[Federal Register: July 20, 2010 (Volume 75, Number 138)]
[Proposed Rules]
[Page 42237-42268]
[DOCID:fr20jy10-30]

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Part III

Environmental Protection Agency

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40 CFR Part 80

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

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9175-8]
RIN 2060-AQ16

Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: Under the Clean Air Act Section 211(o), as amended by the
Energy Independence and Security Act of 2007 (EISA), the Environmental
Protection Agency is required to set the renewable fuel standards each
November for the following year based on gasoline and diesel
projections from EIA. Additionally, EPA is required to set the
cellulosic biofuel standard each year based on the volume projected to
be available during the following year, using EIA projections and
assessments of production capability from industry. This regulatory
action proposes these annual standards for cellulosic biofuel, biomass-
based diesel, advanced biofuel, and renewable fuels that apply to all
gasoline and diesel produced or imported in year 2011. This action also
presents two proposed changes to the RFS2 regulations. The first would
create a temporary and limited means for certain renewable fuel
producers to generate delayed RINs after they have produced and sold
renewable fuel. This proposed provision would apply only to those
producers who use canola oil, grain sorghum, pulpwood, or palm oil to
produce renewable fuel. The second proposed regulatory provision would
establish criteria for foreign countries to adopt an aggregate approach
to compliance with the renewable biomass provision akin to that
applicable to the U.S.

DATES: Comments must be received on or before August 19, 2010.
    Hearing: We do not expect to hold a public hearing. However, if we
receive such a request we will publish information related to the
timing and location of the hearing and the timing of a new deadline for
public comments.

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

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

I. General Information

A. Does this action apply to me?

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

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

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

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

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

Outline of This Preamble

I. Executive Summary
    A. Statutory Requirements for Cellulosic Biofuel
    B. Assessment of 2011 Cellulosic Biofuel Volume
    C. Advanced Biofuel and Total Renewable Fuel
    D. Proposed Percentage Standards
II. Volume Production and Import Potential for 2011
    A. Cellulosic Biofuel
    1. Domestic Cellulosic Ethanol
    2. Domestic Cellulosic Diesel
    3. Other Domestic Cellulosic Biofuels
    4. Imports of Cellulosic Biofuel
    5. Summary of Volume Projections
    B. Potential Limitations
    C. Advanced Biofuel and Total Renewable Fuel
    D. Biomass-Based Diesel
III. Proposed Percentage Standards for 2011
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
IV. Cellulosic Biofuel Technology Assessment
    A. What pathways are valid for the production of cellulosic
biofuel?
    B. Cellulosic Feedstocks
    C. Emerging Technologies
    1. Biochemical
    a. Feedstock Handling
    b. Biomass Pretreatment
    c. Hydrolysis
    i. Acid Hydrolysis
    ii. Enzymatic Hydrolysis
    d. Fuel Production
    e. Fuel Separation
    f. Process Variations
    g. Current Status of Biochemical Conversion Technology
    h. Major Hurdles to Commercialization
    2. Thermochemical
    a. Ethanol Based on a Thermochemical Platform
    b. Diesel and Naphtha Production Based on a Thermochemical
Platform
    3. Hybrid Thermochemical/Biochemical Processes
    4. Pyrolysis and Depolymerization
    a. Pyrolysis Diesel Fuel and Gasoline
    b. Catalytic Depolymerization
    5. Catalytic Reforming of Sugars to Gasoline
V. Proposed Changes to RFS2 Regulations
    A. Delayed RIN Generation for New Pathways
    B. Criteria and Process for Adoption of Aggregate Approach to
Renewable Biomass for Foreign Countries
    1. Criterion and Considerations
    2. Data Sources
    3. Petition Submission
    4. Petition Process
VI. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the agency?
VII. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income
Populations
VIII. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2007 following
the requirements in Clean Air Act (CAA) section 211(o) which were
implemented through the Energy Policy Act of 2005 (EPAct). The
statutory requirements for the RFS program were subsequently modified
through the Energy Independence and Security Act of 2007 (EISA),
resulting in the release of revised regulatory requirements on March
26, 2010 \1\. In general, the transition from the RFS1 requirements of
EPAct to the RFS2 requirements of EISA will occur on July 1, 2010.
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    \1\ 75 FR 14670.
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    EPA is required to determine and publish the applicable annual
percentage standards for each compliance year by November 30 of the
previous year. The determination of the applicable standards under RFS2
requires the EPA to conduct an in-depth evaluation of the volume of
qualifying cellulosic biofuel that can be supplied in the following
year. If the projected

volume of cellulosic biofuel production is less than the required
volume specified in the statute, EPA must lower the required volume
used to set the annual cellulosic biofuel percentage standard to the
projected volume of production. We must also determine whether the
advanced biofuel and/or total renewable fuel volumes should be reduced
by the same or a lesser amount. Since these evaluations will be based
on evolving information about emerging segments of the biofuels
industry, and may result in the required volumes differing from those
in the statute, we believe that a notice-and-comment rulemaking process
is appropriate. Today's notice provides our evaluation of the projected
production of cellulosic biofuel for 2011, and proposed percentage
standards for compliance year 2011. We will complete our evaluation
based on comments received in response to this proposal, the Production
Outlook Reports due to the Agency on September 1, 2010, the estimate of
projected biofuel volumes that the EIA is required to provide to EPA by
October 31, and other information that becomes available, and will
finalize the standards for 2011 by November 30, 2010.
    Today's proposed rule does not include an assessment of the
environmental impacts of the standards we are proposing for 2011. All
of the impacts of the RFS2 program were addressed in the RFS2 final
rule published on March 26, 2010, including impacts of the biofuel
standards specified in the statute. Today's rulemaking simply proposes
the standards for 2011 whose impacts were already analyzed previously.
    Today's notice also presents two proposed changes to the RFS2
regulations. The first would create a temporary and limited means for
certain renewable fuel producers to generate RINs after they have
produced and sold renewable fuel. This proposed provision for ``Delayed
RINs'' would apply only to those producers who use canola oil, grain
sorghum, pulpwood, or palm oil to produce renewable fuel, and only if
EPA determines that fuel pathways utilizing these feedstocks provide
appropriate greenhouse gas reductions as compared to baseline fuels to
enable EPA to list the pathways in Table 1 to Sec.  80.1426. We are
proposing that the provision for Delayed RINs would apply only to these
four feedstocks because we would have included them in the final RFS2
rule if the lifecycle analyses had been completed in time. The
greenhouse gas (GHG) lifecycle impacts of these four feedstocks are
currently being analyzed as a supplement to the RFS2 final rule and are
expected to be completed in 2010. The second proposed regulatory
provision would establish criteria for EPA to use in determining
whether to authorize renewable fuel producers using foreign-grown
feedstocks to use an aggregate approach to compliance with the
renewable biomass verification provisions, akin to that applicable to
producers using crops and crop residue grown in the United States.
Further discussion of both of these proposed provisions can be found in
Section V.
    Finally, we note that in the RFS2 final rule we also stated our
intent to make two announcements each year:
     Set the price for cellulosic biofuel waiver credits that
will be made available to obligated parties in the event that we reduce
the volume of cellulosic biofuel below the volume required by EISA.
     Announce the results of our assessment of the aggregate
compliance approach for verifying renewable biomass requirements for
U.S. crops and crop residue, and our conclusion regarding whether the
aggregate compliance provision will continue to apply.
    For both of these determinations EPA will use specific sources of
data and a methodology laid out in the RFS2 final rule. We intend to
present the results of both of these determinations in the final rule
following today's proposal.

A. Statutory Requirements for Cellulosic Biofuel

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

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

    By November 30 of each year, the EPA is required under CAA 211(o)
to determine and publish in the Federal Register the renewable fuel
standards for the following year. These standards are to be based in
part on transportation fuel volumes estimated by the Energy Information
Administration (EIA) for the following year. The calculation of the
percentage standards is based on the formulas in Sec.  80.1405(c) which
express the required volumes of renewable fuel as a volume percentage
of gasoline and diesel sold or introduced into commerce in the 48
contiguous states plus Hawaii.
    The statute requires the EPA to determine whether the projected
volume of cellulosic biofuel production for the following year is less
than the minimum applicable volume shown in Table I.A-1. If this is the
case, then the standard for cellulosic biofuel must be based upon the
volume projected to be available rather than the applicable volume in
the statute. In addition, if EPA reduces the required volume of
cellulosic biofuel below the level specified in the statute, the Act
also indicates that we may reduce the applicable volume of advanced
biofuels and total renewable fuel by the same or a lesser volume.
    As described in the final rule for the RFS2 program, we intend to
examine EIA's projected volumes and other available data including the
Production Outlook Reports required under Sec.  80.1449 in making the
determination of the appropriate volumes to require for 2011. Since the
first set of Production Outlook Reports are not due until September 1,
2010, they were not available for today's proposal but will be
considered for development of the

final rule to be released by November 30, 2010.

B. Assessment of 2011 Cellulosic Biofuel Volume

    To estimate the volume of cellulosic biofuel that could be made
available in the U.S. in 2011, we researched all potential production
sources by company and facility. This included sources that were still
in the planning stages, those that were under construction, and those
that are already producing some volume of cellulosic ethanol,
cellulosic diesel, or some other type of cellulosic biofuel. We
considered all pilot and demonstration plants as well as commercial
plants. From this universe of potential cellulosic biofuel sources we
identified the subset that had a possibility of producing some volume
of qualifying cellulosic biofuel for use as transportation fuel in
2011. We then conducted a rigorous process of contacting all of these
producers to determine which ones were actually in a position to
produce and make available any commercial volumes of cellulosic biofuel
in 2011. Based on information gathered in this process, we estimated
the maximum potentially available 2011 volumes. For the final rule, we
will specify the projected available volume for 2011 that will be the
basis for the percentage standard for cellulosic biofuel. To determine
the projected available volume, we will consider factors such as the
current and expected state of funding, the status of the technology and
contracts for feedstocks, and progress towards construction and
production goals. A complete list of all the factors we expect to
consider in this process is provided in Section II.A.5.
    In our assessment we evaluated both domestic and foreign sources of
cellulosic biofuel. Of the domestic sources, we estimated that seven
facilities have the potential to make volumes of cellulosic biofuel
available for transportation use in the U.S. in 2011. We also
determined that one facility in Canada has the potential to export some
cellulosic biofuel to the U.S. These facilities are listed in Table
I.B-1 along with our estimate of the maximum potentially available
volume.

