA that EPA's grant of three
individual SREs exceeded our statutory authority.\147\ The court
vacated EPA's actions under multiple bases. First, under the Tenth
Circuit's reading of the CAA, a small refinery is eligible for relief
only if it has received a continuous exemption from the RFS program
since the initial blanket exemption through 2010.\148\ The Supreme
Court subsequently reversed the Tenth Circuit's decision in part on
this basis.
---------------------------------------------------------------------------

    \147\ Renewable Fuels Ass'n v. EPA, 948 F.3d 1206 (10th Cir.
2020), rev'd in part sub nom., HollyFrontier Cheyenne Refining, LLC,
v. Renewable Fuels Ass'n, 114 S. Ct. 2172 (2021).
    \148\ RFA at 1244-49.
---------------------------------------------------------------------------

    However, the Tenth Circuit also vacated EPA's actions for two other
reasons: EPA may grant relief only when it finds that the small
refinery would suffer disproportionate economic hardship due to
compliance with the RFS program, not due to other factors, and EPA had
failed to discuss how granting the exemptions was consistent with our
findings on RIN cost pass-through.\149\ Were EPA to follow these
aspects of the RFA decision nationwide, we would not anticipate
granting any SREs for 2020, 2021, or 2022.
---------------------------------------------------------------------------

    \149\ RFA at 1253-54.
---------------------------------------------------------------------------

    As described in previous actions, our assessment indicates that
small refineries fully recover the costs of RFS compliance through
higher prices on sales of gasoline and diesel, and that as a result
they do not suffer economic hardship due to the RFS.\150\ EPA has
stated that refineries, including small refineries, are generally able
to recover the costs of the RIN in the revenues received for their
petroleum products, and that the cost of the RIN is passed through to
consumers in the marketplace and does not represent a net cost to
obligated parties.\151\ While some small refineries have contested RIN
cost pass-through in their exemption petitions, we have not credited
such arguments in the past. Even when we granted relief in past years,
we did so for other reasons.
---------------------------------------------------------------------------

    \150\ ``A Preliminary Assessment of RIN Market Dynamics, RIN
Prices, and Their Effects,'' Dallas Burkholder, Office of
Transportation and Air Quality, US EPA. May 14, 2015.
    \151\ ``Denial of Petitions for Rulemaking to Change the RFS
Point of Obligation,'' EPA-420-R-17-008, EPA-HQ-OAR-2016-0544-0525,
(November 22, 2017).
---------------------------------------------------------------------------

    In addition, because the applicable standards are expressed as a
percentage of production basis, the cost of RFS compliance (prior to
being recovered in the marketplace through higher sales prices on
gasoline and diesel) is proportional to the amount of gasoline and
diesel the obligated party produces. In other words, the cost of RFS
compliance, per gallon of gasoline and diesel production, is the same
for all obligated parties. This same cost applies to all obligated
parties and is not disproportionate.
    The high end of the proposed range of applicable percentage
standards is based on the fact that small refineries subsequently
sought review of RFA from the U.S. Supreme Court in HollyFrontier and
received a favorable ruling.\152\ At this time we do not yet know how
the court's ruling will affect SRE decisions currently before EPA or in
the future. The high end of the proposed range therefore reflects a
continuation of the intent described in the 2020 final rule to project
the volumes of gasoline and diesel associated with future SREs.\153\
Specifically, we are proposing to project the SRE volume for 2020,
2021, and 2022 using the same methodology used in the 2020 final rule,
but updating the values using more recent data for 2016-2018 SRE
petitions.\154\
---------------------------------------------------------------------------

    \152\ 114 S. Ct. 2172 (2021).
    \153\ 85 FR 7049 (February 6, 2020).
    \154\ We are not adjudicating any SREs in this action, and this
action does not prejudge any SRE petition. Rather, this proposal
simply reflects our best estimate at this time of the potential
range of exempt volumes in 2020, 2021, and 2022.
---------------------------------------------------------------------------

    EPA is also soliciting comment on the revisions we made in the 2020
final rule to the definitions in the percentage standards formulae at
40 CFR 80.1405(c) to account for a projection of the exempted small
refinery volume, including for exemptions granted after the final rule.
In the 2020 final rule, we justified the revised formulae based in part
on our then-prospective SRE policy of following DOE's recommendations.
As noted above, EPA does not know at this time how RFA and Holly
Frontier will affect our SRE policy going forward, so we are co-
proposing a range of exempted small refinery volumes. Since the
revisions to the formulae were based in part on our SRE policy, we are
also soliciting comment on the revisions, specifically with regard to
our decision to account for a projection of exemptions granted after
the final rule.

