[Federal Register Volume 82, Number 237 (Tuesday, December 12, 2017)]
[Rules and Regulations]
[Pages 58486-58527]
[FR Doc No: 2017-26426]

Vol. 82

Tuesday,

No. 237

December 12, 2017

Part II

Environmental Protection Agency

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40 CFR Part 80

Renewable Fuel Standard Program: Standards for 2018 and Biomass-Based
Diesel Volume for 2019; Rule

Federal Register / Vol. 82 , No. 237 / Tuesday, December 12, 2017 /
Rules and Regulations

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2017-0091; FRL-9971-73-OAR]
RIN 2060-AT04

Renewable Fuel Standard Program: Standards for 2018 and Biomass-
Based Diesel Volume for 2019

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under section 211 of the Clean Air Act, the Environmental
Protection Agency (EPA) is required to set renewable fuel percentage
standards every year. This action establishes the annual percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel that apply to gasoline and diesel
transportation fuel produced or imported in the year 2018. Relying on
statutory waiver authority that is available when projected cellulosic
biofuel production volumes are less than the applicable volume
specified in the statute, the EPA is establishing volume requirements
for cellulosic biofuel, advanced biofuel, and total renewable fuel that
are below the statutory volume targets. In this action, we are also
establishing the applicable volume of biomass-based diesel for 2019.

DATES: This final rule is effective on February 12, 2018.

ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2017-0091. All documents in the docket are
listed on the http://www.regulations.gov Web site. Although listed in
the index, some information is not publicly available, e.g., CBI or
other information whose disclosure is restricted by statute. Certain
other material, such as copyrighted material, is not placed on the
internet and will be publicly available only in hard copy form.
Publicly available docket materials are available electronically
through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of
Transportation and Air Quality, Assessment and Standards Division,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI
48105; telephone number:<PHONE_NUMBER>; email address:
[email protected].

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

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

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

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Approach to Setting Volume Requirements
    2. Cellulosic Biofuel
    3. Advanced Biofuel
    4. Total Renewable Fuel
    6. 2019 Biomass-Based Diesel
    7. Annual Percentage Standards
II. Authority and Need for Waiver of Statutory Applicable Volumes
    A. Statutory Authorities for Reducing Volume Targets
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    B. Treatment of Carryover RINs
    1. Updated Projection of Carryover RIN Volume
    2. EPA's Decision Regarding the Treatment of Carryover RINs
III. Cellulosic Biofuel Volume for 2018
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Projection from the Energy Information Administration
    D. Cellulosic Biofuel Volume for 2018
    1. Liquid Cellulosic Biofuel
    2. CNG/LNG Derived From Biogas
    3. Total Cellulosic Biofuel in 2018
IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2018
    A. Volumetric Limitation on Use of the Cellulosic Waiver
Authority
    B. Reasonably Attainable Volumes of Advanced Biofuel
    1. Imported Sugarcane Ethanol
    2. Biodiesel and Renewable Diesel
    3. Other Advanced Biofuel
    4. Total Advanced Biofuel
    C. Exercise of Cellulosic Waiver Authority for Advanced Biofuel
    D. Exercise of Cellulosic Waiver Authority for Total Renewable
Fuel
    E. Impacts of 2018 Standards on Costs
    1. Illustrative Cost Savings Associated With Reducing Statutory
Cellulosic Volumes
    2. Illustrative Cost Analysis of Advanced Biofuels Using 2017 as
the Baseline
V. Consideration of Additional Reductions Using Other Waiver
Authorities
    A. Inadequate Domestic Supply
    B. Severe Economic Harm
    C. Severe Environmental Harm
    D. Biomass-Based Diesel Waiver Authority
VI. Final Biomass-Based Diesel Volume for 2019
    A. Statutory Requirements
    B. Determination of the 2019 Applicable Volume of Biomass-Based
Diesel
    C. Consideration of Statutory Factors set forth in CAA Section
211(o)(2)(B)(ii)(I)-(VI) for 2019
VII. Percentage Standards for 2018
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Final Standards
VIII. Administrative Actions
    A. Assessment of the Domestic Aggregate Compliance Approach

    B. Assessment of the Canadian Aggregate Compliance Approach
    C. RIN Market Operation
IX. Public Participation
X. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Executive Order 13771: Reducing Regulations and Controlling
Regulatory Costs
    C. Paperwork Reduction Act (PRA)
    D. Regulatory Flexibility Act (RFA)
    E. Unfunded Mandates Reform Act (UMRA)
    F. Executive Order 13132: Federalism
    G. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    H. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    I. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
    J. National Technology Transfer and Advancement Act (NTTAA)
    K. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
    L. Congressional Review Act (CRA)
XI. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) that were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), leading to the
publication of major revisions to the regulatory requirements on March
26, 2010.\1\ EISA's stated goals include moving the United States (U.S)
toward ``greater energy independence and security [and] to increase the
production of clean renewable fuels.'' Today, nearly all gasoline used
for transportation purposes contains 10 percent ethanol (E10), and on
average diesel fuel contains more than 4 percent biodiesel and/or
renewable diesel.\2\
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    \1\ 75 FR 14670, March 26, 2010.
    \2\ Average biodiesel and/or renewable diesel blend percentages
based on EIA's October 2017 Short Term Energy Outlook (STEO).
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    The statute includes annual volume targets, and requires EPA to
translate those volume targets (or alternative volume requirements
established by EPA in accordance with statutory waiver authorities)
into compliance obligations that obligated parties must meet every
year. In this action, we are establishing the annual percentage
standards for cellulosic biofuel, biomass-based diesel (BBD), advanced
biofuel, and total renewable fuel that would apply to all gasoline and
diesel produced or imported in 2018. We are also establishing the
applicable volume of BBD for 2019.
    Real-world challenges, in particular the slower-than-expected
development of the cellulosic biofuel industry, has slowed progress
towards meeting Congressional goals for renewable fuels. Given the
nested nature of the standards, the shortfall in cellulosic biofuels
has made the volume targets established by Congress for 2018 for
advanced biofuels and total renewable fuels beyond reach. On July 21,
2017, EPA published a proposed rulemaking, containing proposed volume
requirements for the RFS Program's four categories of renewable fuels
that would apply in 2018 (and 2019 for BBD).\3\ On August 1, EPA hosted
a public hearing on the proposed rule, and EPA received over 235,000
written comments on the proposed rule as well. On October 4, 2017 (82
FR 46174), EPA published an ``Availability of Supplemental Information;
Request for Further Comment,'' (hereinafter, ``October 4 document'')
seeking further comment on the possible use of other waiver authorities
in the final rule. Transcripts of the public hearing, along with all
the comments received on the proposed rule and the October 4 document
are available in the docket. After careful review of the information
before us we are finalizing volume requirements for 2018 for cellulosic
biofuel, advanced biofuel and total renewable fuel that are lower than
the statutory targets, but nevertheless will ensure these renewable
fuels will continue to play a critical role as a complement to our
petroleum-based fuels. The final rule modifies the volume requirements
slightly relative to the proposed rule, and in this notice we explain
where and why such modifications were made.
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    \3\ 82 FR 34206, July 21, 2017.
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    In this action, we are finalizing volume requirements for
cellulosic biofuel at the level we project to be available for 2018. We
are using the ``cellulosic waiver authority'' provided by the statute
to finalize volume requirements for advanced biofuel and total
renewable fuel that are lower than the statutory targets by the same
magnitude as the reduction in the cellulosic biofuel reduction (i.e.,
the volumes we are finalizing for cellulosic biofuel, advanced biofuel,
and total renewable fuel are all 6.71 billion gallons lower than the
statutory volumes). We are not reducing volumes through use of the
general waiver authority or the biomass-based diesel waiver
authority.\4\ We note that while we are reducing the required volume of
total renewable fuel, advanced biofuel and cellulosic biofuel below
statutory levels, the required volumes in this rule would achieve the
implied statutory volumes for conventional biofuel \5\ and non-
cellulosic advanced biofuel \6\ for 2018.
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    \4\ See 42 U.S.C. 7545(o)(7)(A)(i-ii). See also the discussion
of the general waiver authority in Section II.A.2. below.
    \5\ Throughout this final rule conventional biofuel refers to
biofuel that qualifies as renewable fuel, but does not qualify as an
advanced biofuel. RINs generated for conventional biofuels have a D
code of 6.
    \6\ Throughout this final rule non-cellulosic advanced biofuel
refers to biofuel that qualifies as advanced biofuel, but does not
qualify as cellulosic biofuel. RINs generated for non-cellulosic
advanced biofuels have a D code of 4 or 5.
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    The final volume requirements for 2018 are shown in Table I-1
below. Relative to the levels finalized for 2017, the 2018 volume
requirements for advanced biofuel and total renewable fuel are higher
by 10 million gallons. EPA is reducing the advanced biofuel and total
renewable fuel statutory volumes by the same amount as we are reducing
the cellulosic biofuel volume. These reductions effectively preserve
the implied statutory volumes for conventional renewable fuel and non-
cellulosic advanced biofuels. We are establishing the volume
requirement for BBD for 2019 at the proposed volume of 2.1 billion
gallons.

                 Table I-1--Final Volume Requirements a
------------------------------------------------------------------------
                                               2018            2019
------------------------------------------------------------------------
Cellulosic biofuel (million gallons)....             288             n/a
Biomass-based diesel (billion gallons)..           b 2.1             2.1
Advanced biofuel (billion gallons)......            4.29             n/a

Renewable fuel (billion gallons)........           19.29             n/a
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a All values are ethanol-equivalent on an energy content basis, except
  for BBD which is biodiesel-equivalent.
\b\ The 2018 BBD volume requirement was established in the 2017 final
  rule (81 FR 89746, December 12, 2016).

A. Purpose of This Action

    The national volume targets of renewable fuel that are intended to
be achieved under the RFS program each year (absent an adjustment or
waiver by EPA) are specified in CAA section 211(o)(2). The statutory
volume targets for 2018 are shown in Table I.A-1, along with the 2017
targets for comparison. The cellulosic biofuel and BBD categories are
nested within the advanced biofuel category, which is itself nested
within the total renewable fuel category. This means, for example, that
each gallon of cellulosic biofuel or BBD that is used to satisfy the
individual volume requirements for those fuel types can also be used to
satisfy the requirements for advanced biofuel and total renewable fuel.

  Table I.A-1--Applicable Volume Targets Specified in the Clean Air Act
                           [Billion gallons] a
------------------------------------------------------------------------
                                               2017            2018
------------------------------------------------------------------------
Cellulosic biofuel......................             5.5             7.0
Biomass-based diesel....................           >=1.0           >=1.0
Advanced biofuel........................             9.0            11.0
Renewable fuel..........................            24.0            26.0
------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except
  values for BBD which are given in actual gallons.

