[Federal Register Volume 80, Number 239 (Monday, December 14, 2015)]
[Rules and Regulations]
[Pages 77419-77518]
[FR Doc No: 2015-30893]

Vol. 80

Monday,

No. 239

December 14, 2015

Part II

Environmental Protection Agency

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40 CFR Part 80

Renewable Fuel Standard Program: Standards for 2014, 2015, and 2016 and
Biomass-Based Diesel Volume for 2017; Final Rule

Federal Register / Vol. 80 , No. 239 / Monday, December 14, 2015 /
Rules and Regulations

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2015-0111; FRL-9939-72-OAR]
RIN 2060-AS22

Renewable Fuel Standard Program: Standards for 2014, 2015, and
2016 and Biomass-Based Diesel Volume for 2017

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under section 211 of the Clean Air Act, the Environmental
Protection Agency (EPA) is required to set renewable fuel percentage
standards every year. This action establishes the annual percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel that apply to all motor vehicle
gasoline and diesel produced or imported in the years 2014, 2015, and
2016. The EPA is establishing a cellulosic biofuel volume for all three
years that is below the applicable volume specified in the Act, and is
also rescinding the cellulosic biofuel standard for 2011. Relying on
statutory waiver authorities, the EPA is adjusting the applicable
volumes of advanced biofuel and total renewable fuel for all three
years. The 2016 standards are expected to spur further progress in
overcoming current constraints in renewable fuel distribution
infrastructure, which in turn is expected to lead to substantial growth
over time in the production and use of renewable fuels. In this action,
we are also establishing the applicable volume of biomass-based diesel
for 2017. Finally, we are setting the compliance and attest reporting
deadlines for the years 2013, 2014, and 2015, as well as finalizing
regulatory amendments to clarify the scope of the existing algal
biofuel pathway.

DATES: This final rule is effective on February 12, 2016.

ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2015-0111. All documents in the docket are
listed on the http://www.regulations.gov Web site. Although listed in
the index, some information is not publicly available, e.g., CBI or
other information whose disclosure is restricted by statute. Certain
other material, such as copyrighted material, is not placed in the
electronic docket and will be publicly available only in hard copy
form. Publicly available docket materials are available electronically
through http://www.regulations.gov.

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

General Information

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

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

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

Table of Contents

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Final Approach To Setting Standards for 2014, 2015, and 2016
    2. Advanced Biofuel and Total Renewable Fuel
    3. Biomass-Based Diesel
    4. Cellulosic Biofuel
    5. Annual Percentage Standards
    6. Response to Requests for a Waiver of the 2014 Standards
    7. Changes to Regulations
    8. Assessment of Aggregate Compliance Approach
    C. Authority for Late Action and Applicability of the Standards
    D. Outlook for 2017 and Beyond
II. Advanced Biofuel and Total Renewable Fuel Volumes for 2014-2016
    A. Fulfilling Congressional Intent To Increase Use of Renewable
Fuels
    B. Statutory Authorities for Reducing Volume Targets
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    3. Assessment of Past Versus Future Supply
    4. Combining Authorities for Reductions in Total Renewable Fuel
    5. Inability to Reach Statutory Volumes
    6. Inability to Reach Volumes Using Only the Cellulosic Waiver
Authority
    C. 2014 Advanced Biofuel and Total Renewable Fuel Volume
Requirements
    D. 2015 Advanced Biofuel and Total Renewable Fuel Volume
Requirements
    E. Total Renewable Fuel Volume Requirement for 2016
    1. Renewable Fuel Market Challenges and Opportunities
    2. Projecting Ethanol Supply
    i. Ethanol Supply as E10 in 2016
    ii. The Impact of RIN Prices on E85 Retail Prices
    iii. Ethanol Supply as E85 in 2016
    iv. E0 Demand in 2016
    v. Ethanol Supply as E15 in 2016
    vi. Total Ethanol Supply in 2016
    3. Biodiesel and Renewable Diesel
    i. Feedstock Availability
    ii. Biodiesel and Renewable Diesel Production Capacity