C. Modification of the 2020 Biomass-Based Diesel Percentage Standard

    As noted above, the percentage standards implement the nationally
applicable volume requirements. Since EPA is proposing to revise the
nationally applicable volume requirements for 2020 in this action under
our reset authorities, we are proposing to also establish revised
percentage standards corresponding to those volumes. With regard to the
2020 and 2021 BBD volumes, EPA is not proposing to revise such volumes,
which were established in the 2019 and 2020 final rules,
respectively.\155\ Nonetheless, EPA is proposing to revise the percent
standards for the 2020 volume. We are also proposing to establish the
volume requirement and associated percentage standard for 2022 for the
nationally applicable volume requirement for BBD using our set
authority as described in Section III.E.
---------------------------------------------------------------------------

    \155\ 83 FR 63704 (December 11, 2018); 85 FR 7016 (February 6,
2020). In this action, we are not reopening nor seeking comment on
the 2020 or 2021 BBD volume requirements.
---------------------------------------------------------------------------

    With regard to 2021 BBD, EPA did not previously promulgate
percentage

standards, and thus we do so now for the first time.\156\ With regard
to 2020 BBD, EPA previously promulgated percentage standards in the
2020 final rule.\157\ In this action, EPA is proposing to modify the
2020 BBD percentage standard, even though we are not modifying the 2020
BBD volume requirement that we previously established. Specifically, we
are proposing to use the same volume requirement previously promulgated
(2.43 billion gallons) but to update the other inputs for calculating
the standard (such as the projections of gasoline and diesel
consumption and exempted small refinery volumes in 2020), which we term
``inputs'' in the remainder of this section. We are also proposing to
apply the new BBD multiplier of 1.55, which we discuss further in
Section VIII.A.
---------------------------------------------------------------------------

    \156\ This action is consistent with past annual rules, which
have generally promulgated the BBD percentage standard for the BBD
volume set in the prior year's annual rule. This is due to the
unique statutory timing applicable to BBD, where EPA must set the
volume 14 months in advance but promulgate percentage standards by
November 30 of the immediately preceding year. See CAA section
211(o)(2)(B)(ii), (o)(3)(B)(i).
    \157\ 85 FR 7049 (February 6, 2020).
---------------------------------------------------------------------------

    We are proposing to update the inputs because it is logical for all
of the 2020 percentage standards to be calculated using the same
inputs. This is consistent with EPA's policy since the beginning of the
RFS program, where we have generally calculated all the percentage
standards for a given year based on the same inputs. Here, because we
are updating the inputs for the other 2020 percentage standards, we
also propose to modify the inputs for the 2020 BBD percentage standard.
This approach is supported by the nested nature of the standards, where
BBD is a subset of the advanced biofuel and total renewable fuel
standards, and compliance with all three is accomplished in part by
using the same RIN credits. We think it would not be appropriate to use
updated inputs for the other standards, while simultaneously using what
is now outdated data for the BBD standard alone.
    Additionally, the inputs we are proposing to use in this action are
quite different from the inputs used in the 2020 final rule. As
discussed in Section II.D. and III.B., the projections for gasoline and
diesel consumption in 2020 final rule, which were used to establish the
BBD standard, are significantly different than the actual gasoline and
diesel consumed in 2020. Relative to the 2020 final rule, we are also
co-proposing different projections of SREs, as discussed in the prior
section.
    Finally, we note that our proposed modification to the 2020 BBD
percentage standard is not anticipated to have any significant real-
world impacts. As set forth in the next section, the proposed
modification results in an increase in the BBD percentage standard,
which will increase the number of RINs required for compliance with
this standard. However, even were we to retain the original, lower
standard, we would nonetheless expect the same number of BBD RINs to be
used for 2020 compliance given that BBD is nested within the advanced
biofuel category and we are proposing to set the advanced biofuel
percentage standard based on actual use of renewable fuels.

D. Proposed Standards

    The formulas in 40 CFR 80.1405 for the calculation of the
percentage standards require the specification of a total of 14
variables comprising the renewable fuel volume requirements, projected
gasoline and diesel demand for all states and territories where the RFS
program applies, renewable fuels projected by EIA to be included in the
gasoline and diesel demand, and projected gasoline and diesel volumes
from exempt small refineries. The values of all the variables used for
this proposed rule are shown in Table VI.C-1 for the applicable 2020,
2021, and 2022 standards.\158\
---------------------------------------------------------------------------

    \158\ See the technical memoranda, ``Calculation of proposed %
standards for 2020,'' ``Calculation of proposed % standards for
2021,'' and ``Calculation of proposed % standards for 2022,''
available in the docket for this action.