              Table I.B-1--Maximum Potentially Available Cellulosic Biofuel Plant Volumes for 2011
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                                                                                Maximum potentially
                                                                                available volume
               Company                         Location                Fuel type            (million ethanol-
                                                                                equivalent gallons)
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AE Advanced Fuels Keyes..............  Keyes, CA..............  Ethanol................                     0.5
Agresti Biofuels.....................  Pike County, KY........  Ethanol................                     1
Bell Bio-Energy......................  Atlanta, GA............  Diesel feedstock.......                    11.9
Cello Energy.........................  Bay Minette, AL........  Diesel.................                     8.5
DuPont Dansico.......................  Vonore, TN.............  Ethanol................                     0.15
Fiberight............................  Blairstown, IA.........  Ethanol................                     2.8
Iogen Corporation....................  Ottawa, Ont............  Ethanol................                     0.25
KL Energy Corp/WBE...................  Upton, WY..............  Ethanol................                     0.4
                                                                                ------------------------
    Total............................  .......................  .......................                    25.5
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    The volumes in Table I.B-1 for each facility represent the volume
that would be produced in 2011 based upon the owner's expected month of
startup and an assumed period of production rampup for testing and
process validation. However, none of the facilities we evaluated are
currently producing cellulosic biofuel at the rates they project for
2011. Moreover, there are other uncertainties associated with each
facility's projected volume that could result in less production volume
in 2011 than the maximum potentially available values shown in Table
I.B-1. These uncertainties include outstanding issues in areas such as
technology, funding, and construction. Historical successes in meeting
various past milestones also play a role in assessing the likelihood of
meeting future milestones. A detailed discussion of these uncertainties
is presented in Section II.A. Finally, the volumes that should be
considered for setting the 2011 standard are those that result from
valid cellulosic biofuel pathways in Table 1 to Sec.  80.1426. As
described more fully in Section IV.A, some of the facilities in Table
I.B-1 may use feedstocks that have not yet been subjected to lifecycle
analyses to determine if the pathway meets the applicable GHG
thresholds.
    Based on our preliminary assessment for this NPRM, we believe that
we could justify a 2011 cellulosic biofuel volume requirement of at
least 6.5 million ethanol-equivalent gallons, and potentially as high
as 25.5 million gallons. For the final rule we will use additional
information that becomes available after publication of this proposal
and a more precise assessment of the uncertainties associated with each
facility to determine the projected available volume on which to base
the cellulosic biofuel percentage standard for 2011.

C. Advanced Biofuel and Total Renewable Fuel

    As described in Section I.A above, the statute indicates that we
may reduce the applicable volume of advanced biofuel and total
renewable fuel if we determine that the projected volume of cellulosic
biofuel production for 2011 falls short of the statutory volume of 250
million gallons. As shown in Table I.B-1, we are proposing a
determination that this is the case. Therefore, we also needed to
evaluate the need to lower the required volumes for advanced biofuel
and total renewable fuel.
    We first considered whether it appears likely that the required
biomass-based diesel volume of 0.8 billion gallons can be met with
existing biodiesel production capacity in 2011. As discussed in Section
II.D, we believe that the 0.8 billion gallon standard can indeed be
met. Since biodiesel has an Equivalence Value of 1.5, 0.8 billion
physical gallons of biodiesel would provide 1.20 billion ethanol-
equivalent gallons that can be counted towards the advanced biofuel
standard of 1.35 billion gallons. Of the remaining 0.15 bill gallons,
up to 0.026 bill gallons would be met with the proposed volume of
cellulosic biofuel. Based on our analysis as described in Section II.C,
there may be sufficient volumes of other advanced biofuels, such as
imported sugarcane ethanol, additional biodiesel, or renewable diesel,
such that the standard for advanced biofuel could remain at the
statutory level of 1.35 billion gallons. However, uncertainty in

the potential volumes of these other advanced biofuels coupled with the
range of potential production volumes of cellulosic biofuel could
provide a rationale for lowering the advanced biofuel standard. If we
do not simultaneously lower the required volume for total renewable
fuel, the result would be that additional volumes of conventional
renewable fuel, such as corn-starch ethanol, would be produced,
effectively replacing some advanced biofuels. In today's NPRM we are
proposing that neither the required 2011 volumes for advanced biofuel
nor total renewable fuel be lowered below the statutory volumes.
However, we request comment on whether the advanced biofuel and/or
total renewable fuel volume requirements should be lowered if, as we
propose, EPA lowers the required cellulosic biofuel volume from that
specified in the Act.

D. Proposed Percentage Standards

    The renewable fuel standards are expressed as a volume percentage,
and are used by each refiner, blender or importer to determine their
renewable fuel volume obligations. The applicable percentages are set
so that if each regulated party meets the percentages, and if EIA
projections of gasoline and diesel use are accurate, then the amount of
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced
biofuel used will meet the volumes required on a nationwide basis. To
calculate the percentage standard for cellulosic biofuel for 2011, we
have used a potential volume range of 6.5-25.5 million ethanol-
equivalent gallons (representing 5-17.1 million physical gallons). For
the final rule, EPA intends to pick a single value from within this
range to represent the projected available volume on which the 2011
percentage standard for cellulosic biofuel will be based. We are also
proposing that the applicable volumes for biomass-based diesel,
advanced biofuel, and total renewable fuel for 2011 will be those
specified in the statute. These volumes are shown in Table I.D-1.

                                     Table I.D-1--Proposed Volumes for 2011
----------------------------------------------------------------------------------------------------------------
                                                   Actual volume                Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.......................  5-17.1 mill gal.............  6.5-25.5 mill gal.
Biomass-based diesel.....................  0.80 bill gal...............  1.20 bill gal.
Advanced biofuel.........................  1.35 bill gal...............  1.35 bill gal.
Renewable fuel...........................  13.95 bill gal..............  13.95 bill gal.
----------------------------------------------------------------------------------------------------------------

    Four separate standards are required under the RFS2 program,
corresponding to the four separate volume requirements shown in Table
I.D-1. The specific formulas we use to calculate the renewable fuel
percentage standards are contained in the regulations at Sec.  80.1405
and repeated in Section III.B.1. The percentage standards represent the
ratio of renewable fuel volume to non-renewable gasoline and diesel
volume. The projected volumes of gasoline and renewable fuels used to
calculate the standards are provided by EIA's Short-Term Energy Outlook
(STEO) \2\. The projected volume of transportation diesel used to
calculate the standards is provided by EIA's 2010 Annual Energy Outlook
(early release version).\3\ Because small refiners and small refineries
are also regulated parties beginning in 2011 \4\, there is no small
refiner/refinery volume adjustment to the 2011 standard as there was
for the 2010 standard. Thus, the increase in the percentage standards
relative to 2010 appears smaller than would otherwise be the case,
since more obligated parties will be participating in the program. The
proposed standards for 2011 are shown in Table I.D-2. Detailed
calculations can be found in Section III.
---------------------------------------------------------------------------

    \2\ The March 2010 issue of STEO was used for today's proposal.
We intend to use the October 2010 version for the final rule.
    \3\ EIA has recommended the use of the Annual Energy Outlook
(AEO) rather than the Short Term Energy Outlook as a better
representation of the estimated transportation sector diesel fuel
use. We will use the most recent version of AEO in the final values
of the standards.
    \4\ The Department of Energy concluded that there is no reason
to believe that any small refinery would be disproportionately
harmed by inclusion in the proposed RFS2 program for 2011 and
beyond. See DOE report ``EPACT 2005 Section 1501 Small Refineries
Exemption Study'', (January 2009). We will revisit extensions to the
exemption for small refiners and refineries if DOE revises their
study and provides a different conclusion, or an individual small
refinery is able to demonstrate that it will suffer a
disproportionate economic hardship under the RFS program.

           Table I.D-2--Proposed Percentage Standards for 2011
------------------------------------------------------------------------
                                                              Percent
------------------------------------------------------------------------
Cellulosic biofuel......................................     0.004-0.015
Biomass-based diesel....................................            0.68
Advanced biofuel........................................            0.77
Renewable fuel..........................................            7.95
------------------------------------------------------------------------

II. Volume Production and Import Potential for 2011

    In order to project production volumes of cellulosic biofuel in
2011 for use in setting the percentage standards, we collected
information on individual facilities that have the potential to produce
qualifying volumes for consumption as transportation fuel, heating oil,
or jet fuel in the U.S. in 2011. This section describes the potential
volumes that we believe could be produced or imported in 2011 as well
as the uncertainties associated with those volumes. The volumes listed
in this section do not represent the projected available volume of
cellulosic biofuel that will be used to finalize the cellulosic biofuel
percentage standard for 2011. Rather, for today's NPRM we have assessed
the maximum potentially available volume for 2011, which is intended to
represent an upper bound of the volume of fuel that may be produced and
made available. The production of cellulosic biofuel remains highly
uncertain, and EPA expects that the volume of cellulosic biofuel used
to set the 2011 percentage standard will be a lesser volume than this
maximum potentially available volume. Section III describes the
conversion of our maximum potentially available volumes for cellulosic
biofuel into a range of percentage standards.
    While the 2011 volume projections in today's proposal were based on
our own assessment of the cellulosic biofuel industry, by the time we
announce the final 2011 volumes and percentage standards we will have
additional information. First, in addition to comments in response to
today's proposal, we will have updated and more detailed information
about how the industry is progressing in 2010. Second, by September 1
all registered producers and importers of renewable fuel must submit
Production Outlook Reports describing their expectations for new or
expanded biofuel supply for the next five years, according to Sec.
80.1449. Finally, by October 2010 the Energy

Information Administration (EIA) is required by statute to provide EPA
with an estimate of the volumes of transportation fuel, biomass-based
diesel, and cellulosic biofuel projected to be sold or introduced into
commerce in the U.S. in 2011.