    Under the RFS program, EPA is required to determine and publish
annual percentage standards for each compliance year. The percentage
standards are calculated to ensure use in transportation fuel of the
national ``applicable volumes'' of the four types of biofuel
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel)
that are set forth in the statute or established by EPA in accordance
with the Act's requirements. The percentage standards are used by
obligated parties (generally, producers and importers of gasoline and
diesel fuel) to calculate their individual compliance obligations. Each
of the four percentage standards is applied to the volume of non-
renewable gasoline and diesel that each obligated party produces or
imports during the specified calendar year to determine their
individual volume obligations with respect to the four renewable fuel
types. The individual volume obligations determine the number of
Renewable Identification Numbers (RINs) of each renewable fuel type
that each obligated party must acquire and retire to demonstrate
compliance.
    EPA is establishing the annual applicable volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel for
2018, and for BBD for 2019.\7\ Table I.A-2 lists the statutory
provisions and associated criteria relevant to determining the national
applicable volumes used to set the percentage standards in this final
rule.
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    \7\ The 2018 BBD volume requirement was established in the 2017
final rule.

    Table I.A-2--Statutory Provisions for Determination of Applicable
                                 Volumes
------------------------------------------------------------------------
                                                    Criteria provided in
                                  Clean Air Act         statute for
      Applicable volumes            reference         determination of
                                                     applicable volume
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Cellulosic biofuel............  211(o)(7)(D)(i)..  Required volume must
                                                    be lesser of volume
                                                    specified in CAA
                                                    211(o)(2)(B)(i)(III)
                                                    or EPA's projected
                                                    volume.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Biomass-based diesel..........  211(o)(2)(B)(ii)   Required volume for
                                 and (v).           years after 2012
                                                    must be at least 1.0
                                                    billion gallons, and
                                                    must be based on a
                                                    review of
                                                    implementation of
                                                    the program,
                                                    coordination with
                                                    other federal
                                                    agencies, and an
                                                    analysis of
                                                    specified factors.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
                                211(o)(7)(E).....  EPA in consultation
                                                    with other federal
                                                    agencies shall issue
                                                    a temporary waiver
                                                    of applicable
                                                    volumes of BBD where
                                                    there is a
                                                    significant
                                                    feedstock disruption
                                                    or other market
                                                    circumstance that
                                                    would make the price
                                                    of BBD fuel increase
                                                    significantly. When
                                                    exercising this
                                                    authority, EPA is
                                                    also authorized to
                                                    reduce the
                                                    applicable volumes
                                                    of advanced and
                                                    total renewable fuel
                                                    by the same or a
                                                    lesser volume.

Advanced biofuel..............  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
                                211(o)(7)(E).....  If applicable volume
                                                    of biomass-based
                                                    diesel is reduced,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume.
Total renewable fuel..........  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA in consultation
                                                    with other federal
                                                    agencies may waive
                                                    the statutory volume
                                                    in whole or in part
                                                    if implementation
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
                                211(o)(7)(E).....  If applicable volume
                                                    of biomass-based
                                                    diesel is reduced,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume.
------------------------------------------------------------------------

    As shown in Table I.A-2, the statutory authorities allowing EPA to
modify or set the applicable volumes differ for the four categories of
renewable fuel. Under the statute, EPA must annually determine the
projected volume of cellulosic biofuel production for the following
year. If the projected volume of cellulosic biofuel production is less
than the applicable volume specified in CAA section
211(o)(2)(B)(i)(III) of the statute, EPA must lower the applicable
volume used to set the annual cellulosic biofuel percentage standard to
the projected production volume. In Section III of this final rule, we
present our analysis of cellulosic biofuel production and the
applicable volume for 2018. This analysis is based primarily on the
estimate of cellulosic biofuel production for 2018 conducted by the
Energy Information Administration (EIA),\8\ information reported to EPA
through our Electronic Moderated Transaction System (EMTS), comments
received on our proposed rule, and an evaluation of producers'
production plans and progress to date following discussions with
cellulosic biofuel producers.
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    \8\ ``Letter from EIA to EPA on 2018 projected volumes,''
available in docket EPA-HQ-OAR-2017-0091.
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    With regard to BBD, CAA section 211(o)(2)(B) specifies the
applicable volumes of BBD to be used in the RFS program only through
year 2012. For subsequent years the statute sets a minimum volume of 1
billion gallons, and directs EPA, in coordination with the U.S.
Departments of Agriculture (USDA) and Energy (DOE), to determine the
required volume after review of implementation of the renewable fuels
program and consideration of a number of factors. The BBD volume
requirement must be established 14 months before the year in which it
will apply. In the 2017 final rule we established the BBD volume for
2018. In Section VI of this preamble we discuss our assessment of
statutory and other relevant factors and our final volume requirement
for BBD for 2019, which has been developed in coordination with USDA
and DOE. We are establishing an applicable volume of 2.1 billion
gallons of BBD for use in deriving the BBD percentage standard in 2019.
This volume is equal to the applicable volume of BBD established in a
prior rulemaking for 2018, and would provide continued support to an
industry that is a significant contributor to the pool of advanced
biofuel, while at the same time setting the volume requirement in a
manner anticipated to provide a continued incentive for the development
of other types of advanced biofuel.
    Regarding advanced biofuel and total renewable fuel, Congress
provided several mechanisms through which the statutory targets could
be reduced if necessary. If we reduce the applicable volume of
cellulosic biofuel below the volume specified in CAA section
211(o)(2)(B)(i)(III), we also have the authority to reduce the
applicable volumes of advanced biofuel and total renewable fuel by the
same or a lesser amount. We refer to this as the ``cellulosic waiver
authority.'' We may also reduce the applicable volumes of any of the
four renewable fuel types using the ``general waiver authority''
provided in CAA section 211(o)(7)(A) if EPA, in consultation with USDA
and DOE, finds that implementation of the statutory volumes would
severely harm the economy or environment of a State, region, or the
U.S., or if there is inadequate domestic supply. We are also authorized
under CAA section 211(o)(7)(E) to reduce the applicable volume of BBD
established for 2018, and to make equal or lesser reductions in the
2018 applicable volumes of advanced biofuel and total renewable fuel,
if we determine that there is a significant renewable feedstock
disruption or other market circumstance that would make the price of
BBD increase significantly. Sections II and IV of this final rule
describe our use of the cellulosic waiver authority alone to derive the
volumes of advanced biofuel and total renewable fuel that are below the
statutory target volumes, and our assessment that the resulting volumes
can be met. We believe that reductions in the statutory targets for
cellulosic biofuel, advanced biofuel and total renewable fuel for 2018
are necessary. However, in light of our review of available
information, we are making those reductions under the cellulosic waiver
authority alone and are not reducing them further under other waiver
authorities. Thus, the reductions in both the advanced and total

renewable fuel standards are directly attributable to the significant
shortfall in cellulosic biofuel production, as compared to the
statutory targets. A discussion of our consideration of the general
waiver authority and biomass-based diesel waiver authority to further
reduce the required biofuel volumes in 2018 can be found in Section V.

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this final
rule. We are establishing applicable volume requirements and associated
percentage standards for cellulosic biofuel, advanced biofuel, and
total renewable fuel for 2018; for BBD we are establishing the
percentage standard for 2018 and the applicable volume requirement for
2019.
1. Approach to Setting Volume Requirements
    The approach we have taken in this final rule of using the
cellulosic waiver authority to reduce advanced biofuel and total
renewable fuel by the same amount as the reduction in the required
volume of cellulosic biofuel is the same approach as in our proposed
rule, but is a departure from our approach to using the cellulosic
biofuel waiver authority in previous years. In previous years we have
used the cellulosic waiver authority to reduce the advanced biofuel and
total renewable fuel volume requirements by a lesser amount than the
reduction in the cellulosic biofuel volume requirement to allow
reasonably attainable volumes of advanced biofuels to partially
backfill for missing cellulosic biofuel volumes. However, the approach
we have taken for 2018 does not result in a reduction in the volume
requirement for non-cellulosic advanced biofuel. While the implied
statutory volume for non-cellulosic advanced biofuel increased by 500
million gallons from 2017 to 2018, through our 2017 action we
effectively required early use of approximately 0.5 billion gallons of
non-cellulosic advanced volume that Congress envisioned would be first
used in 2018.\9\ Therefore, despite using the cellulosic waiver
authority to reduce the volume of advanced biofuel by the same amount
as cellulosic biofuel, the advanced biofuel volume requirement for 2018
is 10 million gallons higher than the advanced biofuel volume
requirement in 2017. In this rule we are reducing all three volume
requirements by the same amount after considering the greenhouse gas
(GHG), energy security benefits, and anticipated costs of advanced
biofuels that would occur at levels beyond those being finalized today.
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    \9\ The statutory advanced biofuel and cellulosic biofuel
requirements for 2018 are 11.0 and 7.0 billion gallons respectively.
This implies a non-cellulosic advanced biofuel statutory volume of
4.0 billion gallons. The statutory advanced biofuel and cellulosic
biofuel requirements for 2017 are 9.0 and 5.5 billion gallons
respectively. This implies a non-cellulosic advanced biofuel
statutory volume of 3.5 billion gallons. In 2017 EPA established
required volumes of advanced biofuel and cellulosic biofuel of 4.28
billion and 311 million gallons respectively, implying a non-
cellulosic advanced biofuel volume of 3.97 billion gallons.
---------------------------------------------------------------------------

    Section II provides a general description of our approach to
setting volume requirements in today's rule, including a review of the
statutory waiver authorities and our consideration of carryover RINs.
Section III provides our assessment of the 2018 cellulosic biofuel
volume, based on a projection of production that reflects a neutral aim
at accuracy. Sections IV and V describe our assessments of advanced
biofuel and total renewable fuel, and consideration of the general and
biomass-based diesel waiver authorities. Finally, Section VI provides
our determination regarding the 2019 BBD volume requirement, and
reflects an analysis of a set of factors stipulated in CAA section
211(o)(2)(B)(ii).
2. Cellulosic Biofuel
    In the past several years the cellulosic biofuel industry has
continued to make progress towards increased commercial scale
production. Cellulosic biofuel production reached record levels in 2016
and has continued to grow throughout 2017, driven largely by compressed
natural gas (CNG) and liquefied natural gas (LNG) derived from biogas.
Liquid cellulosic biofuels, while produced in much smaller quantities
than CNG/LNG derived from biogas, have been produced at steady but
relatively small volumes throughout 2017. In this rule we are
establishing a cellulosic biofuel volume requirement of 288 million
ethanol-equivalent gallons for 2018 based on our production projection.
Our projection reflects consideration of a production estimate from
EIA, RIN generation data available to EPA through EMTS, comments we
received on the proposed rule, the information we have received
regarding individual facilities' capacities, production start dates and
biofuel production plans, a review of cellulosic biofuel production
relative to EPA's projections in previous annual rules, and EPA's own
engineering judgment. To project cellulosic biofuel production for 2018
we used the same basic methodology described in the proposed rule.
However, we have used updated data to derive percentile values used in
our production projection for liquid cellulosic biofuels and to derive
the year-over-year change in the rate of production of CNG/LNG derived
from biogas that is used in the projection for CNG/LNG. (See Section
III for further detail on the methodology used to project cellulosic
biofuel production.)
    In estimating the volume of liquid cellulosic biofuel that will be
made available in the U.S. in 2018, we considered all potential
production sources by company and facility. This included facilities
still in the commissioning or start-up phases, as well as facilities
already producing some volume of cellulosic biofuel.\10\ From this
universe of potential liquid cellulosic biofuel sources, we identified
the subset that is expected to produce commercial volumes of qualifying
liquid cellulosic biofuel for use as transportation fuel, heating oil,
or jet fuel by the end of 2018. To arrive at projected volumes, we
collected relevant information on each facility. We then developed
projected production ranges based on factors such as progress towards
construction and production goals, facility registration status,
production volumes achieved, and other significant factors that could
potentially impact fuel production or the ability of the produced fuel
to qualify for cellulosic biofuel RINs. We also used this information
to group these companies based on production history and to select a
value within the aggregated projected production ranges that we believe
best represents the most likely production volume from each group of
companies in 2018.
---------------------------------------------------------------------------