                                   Table VI.C-1--Volumes for Terms in Calculation of the Proposed Percentage Standards
                                                                     [Billion RINs]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                2022
                      Term                                     Description                     2020            2021            2022        supplemental
--------------------------------------------------------------------------------------------------------------------------------------------------------
RFVCB..........................................  Required volume of cellulosic biofuel..            0.51            0.62            0.77               0
RFVBBD.........................................  Required volume of biomass-based diesel            2.43            2.43            2.76               0
                                                  \a\.
RFVAB..........................................  Required volume of advanced biofuel....            4.63            5.20            5.77               0
RFVRF..........................................  Required volume of renewable fuel......           17.13           18.52           20.77            0.25
G..............................................  Projected volume of gasoline...........          123.25          133.06          136.49          136.49
D..............................................  Projected volume of diesel.............           50.49           54.52           56.81           56.81
RG.............................................  Projected volume of renewables in                 12.63           13.64           13.98           13.98
                                                  gasoline.
RD.............................................  Projected volume of renewables in                  2.15            2.23            2.66            2.66
                                                  diesel.
GS.............................................  Projected volume of gasoline for opt-in               0               0               0               0
                                                  areas.
RGS............................................  Projected volume of renewables in                     0               0               0               0
                                                  gasoline for opt-in areas.
DS.............................................  Projected volume of diesel for opt-in                 0               0               0               0
                                                  areas.
RDS............................................  Projected volume of renewables in                     0               0               0               0
                                                  diesel for opt-in areas.
GE.............................................  Projected volume of gasoline for exempt            0.00            0.00            0.00            0.00
                                                  small refineries (low).
                                                 Projected volume of gasoline for exempt            4.80            4.80            4.80            4.80
                                                  small refineries (high).
DE.............................................  Projected volume of diesel for exempt              0.00            0.00            0.00            0.00
                                                  small refineries (low).
                                                 Projected volume of diesel for exempt              3.39            3.39            3.39            3.39
                                                  small refineries (high).
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The BBD volume used in the formula represents physical gallons. The formula contains a proposed 1.55 multiplier to convert this physical volume to
  ethanol-equivalent volume.

    Projected volumes of gasoline and diesel, and the renewable fuels
contained within them, were derived from EIA's May 2021 STEO. For the
final rule, the 2022 gasoline and diesel projections will be provided
by EIA in a letter to EPA that is required under the statute, while the
projections for 2020 and 2021 will be derived from the latest version
of the STEO, which we anticipate being the October 2021 STEO.\159\
---------------------------------------------------------------------------

    \159\ To determine the 49-state values for gasoline and diesel,
the amount of these fuels used in Alaska is subtracted from the
totals provided by EIA because petroleum-based fuels used in Alaska
do not incur RFS obligations. The Alaska fractions are determined
from the June 26, 2020 EIA State Energy Data System (SEDS), Energy
Consumption Estimates. In addition, fuel used in ocean-going vessels
is also subtracted from the total because it is excluded from the
definition of transportation fuel by the statute. This volume is
provided directly by EIA.
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    Using the volumes shown in Table VI.C-1, we have calculated the
proposed percentage standards for 2020, 2021, and 2022 as shown in
Table VI.C-2.

                                                       Table VI.C-2--Proposed Percentage Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2020                                    2021                            2022
                Standard                 ---------------------------------------------------------------------------------------------------------------
                                             Original       Revised low    Revised high         Low            High             Low            High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cellulosic Biofuel......................           0.34%           0.32%           0.34%           0.36%           0.38%           0.44%           0.46%
Biomass-Based Diesel....................            2.10            2.37            2.50            2.19            2.30            2.42            2.54
Advanced Biofuel........................            2.93            2.91            3.07            3.03            3.18            3.27            3.42
Renewable Fuel..........................           11.56           10.78           11.36           10.79           11.33           11.76           12.33
Supplemental Standard...................             n/a             n/a             n/a             n/a             n/a            0.14            0.15
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The proposed regulations at 40 CFR 80.1405 can only contain one set
of percentage standards. Given this constraint, the proposed
regulations contain only the percentage standards representing the low
end of the range shown in the table above. However, we do not intend
this approach to indicate a preference for the low end of the range of
proposed percentage standards.