A. Cellulosic Biofuel

    The task of projecting the volume of cellulosic biofuels that will
be produced in 2011 is a difficult one. Currently there are no
facilities consistently producing cellulosic biofuels for commercial
sale. Announcements of new projects, changes in project plans, project
delays, and cancellations occur with great regularity. Biofuel
producers face not only the challenge of the scale up of innovative,
first-of-a-kind technology, but also the challenge of securing funding
in a difficult economy.
    In order to project cellulosic biofuel production in 2011, EPA has
tracked the progress of over 100 biofuel production facilities. From
this list of facilities we used publicly available information, as well
as information provided by DOE and USDA, to determine which facilities
were the most likely candidates to produce cellulosic biofuel and make
it commercially available in 2011. Each of these companies was
contacted by EPA in order to determine the current status of their
facilities and discuss their commercialization plans for the coming
years. Our estimate of the maximum potentially available cellulosic
biofuel production in 2011 is based on the information we received in
conversations with these companies as well as our own assessment of the
likelihood of these facilities successfully producing cellulosic
biofuel in the volumes indicated.
    A brief description of each of the companies we believe may produce
cellulosic biofuel and make it commercially available can be found
below. These companies have been grouped according to the type of
biofuel they produce. For the purpose of setting the cellulosic biofuel
standard for 2011 this is a convenient grouping, as the number of RINs
generated per gallon of fuel produced is dependent on the type of fuel.
A more in depth discussion of the technologies used to produce
cellulosic biofuels can be found in Section IV.
    In today's NPRM EPA is proposing a range, rather than a single
value, for the required 2011 cellulosic biofuel volume. At a minimum,
we believe that a volume of 6.5 million gallons could be justified
based on currently available information. This is the cellulosic
biofuel volume that was required in 2010, and absent a waiver for some
portion of this volume, producers will be aiming to meet it. Therefore,
it is reasonable to project that this same volume could, at minimum,
also be produced in 2011.
    For a maximum potentially available cellulosic biofuel volume for
2011, we are proposing 25.5 million ethanol equivalent gallons,
representing the highest volume of fuel that can reasonably be expected
to be produced and made available based on current information. In
order for this volume of cellulosic biofuel to be produced in 2011,
each of the companies discussed below would have to achieve their
production targets in their projected timeframes. However, historical
trends among cellulosic biofuel producers suggests that this is
unlikely to be the case, as there are many factors which have the
potential to result in production delays. For instance, several of the
companies we considered when setting the 2010 cellulosic biofuel
standard have yet to sell cellulosic biofuel in the United States and
appear unlikely to do so by the end of 2010. This fact demonstrates the
uncertainty of cellulosic biofuel production estimates, and is one of
many factors EPA will consider when setting the cellulosic biofuel
standard for 2011.
    The rest of this section describes the analyses that were used as
the basis for this maximum value. We will continue to gather more
information to help inform our decision on the final cellulosic biofuel
standard for 2011, and we will specify a single volume in the final
rule that will be the basis for the cellulosic biofuel percentage
standard for 2011.
1. Domestic Cellulosic Ethanol
    Based on our assessment of the cellulosic biofuel industry we
believe that there are five companies in the United States with the
potential to produce cellulosic ethanol and make it commercially
available in 2011. These companies are AE Biofuels, Agresti Biofuels,
DuPont Danisco Cellulosic Ethanol, Fiberight, and KL Energy
Corporation. This section will provide a brief description of each of
these companies and our assessment of their potential fuel production
in 2011. This section also provides a brief update on companies from
whom we do not expect any commercial sales of transportation fuel in
2011 in the U.S. but were included in prior assessments.
    AE Biofuels is a company that plans to convert corn cobs and corn
stover to ethanol using an enzymatic hydrolysis. They plan to use an
integrated process that converts both starch and cellulose to ethanol.
In August 2008 they opened a demonstration plant in Butte, Montana to
test their technology and gather information for their first commercial
scale plant. AE Biofuels has reached a lease agreement with Cilion to
operate Cilion's 55 MGY corn ethanol plant in Keyes, CA under the name
AE Advanced Fuels Keyes. This facility has been idled since April 2009
and will require repairs before being operational. AE Biofuels plans to
start up production with a starch feedstock in late-2010 and then begin
to transition some production to cellulosic feedstock in mid-2011. AE
Biofuels plans to eventually use up to 25% cellulosic feedstock for
ethanol production in this facility. EPA projects that up to 0.5
million gallons of ethanol may be produced by this facility in 2011.
    Agresti Biofuels plans to produce ethanol from separated municipal
solid waste (separated MSW) at a facility in Pike County, Kentucky.
Their process uses a gravity pressure vessel licensed from GeneSyst to
crack the lignin in their feedstock and then a combination of weak
bases and acids to convert the cellulose and hemicellulose into simple
sugars for later fermentation into ethanol. Agresti plans to begin
construction on their first production facility in Pike County sometime
in the summer of 2010 and hope to be producing ethanol by the end of
2011. The full production capacity of this facility will be 20 million
gallons of ethanol per year. Due to the fact that construction on this
facility has not yet begun and production is not expected until late in
2011 EPA expects no more than 1 million gallons of cellulosic ethanol
to be produced by Agresti Biofuels in 2011.
    DuPont Danisco Cellulosic Ethanol (DDCE) began start up operations
at a small demonstration facility in Vonore, Tennessee in early 2010.
This facility has a maximum production capacity of 250,000 gallons of
ethanol per year and uses an enzymatic hydrolysis process to convert
corn cobs into ethanol. The main purpose of this facility is not to
produce ethanol to be sold commercially, but rather to provide
information for the future construction and optimization of larger,
commercial scale cellulosic ethanol production facilities. DDCE have
indicated that they do not intend to produce more than 150,000 gallons
of ethanol in 2011 from the Vonore facility.
    Fiberight is another company planning to convert MSW to ethanol.
Fiberight purchased a small corn ethanol plant in Blairstown, IA and
has converted it to produce cellulosic ethanol. They use an enzymatic
hydrolysis process, with enzymes

provided by Novozymes, to convert the cellulosic waste materials to
simple sugars and eventually to ethanol. Fiberight has a unique enzyme
recycle and recovery process that allows them to affordably use high
concentrations of enzymes to increase the speed and conversion rate of
the cellulose to simple sugars. Fiberight plans to begin ethanol
production in the summer of 2010 and ramp up to full production
capacity of 5.7 million gallons of ethanol per year by late 2011. Based
on company estimates, EPA projects Fiberight could produce as much as
2.8 million gallons of cellulosic ethanol in 2011.
    The fifth company that EPA is aware of with the potential to
produce cellulosic ethanol in 2011 is KL Energy Corporation. KL Energy
has a small facility in Upton, Wyoming that uses an enzymatic
hydrolysis process to convert wood chips and wood waste to ethanol.
This facility has a maximum annual production volume of 1.5 million
gallons and has been operational since the fall of 2007. Since KL
Energy completed construction on this facility they have been slowly
ramping up production and gathering information to optimize this and
future ethanol production facilities. KL has informed EPA that they
intend to produce 400,000 gallons of cellulosic ethanol from their
Upton, WY facility in 2011.
    In addition to the five companies mentioned above, EPA is also
tracking the progress of more than 70 ethanol production facilities in
various stages ranging from construction to planning stages. Several of
these companies, including Abengoa, BlueFire Ethanol, Coskata, Fulcrum,
POET, and Vercipia all intend to begin the production and commercial
sale of cellulosic ethanol in 2012. These facilities range in maximum
production capacity from 10 to 100 million gallons of ethanol. EPA
anticipates a significant increase in the production and sale of
cellulosic ethanol in 2012, and strong continued growth in the
following years. In addition, if any of these or other companies
accelerates their production plans to make cellulosic biofuel available
for commercial sale in 2011, we will take those volumes into account in
our final rule.
2. Domestic Cellulosic Diesel
    EPA is also aware of two companies in the United States with the
potential of producing cellulosic diesel fuel in 2011. The first of
these companies is Cello Energy. Cello Energy plans to use a catalytic
depolymerization process to produce diesel fuel from wood chips and
hay. Cello currently has a structurally complete facility in Bay
Minette, Alabama with an annual production capacity of 20 million
gallons of diesel per year. While having a structurally complete
facility puts Cello ahead of many other potential biofuel producers
they have yet to be able to produce biofuel at anywhere near the
production capacity. They are currently assessing feedstock preparation
and handling issues that must be resolved before they are able to again
attempt start up and production at this facility. If these issues are
successfully addressed EPA believes that Cello could, at most, produce
up to 5 million gallons (8.5 million ethanol equivalent gallons) of
cellulosic diesel fuel in 2011.
    Another potential producer of cellulosic biofuel in 2011 is Bell
Bio-Energy. Bell Bio-Energy uses proprietary organisms to convert waste
materials to liquid fuels and compost in a single step. The company
currently has an agreement in place for the sale of the compost they
produce and are searching for a location for their first plant and a
partner to supply the waste materials they intend to use as feedstock.
The liquid fuel they produce is not a finished transportation fuel, but
could be upgraded to jet or diesel fuel. Bell Bio-Energy is currently
working with a refining company to analyze the fuel they produce and
determine the extent of upgrading necessary for the fuel to qualify as
transportation fuel. They plan to begin construction on their first
facility, which will have an annual fuel production capacity of 14.4
million gallons per year, as soon as a suitable site and partner are
found. The simplicity and low capital costs of Bell Bio-Energy's single
step production process allow them to construct plants very rapidly, in
as little as six weeks. This would make it possible for Bell Bio-Energy
to produce cellulosic biofuel in 2011 despite the fact that they have
not yet begun construction on their first commercial scale facility. It
is unclear when fuel will be produced at this facility, and whether it
would qualify under the RFS2 program. If Bell Bio-Energy is successful
in producing and upgrading their fuel EPA estimates the maximum volume
of fuel they could produce in 2011 would be 7 million gallons (11.9
million ethanol equivalent gallons) of jet or diesel fuel.
    EPA is also tracking the progress of 17 other facilities that plan
to produce cellulosic diesel. Flambeau Rivers Biofuels, New Page, and
Terrabon are planning on opening commercial scale cellulosic diesel
facilities in 2012. Both Bell Bio-Energy and Cello have plans to build
additional facilities if their initial projects are successful. As with
cellulosic ethanol, cellulosic diesel production has the potential for
rapid growth in 2012 and the following years.
3. Other Domestic Cellulosic Biofuels
    We are currently unaware of any companies in the United States
planning on producing cellulosic biofuel other than ethanol and diesel
and making it commercially available. EPA is currently tracking the
efforts of 10 companies that plan to produce fuels such as gasoline,
jet fuel, dimethyl ether (DME), and others. Many of these companies
have reported that they are still developing their technologies and
waiting for funding, and that they are not expecting to make any
cellulosic fuel commercially available until 2012 at the earliest.
There are several companies, such as Gevo and Virent, with small
demonstration facilities who intend to produce other fuels from
cellulosic feedstocks, but are currently optimizing their technology
with sugar or starch feedstocks. EPA anticipates that in the future
this may be a significant source of cellulosic biofuel, however we are
only expecting cellulosic ethanol and diesel to be produced in 2011.
4. Imports of Cellulosic Biofuel
    In addition to the companies located in the United States, EPA is
also aware of two Canadian companies with the potential for cellulosic
biofuel production in 2011. If this fuel was imported into the United
States, these companies would be eligible to participate in the RFS2
program. Counting on cellulosic biofuel produced internationally in
setting the 2011 standard brings with it the additional uncertainty
associated with the fact that the fuel may be used locally rather than
imported into the United States.
    Iogen uses a steam explosion pre-treatment process followed by
enzymatic hydrolysis to produce cellulosic ethanol from wheat, oat, and
barley straw. They have a demonstration facility with an annual
production capacity of 500,000 gallons of ethanol located in Ontario,
Canada. This facility has been operational and producing small volumes
of ethanol since 2004. So far all of the ethanol produced by this
facility has been used locally and in racing and other promotional
events. Iogen, however, is exploring the possibility of participating
in the RFS2 program. If they do decide to import ethanol to the United
States, EPA projects that they could provide as much as 250,000 gallons
of cellulosic ethanol in 2011 based on production volumes from previous
years.