    \10\ Facilities primarily focused on research and development
(R&D) were not the focus of our assessment, as production from these
facilities represents very small volumes of cellulosic biofuel, and
these facilities typically have not generated RINs for the fuel they
have produced.
---------------------------------------------------------------------------

    For 2018, we are using an industry wide, rather than a facility-by-
facility approach to project the production of CNG/LNG derived from
biogas. We believe this approach is appropriate due to the mature state
of this technology, the large number of facilities that are registered
to produce cellulosic biofuel RINs for these fuels, and the fact that
their volumes are likely to be affected more by market wide factors
than individual company situations. Further discussion on our
projection of cellulosic biofuel production in 2018, including the
factors considered and the way these factors were used to determine our
final cellulosic biofuel projection, can be found in Section III.

3. Advanced Biofuel
    We are finalizing required advanced biofuel requirements using the
same approach used in the July proposed rulemaking. As was the case at
the time of proposal, the conditions that compelled us to reduce the
2017 volume requirement for advanced biofuel below the statutory target
remain relevant in 2018. As for 2017, we investigated the ability of
volumes of non-cellulosic advanced biofuels to backfill unavailable
volumes of cellulosic biofuel in 2018. We took into account the various
constraints on the ability of the market to make advanced biofuels
available, the ability of the standards we set to bring about market
changes in the time available, the potential impacts associated with
diverting biofuels and/or biofuel feedstocks from current use to the
production of advanced biofuel used in the U.S., the fact that the
biodiesel tax credit is currently not available for 2018, the proposed
countervailing duties on imports of biodiesel from Argentina and
Indonesia, as well as the cost of advanced biofuels. Based on these
considerations we have decided to reduce the applicable volume of
advanced biofuel by the same amount as we are reducing the applicable
volume of cellulosic biofuels. This results in an advanced biofuel
volume for 2018 that is 10 million gallons higher than the advanced
biofuel volume for 2017. Although we determined that a small amount of
reasonably attainable volumes of advanced biofuel could be used to
backfill a portion of the missing cellulosic biofuel, for reasons
described in Section IV, we are not exercising the discretion provided
under the cellulosic waiver authority in a manner that would lead to
that result.
    As mentioned above, we are exercising our cellulosic waiver
authority to reduce the statutory applicable volume of advanced biofuel
to a volume requirement of 4.29 billion gallons for 2018. This
applicable volume for 2018 is 10 million gallons higher than the
applicable volume for advanced biofuel for 2017.
4. Total Renewable Fuel
    Following our determination of the appropriate volume reduction for
advanced biofuel for 2018 using the cellulosic waiver authority, we
calculated what the total renewable fuel volume would be if we provide
the same level of reduction using the cellulosic waiver authority. The
resulting volume is 19.29 billion gallons.
5. Other Waiver Authorities
    We have evaluated whether additional reductions in cellulosic
biofuel, biomass-based diesel, advanced biofuel, or total renewable
fuel are warranted for 2018 using either the general waiver authority
or the BBD waiver authority and have determined that additional
reductions are not warranted at this time.
6. 2019 Biomass-Based Diesel
    In EISA, Congress specified increasing applicable volumes of BBD
through 2012. Beyond 2012 Congress stipulated that EPA, in coordination
with DOE and USDA, was to establish the BBD volume taking into
consideration implementation of the program to date and various
specified factors, providing that the required volume for BBD could not
be less than 1.0 billion gallons. For 2013, EPA established an
applicable volume of 1.28 billion gallons. For 2014 and 2015 we
established the BBD volume requirement to reflect the actual volume for
each of these years of 1.63 and 1.73 billion gallons.\11\ For 2016 and
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons
respectively. Finally, for 2018 the BBD volume requirement was set at
2.1 billion gallons. We proposed to maintain this level for 2019.
---------------------------------------------------------------------------

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

    Given current and recent market conditions, the advanced biofuel
volume requirement is driving the production and use of biodiesel and
renewable diesel volumes over and above volumes required through the
separate BBD standard, and we expect this to continue. For 2019, EPA
continues to believe that it would still be appropriate to provide a
floor above the statutory minimum of 1 billion gallons to provide a
guaranteed level of support for the continued production and use of
BBD. However, we also believe that the volume of BBD supplied in
previous years demonstrates that the advanced biofuel standard is
capable of incentivizing additional supply of these fuels above the
volume required by the BBD standard. Thus, based on a review of the
implementation of the program to date and all the factors required
under the statute, and in coordination with USDA and DOE, we are
finalizing an applicable volume of BBD for 2019 at the proposed volume
of 2.1 billion gallons.
7. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage
and are used by each producer and importer of fossil-based gasoline or
diesel to determine their renewable fuel volume obligations.
    Four separate percentage standards are required under the RFS
program, corresponding to the four separate renewable fuel categories
shown in Table I.A-1. The specific formulas we use in calculating the
renewable fuel percentage standards are contained in the regulations at
40 CFR 80.1405. The percentage standards represent the ratio of the
national applicable volume of renewable fuel volume to the national
projected non-renewable gasoline and diesel volume less any gasoline
and diesel attributable to small refineries granted an exemption prior
to the date that the standards are set. The volume of transportation
gasoline and diesel used to calculate the percentage standards was
based on a letter provided to the EPA by EIA, as required by
statute.\12\ The percentage standards for 2018 are shown in Table
I.B.7-1. Detailed calculations can be found in Section VII, including
the projected gasoline and diesel volumes used.
---------------------------------------------------------------------------

    \12\ ``Letter from EIA to EPA on 2018 projected volumes,''
available in docket EPA-HQ-OAR-2017-0091.

             Table I.B.7-1--Final 2018 Percentage Standards
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel......................................          0.159%
Biomass-based diesel....................................           1.74%
Advanced biofuel........................................           2.37%
Renewable fuel..........................................          10.67%
------------------------------------------------------------------------

8. Assessment of Aggregate Compliance
    By November 30 of each year we are required to assess the status of
the aggregate compliance approach to land use restrictions under the
definition of renewable biomass for both the U.S. and Canada. In
today's action we are providing the final announcements for these
administrative actions. As described in Section VIII.A, based on data
provided by the USDA and using the methodology in place since 2014, we
have estimated that U.S. agricultural land totaled approximately 376
million acres in 2017 and thus did not exceed the 2007 baseline
acreage. This assessment means that the aggregate compliance provision
can continue to be used in the U.S. for calendar year 2018.
    On September 29, 2011, EPA approved the use of a similar aggregate
compliance approach for planted crops and crop residue grown in Canada.
As

described in Section VIII.B, based on data provided by Canada, we have
estimated that Canadian agricultural land totaled approximately 117.8
million acres in 2017 and thus did not exceed the 2007 baseline
acreage. This assessment means that the aggregate compliance provision
can continue to be used in Canada for calendar year 2018.

II. Authority and Need for Waiver of Statutory Applicable Volumes

    The CAA provides EPA with the authority to enact volume
requirements below the applicable volume targets specified in the
statute under specific circumstances. This section discusses those
authorities.

A. Statutory Authorities for Reducing Volume Targets

    In CAA section 211(o)(2), Congress specified increasing annual
volume targets for total renewable fuel, advanced biofuel, and
cellulosic biofuel for each year through 2022, and for BBD through
2012, and authorized EPA to set volume requirements for subsequent
years in coordination with USDA and DOE, and after consideration of
specified factors. However, Congress also recognized that under certain
circumstances it would be appropriate for EPA to set volume
requirements at a lower level than reflected in the statutory volume
targets, and thus provided waiver provisions in CAA section 211(o)(7).
1. Cellulosic Waiver Authority
    Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines
that the projected volume of cellulosic biofuel production for a given
year is less than the applicable volume specified in the statute, that
EPA must reduce the applicable volume of cellulosic biofuel required to
the projected production volume for that calendar year. In making this
projection, EPA may not ``adopt a methodology in which the risk of
overestimation is set deliberately to outweigh the risk of
underestimation'' and must make a projection that ``aims at accuracy.''
API v. EPA, 706 F.3d 474, 479 (D.C. Cir. 2013). Pursuant to this
provision, EPA has set the cellulosic biofuel requirement lower than
the statutory volumes for each year since 2010. As described in Section
III.D, the projected volume of cellulosic biofuel production for 2018
is less than the 7.0 billion gallon volume target in the statute.
Therefore, for 2018, we are setting the cellulosic biofuel volume
requirement at a level lower than the statutory applicable volume, in
accordance with this provision.
    CAA section 211(o)(7)(D)(i) also provides EPA with the authority to
reduce the applicable volume of total renewable fuel and advanced
biofuel in years when it reduces the applicable volume of cellulosic
biofuel under that provision. The reduction must be less than or equal
to the reduction in cellulosic biofuel. For 2018, we are also reducing
the applicable volumes of advanced biofuel and total renewable fuel
under this authority.
    The cellulosic waiver authority is discussed in detail in the
preamble to the 2017 final rule and that discussion is incorporated by
reference.\13\ See also, API v. EPA, 706 F.3d 474 (D.C. Cir. 2013)
(requiring that EPA's cellulosic biofuel projections reflect a neutral
aim at accuracy), Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014)
(affirming EPA's broad discretion under the cellulosic waiver authority
to reduce volumes of advanced biofuel and total renewable fuel), and
Americans for Clean Energy v. EPA (``ACE''), 864 F.3d 691 (D.C. Cir.
2017) (discussed below).
---------------------------------------------------------------------------

    \13\ See 81 FR 89752-89753 (December 12, 2016).
---------------------------------------------------------------------------