    iii. Biodiesel and Renewable Diesel Import Capacity
    iv. Biodiesel and Renewable Diesel Distribution Capacity
    v. Biodiesel and Renewable Diesel Retail Infrastructure Capacity
    vi. Biodiesel and Renewable Diesel Consumption Capacity
    vii. Biodiesel and Renewable Diesel Consumer Response
    viii. Projected Supply of Biodiesel and Renewable Diesel in 2016
    4. Projecting the Supply of Other Renewable Fuels
    5. Total Renewable Fuel Supply in 2016
    F. Advanced Biofuel Volume Requirement for 2016
    G. Market Responses to the 2016 Advanced Biofuel and Total
Renewable Fuel Volume Requirements
    H. Treatment of Carryover RINs
    1. Summary of Public Comments
    2. Updated Projection of Carryover RIN Volume
    3. EPA's Decision and Response to Comments
    i. Importance of Carryover RINs
    ii. Role of Carryover RINs Under the Waiver Authorities
    iii. Extent to Which the Current Bank of Carryover RINs Could Be
Drawn Down Without Compromising the Beneficial Buffer They Provide
    iv. Whether Carryover RINs Will Be Used To Avoid Needed
Investments
    v. Response to Other Comments
    4. Summary
    I. Impacts of Final Standards on Costs
III. Final Biomass-Based Diesel Volumes for 2014-2017
    A. Statutory Requirements
    B. BBD Production and Compliance Through 2013
    C. BBD Volumes for 2014
    D. Determination of Applicable Volume of Biomass-Based Diesel
for 2015-2017
    1. Implication of Nested Standards
    2. Biomass-Based Diesel as a Fraction of Advanced Biofuel
    3. Ensuring Growth in Biomass-Based Diesel and Other Advanced
Biofuel
    4. Final BBD Volume for 2015
    5. Final Volumes for 2016-2017
    E. Consideration of Statutory Factors for 2014-2017
    1. Assessment for 2014 and 2015 Biomass-Based Diesel Applicable
Volume
    2. Primary and Supplementary Statutory Factors Assessment for
2016 and 2017 Biomass-Based Diesel Applicable Volumes
IV. Final Cellulosic Biofuel Volume for 2014-2016
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Projection From the Energy Information Administration
    D. Cellulosic Biofuel Volume for 2014
    E. Cellulosic Biofuel Volume for 2015
    F. Cellulosic Biofuel Volume for 2016
    G. Rescission of the 2011 Cellulosic Biofuel Standards
V. Percentage Standards
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
    3. Final Standards
VI. Amendments to Regulations
    A. Changes to the Algal Biofuel Pathways
    B. Annual Compliance Reporting and Attest Engagement Deadlines
Under the RFS Program
VII. Assessment of Aggregate Compliance
    A. Assessment of the Domestic Aggregate Compliance Approach
    B. Assessment of the Canadian Aggregate Compliance Approach
VIII. Public Participation
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act (PRA)
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act (UMRA)
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act (NTTAA)
    J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations, and Low-Income
Populations
    K. Congressional Review Act (CRA)
X. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) that were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), resulting in the
publication of major revisions to the regulatory requirements on March
26, 2010.1 2 EISA's stated goals include moving the United
States toward ``greater energy independence and security, to increase
the production of clean renewable fuels.'' Since the initial
promulgation of the RFS program regulations in 2007, domestic
production and use of renewable fuel in the U.S. has increased
substantially. According to the Energy Information Administration
(EIA), fuel ethanol production in the U.S. more than doubled in volume
from approximately 6.5 billion gallons in 2007 to about 14.3 billion
gallons in 2014.\3\ Growth in biodiesel and renewable diesel production
in the U.S. has increased more than two and a half times, from
approximately 0.5 billion gallons in 2007 to 1.46 billion gallons in
2014.\4\ Today, nearly all of the approximately 139 billion gallons of
gasoline used for transportation purposes contains 10 percent ethanol
(E10).
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    \1\ 75 FR 14670, March 26, 2010.
    \2\ A full description of the statutory basis of the RFS program
and EPA's actions to develop and implement the regulatory program
are provided in a memorandum to the docket. See, ``Statutory basis
of the RFS program and development of the regulatory program,''
memorandum from Madison Le to EPA docket EPA-HQ-OAR-2015-0111.
    \3\ EIA's Monthly Energy Review, April 2015, Table 10.3.
    \4\ 2007 volume represents biodiesel only, from EIA's Monthly
Energy Review, April 2015, Table 10.4. 2014 volume represents
biodiesel and renewable diesel domestic production from EMTS.
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    The fundamental objective of the RFS provisions under the CAA is
clear: To increase the use of renewable fuels in the U.S.
transportation system every year through at least 2022 in order to
reduce greenhouse gases (GHGs) and increase energy security. Further,
renewable fuels from facilities that commenced construction after 2007
must be better performing in terms of their greenhouse gas emissions,
as compared on a lifecycle basis, to the petroleum based fuels they are
replacing. Cellulosic biofuels are required to have 60 percent or
greater greenhouse gas (GHG) emissions benefits on a lifecycle basis
than the petroleum based fuels they replace; advanced biofuels
(including biomass-based diesel) must have a 50 percent or greater
benefit; and conventional biofuels (other than grandfathered
facilities) must have a 20 percent or better benefit. Increased use of
renewable fuels means less use of fossil fuels, which generally results
in lower GHG emissions over time, especially when advanced biofuel
production and use becomes more commonplace. By aiming to diversify the
country's fuel supply, Congress also intended to increase the nation's
energy security. Renewable fuels represent an opportunity for the U.S.
to move away from fossil fuels towards a set of lower GHG
transportation fuels, and a chance for a still-developing low GHG
technology sector to grow. These lower GHG renewable fuels include corn
starch ethanol, the predominant renewable fuel in use to date, but
Congress envisioned the majority of growth over time to come from
advanced biofuels, as the non-advanced (conventional) volumes remain
constant in the statutory volume tables starting in