    Another Canadian company with the potential to produce cellulosic
ethanol in 2011 is Enerkem. Enerkem plans to use a thermo-chemical
process to gasify separated MSW and other waste products and then use a
catalyst to convert the synthesis (syn) gas into ethanol. Enerkem is
currently finishing construction on a 1.3 million gallon per year
facility in Westbury, Quebec and plans to begin producing ethanol in
the summer of 2010. They are also planning a 10 million gallon per year
facility in Edmonton, Alberta, however production from this facility is
not expected until 2012. Enerkem has informed EPA that they plan to
market ethanol they produce locally, and have no intentions to import
cellulosic ethanol into the United States. We are therefore not
projecting any available cellulosic fuel from Enerkem in 2011.
    While Canada may be the most likely source of imported cellulosic
biofuels due to its close proximity, it is possible that cellulosic
biofuels produced in other countries may be imported into the United
States as well. Another potential source of cellulosic biofuel imports
is Brazil, due to its established ethanol industry and history of
importing ethanol into the United States. EPA is aware of several
companies exploring the possibility of cellulosic biofuel production in
Brazil; however none of these companies are likely to make cellulosic
biofuels commercially available in the United States in 2011. With the
exception of Iogen, as mentioned above, EPA has not projected imports
of cellulosic biofuels from outside the United States in 2011.
5. Summary of Volume Projections
    The information EPA has gathered on the potential cellulosic
biofuel producers in 2011, summarized in Section II.A above, allows us
to project a maximum potentially available biofuel volume for each
facility in 2011. After the appropriate ethanol equivalence value has
been applied to the volumes of those facilities producing diesel fuel,
the overall maximum potentially available volume of cellulosic biofuels
for 2011 can be calculated by summing the maximum potential of each
facility. EPA is not proposing to set the 2011 cellulosic biofuel
standard at this maximum potentially available volume, rather this is
intended to serve as an upper bound. This information is summarized in
Table II.A.5-1 below.

                                      Table II.A.5-1--Cellulosic Biofuel Maximum 2011 Potentially Available Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Maximum 2011
                                                                                Earliest        potentially       Ethanol
         Company name                Location          Feedstock           Fuel        Capacity (MGY)      production        available      equivalent
                                                                                volume (MG)    gallons (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
AE Advanced Fuels Keyes.......  Keyes, CA........  Corn, then        Ethanol.........              20  June 2011........             0.5             0.5
                                                    stover.
Agresti Biofuels..............  Pike County, KY..  MSW.............  Ethanol.........              20  Oct. 2011........               1               1
Bell Bio-Energy...............  Atlanta, GA......  MSW or other      Diesel Feedstock            14.4  June 2011........               7            11.9
                                                    cellulosic
                                                    biomass.
Cello Energy..................  Bay Minette, AL..  Wood, hay.......  Diesel..........              20  Online...........               5             8.5
DuPont Danisco \a\............  Vonore, TN.......  Corn cobs, then   Ethanol.........            0.25  Online...........            0.15            0.15
                                                    switchgrass.
Fiberight \a\.................  Blairstown, IA...  MSW.............  Ethanol.........               6  April 2010.......             2.8             2.8
Iogen.........................  Ottawa, Ontario..  Wheat, oat &      Ethanol.........             0.5  Online...........            0.25            0.25
                                                    barley straw.
KL Energy \a\.................  Upton, WY........  Wood............  Ethanol.........             1.5  Online...........             0.4             0.4
¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤
    Total.....................  .................  ................  ................  ..............  .................            17.1            25.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Maximum Production/Import Potential represents company estimate.

    It is important to note that this maximum potentially available
volume of 17.1 million gallons of cellulosic biofuel, or 25.5 million
ethanol equivalent gallons, is not the volume on which the final 2011
cellulosic biofuel standard will be based. This number represents the
maximum amount of fuel EPA believes could reasonably be expected to be
produced or imported and made available for use as transportation fuel,
heating oil, or jet fuel in 2011. It incorporates some reductions from
the annual production capacity of each facility based on when the
facilities anticipate fuel production will begin and assumptions
regarding a ramp up period to full production. However, as stated
earlier, in order for this volume of cellulosic biofuel to be produced
in 2011, each of the companies listed in Table II.A.5-1 would have to
achieve their production targets in their projected timeframes. The
history of the cellulosic biofuels industry has many examples of delays
in achieving full production capacity in new facilities. Also, there
are many other factors that increase the uncertainty of fuel production
facilities being able to achieve their maximum potential production.
These factors may include:
     Difficulty/delays in securing necessary funding.
     Delays in permitting and/or construction.
     Difficulty in scale up, especially for 1st of their kind
technologies.
     Volumes from pilot and demonstration plants may not be
sold commercially.
     Not all feedstocks may qualify to produce cellulosic RINs;
some still awaiting evaluation of lifecycle impacts.
     Likelihood that fuels produced internationally will be
exported to the United States rather than consumed locally.
    Each of the facilities listed in Table II.A.5-1 may experience some
of the difficulties listed above, and as a result may produce a volume
of fuel less than that listed as their maximum 2011 potentially
available volume. Despite this uncertainty, EPA believes that the
volume of cellulosic biofuel produced in 2011 will, at minimum, be able
to meet or exceed the 2010 standard of 6.5 million ethanol equivalent
gallons. However, we will have more detailed and accurate information
for the final rule, including the first round of Production Outlook
Reports, due on

September 1, 2010 \5\ which will provide information from each producer
or importer on the type or types of fuel they plan to make available,
the volume of fuel, and the number of RINs they plan to generate for
the next five calendar years.\6\ Therefore, in today's NPRM we are
proposing a range of values, from a minimum of 6.5 million ethanol
equivalent gallons to a maximum of 25.5 million ethanol equivalent
gallons for the 2011 cellulosic biofuel standard. As time progresses
and we are able to track whether or not the cellulosic biofuels
producers are able to meet the construction and ramp up schedules they
have presented, we will have a better idea of the appropriate volume of
fuel that we can reasonably expect to be produced and made commercially
available in 2011. Additionally, each year by October 31 EIA is
required to provide an estimate of the volume of cellulosic biofuel
they expect to be sold or introduced into commerce in the United States
in the following year. EPA will consider this information as well when
finalizing a single volume for use in setting the 2011 cellulosic
biofuel standard.
---------------------------------------------------------------------------

    \5\ In future years, Production Outlook Reports will be due on
March 1. As a result, they may be considered during development of
the NPRM in year 2011 and beyond.
    \6\ For more information on the annual production outlook
reports see Sec.  80.1449 of the RFS2 regulations.
---------------------------------------------------------------------------

    Although we are currently projecting that the potentially available
volume of cellulosic biofuel in 2011 will be in the range of 6.5 to
25.5 million ethanol-equivalent gallons, we expect that volumes of
cellulosic biofuel will increase rapidly in the years following 2011.
As stated before, we are aware of more than 100 companies that are
actively investigating or making plans to produce cellulosic biofuel in
the near future. Many of these companies intend to begin construction
in 2011 or 2012. We will be monitoring these companies carefully as we
project the potential volumes of cellulosic biofuel for years 2012 and
beyond.

B. Potential Limitations

    In addition to production capacity, a variety of other factors have
the potential to limit the amount of cellulosic biofuel that can be
produced and used in the U.S. For instance, there may be limitations in
the availability of qualifying cellulosic feedstocks at reasonable
prices. Most of the cellulosic biofuel producers that we project will
produce commercial volumes in 2011 have indicated that they will use
some type of cellulosic waste, such as separated municipal solid waste,
wastes from the forestry industry, and agricultural residues. Based on
the analyses of cellulosic feedstock availability in the RFS2 final
rule, we believe that there will be significantly more than enough
sources of these feedstocks for 2011. For producers that intend to use
dedicated energy crops, we do not believe that the availability of
existing cropland will limit production in 2011. We plan to continue to
evaluate the availability of valid feedstocks in future years as the
required volumes of cellulosic biofuel increase.
    Another factor that has the potential to limit the amount of
renewable fuel that can be produced and used in the U.S. is
distribution and storage capacity. In the longer term, most biofuels
are expected to be produced in the heartland of the country and then be
shipped towards the coasts, flowing roughly in the opposite direction
of petroleum-based fuels. The physical and chemical nature of many of
these biofuels may limit the extent to which they can be shipped and/or
stored fungibly with petroleum-based fuels. As a result, new and
expanded rail, barge and tank truck transport will need to be put in
place. Dedicated biofuels pipelines are also being investigated. For
instance, a short gasoline pipeline in Florida is currently shipping
batches of ethanol.\7\ Evaluations are also currently underway
regarding the feasibility of constructing a new dedicated ethanol
pipeline from the Midwest to the East coast.\8\ However, for 2011 the
volumes of cellulosic biofuel are small enough that long-distance
transport will be unnecessary; with the exception of foreign-produced
biofuels, much of the cellulosic biofuel volumes can be consumed in
regions close to their production facilities. We also expect existing
distribution and storage capacity to be sufficient to accommodate the
small increase in cellulosic biofuel volumes in 2011.
---------------------------------------------------------------------------

    \7\ Kinder Morgan announcement that their Central Florida
Pipeline from Tampa to Orlando ships batches of ethanol along with
batches of gasoline. http://www.kindermorgan.com/business/products_
pipelines/.
    \8\ ``POET Joins Magellan Midstream Partners to Assess Dedicated
Ethanol Pipeline'', March 2009, http://www.poet.com/news/
showRelease.asp?id=155.
---------------------------------------------------------------------------

C. Advanced Biofuel and Total Renewable Fuel

    Under CAA 211(o)(7)(D)(i), EPA has the flexibility to reduce the
applicable volume of the advanced biofuel and total renewable fuel
requirements in the event that the projected volume of cellulosic
biofuel is determined to be below the volume specified in the statute.
As described in Section II.A above, even the largest potential volumes
of cellulosic biofuel supply for 2011 are significantly below the
statutory volume of 250 million gallons. Therefore, we must consider
whether and to what degree to lower the advanced biofuel and total
renewable fuel standards for 2011.
    As described in the RFS2 final rule, we believe it may be
appropriate to allow excess advanced biofuels to make up some or all of
the shortfall in cellulosic biofuel. This could include excess biomass-
based diesel, sugarcane ethanol, or other biofuels categorized as
advanced biofuel. We believe that Congress wanted to encourage the
development of advanced renewable fuels and allow in appropriate
circumstances for the use of additional volumes of those fuels in the
event that the projected volume of cellulosic biofuel falls below the
statutory mandate.
    If we were to maintain the advanced biofuel and total renewable
fuel volume requirements at the levels specified in the statute, we
estimate that 125-144 million ethanol-equivalent gallons of additional
advanced biofuels would be needed, depending on the standard we set for
cellulosic biofuel. See Table II.C-1.