    In ACE, the court evaluated EPA's use of the cellulosic waiver
authority in the 2014-2016 annual rulemaking to reduce the advanced
biofuel and total renewable fuel volumes for 2014, 2015, and 2016.
There, EPA used the cellulosic waiver authority to reduce the standard
for advanced biofuel to a volume that was reasonably attainable, and
then provided a comparable reduction under this authority for total
renewable fuel.\14\ The Court of Appeals for the District of Columbia,
relying on the analysis in Monroe Energy, reaffirmed that EPA enjoys
``broad discretion'' under the cellulosic waiver authority ``to
consider a variety of factors--including demand-side constraints in the
advanced biofuels market.'' \15\ The Court noted that the only textual
limitation on the use of the cellulosic waiver authority is that it
cannot exceed the amount of the reduction in cellulosic biofuel.\16\
The Court contrasted the general waiver authority under CAA section
211(o)(7)(A) and the biomass based diesel waiver authority under CAA
section 211(o)(7)(E), which ``detail the considerations and procedural
steps that EPA must take before waiving fuel requirements,'' with the
cellulosic waiver authority, which identifies no factors regarding
reductions in advanced and total renewable fuel other than the
limitation that any such reductions may not exceed the reduction in
cellulosic biofuel volumes.\17\ The Court also concluded that the scope
of EPA's discretionary authority to reduce advanced and total volumes
is the same under the cellulosic waiver provision whether EPA is
declining to exercise its authority to waive volumes, or choosing to do
so.\18\
---------------------------------------------------------------------------

    \14\ See 80 FR 77433-34 (December 14, 2015).
    \15\ ACE at 730.
    \16\ Id. at 733.
    \17\ Id.
    \18\ Id.
---------------------------------------------------------------------------

    In this action we are reducing the statutory volume targets for
advanced biofuels and total renewable fuel by equal amounts, as was our
approach in using the cellulosic waiver authority in setting the 2014-
2017 standards. EPA's reasoning for an equal reduction is explained in
the 2017 final rule.\19\ We have made a determination, as described in
Section IV, that the applicable volume for advanced biofuels specified
in the statute for 2018 cannot be achieved and we are exercising our
cellulosic waiver authority to lower the applicable volume of advanced
biofuel, and to provide an equal reduction in the applicable volume of
total renewable fuel. In addition, we have determined that there is
likely to be adequate supply to satisfy the total renewable fuel volume
derived through applying an equal volume reduction as for advanced
biofuel as discussed in Section V. Therefore, we have determined that
no further reductions of the total renewable fuel volume requirement
are necessary to address supply concerns.\20\ The resulting volumes of
advanced and total renewable fuel resulting from this exercise of the
cellulosic waiver authority provide for an implied volume allowance for
conventional biofuel of fifteen billion gallons, equal to that
envisioned by Congress for 2018.
---------------------------------------------------------------------------

    \19\ See 81 FR 89752-89753 (December 12, 2016). See also, 78 FR
49809-49810 (August 15, 2013); 80 FR 77434 (December 14, 2015).
    \20\ As described in the Response to Comments document
accompanying this action, we have also determined that additional
waivers are not appropriate to address either severe economic or
severe environmental harm.
---------------------------------------------------------------------------

2. General Waiver Authority
    Section 211(o)(7)(A) of the CAA provides that EPA, in consultation
with the Secretary of Agriculture and the Secretary of Energy, may
waive the applicable volumes specified in the Act in whole or in part
based on a petition by one or more States, by any person subject to the
requirements of the Act, or by the EPA Administrator on his own motion.
Such a waiver must be based on a determination by the Administrator,
after public notice and opportunity for comment that: (1)
Implementation of the requirement would severely harm the

economy or the environment of a State, a region, or the United States;
or (2) there is an inadequate domestic supply.
    In the October 4 document, EPA sought comment on the possible use
of the general waiver authority to reduce volumes of advanced biofuel
and total renewable fuel for the 2018 standards below the levels
proposed in the 2018 NPRM.\21\ The October 4 document provided
information on historic domestic production, imports, and exports of
advanced biofuel, as well as additional information, and sought comment
on how that information could inform a potential determination of
inadequate domestic supply or severe economic harm.
---------------------------------------------------------------------------

    \21\ See 82 FR 46174 (October 4, 2017).
---------------------------------------------------------------------------

    Based on an evaluation of supply and potential economic impact of
the volumes of advanced and total renewable fuel that result after use
of the cellulosic waiver authority, comments from stakeholders, and as
further discussed in Section V, EPA is not using the general waiver
authority on the basis of severe economic or environmental harm or
inadequate domestic supply to further reduce those volumes for 2018.
EPA's response to comments addressing possible use of the general
waiver authority are provided in a memorandum to the docket \22\ and in
the Response to Comments (RTC) document accompanying this action.
---------------------------------------------------------------------------

    \22\ ``Assessment of waivers for severe economic harm or BBD
prices for 2018,'' memorandum from David Korotney to docket EPA-HQ-
OAR-2017-0091.
---------------------------------------------------------------------------

3. Biomass-Based Diesel Waiver Authority
    Section 211(o)(7)(E)(ii) of the CAA provides that if EPA determines
that there is a significant renewable feedstock disruption or other
market circumstance that would make the price of BBD increase
significantly, EPA shall, in consultation with the Secretary of Energy,
and the Secretary of Agriculture, issue an order to reduce, for up to a
60-day period, the annual volume requirement for BBD by an appropriate
quantity that does not exceed 15 percent. The statute also stipulates
that EPA is authorized to reduce applicable volumes of advanced biofuel
and total renewable fuel by the same or a lesser volume than the
reduction in BBD.
    In the October 4 document, EPA sought comment on potential
interpretations of this authority, as well as the potential use of the
BBD waiver authority to reduce the 2018 volume requirement for BBD by
as much as 315 million gallons, and to concurrently reduce the advanced
biofuel and total renewable fuel volume requirements by as much as 473
million gallons. The notice provided information on the price of
biodiesel in light of the expiration of the federal tax credit, and the
potential imposition of new duties on imports of biodiesel from
Argentina and Indonesia.
    As described in the RTC document, EPA has determined that it would
not be appropriate at this time to use the BBD waiver authority. Based
on information provided in comments, as well its own analysis discussed
in Section V, EPA believes that there is an insufficient basis to
support a finding that the biomass based diesel prices currently in the
marketplace, or reasonably anticipated in the immediate future,
represent a ``significant'' increase in prices that would justify use
of this waiver authority.

B. Treatment of Carryover RINs

    Consistent with our approach in the 2013, 2014-16, and 2017 final
rules, we have also considered the availability and role of carryover
RINs in evaluating whether we should exercise our discretion to use the
cellulosic waiver authority in setting the cellulosic, advanced, and
total volume requirements for 2018. Neither the statute nor EPA
regulations specify how or whether EPA should consider the availability
of carryover RINs in exercising the cellulosic waiver authority.\23\ As
noted in the context of the rules establishing the 2014-16 and 2017 RFS
standards, we believe that a bank of carryover RINs is extremely
important in providing obligated parties compliance flexibility in the
face of substantial uncertainties in the transportation fuel
marketplace, and in providing a liquid and well-functioning RIN market
upon which success of the entire program depends.\24\ Carryover RINs
provide flexibility in the face of a variety of circumstances that
could limit the availability of RINs, including weather-related damage
to renewable fuel feedstocks and other circumstances potentially
affecting the production and distribution of renewable fuel.\25\ On the
other hand, carryover RINs can be used for compliance purposes, and in
the context of the 2013 RFS rulemaking we noted that an abundance of
carryover RINs available in that year, together with possible increases
in renewable fuel production and import, justified maintaining the
advanced and total renewable fuel volume requirements for that year at
the levels specified in the statute.\26\ EPA's approach to the
consideration of carryover RINs in exercising our cellulosic waiver
authority was affirmed in Monroe Energy and ACE.\27\
---------------------------------------------------------------------------

    \23\ CAA section 211(o)(5) requires that EPA establish a credit
program as part of its RFS regulations, and that the credits be
valid to show compliance for 12 months as of the date of generation.
EPA implemented this requirement though the use of RINs, which can
be used to demonstrate compliance for the year in which they are
generated or the subsequent compliance year. Obligated parties can
obtain more RINs than they need in a given compliance year, allowing
them to ``carry over'' these excess RINs for use in the subsequent
compliance year, although use of these carryover RINs is limited to
20% of the obligated party's RVO. For the bank of carryover RINs to
be preserved from one year to the next, individual carryover RINs
are used for compliance before they expire and are essentially
replaced with newer vintage RINs that are then held for use in the
next year. For example, if the volume of the collective carryover
RIN bank is to remain unchanged from 2017 to 2018, then all of the
vintage 2017 carryover RINs must be used for compliance in 2018, or
they will expire. However, the same volume of 2018 RINs can then be
``banked'' for use in the next year.
    \24\ See 80 FR 77482-87 (December 14, 2015) and 81 FR 89754-55
(December 12, 2016).
    \25\ See id., and 72 FR 23900 (May 1, 2007).
    \26\ See 79 FR 49794 (August 15, 2013).
    \27\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE at
713.
---------------------------------------------------------------------------

    In the 2018 NPRM, EPA estimated that the size of the carryover RIN
bank was then approximately 2.06 billion carryover RINs (including all
D codes).\28\ We proposed that in light of this relatively limited
volume and the important functions provided by the RIN bank, that we
would not set the volume requirements for 2018 in a manner that would
intentionally lead to a drawdown in the bank of carryover RINs. In
their comments on the 2018 NPRM, parties generally expressed two
opposing points of view. Commenters representing obligated parties
supported EPA's proposed decision to not assume a drawdown in the bank
of carryover RINs in determining the appropriate volume requirements.
These commenters reiterated the importance of maintaining the carryover
RIN bank in order to provide obligated parties with necessary
compliance flexibilities, better market trading liquidity, and a
cushion against future program uncertainty. Commenters representing
renewable fuel producers, however, contended that carryover RINs
represent actual supply and should be accounted

for when establishing the annual volume standards. These commenters
stated that not accounting for carryover RINs goes against
Congressional intent of the RFS program, deters investment in next-
generation biofuels, and ignores other programmatic buffers and
flexibilities such as carry-forward deficits and small refinery
hardship exemptions.\29\
---------------------------------------------------------------------------

    \28\ This was an increase of 520 million RINs from the previous
estimate of 1.54 billion carryover RINs in the 2017 final rule. This
increase in the carryover RIN bank compared to that projected in the
2017 final rule was not due to an underestimate by EPA in the amount
of gasoline, diesel fuel, or ethanol that was consumed in 2016, but
rather was driven almost entirely by a combination of over-
compliance by biodiesel producers facing an expiring biodiesel tax
credit at the end of 2016 and approximately 390 million RINs that
small refineries granted a hardship exemption for 2016 were not
required to retire.
    \29\ A full description of comments received, and our detailed
responses to them, is available in the Response to Comments document
in the docket.
---------------------------------------------------------------------------

1. Updated Projection of Carryover RIN Volume
    Based on currently available information, our estimate of the
carryover RIN bank has increased to 2.22 billion RINs, an increase of
160 million RINs from the previous estimate of 2.06 billion carryover
RINs in the 2018 NPRM.\30\ Part of the update considers small refinery
hardship exemptions for 2016 that were granted since the 2018 NPRM was
issued. These additional small refinery hardship exemptions led to the
return to the RIN marketplace of approximately 125 million 2016 RINs
that would otherwise have been required for compliance by the small
refineries granted an exemption for 2016.
---------------------------------------------------------------------------