VII. Biointermediates

A. Background

    The RFS regulations were designed with the general expectation that
renewable biomass would be converted into renewable fuel at a single
facility (e.g., a renewable fuel producer purchases corn directly from
several farmers in a region, crushes the corn in a mill, and then
ferments the corn into ethanol, all at the same facility). The
regulations therefore impose requirements on renewable fuel producers
to provide EPA with information necessary to verify that their fuel was
made with qualifying renewable biomass, through production processes
corresponding with approved pathways, and in volumes corresponding to
feedstocks used. Such information submissions are necessary for
oversight and enforcement, leading to increased integrity and
confidence in the program.
    Since the RFS2 regulatory program was promulgated in 2010, however,
EPA has received a number of inquiries from companies regarding the
possible use of renewable biomass that has been substantially pre-
processed at one facility to produce a proto-renewable fuel (referred
to as a biointermediate) that is subsequently used at a different
facility to produce renewable fuel for which RINs would be generated.
For example, a number of companies have approached us with the proposed
use of woody biomass or separated MSW to produce a biocrude (a pre-
processed feedstock that could then be processed into renewable fuel at
a crude oil refinery). In response to these requests, EPA has stated
that the existing RFS regulations are insufficient to generally allow
RINs to be generated in situations wherein multiple facilities are
involved in the conversion of renewable biomass feedstocks into
renewable fuel.
    On November 16, 2016, EPA issued the proposed Renewables
Enhancement and Growth Support (REGS) rule that outlined proposed
provisions to allow the use of biointermediates to produce qualifying
renewable fuels under the RFS program.\160\ The proposed REGS rule
outlined a comprehensive set of compliance provisions, enforcement
provisions, and oversight mechanisms for biointermediates that would
have allowed biointermediates into the RFS program while maintaining
effective oversight of the production, transfer, and use of
biointermediates to make renewable fuels. A public hearing was held in
Chicago, IL, on December 16, 2016, and the public comment period ended
on January 17, 2017.
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    \160\ See 81 FR 80828 (November 16, 2016).
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    Since the proposed REGS rule was issued, EPA has continued to
review public comments and other information and to carefully consider
how best to develop and implement a program that would allow for the
production, transfer, and use of biointermediates to produce renewable
fuel under RFS. We continue to believe that the use of biointermediates
to produce renewable fuels would be a reasonable and positive
development for the future growth in production particularly of
cellulosic and advanced biofuels. However, we also continue to believe
that the existing regulations are insufficient to allow the use of
biointermediates because we are unable to verify the validity of RINs
generated in situations where feedstocks are allowed to be processed at
multiple facilities, and where partially processed feedstocks, which
may appear very similar to renewable fuels themselves, are transferred
between parties. The value of these RINs provides considerable
incentive for fraudulent activity, and therefore it is important for
the integrity of the program that mechanisms be in place to verify
their validity.\161\
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    \161\ We note that there has been a long history of RIN fraud in
the RFS program. We detail several of the major RIN fraud civil
enforcement cases on our website, available at https://www.epa.gov/enforcement/civil-enforcement-renewable-fuel-standard-program.
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    After careful consideration of public comments received in response
to the proposed biointermediates provisions in the proposed REGS rule
and further thought on how best to design and implement a potential
biointermediates program, we are proposing biointermediates provisions
anew. This proposal re-proposes many aspects of the biointermediate
provisions in the proposed REGS rule but also updates several key
aspects of that proposal reflecting what we have learned since the
original proposal. We discuss what biointermediate provisions we are
re-proposing without significant changes from the proposed REGS rule in
Section VII.B and the updated revisions in Section VII.C. We also
specifically seek comment on a number of issues related