   Table II.C-1--Projected Impact of Cellulosic Volume on Use of Other
                            Biofuels in 2011
                             [Mill gallons]
------------------------------------------------------------------------
                                                  Ethanol-
                                                 equivalent    Physical
                                                   volume       volume
------------------------------------------------------------------------
Total renewable fuel..........................       13,950  13,500-13,5
                                                                      49
Conventional renewable fuel \a\...............       12,600       12,600
Total advanced biofuel........................        1,350      900-949
Cellulosic biofuel............................     6.5-25.5       5-17.1
Biomass-based diesel..........................         1200          800
Other advanced biofuel \b\....................      125-144   83 \c\-144
                                                                     \d\
------------------------------------------------------------------------
\a\ Predominantly corn-starch ethanol.
\b\ Rounded to nearest million gallons for simplicity.
\c\ Lowest volume of other advanced biofuel assumes cellulosic biofuel
  standard is based on 25.5 mill gallons and only excess biodiesel (with
  an equivalence value (EV) of 1.5) is used to fill the need for other
  advanced biofuel.
\d\ Highest volume of other advanced biofuel assumes cellulosic biofuel
  standard is based on 6.5 mill gallons and only imported sugarcane
  ethanol (with an EV of 1.0) is used to fill the need for other
  advanced biofuel.

    To determine if there are likely to be sufficient volumes of
imported sugarcane ethanol and/or excess biodiesel to meet the need for
125-144 million gallons of other advanced biofuel, we examined
historical data on ethanol imports and EIA projections for 2011. For
instance, as shown in Table II.C-2 below, recent annual import volumes
of ethanol were higher than what would be needed in 2011.

               Table II.C-2--Historical Imports of Ethanol
                           [Mill gallons] \9\
------------------------------------------------------------------------

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

Brazilian imports have made up a sizeable portion of total ethanol
imported into the U.S. However, as shown above, these import volumes
decreased significantly in 2009. Part of the reason for this decline in
imports is the cessation of the duty drawback that became effective on
October 1, 2008, but also changes in world sugar prices.\10\ However,
Brazil produces the most ethanol in the world, reaching about 9 billion
gallons in 2008.\11\ Thus if there were a demand in the U.S. in 2011
for 125-144 million gallons of advanced biofuel, it may be economical
for Brazil to export at least this volume of sugarcane ethanol to the
U.S.
---------------------------------------------------------------------------

    \9\ ``Monthly U.S. Imports of Fuel Ethanol,'' EIA, released 4/8/
2010.
    \10\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End;
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News,
Issue 45, November 4, 2008.
    \11\ Renewable Fuels Association (RFA), ``2008 World Fuel
Ethanol Production,'' http://www.ethanolrfa.org/industry/statistics/
#E, March 31, 2009.
---------------------------------------------------------------------------

    EIA's projections for 2011 suggest that there may be sufficient
volumes of imported sugarcane ethanol and excess biodiesel production
to make up for our proposed reduction in the required volume of
cellulosic biofuel. See Table II.C-3.

 Table II.C-3--EIA Projected Imported Ethanol and Biodiesel Availability
                                 in 2011
                           [Mill gallons] \12\
------------------------------------------------------------------------

------------------------------------------------------------------------
Imported ethanol...............................................      202
Total domestic biodiesel production............................      860
Biodiesel needed to meet biomass-based diesel standard.........      800
Excess biodiesel...............................................       60
------------------------------------------------------------------------

Further discussion of the potential availability of biomass-based
diesel in 2011 can be found in the next Section II.D below.
---------------------------------------------------------------------------

    \12\ EIA STEO, June 2010, Table 8.
---------------------------------------------------------------------------

    Based on these projections, there would be a total of 60 million
gallons of excess biodiesel production (90 million gallons ethanol-
equivalent), plus another 202 million gallons of imported sugarcane
ethanol. The total would therefore be 292 million gallons ethanol-
equivalent. Since we are projecting that the need for other advanced
biofuel would be in the range of 125-144 million gallons depending on
the cellulosic biofuel standard that we set, 292 million gallons would
likely be sufficient. Moreover, the projections in Table II.C-3 do not
account for other potential sources of advanced biofuels. For instance,
California's Low Carbon Fuel Standard goes into effect in 2011, and may
compel some refiners to import additional volumes of sugarcane ethanol
from Brazil into California. These same volumes could count towards the
Federal RFS2 program as well. There may also be other types of advanced
biofuel not included in the EIA projections that could help meet our
projected shortfall. These other advanced biofuels include, for
instance, renewable fuels made from separated yard and food waste such
as waste cooking oil or restaurant grease used as a diesel fuel
additive. Finally, additional market demand for imported sugarcane
ethanol and biodiesel would likely be created if we chose not to lower
the advanced biofuel standard for 2011. Given these factors, we believe
that there are likely to be sufficient volumes of other advanced
biofuels such that the advanced biofuel standard need not be lowered
below 1.35 billion gallons. Thus, we are proposing to leave the
required volume of advanced biofuel for 2011 at 1.35 billion gallons.
Nevertheless, we request comment on whether we should lower the
advanced biofuel standard. If we do lower the advanced biofuel
standard, we request comment on the degree to which we should take into
account other potential sources of advanced biofuel as discussed above.
    If we lower the cellulosic biofuel standard, we would also need to
determine if the total renewable standard should be lowered. Lowering
both the advanced biofuel standard and the total renewable fuel
standard by the same amount would mean that the expected amount of
conventional renewable fuel use, such as corn-ethanol, would remained
unchanged at 12,600 million gallons ethanol equivalent, the same as
shown in Table II.C-1.
    If instead we were to lower the advanced biofuel standard but
retain the total renewable fuel standard at 13,950 million gallons,
then we would expect the use of conventional renewable fuels such as
corn ethanol to increase. For instance, if we were to lower the
advanced biofuel standard by 144 million gallons to 1,206 million
gallons, we would expect the amount of corn-ethanol used would increase
by 144 million gallons in order to satisfy the total renewable fuel
standard of 13,950 million gallons. According to EIA, projected volumes
of corn-ethanol are indeed expected to be higher than 12,600 million
gallons in 2011, producing an excess of 1050 million gallons. See Table
II.C-4.

           Table II.C-4--Projected Excess Corn Ethanol in 2011
                             [Mill gallons]
------------------------------------------------------------------------

------------------------------------------------------------------------
Total domestic corn ethanol production \13\....................   13,650
Corn ethanol needed to meet total renewable fuel standard......   12,600
Excess corn ethanol............................................     1050
------------------------------------------------------------------------
\13\ EIA STEO, June 2010, Table 8.

    However, the market potential for ethanol in the U.S. is also a
function of the ethanol blender's tax credit, set to expire at the end
of 2010. If this tax credit is not renewed, the excess ethanol volume
shown in Table II.C-4 may be smaller. Thus, while we are proposing that
the required volume of total renewable fuel for 2011 be set at the
statutory level of 13.95 billion gallons, we request comment on whether
the total renewable fuel standard should be lowered.

D. Biomass-Based Diesel

    While the statutory requirement that we project volumes of
cellulosic biofuel for next year does not explicitly apply to biomass-
based diesel as well, there are two other statutory requirements that
compel us to investigate current and potential future volumes of
biomass-based diesel. First, the Clean Air Act provides limited waiver
authority specific to biomass-based diesel under 211(o)(7)(E) if a
significant renewable feedstock disruption or other market circumstance
would make the price of biomass-based diesel fuel increase
significantly. Second, as described more fully in Section II.C above,
we must determine whether the required volumes of advanced biofuel and/
or total renewable fuel should be reduced at the same time that we
reduce the required volume of cellulosic biofuel. The amount of
biomass-based diesel that we project can be available

will directly affect our consideration of adjustments to the volumetric
requirements for advanced biofuel and total renewable fuel.
    To project biodiesel production volumes for 2011, we examined both
production capacity of the industry as well as actual recent production
rates. As of April 2010, the aggregate production capacity of biodiesel
plants in the U.S. was estimated at 2.2 billion gallons per year across
approximately 137 facilities.\14\ Biodiesel production for calendar
year 2009, according to the most recently available information, was
540 million gallons, with an estimated 351 mill gallons (or 65%) being
used domestically. Domestic production rates in the second half of 2009
increased above production rates in the first half as economic
conditions improved, to an annualized rate of around 646 mill gal per
year. Meanwhile, exports appeared to stabilize at an annualized rate of
about 242 mill gal per year, after recovering from changes in European
import regulations early in the year. These trends for 2009 are shown
in Figure II.D-1.
---------------------------------------------------------------------------

    \14\ Figures taken from National Biodiesel Board list of
operating plants as of April 5, 2010.
    \15\ Data taken from Energy Information Administration Monthly
Energy Review, Table 10.4, March 2010.
[GRAPHIC] [TIFF OMITTED] TP20JY10.000