    \30\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2018 Final Rule,'' available
in the docket.
---------------------------------------------------------------------------

    The carryover RIN volume is 11.5 percent of the total renewable
fuel volume requirement that EPA is finalizing for 2018, which is less
than the 20 percent maximum limit permitted by the regulations to be
carried over for use in complying with the 2018 standards.\31\ However,
there remains considerable uncertainty surrounding this number for a
number of reasons, including the possible impact of an action to
address the remand in ACE, the possibility of additional small refinery
exemptions, and the impact of 2017 RFS compliance on the bank of
carryover RINs. In addition, 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
and/or renewable fuel exporters settle past enforcement-related
obligations in addition to the annual standards, thereby potentially
creating demand for RINs greater than can be accommodated through
actual renewable fuel blending in 2018. Collectively, the result of
satisfying RFS obligations in 2017 and settling enforcement-related
accounts could be an effective reduction in the size of the collective
bank of carryover RINs. In light of these uncertainties, it is possible
that the net result would be a bank of carryover RINs larger or smaller
than 11.5 percent of the final 2018 total renewable fuel volume
requirement.
---------------------------------------------------------------------------

    \31\ See 40 CFR 80.1427(a)(5).
---------------------------------------------------------------------------

2. EPA's Decision Regarding the Treatment of Carryover RINs
    EPA has decided to maintain the proposed approach, and not set the
volume requirements in the final rule with the intention or expectation
of drawing down the current bank of carryover RINs. In addition, we do
not believe that the availability of carryover RINs, together with the
potential supply of renewable fuel in volumes higher than we are
requiring though this final rule, should lead us to increase the volume
requirements. In finalizing this approach, we carefully considered the
comments received, including on the role of carryover RINs under our
waiver authorities and the policy implications of our decision. While
we have not assumed an intentional drawdown in the overall bank of
carryover RINs owned by obligated parties collectively in establishing
the volume requirements for 2018, we understand that some obligated
parties may choose to sell or use all or part of their individual banks
of carryover RINs. To the extent that they do, other obligated parties
would be in a position to bank carryover RINs by using available
renewable fuel or purchasing RINs representing such fuel, with the
expected net result that the standards adopted in this action will have
no effect on the size of the overall bank of carryover RINs that is
owned collectively by obligated parties.\32\
---------------------------------------------------------------------------

    \32\ We expect that any renewable fuel produced in the U.S. that
is not used to satisfy the 2018 renewable fuel standards will be
exported, thereby not leading to an increase in the bank of 2018
RINs or carryover RINs.
---------------------------------------------------------------------------

    We believe that a balanced consideration of the possible role of
carryover RINs in achieving the statutory volume objectives for
advanced and total renewable fuels, versus maintaining an adequate bank
of carryover RINs for important programmatic functions, is appropriate
when EPA exercises its discretion under the cellulosic waiver
authority, and that the statute does not specify the extent to which
EPA should require a drawdown in the bank of carryover RINs when it
exercises this authority.
    An adequate RIN bank serves to make the RIN market liquid. Just as
the economy as a whole functions best when individuals and businesses
prudently plan for unforeseen events by maintaining inventories and
reserve money accounts, we believe that the RFS program functions best
when sufficient carryover RINs are held in reserve for potential use by
the RIN holders themselves, or for possible sale to others that may not
have established their own carryover RIN reserves. Were there to be no
RINs in reserve, then even minor disruptions causing shortfalls in
renewable fuel production or distribution, or higher than expected
transportation fuel demand (requiring greater volumes of renewable fuel
to comply with the percentage standards that apply to all volumes of
transportation fuel, including the unexpected volumes) could lead to
the need for a new waiver of the standards, undermining the market
certainty so critical to the RFS program. However, a significant
drawdown of the carryover RIN bank leading to a scarcity of RINs may
stop the market from functioning in an efficient manner (i.e., one in
which there are a sufficient number of reasonably available RINs for
obligated parties seeking to purchase them), even where the market
overall could satisfy the standards. For all of these reasons, the
collective carryover RIN bank provides a needed programmatic buffer
that both facilitates individual compliance and provides for smooth
overall functioning of the program.\33\ We have evaluated the volume of
carryover RINs likely available for 2018, and we believe it is prudent
not to intentionally draw down this volume of carryover RINs in
establishing the 2018 standards. In addition, we have considered
whether the current bank of carryover RINs, together with the
additional supply of renewable fuel available in 2018 above the levels
we are requiring be used, would justify reduced use of the cellulosic
waiver authority. For the reasons described above and in Sections IV.C
and D, we do not believe this to be the case.
---------------------------------------------------------------------------

    \33\ Here we use the term ``buffer'' as shorthand reference to
all of the benefits that are provided by a sufficient bank of
carryover RINs.
---------------------------------------------------------------------------

    Therefore, for the reasons noted above, and consistent with the
approach we took in the 2014-2016 and 2017 final rules, we are making a
determination that, under current circumstances, an intentional
drawdown of the carryover RIN bank should not be assumed in
establishing the 2018 volume requirements. In addition, we do not
believe that the

presence of the current bank of carryover RINs, together with
additional potential supplies of renewable fuel in 2018, justifies
reduced use of the cellulosic waiver authority in setting the 2018
advanced biofuel and total renewable fuel volumes. However, we note
that we may or may not take a similar approach in future years; we will
assess the situation on a case-by-case basis going forward, and take
into account the size of the carryover RIN bank in the future and any
lessons learned from implementing past rules.

III. Cellulosic Biofuel Volume for 2018

    In the past several years the cellulosic biofuel industry has
continued to make progress towards increased commercial-scale
production. Cellulosic biofuel production reached record levels in
2016, driven largely by CNG and LNG derived from biogas. Production
volumes have continued to increase in 2017.\34\ While multiple large
cellulosic ethanol facilities struggled to achieve production rates
consistent with their nameplate capacity, several facilities
consistently produced cellulosic ethanol from corn kernel fiber at a
smaller scale during 2016 and 2017. This section describes our
assessment of the volume of cellulosic biofuel that we project will be
produced or imported into the U.S. in 2018, and some of the
uncertainties associated with those volumes.
---------------------------------------------------------------------------

    \34\ The majority of the cellulosic RINs generated for CNG/LNG
are sourced from biogas from landfills; however, the biogas may come
from a variety of sources including municipal wastewater treatment
facility digesters, agricultural digesters, separated MSW digesters,
and the cellulosic components of biomass processed in other waste
digesters.
---------------------------------------------------------------------------

    In the July NPRM, EPA proposed cellulosic volumes based on a
methodology that differed in a couple of important ways from the
approach we used in 2017. We proposed changes to the percentile values
used to project liquid cellulosic biofuel production and a new
industry-wide methodology for projecting the production of CNG/LNG
derived from biogas. For this action, we are finalizing volumes for
2018 based on an approach that is similar, but not identical, to what
we proposed. We discuss the changes we made from proposal to final
below. In our RTC document, we respond to the multiple comments EPA
received on the changes to the cellulosic projection methodology we
proposed in July.
    In order to project the volume of cellulosic biofuel production in
2018 we considered EIA's projection of cellulosic biofuel
production,\35\ comments received on the 2018 NPRM, data reported to
EPA through EMTS, and information we collected through meetings with
representatives of facilities that have produced or have the potential
to produce qualifying volumes of cellulosic biofuel for consumption as
transportation fuel, heating oil, or jet fuel in the U.S. in 2018.
There are two main parts to this projection. To project the range of
potential production volumes of liquid cellulosic biofuel we used the
same methodology as the methodology used in the 2017 final rule.
However, we have adjusted the percentile values used to select a point
estimate within a projected production range for each group of
companies based on recent information, and with the objective of
improving the accuracy of the projections. To project the production of
cellulosic biofuel RINs for CNG/LNG derived from biogas we use the
methodology discussed in the proposed rule with updated data. This
methodology reflects the mature status of this industry, the large
number of facilities registered to generate cellulosic biofuel RINs
from these fuels, and EPA's continued attempts to refine its
methodology to yield estimates that are as accurate as possible. This
methodology is an improvement on the methodology that EPA used to
project cellulosic biofuel production for CNG/LNG derived from biogas
in the 2017 final rule. EPA has updated the list of potential
cellulosic biofuel producers, projected facility start-up dates,
facility capacities, production volumes, and other relevant information
with the most recent information available. The methodologies used to
project the production of liquid cellulosic biofuels and cellulosic
CNG/LNG derived from biogas are described in more detail in Sections
III.D-1 and III.D-2 below.
---------------------------------------------------------------------------

    \35\ ``Letter from EIA to EPA on 2018 projected volumes,''
available in docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    After a brief description of the statutory requirements in Section
III.A, we discuss the companies the EPA reviewed in the process of
projecting qualifying cellulosic biofuel production in the U.S. in 2018
in Section III.B. Section III.C discusses the projection of cellulosic
biofuel production provided to EPA by EIA, and Section III.D discusses
the methodologies used by EPA to project cellulosic biofuel production
in 2018 and the resulting projection of 288 million ethanol-equivalent
gallons.

A. Statutory Requirements

    The volumes of renewable fuel to be produced and used as
transportation fuel under the RFS program each year (absent an
adjustment or waiver by EPA) are specified in CAA section
211(o)(2)(B)(i)(III). The volume of cellulosic biofuel specified in the
statute for 2018 is 7.0 billion gallons. The statute provides that if
EPA determines, based on a letter provided to the EPA by EIA, that the
projected volume of cellulosic biofuel production in a given year is
less than the statutory volume, then EPA shall reduce the applicable
volume of cellulosic biofuel to the projected volume available during
that calendar year.\36\
---------------------------------------------------------------------------

    \36\ The U.S. Court of Appeals for the District of Columbia
Circuit evaluated this requirement in API v. EPA 706 F.3d 474, 479-
480 (D.C. Cir. 2013), in the context of a challenge to the 2012
cellulosic biofuel standard. The Court stated that in projecting
potentially available volumes of cellulosic biofuel EPA must apply
an ``outcome-neutral methodology'' aimed at providing a prediction
of ``what will actually happen.''
---------------------------------------------------------------------------

    In addition, if EPA reduces the required volume of cellulosic
biofuel below the level specified in the statute, the Act also
indicates that we may reduce the applicable volumes of advanced
biofuels and total renewable fuel by the same or a lesser volume, and
we are required to make cellulosic waiver credits available.\37\ Our
consideration of the 2018 volume requirements for advanced biofuel and
total renewable fuel is presented in Section IV.
---------------------------------------------------------------------------

    \37\ See 40 CFR 80.1456.
---------------------------------------------------------------------------