to including biointermediates in the RFS program in Section VII.D.
    We are reproposing (i.e., proposing anew) the biointermediates
provisions here for two main reasons. First, since the publication of
the proposed REGS rule, we have reviewed comments received on that
proposed rulemaking and have engaged in numerous discussions with
parties interested in bringing biointermediates into the RFS program.
After almost five years of further consideration, we have identified
several areas that we would like to modify or enhance. These changes
impact what biointermediates would be allowed under the program and
what parties that produce, transfer, and use biointermediates would
need to do to demonstrate compliance.
    Second, we believe it would be useful to provide an additional
opportunity for stakeholders interested in biointermediates to comment
on the proposed biointermediates provisions more generally. Due to the
amount of time that has passed since we proposed the REGS rule, the
nature and number of the parties interested in bringing
biointermediates into the program has changed. We believe that by
providing an additional opportunity for public comment on all aspects
of the proposed biointermediates provisions, we would receive
additional comments with reasonable suggestions to modify and enhance
the proposed biointermediates provision in addition to those we
received during the proposed REGS rule comment period. Furthermore, we
believe there are specific provisions that we proposed in the REGS rule
that would benefit from additional public comment (these are discussed
in Section VII.D).
    For these reasons, we are proposing all the biointermediates
provisions anew and broadly seek comment on these reproposed
biointermediate provisions. Commenters that submitted comments on the
proposed biointermediates provisions in the REGS rule must resubmit any
relevant comments in order for those comments to be considered. As this
is a new proposal, we do not intend to respond to comments that were
submitted only on the previously proposed biointermediates provisions
in the REGS rule. Such comments are outside the scope of this action.
    We also seek comment from potential producers of biointermediates
on the current status of operations, potential production volumes,
timelines for production, and any other information that may help
inform EPA as to the expected use of biointermediates to produce
renewable fuel both during 2022 and out into the future.

B. Re-Proposal of Biointermediates Provisions Previously Proposed in
REGS

    In this action, we are reproposing certain biointermediate
provisions that we previously proposed in the REGS rule. Many of the
program design elements for proposed biointermediate provisions remain
unchanged from the REGS proposal and are being reproposed here with no
modifications other than ministerial changes. The provisions we are
reproposing without substantive changes are the following:
     The calculation of lifecycle GHG emissions where
biointermediates are used to make renewable fuels and the treatment of
pathways for RIN generation where biointermediates are converted into
renewable fuels;
     Limiting the production of biointermediates to a single
facility;
     The potential liability of biointermediate and renewable
fuel producers for violations of the proposed biointermediate
provisions;
     Registration, reporting, and recordkeeping requirements
for biointermediate producers as well as additional registration,
reporting, and recordkeeping requirements for renewable fuel producers
that use biointermediates;
     Annual attest engagements for biointermediate producers;
     RFS quality assurance program (QAP) provisions for
biointermediate producers and renewable fuel producers that use
biointermediates; and
     The treatment of biointermediates produced at foreign
facilities.
    This preamble incorporates the discussions of each of these
elements that are contained in the referenced memo to the docket.\162\
We note that because the RFS regulations have undergone several
revisions since these elements were previously proposed, we have
updated the proposed regulatory language to accommodate these revisions
to help ensure consistency between the proposed biointermediate
provisions and the rest of the RFS regulations. Additionally, while
each of these individual provisions is substantively unchanged from the
REGS proposal, how they fit into and function within the larger
biointermediates program may be different under our proposed revised
program. We discuss broader, substantive changes to the proposed
biointermediate provisions in Section VII.C.
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    \162\ Each of these elements are described in greater detail in
the memorandum to the docket, ``Proposed Biointermediate Provisions
in the proposed Renewables Enhancement Growth Support Rule,''
available in the docket for this action.
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    As explained above, we are requesting comment on these re-proposed
provisions. Comments on these provisions previously submitted to the
REGS rulemaking docket will not be considered unless they are
resubmitted to the docket for this action (i.e., EPA-HQ-OAR-2021-0324).

C. Changes to the Biointermediates Provisions Previously Proposed in
the REGS Rule

    In this action, we are also proposing some additions and updates to
the biointermediate provisions previously proposed in the REGS rule.
Specifically, we are proposing changes to the definition of
biointermediate, limits on biointermediate transfers, and mandatory
participation in the RFS QAP. We are also proposing changes to the
compliance and enforcement provisions, including: New product transfer
document requirements for RINs generated from renewable fuels produced
from biointermediates; changes to the registration, reporting,
recordkeeping, and attest engagement requirements; and provisions for
the treatment of invalid RINs generated from biointermediates. These
changes are discussed in more detail below.
1. Implementation Dates
    We are proposing that the biointermediates provisions will be
implemented starting 60 days after the publication of the final rule in
the Federal Register. In recognition of the time that has passed since
EPA first identified the need to revise the regulations to allow the
use of biointermediates, we now intend to put a biointermediates
program in place as soon as possible. We believe this proposed
implementation date is achievable based on the scope of
biointermediates provisions as proposed here. However, we note that
depending on the complexity of the final biointermediate provisions, we
may need to finalize a later implementation date to provide us enough
time to put in place the compliance and oversight mechanisms necessary
to effectively oversee the program.
    We are seeking specific comments on when biointermediate producers
expect to be able to begin production so we can consider the potential
impacts of a later implementation date.
2. Definition of Biointermediate