    In the early part of 2010, industry reports of monthly biodiesel
production indicated that production rates have dropped below the 2009
average. The most likely cause is the expiration of the biodiesel tax
credit. However, EIA's Short-Term Energy Outlook projects that, for the
year as a whole, average monthly biodiesel production rates in 2010
will actually exceed those in 2009. The projected increase in monthly
biodiesel production rates later in 2010 is consistent with the fact
that obligated parties are not required to demonstrate compliance with
the 2010 biomass-based diesel volume requirement of 1.15 billion
gallons until February 28, 2011. For development of our final rule
setting the standards for 2011, we will have more complete data with
which to evaluate the progress of the biodiesel industry in meeting the
2010 volume mandate and thus its preparedness for 2011.
    In order to meet a 2011 biomass-based diesel volume requirement of
0.8 billion gallons to be consumed in the United States, the biodiesel
industry will need to produce approximately 725 million gal of fuel.
This value accounts for the production of 75 million gallons of
renewable diesel at one renewable diesel facility in Geismar,
Louisiana, set to begin operations later this year.\16\ Assuming
imports and exports continue at a rate equivalent to that in the second
half of 2009, biodiesel production in the U.S. would need to total
approximately 900 million gal in 2011. While this production rate would
be about 10% higher than the production rate projected by EIA for the
second half of 2010, it would be significantly lower than the current
2.2 billion gallon biodiesel production capacity of the industry.
Indications from the biodiesel industry are that these idled facilities
can be brought back into production with a relatively short leadtime,
and can thus meet the 2011 requirements for biomass-based diesel.
Moreover, as shown in Table II.C-3, EIA is projecting that biodiesel
availability will in fact exceed the minimum volume needed to meet the
biomass-based diesel standard in 2011.
---------------------------------------------------------------------------

    \16\ Project status updates are available via the Syntroleum Web
site, http://dynamicfuelsllc.com/wp-news/.
---------------------------------------------------------------------------

    Finally, we believe that there will be sufficient sources of
qualifying renewable biomass to meet the needs of the biodiesel
industry in 2011. The largest sources of feedstock for biodiesel in
2011 are expected to be soy oil, rendered fats, and potentially some
corn

oil extracted during production of fuel ethanol, as this technology
continues to proliferate. Moreover, comments we received from a large
rendering company after the May 2009 RFS2 proposed rule suggest that
there will be adequate fats and greases feedstocks to supply biofuels
production as well as other historical uses.\17\
---------------------------------------------------------------------------

    \17\ See Federal Register v.74 n.99 p.24903. Comments are
available in docket EPA-HQ-OAR-2005-0161.
---------------------------------------------------------------------------

III. Proposed Percentage Standards for 2011

A. Background

    The renewable fuel standards are expressed as a volume percentage,
and are used by each refiner, blender or importer to determine their
renewable volume obligations (RVO). Since there are four separate
standards under the RFS2 program, there are likewise four separate RVOs
applicable to each obligated party. Each standard applies to the sum of
all gasoline and diesel produced or imported. The applicable percentage
standards are set so that if each regulated party meets the
percentages, then the amount of renewable fuel, cellulosic biofuel,
biomass-based diesel, and advanced biofuel used will meet the volumes
required on a nationwide basis.
    As discussed in Section II.A.5, we are proposing a required volume
of cellulosic biofuel for 2011 in the range of 5-17.1 million gallons
(6.5-25.5 million ethanol equivalent gallons). The single volume we
select for the final rule will be used as the basis for setting the
percentage standard for cellulosic biofuel for 2011. We are also
proposing that the advanced biofuel and total renewable fuel volumes
would not be reduced below the statutory requirements. The proposed
2011 volumes used to determine the four percentage standards are shown
in Table III.A-1.

                                    Table III.A-1--Proposed Volumes for 2011
----------------------------------------------------------------------------------------------------------------
                                                   Actual volume                Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.......................  5-17.1 mill gal.............  6.5-25.5 mill gal.
Biomass-based diesel.....................  0.80 bill gal...............  1.20 bill gal.
Advanced biofuel.........................  1.35 bill gal...............  1.35 bill gal.
Renewable fuel...........................  13.95 bill gal..............  13.95 bill gal.
----------------------------------------------------------------------------------------------------------------

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

B. Calculation of Standards

1. How are the standards calculated?
    The following formulas are used to calculate the four percentage
standards applicable to producers and importers of gasoline and diesel
(see Sec.  80.1405):
[GRAPHIC] [TIFF OMITTED] TP20JY10.001

Where

StdCB,i = The cellulosic biofuel standard for year i, in
percent.
StdBBD,i = The biomass-based diesel standard (ethanol-
equivalent basis) for year i, in percent.
StdAB,i = The advanced biofuel standard for year i, in
percent.
StdRF,i = The renewable fuel standard for year i, in
percent.
RFVCB,i = Annual volume of cellulosic biofuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
RFVBBD,i = Annual volume of biomass-based diesel required
by section 211(o) of the Clean Air Act for year i, in gallons.
RFVAB,i = Annual volume of advanced biofuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
RFVRF,i = Annual volume of renewable fuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
Gi = Amount of gasoline projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
Di = Amount of diesel projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
RGi = Amount of renewable fuel blended into gasoline that
is projected to be consumed in the 48 contiguous states and Hawaii,
in year i, in gallons.
RDi = Amount of renewable fuel blended into diesel that
is projected to be consumed

in the 48 contiguous states and Hawaii, in year i, in gallons.
GSi = Amount of gasoline projected to be used in Alaska
or a U.S. territory in year i if the state or territory opts-in, in
gallons.
RGSi = Amount of renewable fuel blended into gasoline
that is projected to be consumed in Alaska or a U.S. territory in
year i if the state or territory opts-in, in gallons.
DSi = Amount of diesel projected to be used in Alaska or
a U.S. territory in year i if the state or territory opts-in, in
gallons.
RDSi = Amount of renewable fuel blended into diesel that
is projected to be consumed in Alaska or a U.S. territory in year i
if the state or territory opts-in, in gallons.
GEi = The amount of gasoline projected to be produced by
exempt small refineries and small refiners in year i, in gallons, in
any year they are exempt per Sec. Sec.  80.1441 and 80.1442,
respectively. For 2011, this value is zero. See further discussion
in Section III.B.2 below.
DEi = The amount of diesel projected to be produced by
exempt small refineries and small refiners in year i, in gallons, in
any year they are exempt per Sec. Sec.  80.1441 and 80.1442,
respectively. For 2011, this value is zero. See further discussion
in Section III.B.2 below.

    The four separate renewable fuel standards for 2011 are based on
the 49-state gasoline and diesel consumption volumes projected by EIA.
The Act requires EPA to base the standards on an EIA estimate of the
amount of gasoline and diesel that will be sold or introduced into
commerce for that year. The projected volume of gasoline used to
calculate the final percentage standards will continue to be provided
by the October issue of EIA's Short-Term Energy Outlook (STEO). For the
purposes of this proposal, we have used the March 2010 issue of STEO.
The projected volume of transportation diesel used to calculate the
final percentage standards will be provided by the most recent Annual
Energy Outlook (AEO). For the purposes of this proposal, we have used
the Early Release version of AEO2010. Gasoline and diesel volumes are
adjusted to account for renewable fuel contained in the EIA
projections. Beginning in 2011, gasoline and diesel volumes produced by
small refineries and small refiners are not exempt, and thus there is
no adjustment to the gasoline and diesel volumes in today's proposal to
account for such an exemption, as there has been in past years.
However, as discussed more fully in Section III.B.2 below, depending
upon the results of a Congressionally-mandated DOE study, it is
possible that the exemption for gasoline and diesel volumes produced by
small refineries and small refiners may be extended. In addition, EPA
may extend the exemption for individual small refineries on a case-by-
case basis if they demonstrate disproportionate economic hardship.
    As finalized in the March 26, 2010 RFS2 rule, the standards are
expressed in terms of energy-equivalent gallons of renewable fuel, with
the cellulosic biofuel, advanced biofuel, and total renewable fuel
standards based on ethanol equivalence and the biomass-based diesel
standard based on biodiesel equivalence. However, all RIN generation is
based on ethanol-equivalence. More specifically, the RFS2 regulations
provide that production or import of a gallon of biodiesel will lead to
the generation of 1.5 RINs. In order to ensure that demand for 0.8
billion physical gallons of biomass-based diesel will be created in
2011, the calculation of the biomass-based diesel standard provides
that the required volume be multiplied by 1.5. The net result is a
biomass-based diesel gallon being worth 1.0 gallons toward the biomass-
based diesel standard, but worth 1.5 gallons toward the other
standards.
    The levels of the percentage standards would be reduced if Alaska
or a U.S. territory chooses to participate in the RFS2 program, as
gasoline and diesel produced in or imported into that state or
territory would then be subject to the standard. Neither Alaska nor any
U.S. territory has chosen to participate in the RFS2 program at this
time, and thus the value of the related terms in the calculation of the
standards is zero.
    Note that the terms for projected volumes of gasoline and diesel
use include gasoline and diesel that has been blended with renewable
fuel. Because the gasoline and diesel volumes described above include
renewable fuel use, we must subtract the total renewable fuel volume
from the total gasoline and diesel volume to get total non-renewable
gasoline and diesel volumes. The values of the variables described
above are shown in Table III.B.1-1. Terms not included in this table
have a value of zero.