B. Cellulosic Biofuel Industry Assessment

    In order to project cellulosic biofuel production for 2018, we have
tracked the progress of several dozen potential cellulosic biofuel
production facilities. As we have done in previous years, we have
focused on facilities with the potential to produce commercial-scale
volumes of cellulosic biofuel rather than small research and
development (R&D) or pilot-scale facilities. Larger commercial-scale
facilities are much more likely to generate RINs for the fuel they
produce and the volumes they produce will have a far greater impact on
the cellulosic biofuel standard for 2018. The volume of cellulosic
biofuel produced from R&D and pilot-scale facilities is quite small in
relation to that expected from the commercial-scale facilities. R&D and
demonstration-scale facilities have also generally not generated RINs
for the fuel they have produced in the past. Their focus is on
developing and demonstrating the technology, not producing commercial
volumes. RIN generation from R&D and pilot-scale facilities in previous
years has not contributed significantly to the overall number of
cellulosic RINs generated.\38\ We have therefore not

considered production from R&D and pilot-scale facilities in our
projection of cellulosic biofuel production for 2018.
---------------------------------------------------------------------------

    \38\ While a few small R&D and pilot scale facilities have
registered as cellulosic RIN generators, total production from each
of these facilities from 2011 through September 2017 has been less
than 150,000 RINs. This is approximately 1% of all liquid cellulosic
biofuel production through September 2017.
---------------------------------------------------------------------------

    From this list of commercial-scale facilities we used information
from EMTS, publicly available information (including press releases and
news reports), comments on the 2018 NPRM, information from EIA, and
information provided by representatives of potential cellulosic biofuel
producers, to make a determination of which facilities are most likely
to produce liquid cellulosic biofuel and generate cellulosic biofuel
RINs in 2018. Each of these companies was investigated further in order
to determine the current status of its facilities and its likely
cellulosic biofuel production and RIN generation volumes for 2018. Both
in our discussions with representatives of individual companies and as
part of our internal evaluation process we gathered and analyzed
information including, but not limited to, the funding status of these
facilities, current status of the production technologies, anticipated
construction and production ramp-up periods, facility registration
status, and annual fuel production and RIN generation targets.
    As an initial matter, it is useful to review the success of EPA's
recent cellulosic biofuel projections. EPA used a consistent
methodology to project cellulosic biofuel production in the final three
months of 2015 and in 2016 and 2017.\39\ The record of actual
production indicates that EPA's projection was lower than the actual
number of cellulosic RINs made available in 2015,\40\ and higher than
the actual number of RINs made available in 2016.\41\ While we
currently only have data available through September 2017, it appears
likely that the number of cellulosic RINs made available in 2017 will
fall short of EPA's projection in our 2017 final rule.\42\ The fact
that the projections made using this methodology have been somewhat
inaccurate, under-estimating the actual number of RINs made available
in 2015 and over-estimating in 2016 and (most likely) 2017, reflects
the inherent difficulty with projecting cellulosic biofuel production.
It also emphasizes the importance of continuing to make refinements to
our projection methodology in an effort to produce accurate
projections.
---------------------------------------------------------------------------

    \39\ This methodology is most recently described in the 2017
final rule. See 81 FR 89746, 89755 (December 12, 2016).
    \40\ EPA only projected cellulosic biofuel production for the
final three months of 2015, since data on the availability of
cellulosic biofuel RINs (D3+D7) for the first nine months of the
year were available at the time the analyses were completed for the
final rule.
    \41\ EPA projected that 123 million and 230 million cellulosic
RINs would be generated in 2015 and 2016, respectively. The number
of available cellulosic RINs in these years (RINs generated minus
RINs retired for non-compliance reasons) was 140 and 190 million
RINs. See ``Assessment of the Accuracy of Cellulosic Biofuel
Production Projections in 2015 and 2016 (June 2017 Update),''
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091 for more detail.
    \42\ Additional information on our current projection of
cellulosic biofuel production for 2017 can be found in ``Calculating
the Percentile Values Used to Project Liquid Cellulosic Biofuel
Production,'' memorandum from Dallas Burkholder to EPA Air Docket
EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    EPA's projections of liquid cellulosic biofuel were higher than the
actual volume of liquid cellulosic biofuel produced in both 2015 and
2016, and appear likely to be higher than actual liquid cellulosic
biofuel production in 2017. We believe this recent data warrants a
change to the percentile values used to project liquid cellulosic
biofuel from the percentile values used in prior years in an effort to
take into account the most recent data available and make the
projections for 2018 more accurate. We are therefore adjusting the
percentile values used to project liquid cellulosic biofuel production
based on actual liquid cellulosic biofuel production in 2016 and
through September 2017. Use of this updated data also results in
different percentile values than we proposed to use for 2018. We
believe that the use of the methodology (described in the 2018 NPRM and
in Section III.D.1 below), with the adjusted approach to developing the
percentile values used to project production volumes for liquid
cellulosic biofuels, results in a projection that reflects a neutral
aim at accuracy since it accounts for expected growth in the near
future by using historical data that is free of any subjective bias.
    In previous years, we used the same general methodology for CNG/LNG
derived from biogas as for liquid cellulosic biofuel, but used
different percentile values to project CNG/LNG derived from biogas and
liquid cellulosic biofuels, reflecting the more established nature of
the CNG/LNG industry relative to liquid cellulosic biofuel production.
For 2018, EPA proposed using an industry-wide approach, rather than an
approach that projects volumes for individual companies or facilities,
to project the production of CNG/LNG derived from biogas. This updated
approach reflects the fact that this industry is far more mature than
the liquid cellulosic biofuel industry, and that there are a large
number of facilities registered to generate cellulosic biofuel RINs
from biogas, rendering a facility-by-facility analysis difficult and
unnecessary for purposes of accuracy.\43\ As described in Section
III.D.2 below, EPA is instead calculating a year-over-year rate of
growth in the renewable CNG/LNG industry by comparing RIN generation
for CNG/LNG derived from biogas from October 2015-September 2016 to the
RIN generation for these same fuels from October 2016-September 2017
(the most recent month for which data are available. We then apply this
year-over-year growth rate to the total number of cellulosic RINs
available for compliance from CNG/LNG in 2016 (the most recent year for
which complete data are available), to estimate the production of CNG/
LNG derived from biogas in 2018.\44\
---------------------------------------------------------------------------

    \43\ EPA received a large number of affidavits from companies
that produce (or intend to produce) CNG/LNG derived from biogas as
comments on our proposed rule. These affidavits are publicly
available as part of the comments submitted by the Coalition for
Renewable Natural Gas. EPA reviewed and considered the information
contained in these affidavits in establishing the required volume of
cellulosic biofuel for 2018. These affidavits confirmed that it was
reasonable to believe that the relatively high year-over-year rate
of growth used to project volumes of CNG/LNG derived from biogas for
2018 could be achieved based on a number of project expansions and
new projects expected to begin producing CNG/LNG derived from biogas
in 2018.
    \44\ Historically RIN generation for CNG/LNG derived from biogas
has increased each year. It is possible, however, that RIN
generation for these fuels in the most recent 12 months for which
data are available could be lower than the preceding 12 months. We
believe our methodology accounts for this possibility. In such a
case, the calculated rate of growth would be negative.
---------------------------------------------------------------------------

    The remainder of this section discusses the companies and
facilities EPA expects to be in a position to produce commercial-scale
volumes of cellulosic biofuel by the end of 2018 and describes in more
detail the methodology EPA is using to project cellulosic biofuel
production in 2018 (including a review of cellulosic biofuel production
and the accuracy of the projection methodology in previous years).
1. Potential Domestic Producers
    There are a number of companies and facilities \45\ located in the
U.S. that have either already begun producing cellulosic biofuel for
use as transportation fuel, heating oil, or jet fuel at a commercial
scale, or are anticipated to be in a position to do so

at some time during 2018. The financial incentive provided by
cellulosic biofuel RINs,\46\ combined with the facts that to date
nearly all cellulosic biofuel produced in the U.S. has been used
domestically \47\ and all the domestic facilities we have contacted in
deriving our projections intend to produce fuel on a commercial scale
for domestic consumption and plan to use approved pathways, gives us a
high degree of confidence that cellulosic biofuel RINs will be
generated for any fuel produced by domestic commercial scale
facilities. In order to generate RINs, each of these facilities must be
registered with EPA under the RFS program and comply with all the
regulatory requirements. This includes using an approved RIN-generating
pathway and verifying that their feedstocks meet the definition of
renewable biomass. Most of the domestic companies and facilities
considered in our assessment of potential cellulosic biofuel producers
in 2018 have already successfully completed facility registration, and
many have successfully generated RINs.\48\ A brief description of each
of the domestic companies (or group of companies for cellulosic CNG/LNG
producers) that EPA believes may produce commercial-scale volumes of
RIN generating cellulosic biofuel by the end of 2018 can be found in a
memorandum to the docket for this final rule.\49\ General information
on each of these companies or group of companies considered in our
projection of the potentially available volume of cellulosic biofuel in
2018 is summarized in Table III.B.3-1 below.
---------------------------------------------------------------------------

    \45\ The volume projection from CNG/LNG producers does not
represent production from a single company or facility, but rather a
group of facilities utilizing the same production technology.
    \46\ According to data from Argus Media, the price for 2017
cellulosic biofuel RINs averaged $2.73 in 2017 (through September
2017). Alternatively, obligated parties can obtain a RIN value
equivalent to a cellulosic biofuel RIN by purchasing an advanced (or
biomass-based diesel) RIN and a cellulosic waiver credit. The price
for 2017 advanced biofuel RINs averaged $1.00 in 2017 (through
September 2017) while the price for a 2017 cellulosic waiver credit
is $2.00.
    \47\ The only known exception was a small volume of fuel
produced at a demonstration scale facility exported to be used for
promotional purposes.
    \48\ Many of the facilities listed in Table III.B.3-1 are
registered to produce cellulosic (D3 or D7) RINs with the exception
of several of the producers of CNG/LNG derived from biogas, many of
the facilities projected to produce cellulosic ethanol using
Edeniq's technology, Enerkem's Edmonton facility, and Ensyn's Port-
Cartier, Quebec facility.
    \49\ ``Cellulosic Biofuel Producer Company Descriptions
(November 2017),'' memorandum from Dallas Burkholder to EPA Air
Docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located
in the U.S., there are several foreign cellulosic biofuel companies
that may produce cellulosic biofuel in 2018. These include facilities
owned and operated by Beta Renewables, Enerkem, Ensyn, GranBio, and
Raizen. All of these facilities use fuel production pathways that have
been approved by EPA for cellulosic RIN generation provided eligible
sources of renewable feedstock are used and other regulatory
requirements are satisfied. These companies would therefore be eligible
to register their facilities under the RFS program and generate RINs
for any qualifying fuel imported into the U.S. While these facilities
may be able to generate RINs for any volumes of cellulosic biofuel they
import into the U.S., demand for the cellulosic biofuels they produce
is expected to be high in their own local markets.
    EPA is charged with projecting the volume of cellulosic biofuel
that will be produced or imported into the U.S.\50\ For the purposes of
this final rule we have considered all of the registered foreign
facilities under the RFS program to be potential sources of cellulosic
biofuel in 2018. We believe that due to the strong demand for
cellulosic biofuel in local markets, the significant technical
challenges associated with the operation of cellulosic biofuel
facilities, and the time necessary for potential foreign cellulosic
biofuel producers to register under the RFS program and arrange for the
importation of cellulosic biofuel to the U.S., cellulosic biofuel
imports from foreign facilities not currently registered to generate
cellulosic biofuel RINs are generally highly unlikely in 2018. For
purposes of our 2018 cellulosic biofuel projection we have, with two
exceptions (described below), excluded potential volumes from foreign
cellulosic biofuel production facilities that are not currently
registered under the RFS program.
---------------------------------------------------------------------------

    \50\ EPA has consistently interpreted the ``projected volume of
cellulosic biofuel production'' required in CAA section 211(o)(7)(D)
to include volumes of cellulosic biofuel likely to be made available
in the United States, including from both domestic production and
imports (see 80 FR 77420 (December 14, 2015) and 81 FR 89746
(December 12, 2016)). We do not believe it would be reasonable to
include in the projection all cellulosic biofuel produced throughout
the world, regardless of likelihood of import to the United States,
since volumes that are not imported would not be available to
obligated parties for compliance and including them in the
projection would render the resulting volume requirement and
percentage standards unachievable.
---------------------------------------------------------------------------

    Cellulosic biofuel produced at four foreign facilities (Ensyn's
Renfrew facility, GranBio's Brazilian facility, and the CNG/LNG
facilities Complexe Enviro Progressive Ltee and Saint-Thomas Biomethane
Plant) generated cellulosic biofuel RINs for fuel exported to the U.S.
in 2017; projected volumes from each of these facilities are included
in our projection of available volumes for 2018. EPA has also included
projected volume from two foreign facilities (Enerkem's Canadian
facility and Ensyn's Port-Cartier, Quebec facility) that are not
currently registered to generate cellulosic biofuel RINs under the RFS
program. We believe that it is appropriate to include volume from these
facilities in light of their proximity to the U.S., the proven
technology used by these facilities, the volumes of cellulosic biofuel
exported to the U.S. by the company in previous years (in the case of
Ensyn), and the company's stated intentions to market fuel produced at
these facilities to qualifying markets in the U.S. One additional
foreign facility (Raizen's Costa Pinto) has registered as a cellulosic
biofuel producer, but has not yet generated any cellulosic RINs. EPA
attempted to contact representatives from this facility to inquire
about their intentions to export cellulosic biofuel to the U.S. in
2018, but received no response. We have therefore not projected any
cellulosic biofuel exports from this facility to the U.S. in 2018. All
of the facilities included in EPA's cellulosic biofuel projection for
2018 are listed in Table III.B.3-1 below.
3. Summary of Volume Projections for Individual Companies
    General information on each of the cellulosic biofuel producers (or
group of producers in the case of producers of CNG/LNG derived from
biogas and liquid cellulosic biofuel facilities using Edeniq's
technology) that factored into our projection of cellulosic biofuel
production for 2018 is shown in Table III.B.3-1. This table includes
both facilities that have already generated cellulosic RINs, as well as
those that have not yet generated cellulosic RINs, but are projected to
do so by the end of 2018. As discussed above, we have focused on
commercial-scale cellulosic biofuel production facilities. Each of
these facilities (or group of facilities) is discussed further in a
memorandum to the docket.\51\ In addition to the facilities (or groups
of facilities) discussed in Table III.B.3-1 below, EPA is aware of an
additional technology that may be used to produce qualifying cellulosic
biofuel in 2018. Multiple companies, in addition to Edeniq and Quad
County Corn Processors, are working to

commercialize technology to convert corn kernel fiber to cellulosic
ethanol at existing corn ethanol facilities. At this point, however,
none of these other companies have successfully registered a facility
to generate cellulosic RINs using their technology.\52\ In light of the
significant challenges associated with accurately and reliably
determining the conversion of cellulosic feedstocks to biofuel in
processes that simultaneously convert both cellulosic and non-
cellulosic feedstocks, EPA has included volumes of cellulosic biofuel
associated with the simultaneous conversion of corn kernel fiber and
corn starch only in cases where the facilities intend to use a
technology with a methodology for quantifying the volume of ethanol
produced form the cellulosic fraction of corn fiber that has been
approved by EPA (Quad County Corn Processors and facilities using
Edeniq's technology).
---------------------------------------------------------------------------

    \51\ ``Cellulosic Biofuel Producer Company Descriptions
(November 2017),'' memorandum from Dallas Burkholder to EPA Air
Docket EPA-HQ-OAR-2017-0091.
    \52\ A significant issue that must be resolved to register a
facility to produce cellulosic biofuel from corn kernel fiber at an
existing ethanol production facility is the quantification of the
volume of ethanol produced from cellulosic feedstocks rather than
non-cellulosic feedstocks such as starch. Until these companies
develop a methodology for quantifying cellulosic biofuel production
that is approved by EPA we do not believe it is appropriate to
include an estimate of cellulosic biofuel production from these
facilities in our projection of cellulosic biofuel production in
2018.

                                           Table III.B.3-1--Projected Producers of Cellulosic Biofuel by 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Facility capacity
          Company name                 Location            Feedstock             Fuel          (million gallons   Construction start   First production
                                                                                per year) \53\           date                \54\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \55\..........  Various...........  Biogas............  CNG/LNG...........  Various...........  N/A...............  August 2014.
Edeniq..........................  Various...........  Corn Kernel Fiber.  Ethanol...........  Various...........  Various...........  October 2016.
Enerkem.........................  Edmonton, AL,       Separated MSW.....  Ethanol...........  10 \56\...........  2012..............  September
                                   Canada.                                                                                2017.\57\
Ensyn...........................  Renfrew, ON,        Wood Waste........  Heating Oil.......  3.................  N/A...............  2014.
                                   Canada.
Ensyn...........................  Port-Cartier, QC,   Wood Waste........  Heating Oil.......  10.5..............  June 2016.........  January 2018.
                                   Canada.
GranBio.........................  S[atilde]o Miguel   Sugarcane bagasse.  Ethanol...........  21................  Mid 2012..........  September 2014.
                                   dos Campos,
                                   Brazil.
Poet-DSM........................  Emmetsburg, IA....  Corn Stover.......  Ethanol...........  20................  March 2012........  4Q 2015.
QCCP............................  Galva, IA.........  Corn Kernel Fiber.  Ethanol...........  4.................  Late 2013.........  October 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Projection From the Energy Information Administration
---------------------------------------------------------------------------

    \53\ The Facility Capacity is generally equal to the nameplate
capacity provided to EPA by company representatives or found in
publicly available information. If the facility has completed
registration and the total permitted capacity is lower than the
nameplate capacity then this lower volume is used as the facility
capacity. For companies generating RINs for CNG/LNG derived from
biogas the Facility Capacity is equal to the lower of the annualized
rate of production of CNG/LNG from the facility at the time of
facility registration or the sum of the volume of contracts in place
for the sale of CNG/LNG for use as transportation fuel (reported as
the actual peak capacity for these producers).
    \54\ Where a quarter is listed for the first production date EPA
has assumed production begins in the middle month of the quarter
(i.e., August for the 3rd quarter) for the purposes of projecting
volumes.
    \55\ For more information on these facilities see ``November
2017 Assessment of Cellulosic Biofuel Production from Biogas
(2018),'' memorandum from Dallas Burkholder to EPA Air Docket EPA-
HQ-OAR-2017-0091.
    \56\ The nameplate capacity of Enerkem's facility is 10 million
gallons per year. However, we anticipate that a portion of their
feedstock will be non-biogenic MSW. RINs cannot be generated for the
portion of the fuel produced from non-biogenic feedstocks. We have
taken this into account in our production projection for this
facility.
    \57\ This date reflects the first production of ethanol from
this facility. The facility began production of methanol in 2015.
---------------------------------------------------------------------------

    Section 211(o)(3)(A) of the CAA requires EIA to ``. . . provide to
the Administrator of the Environmental Protection Agency an estimate,
with respect to the following calendar year, of the volumes of
transportation fuel, biomass-based diesel, and cellulosic biofuel
projected to be sold or introduced into commerce in the U.S.'' EIA
provided these estimates to EPA on October 11, 2017.\58\ With regard to
cellulosic biofuel, the EIA estimated that the available volume in 2018
would be 13 million gallons.
---------------------------------------------------------------------------

    \58\ ''Letter from EIA to EPA on 2018 projected volumes,''
available in docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    In their letter, EIA did not identify the facilities on which their
estimate of cellulosic biofuel production was based. EIA did, however,
indicate in their letter that they included neither estimates of
cellulosic biofuel produced by foreign entities and imported into the
U.S., nor estimates of cellulosic heating oil or CNG/LNG produced from
biogas, which together represent approximately 96 percent of our
projected cellulosic biofuel volume for 2017. When limiting the scope
of our projection to the companies assessed by EIA, we note that while
our volume projections are not identical, they are very similar. EPA
projects approximately 10 million gallons of liquid cellulosic biofuel
will be produced domestically in 2017 (when excluding heating oil, as
EIA did in their estimate of cellulosic biofuel production). EIA did
not provide detail on the basis of their projections, so we cannot say
precisely why EPA and EIA's projections differ. We further note that if
we used EIA's projections for domestic liquid cellulosic biofuel
production without modification in place of our own assessment of these
facilities the impact on the cellulosic biofuel standard overall for
2018 would be approximately 1%.\59\
---------------------------------------------------------------------------

    \59\ If EPA increased our projection of liquid cellulosic
biofuel produced in the United States in 2018 (excluding heating
oil) to 13 million gallons to be consistent with EIA's projection
our total projected volume of cellulosic biofuel would increase by 3
million gallons. This is approximately 1% of the total volume of
cellulosic biofuel projected to be produced in 2018 (3/288 = 0.01).
---------------------------------------------------------------------------

D. Cellulosic Biofuel Volume for 2018

1. Liquid Cellulosic Biofuel
    For our 2018 liquid cellulosic biofuel projection, we use the same
general approach as we have in projecting these volumes in previous
years. We begin by first categorizing potential liquid cellulosic
biofuel producers in 2018 according to whether or not they have
achieved consistent commercial scale production of cellulosic biofuel
to date. Next we define a range of likely production volumes for 2018
for each group of companies. Finally, we use a percentile value to
project from the established range a single projected production volume
for each group of

companies in 2018. As explained below, however, we are using a
different approach to selection of the appropriate percentile values
for purposes of this rule than we have used in prior years. In this
final rule we have used the most recent data available to determine
which facilities are likely to produce liquid cellulosic biofuel in
2018, categorize the companies according to whether or not they have
consistently produced commercial scale volumes of liquid cellulosic
biofuels, adjust the projected production range for each group of
companies, and adjust the percentile values used for each group of
companies. This methodology is briefly described here, and is described
in detail in memos to the docket.\60\
---------------------------------------------------------------------------