    Table III.B.1-1--Values for Terms in Calculation of the Standards
                             [Bill gallons]
------------------------------------------------------------------------
                      Term                                Value
------------------------------------------------------------------------
RFVCB,2011.....................................            0.0065-0.0255
RFVBBD,2011....................................                     0.80
RFVAB,2011.....................................                     1.35
RFVRF,2011.....................................                    13.95
G2011..........................................                   139.66
D2011..........................................                    50.01
RG2011.........................................                    13.38
RD2011.........................................                     0.74
------------------------------------------------------------------------

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

         Table III.B.1-2--Proposed Percentage Standards for 2011
------------------------------------------------------------------------

------------------------------------------------------------------------
Cellulosic biofuel....................................      0.004-0.015%
Biomass-based diesel..................................             0.68%
Advanced biofuel......................................             0.77%
Renewable fuel........................................             7.95%
------------------------------------------------------------------------

2. Small Refineries and Small Refiners
    In CAA section 211(o)(9), enacted as part of EPAct, Congress
provided a temporary exemption to small refineries (those refineries
with a crude throughput of no more than 75,000 barrels of crude per
day) through December 31, 2010. In RFS1, we exercised our discretion
under section 211(o)(3)(B) and extended this temporary exemption to the
few remaining small refiners that met the Small Business
Administration's (SBA) definition of a small business (1,500 employees
or less company-wide) but did not meet the statutory small refinery
definition as noted above. Because EISA did not alter the small
refinery exemption in any way, the RFS2 program regulations exempt
gasoline and diesel produced by small refineries and small refiners in
2010 from the renewable fuels standard (unless the exemption was
waived), see 40 CFR Sec.  80.1141.
    Under the RFS program, Congress has provided two ways that small
refineries can receive a temporary extension of the exemption beyond
2010. One is based on the results of a study conducted by

the Department of Energy (DOE) to determine if small refineries would
face a disproportionate economic hardship under the RFS program. The
other is based on EPA determination of disproportionate economic
hardship on a case-by-case basis in response to refiner petitions.
    In January 2009, DOE issued a Small Refineries Exemption Study
which did not find that small refineries would face a disproportionate
economic hardship under the RFS program. The conclusions were based in
part on the expected robust availability of RINs and EPA's ability to
grant relief on a case-by-case basis. Subsequently, Congress directed
DOE to complete a reassessment and issue a revised report by June 30,
2010. DOE had not revised its study at the time of the RFS2 final
rulemaking nor at the time of this writing. Additionally, we have not
received any requests for relief on a case-by-case basis from any small
refinery. If DOE prepares a revised study, and the results of that
study show a disproportionate economic hardship for any small
refineries under the RFS program, we will take appropriate action to
extend the exemption. However, until and unless a DOE study supporting
an extension to the temporary exemption for small refineries beyond
2010 is used, or any petitions to EPA from individual small refineries
claiming disproportionate economic hardship are approved, we are not
proposing to change the required inclusion of small refineries and
small refiners in the RFS2 program beginning with the 2011 compliance
period.

IV. Cellulosic Biofuel Technology Assessment

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

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

    In determining the appropriate volume of cellulosic biofuel on
which to base the percentage standard for 2011, we must ensure that the
production facilities we use as the basis for this volume are using
fuel pathways that are valid for the production of cellulosic biofuel.
In general this means that each facility's pathway (combination of
feedstock, production process, and fuel type) must be included in Table
1 to Sec.  80.1426 and be assigned a D code of either 3 or 7. As of
this writing, there are three valid pathways available as shown in
Table IV.A-1 below.

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

    Of the eight facilities that we currently believe could contribute
to the volume of commercially available cellulosic biofuel in 2011, six
would produce ethanol from cellulosic biomass and two would produce
diesel from cellulosic biomass. None of the facilities we have
evaluated would produce cellulosic naphtha through a Fischer-Tropsch
process.
    Two of the facilities shown in Table II.A.5-1, Cello Energy and KL
Energy, intend to use wood as the primary feedstock. The only types of
wood that are currently allowed as a valid feedstock are those derived
from various types of waste. If either of these two companies choose to
use trees from a tree plantation instead of qualifying waste wood, its
pathway would not fall into the any of the pathways currently listed in
Table 1 to Sec.  80.1426. However, as described more fully in Section
V.A, we are currently evaluating the lifecycle GHG impacts of biofuel
made from pulpwood, including wood from tree plantations. If such a
pathway is determined to meet the 60% GHG threshold required for
cellulosic biofuel, we expect that it will be added to Table 1 to Sec.
80.1426 in time to apply to fuel produced in 2011. For the purposes of
this proposal, we have chosen to retain the volumes from these two
companies in our projections of 2011 cellulosic biofuel volume, but we
will revisit this issue for the final rule.

B. Cellulosic Feedstocks

    Cellulosic biofuel technologies are different from other biofuel
technologies because they convert the cellulose and

other very difficult to convert compounds into biofuels. Unlike grain
feedstocks where the major carbohydrate is starch (very simply combined
sugars), lignocellulosic biomass is composed mainly of cellulose (40-
60%) and hemicellulose (20-40%).\18\ Cellulose and hemicellulose are
made up of sugars linked together in long chains called
polysaccharides. Once hydrolyzed, they can be fermented into ethanol.
Most all the remainder of cellulosic feedstocks consists of lignin, a
complex polymer which serves as a stiffening and hydrophobic (water-
repelling) agent in cell walls. Currently, lignin cannot be fermented
into ethanol, but could be burned as a by-product to generate
electricity. Thermochemical, pyrolysis and depolymerization processing,
however, can convert some or even most of the lignin, in addition to
the cellulosic and hemicellulose, into biofuels.
---------------------------------------------------------------------------

    \18\ DOE. ``Biomass Program: ABC's of Biofuels''. Accessed at:
http://www1.eere.energy.govbiomass/abcs_biofuels.html#content.
---------------------------------------------------------------------------

C. Emerging Technologies

    When evaluating the array of biofuel technologies which could
produce one or more fuels from cellulose that could qualify under RFS2,
we found that it is helpful to organize them into fuel technology
categories. Organizing them into categories eases the task of
understanding the technologies, and also simplifies our understanding
of the costs and lifecycle impacts of these technologies because
similar technologies likely have similar cost and lifecycle impacts.
The simplest organization is by the fuel produced. However, we
frequently found that additional subdivisions were also helpful. Table
IV.C-1 provides a list of technologies, the cellulosic fuels produced
and a list of many of the companies which we learned are pursuing the
technology (or something very similar to the technology listed in the
category).

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

    Of the technologies listed above, many of them are considered to be
``second generation'' biofuels or new biofuel technologies capable of
meeting either the advanced biofuel or cellulosic biofuel RFS standard.
The following sections describe specific companies and the new biofuel
technologies which the companies have developed or are developing. This
summary is not meant to be an unabridged list of new biofuel
technologies, but rather a description of some of the more prominent of
the new biofuel technologies that serve to provide a sense of the
technology categories listed above. The process technology summaries
are based on information provided by the respective companies. EPA has
not been able to confirm all of the information, statements, process
conditions, and the process flow steps necessary for any of these
processes and companies.
1. Biochemical
    Biochemical conversion refers to a broad grouping of processes that
use

biological organisms to convert cellulosic feedstocks into biofuels.
While no two processes are identical, many of these processes follow a
similar basic pathway to convert cellulosic materials to biofuel. The
general process of most biochemical cellulosic biofuel processes
consists of five main steps: feedstock handling, pretreatment,
hydrolysis, fermentation/fuel conversion, and distillation/separation.
The feedstock handling step reduces the particle size of the incoming
feedstock and removes any contaminants that may negatively impact the
rest of the process. In the pretreatment step the structure of the
lignin and hemicellulose is disrupted, usually using some combination
of heat, pressure, acid, or base, to allow for a more effective
hydrolysis of the cellulosic material to simple sugars. In the
hydrolysis stage the cellulose and any remaining hemicellulose is
converted into simple sugars, usually using an enzyme or strong acid.
In the fermentation or fuel conversion step, the simple sugars are
converted to the desired fuel by a biological organism. In the final
step the fuel that is produced is separated from the water and other
byproducts by distillation or some other means. A basic diagram of the
biochemical conversion process can be found in Figure IV.C.1-1 below.
[GRAPHIC] [TIFF OMITTED] TP20JY10.002

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

    \19\ Image From: http://www.afdc.energy.gov/afdc/ethanol/
production_cellulosic.html.
---------------------------------------------------------------------------

    The following sections will discuss each of these steps in greater
detail, discuss some of the variations to this general process, and
discuss some of the advantages and disadvantages of the biochemical
process of producing biofuel from cellulosic materials as compared to
other fuel production processes.
    Seven of the eight companies that EPA believes may produce
cellulosic biofuel in 2011 plan to use a biochemical process to produce
biofuels. Five of these companies, AE Biofuels, Dupont Danisco
Cellulosic Ethanol, Fiberight, Iogen, and KL energy, all plan to use an
enzymatic hydrolysis, while Agresti Biofuels and Bell Bio-Energy are
pursuing gravity pressure vessel and single step process technologies,
respectively. The main reason for the dominance of biochemical
technologies in 2011 is the relatively low capital costs of these
projects compared to other cellulosic biofuel facilities. Biochemical
projects also benefit less from economies of scale, making smaller and
less capital intensive commercial facilities more feasible. The
following sections, as well as a technical memorandum that has been
added to the docket \20\, provide more information on the biochemical
processes being pursued by majority of the companies we expect to
produce cellulosic biofuels and make them commercially available in
2011, as well as many other companies planning to begin production in
later years.
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    \20\ Wyborny, Lester. ``In-Depth Assessment of Advanced Biofuels
Technologies.'' Memo to the docket, May 2010.
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a. Feedstock Handling
    The first step of the biochemical conversion process is to insure
that the biomass stream can be utilized by the rest of the conversion
process. This most often takes the form of size reduction, either by
grinding or chipping as appropriate for the type of biomass. While this
is a relatively simple process it is essential to allow the following
steps of the process to function as designed. It is also a potentially
energy intensive process. It may be possible for biofuel producers to
purchase cellulosic material that is already of the appropriate size,
however we believe that in the near term this is unlikely and most
biofuel producers will have to invest in equipment to reduce the size
of the material they receive as needed for their process. In coming
years, as the market for cellulosic materials expands, purchasing
feedstock that has already been ground or chipped may be possible and
cost effective, as these processes increase the density of this
material and may reduce transportation costs.
    In addition to size reduction, steps must also be taken to remove
any material from the feedstock that might be detrimental to the fuel
production process. Contaminants in the feedstock, such as dirt, rocks,
plastics, metals, and other non-biogenic materials, would at best
travel through the fuel production process unchanged, resulting in
reduced fuel production capacity. Depending on the type of contaminant
they may also be converted to undesired byproducts that must be
separated from the fuel. They could also be toxic to the biological
organisms being used to convert the sugars to fuel, necessitating a
shut down and restart of the plant. Any of these scenarios would result
in a significant cost to the fuel producer. Feedstocks such as
agricultural residues, wood chips, or herbaceous or woody energy crops
are likely to contain far fewer contaminants than more heterogeneous
feedstocks such as municipal solid waste (MSW).