    \60\ ``November 2017 Liquid Cellulosic Biofuel Projections for
2018 CBI'' and ``Calculating the Percentile Values Used to Project
Liquid Cellulosic Biofuel Production,'' memorandums from Dallas
Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091.
---------------------------------------------------------------------------

    Consistent with our approach in previous years, we separated the
list of potential producers of cellulosic biofuel (listed in Table
III.B.3-1) into two groups according to whether or not the facilities
have achieved consistent commercial-scale production and cellulosic
biofuel RIN generation. We next defined a range of likely production
volumes for each group of potential cellulosic biofuel producers. The
low end of the range for each group of producers reflects actual RIN
generation data over the last 12 months for which data are available at
the time our technical assessment was completed (October 2016-September
2017). For potential producers that have not yet generated any
cellulosic RINs, the low end of the range is zero. For the high end of
the range of production volumes for companies expected to produce
liquid cellulosic biofuel we considered a variety of factors, including
the expected start-up date and ramp-up period,\61\ facility capacity.
The projected range for the groups of companies considered in our 2018
cellulosic biofuel projection are shown in Tables III.D.1-1 and
III.D.1-2 below.\62\
---------------------------------------------------------------------------

    \61\ As in our 2015-2017 projections, EPA calculated a high end
of the range for each facility (or group of facilities) based on the
expected start-up date and a six-month straight line ramp-up period.
The high end of the range for each facility (or group of facilities)
is equal to the value calculated by EPA using this methodology, or
the number of RINs the producer expects to generate in 2018,
whichever is lower.
    \62\ More information on the data and methods EPA used to
calculate each of the ranges in these tables in contained in
``November 2017 Liquid Cellulosic Biofuel Projections for 2018 CBI''
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091. Unlike in previous years, we have not shown the projected
ranges for each individual company. This is because the high end of
the range for some of these companies are based on the company's
production projections, which they consider confidential business
information (CBI). Additionally, the low end of the range for
facilities that have achieved consistent commercial scale production
is based on actual RIN generation data in the most recent 12 months,
with is also claimed as CBI. EPA has included additional information
on the calculations used to define the production ranges, including
the production ranges for each individual company or facility, in a
memo to the docket.

  Table III.D.1-1--2018 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                         Low end of the  High end of the
          Companies included                 range          range \a\
------------------------------------------------------------------------
Facilities using Edeniq's technology                 0               47
 (new facilities), Enerkem, Ensyn
 (Port Cartier facility)..............
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.

  Table III.D.1-2--2018 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                         Low end of the  High end of the
          Companies included               range \a\        range \a\
------------------------------------------------------------------------
Facilities using Edeniq's technology                 7               24
 (active facilities), Ensyn (Renfrew
 facility), Poet-DSM, GranBio, Quad
 County Corn Processors...............
------------------------------------------------------------------------
\a \ Rounded to the nearest million gallons.

    After defining likely production ranges for each group of companies
we next considered the percentile values to use in projecting a
production volume for each group of companies. In the proposed rule, we
used the 1st and 43rd percentile to project production from facilities
that had not yet achieved consistent commercial scale production of
liquid cellulosic biofuels and those that had, respectively, based on
data indicating what percentile of production from within the 2016
projected range facilities included in our 2016 cellulosic biofuel
projection actually achieved. However, for this final rule we are
adjusting the percentile values used to project liquid cellulosic
biofuel production from within the range of projected production
values, by using data on actual liquid cellulosic biofuel production
from both 2016 and 2017 (through September). We believe an adjustment
to the percentile values used to generate a projected production volume
from the range of potential production volumes for each group of
facilities is warranted. EPA's estimates for liquid cellulosic biofuel
exceeded actual production of liquid cellulosic biofuel in both 2015
and 2016.\63\ Further, as discussed in the NPRM we are considering
additional RIN generation data from 2017 that was not available for the
NPRM in this final rule. While we currently only have cellulosic
biofuel production data through September 2017, additional data
available from months after the release of our proposed rule suggests
that further changes to the percentile values used in the NPRM are
likely to result in more accurate projections of cellulosic biofuel
production in 2018. We believe that the adjusted percentile values used

in this final rule will improve the accuracy of the production
projection and will further EPA's objective to project volumes with a
``neutral aim at accuracy.''
---------------------------------------------------------------------------

    \63\ EPA notes that once standards are set based on these
projections, cellulosic biofuel RINs can be generated for either
type of cellulosic biofuel. Cellulosic biofuel RINs generated for
liquid biofuels and CNG/LNG derived from biogas can be used to
satisfy an obligated party's cellulosic biofuel obligation. There
are no separate standards for liquid and gaseous cellulosic
biofuels.
---------------------------------------------------------------------------

    The projected ranges for liquid cellulosic biofuel production in
2016, along with the percentile values used to project a production
volume within the calculated ranges the actual number of cellulosic
RINs generated in 2016 that are available for compliance, and the
percentile values that would have resulted in a projection equal to the
actual production volume are shown in Table III.D.1-3 below.

                                   Table III.D.1-3--Projected and Actual Liquid Cellulosic Biofuel Production in 2016
                                                                    [Million gallons]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Actual
                                                          Low end of the    High end of     Percentile       Projected      production        Actual
                                                               range         the range      (2016 FRM)      production         \64\         percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
New Facilities..........................................               0              76            25th              19            1.06             1st
Consistent Producers \65\...............................               2               5            50th               4            3.28            43rd
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Since the actual production in 2016 was lower than the projected
production for both new facilities and consistent producers, we
determined that for the purposes of our proposed rule it would be
appropriate to adjust the percentiles to attempt to make them more
accurate. To this end, EPA calculated the percentile values that would
have resulted in accurate production projections in 2016 based on the
actual number of cellulosic biofuel RINs generated for liquid
cellulosic biofuels and available for compliance in 2016. These
calculated percentile values are the 1st percentile for new facilities
(replacing in the NPRM the 25th percentile used for 2016 and 2017) and
the 43rd percentile for consistent producers (replacing in the NPRM the
50th percentile used for 2016 and 2017). These percentile values,
however, do not reflect the updated production data EPA has from liquid
cellulosic biofuel producers in 2017.
---------------------------------------------------------------------------

    \64\ Actual production is calculated by subtracting RINs retired
for any reason other than compliance with the RFS standards from the
total number of cellulosic RINs generated.
    \65\ In the 2014-2016 Annual Rule EPA categorized Ensyn and Quad
County Corn Processors as consistent cellulosic biofuel producers
for 2016. All other companies were categorized as new facilities.
This is in contrast to 2018, for which EPA has categorized
additional facilities as consistent cellulosic biofuel producers.
---------------------------------------------------------------------------

    EPA currently only has data on cellulosic biofuel production in
2017 through the end of September. While we believe that any final
assessment of the accuracy of a projection method cannot be made until
complete data for the year are available, we nevertheless believe it is
appropriate to consider data from 2017 and adjust the percentile values
used in the final rule as appropriate. To calculate the percentile
values that would have resulted in a projection equal to the actual
production volume for 2017 we first need to project the volume of
cellulosic biofuel that will be produced in the 4th quarter of 2017 for
each group of facilities.\66\ EPA projected cellulosic biofuel
production in the 4th quarter of 2017 by first comparing cellulosic
biofuel production in the 4th quarter of 2016 to the cellulosic biofuel
production in the first 3 quarters of 2016. In 2016, cellulosic biofuel
production in the 4th quarter (1.25 million gallons) was 40 percent of
cellulosic biofuel production in the first 3 quarters (3.09 million
gallons). We then used this factor, together with actual production
data from the first 3 quarters of 2017 to project cellulosic biofuel
production in the 4th quarter of 2017.\67\ The projected ranges for
liquid cellulosic biofuel production in 2017, along with the percentile
values used to project a production volume within the calculated
ranges, the actual number of cellulosic RINs generated in 2017 that are
available for compliance, and the percentile values that would have
resulted in a projection equal to the actual production volume are
shown in Table III.D.1-4 below. Note that the percentile value that
would have resulted in the projected volume of cellulosic biofuel in
2017 is negative, as the projected volume is lower than the low end of
the range from the 2017 final rule.
---------------------------------------------------------------------------

    \66\ Unlike in the case of CNG/LNG derived from biogas,
discussed in Section III.D.2 below, EPA can only use calendar years,
rather than consecutive 12 month periods to evaluate the accuracy of
the percentile values used in our projections in previous years.
This is because the percentile values are used in conjunction with
the calculated ranges to produce production estimates. The ranges
were defined for the purpose of projecting cellulosic biofuel
production in the context of our annual rules and therefore are
specific to calendar years. Since production in any calendar year is
not expected to be consistent (i.e., with equal production volumes
each month) it is not possible to use the projected ranges from two
calendar years to generate a range for a 12 month period that spans
two calendar years.
    \67\ More detail on these calculations can be found in
``November 2017 Liquid Cellulosic Biofuel Projections for 2018 CBI''
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-
0091.

                                   Table III.D.1-4--Projected and Actual Liquid Cellulosic Biofuel Production in 2017
                                                           [Million gallons through September]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Projected
                                                          Low end of the    High end of     Percentile       Projected      production        Actual
                                                               range         the range      (2017 FRM)      production      (2018 FRM)      percentile
                                                                                (2017 FRM)         \68\
--------------------------------------------------------------------------------------------------------------------------------------------------------
New Facilities..........................................               0              33            25th               8            6.07            18th
Consistent Producers \69\...............................             3.5               7            50th               5            2.85           -18th
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The liquid cellulosic biofuel production data from 2017 indicates

that adjustments to the percentile values used to project cellulosic
biofuel production within the calculated range are appropriate. For
this final rule EPA has projected cellulosic biofuel production from
facilities that have not yet achieved consistent commercial scale
production at the 10th percentile of the calculated range and projected
cellulosic biofuel production from facilities that have achieved
commercial scale production at the 12th percentile.\70\ These
percentiles are calculated by averaging the percentiles that would have
produced cellulosic biofuel projections equal to the volumes produced
by each group of companies in 2016 and 2017, as shown in Table III.D.1-
5 below. We have not considered data from years prior to 2016, as prior
to 2016 a different methodology was used to project available volumes
of cellulosic biofuel. In determining the percentile values to use for
2018 we have decided to weight the observed actual percentile values
from 2016 and 2017 equally. While the percentile value from 2017
represents the most recent data available, it is also dependent on a
projection of the volume of cellulosic biofuel that will be produced in
the 4th quarter of 2017. Conversely, the percentile values from 2016
are calculated using actual data for the full year, however this data
is older and may not reflect the current state of cellulosic biofuel
production technologies and commercial scale facilities as data from
2017. We believe that an average of these percentile values
appropriately incorporate the data available to EPA at the time of this
rulemaking to project liquid cellulosic biofuel production with a
neutral aim at accuracy. We will continue to monitor the accuracy of
our projection methodology and will use updated data to adjust the