b. Biomass Pretreatment
    The purpose of the biomass pretreatment stage is to disrupt the
structure of the cellulosic biomass to allow for the hydrolysis of the
cellulose and hemicellulose into simple sugars. The ideal pretreatment
stage would allow for a high conversion of the cellulose and
hemicellulose to simple sugars, minimize the degradation of these
sugars to undesired forms that reduce fuel yields and inhibit
fermentation, not require especially large or expensive reaction
vessels, and be a relatively robust and simple process. No single
biomass pretreatment method has yet been discovered that meets all of
these goals, but rather a variety of options are being used by various
cellulosic fuel producers, each with their own strengths and
weaknesses. Dilute acid pretreatment and alkaline pretreatment are two
methods currently being used that attack the hemicellulose and lignin
portions of the cellulosic biomass respectively. Other methods, such as
steam explosion and ammonia fiber expansion, seek to use high
temperature and pressure, followed by rapid decompression to disrupt
the structure of the cellulosic biomass and allow for a more efficient
hydrolysis of the cellulose and hemicellulose to simple sugars. Each of
these methods is discussed in more detail in a technical memo that has
been added to the docket.\21\ The cost and characteristics of the
cellulosic feedstock being processed is likely to have a significant
impact on the pretreatment process that is used.
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    \21\ Wyborny, Lester. ``In-Depth Assessment of Advanced Biofuels
Technologies.'' Memo to the docket, May 2010.
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c. Hydrolysis
    In the hydrolysis step the cellulose and any remaining
hemicellulose are converted to simple sugars. There are two main
methods of hydrolysis, acid hydrolysis and enzymatic hydrolysis. Acid
hydrolysis is the oldest technology for the conversion of cellulosic
feedstock to ethanol and can only be used following an acid
pretreatment process. An alternative method is to use a combination of
enzymes to perform the hydrolysis after the biomass has been
pretreated. This process is potentially more effective at hydrolyzing
pretreated biomass but in the past has not been economically feasible
due to the prohibitively high cost of the enzymes. The falling cost of
these enzymes in recent years has made the production of cellulosic
biofuels using enzymatic hydrolysis possible. The lignin is largely
unaffected by the hydrolysis and fuel production steps but is carried
through these processes until it is separated out in the fuel
separation step and burned for process energy or sold as a co-product.
i. Acid Hydrolysis
    Acid hydrolysis is a technique that has been used for over 100
years to convert cellulosic feedstocks into fuels. In the acid
hydrolysis process the lignin and cellulose portions of the feedstock
that remain after the hemicellulose has been dissolved, hydrolyzed, and
separated during the dilute acid pretreatment process is treated with a
second acid stream. This second acid treatment uses a less concentrated
acid than the pretreatment stage but at a higher temperature, as high
as 215[deg] C. This treatment hydrolyzes the cellulose into glucose and
other 6 carbon sugars that are then fed to biological organisms to
produce the desired fuel. It is necessary to hydrolyze the
hemicellulose and cellulose in two separate steps to prevent the
conversion of the pentose sugars that result from the hydrolysis of the
hemicellulose from being further converted into furfural and other
chemicals. This would not only reduce the total production of sugars
from the cellulosic feedstock, but also inhibit the production of fuel
from the sugars in later stages of the process.
    The acidic solution containing the sugars produced as a result of
the hydrolysis reaction must also be treated so that this stream can be
fed to the biological organisms that will convert these sugars into
fuel. In order to operate an acid hydrolysis process cost effectively
the acid must be recovered, not simply neutralized. Methods currently
being used to recover this acid include membrane separation and
continuous ion exchange. The advantages of using an acid hydrolysis are
that this process is well understood and capable of producing high
sugar yields from a wide variety of feedstocks. Capital costs are high
however, as materials compatible with the acidic streams must be
extensively utilized. The high temperatures necessary for acid
hydrolysis also result in considerable energy costs, and profitability
is highly dependent on the ability to effectively recover and reuse the
acid.
ii. Enzymatic Hydrolysis
    The enzymatic hydrolysis process uses enzymes, rather than acids,
to hydrolyze the cellulose and any remaining hemicellulose from the
pretreatment process. This process is much more versatile than the acid
hydrolysis and can be used in combination with any of the pretreatment
processes described above, provided that the structure of the
lignocellulosic feedstock has been disrupted enough to allow the
enzymes to easily access the hemicellulose and cellulose. After the
feedstock has gone through pretreatment a cocktail of cellulose enzymes
is added. These enzymes can be produced by the cellulosic biofuel
producer or purchased from enzyme producers such as Novozymes,
Genencor, and others. The exact mixture of enzymes used in the
enzymatic hydrolysis stage can vary greatly depending on which of the
pretreatment stages is used as well as the composition of the
feedstock.
    The main advantages of the enzymatic hydrolysis process are a
result of the mild operating conditions. Because no acid is used
special materials are not required for the reaction vessels. Enzymatic
hydrolysis is carried out at relatively low temperatures, usually
around 50[deg] C, and atmospheric pressure and therefore has low energy
requirements. These conditions also result in less undesired reactions
that would reduce the production of sugars and potentially inhibit fuel
production. Enzymatic hydrolysis works best with a uniform feedstock,
such as agricultural residues or energy crops, where the concentration
and combination of enzymes can be optimized for maximum sugar
production. If the composition of the feedstock varies daily, as can be
the case with fuel producers utilizing MSW or other waste streams, or
even seasonally, it would make it more difficult to ensure that the
correct enzyme cocktail is being used to carry out the hydrolysis as
efficiently as possible. The main hurdle to using an enzymatic
hydrolysis has been and continues to be the costs of the enzymes.
Recent advances by companies that produce enzymes for the hydrolysis of
cellulosic materials have resulted in a drastic cost reduction of these
enzymes. If, as many researchers and cellulosic biofuel producers
expect, the cost of these enzymes continues to fall it is likely that
enzymatic hydrolysis will be a lower cost option than acid hydrolysis,
especially for cellulosic biofuel producers utilizing uniform
feedstocks.
d. Fuel Production
    After the cellulosic biomass has been hydrolyzed to simple sugars
this sugar solution is converted to fuel by biological organisms. In
some biochemical fuel production processes the sugars produced from the
fermentation of the hemicellulose, which are mainly five carbon sugars,
are

converted to fuel in a separate reactor and with a different set of
organisms than the sugars produced from the cellulose hydrolysis, which
are mainly six carbon sugars. Others processes, however, produce fuel
from the five and six carbon sugars in the same reaction vessel.
    A wide range of biological organisms can be used to convert the
simple sugars into fuel. These include yeasts, bacteria, and other
microbes, some of which are naturally occurring and others that have
been genetically modified. The ideal biological organism converts both
five and six carbon sugars to fuel with a high efficiency, is able to
tolerate a range of conditions, and is adaptable to process sugar
streams of varying compositions that may result from variations in
feedstock. Many cellulosic biofuel producers have their own proprietary
organism or organisms optimized to produce the desired fuel from their
unique combination of feedstock, pretreatment and hydrolysis processes,
and fuel conversion conditions. Other cellulosic fuel producers license
these organisms from biotechnology companies who specialize in their
discovery and production.
    The many different biological organisms being considered for
cellulosic biofuel production are capable of producing many different
types of fuels. Many cellulosic biofuel producers are working with
organisms that produce ethanol. In many ways this is the most simple
fuel to produce from lignocellulosic biomass as the production of
ethanol from simple sugars is a well understood process. Others intend
to produce butanol or other alcohols that have higher energy content.
Butanol may be able to be blended into gasoline in greater proportion
to ethanol and therefore has a potentially greater market as well as
value due to its higher energy content. Yields for butanol, however,
are currently significantly lower per ton of feedstock than ethanol.
Some of the fuel producers who plan to produce alcohols are considering
purchasing and modifying already existing grain ethanol plants. This
would potentially have significant capital cost savings as many of the
units used in a grain ethanol process are very similar to those
required by the biochemical fuel production process and could be used
with minimal modification.
    Other cellulosic biofuel producers intend to produce hydrocarbon
fuels very similar to gasoline, diesel, and jet fuel. These fuels
command a higher price than alcohols, have a greater energy density,
and are potentially drop in fuels that could be used in any
conventional vehicles without strict blending limits. They could also
be transported by existing pipelines and utilize the same
infrastructure as the petroleum industry. Some of the processes being
researched by fuel producers produce a single compound, such as iso-
octane, that would need to be blended into petroleum gasoline in order
to be used while others produce a range of hydrocarbons very similar to
those found in gasoline or diesel fuel refined from petroleum and could
potentially be used in conventional vehicles without blending. While
the prospect of producing hydrocarbon fuels from cellulosic feedstock
is promising, the current yields of fuel produced by these organisms
are significantly lower than those that are producing ethanol and other
alcohols. Improvement in the yields of these organisms will have to be
realized in order for cellulosic hydrocarbon fuels produced via a
biochemical process to compete with cellulosic ethanol, and ultimately
petroleum based fuels.
e. Fuel Separation
    In the fuel separation stage the fuel produced is separated from
the water, lignin, any un-reacted hemicellulose and cellulose, and any
other compounds remaining after the fuel production stage. The
complexity of this stage is highly dependent on the type of fuel
produced. For processes producing hydrocarbon fuels this stage can be
as simple as a settling tank, where the hydrocarbons are allowed to
float to the top and removed. Recovering the ethanol is a much more
difficult task. To recover the ethanol a distillation process, nearly
identical to that used in the grain ethanol industry, is used. The
ethanol solution is first separated from the solids before being sent
to a distillation column called a beer column. The overheads of the
beer column are fed to a second distillation column, called a rectifier
for further separation. The rectifier produces a stream with an ethanol
of approximately 96%. A molecular sieve unit is then used to dehydrate
this stream to produce fuel grade ethanol with purity greater than
99.5%. Gasoline is added to the fuel ethanol as a denaturant before the
fuel is stored. The distillation of ethanol is a very energy intensive
process and new technologies, such as membrane separation, are being
developed that could potentially reduce the energy intensity, and thus
the cost, of the ethanol dehydration process. After the fuel has been
recovered the remaining lignin and solids are dried and either burned
on site to provide process heat and electricity or sold as a byproduct
of the fuel production process. The waste water is either recycled or
sent to a water treatment facility.
f. Process Variations
    While the process described above outlines the general biochemical
process used by many cellulosic biofuel producers, there are several
prominent variations being pursued by prospective biofuel producers.
These variations usually seek to simplify the biochemical fuel
production process by combining several steps into a single step or
using other means to reduce the capital or operating costs of the
process. Simultaneous Saccharification and Fermentation (SSF),
Simultaneous Saccharification and Co-Fermentation (SSCF), Consolidated
Bio-Processing (CBP), and Single Step Fuel Production are all
production methods being developed by various biofuel production
companies to combine two or more of the steps outlined above. These
process variations are discussed in more detail in a technical memo
that can be found in the docket.\22\ These modifications are usually