2015 while the advanced volumes continue to grow.\5\
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    \5\ In this document we follow the common practice of using the
term ``conventional'' renewable fuel to mean any renewable fuel that
is not an advanced biofuel.
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    The statute includes annual volume targets,\6\ and requires EPA to
translate those volume targets (or alternative volume requirements
established by EPA in accordance with statutory waiver authorities)
into compliance obligations that refiners and importers must meet every
year. In this action, EPA is establishing the annual percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel that apply to all motor vehicle
gasoline and diesel produced or imported in the years 2014, 2015, and
2016. We are also establishing the applicable volume of biomass-based
diesel for 2017.
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    \6\ CAA section 211(o)(2)(B).
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    In the June 10, 2015 notice of proposed rulemaking (NPRM), we
proposed standards based on an approach that sought to achieve the
Congressional intent of increasing renewable fuel use over time in
order to address climate change and increase energy security, while at
the same time accounting for the real-world challenges that have slowed
progress toward such goals.\7\ Those challenges have made the volume
targets established by Congress for 2014, 2015, and 2016 beyond reach.
In the NPRM we proposed to use waiver mechanisms that Congress provided
to allow for the volume targets to be reduced if necessary. The
proposed volume requirements were lower than the statutory targets but
set at a level that we believed would spur growth in renewable fuel
use, consistent with Congressional intent.
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    \7\ See 80 FR 33100.
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    In this action, we are finalizing standards that make use of the
statute's waiver provisions. The final standards differ from the
proposed standards based on new information, consideration of public
comments, and corrected calculations. Details of these changes are
provided below. By finalizing the percentage standards for 2016 by
November 30, 2015, we are returning to the statutory timeline for
issuing standards under the RFS program.\8\
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    \8\ We are also setting the BBD volume requirement for 2017 in
this final rule. Under the statute, it was required to be set by
November 1, 2015.
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    We received a substantial number of comments on our proposed use of
the statute's waiver authorities, with commenters both supporting and
opposing our approach. In addition to comments on our proposed use of
waiver authorities, we received comments on multiple other areas of the
proposal, including our proposed treatment of carryover RINs, our
proposed approach to determining the volume requirements, and other
areas. We address these comments in this preamble as well as in a
response-to-comment (RTC) document, which can be found in the docket
for this action.
    While we are using the statutory waiver authorities in establishing
final 2014, 2015, and 2016 standards for cellulosic biofuel, advanced
biofuel, and total renewable fuel, as we proposed to do, the volumes we
are finalizing differ from the proposed volumes in order to reflect
updated and corrected information, and to provide year-to-year growth
consistent with the statute's intent. Key corrections and updates
include:
     Updating our assessment of volumes of renewable fuel that
can be blended at various concentrations into petroleum fuel and our
calculation of all of the percentage standards to take into account
changes in EIA's projected gasoline and diesel demand for 2016.
     Correcting an error in determining actual volumes of
ethanol supplied in 2014. EPA acknowledged this error in July 2015 by
placing a memo in the docket.\9\ Correcting the error leads to a higher
2014 total renewable fuel volume requirement than the level in the
NPRM.
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    \9\ See Docket Item No. EPA-HQ-OAR-2015-0111-1219.
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     Accounting for higher than expected supply of biodiesel
and renewable diesel in 2015, providing a basis for expecting similar
growth in biodiesel and renewable diesel volumes in 2016.
    For 2016, we are finalizing volume requirements that are
significantly higher than proposed, and that represent significant
growth compared to actual renewable fuel use in 2015. While some
stakeholders commented that reductions from the statutory targets would
lead to a stagnation in growth, we disagree with this view. We proposed
a 2016 volume requirement for total renewable fuel that was 1.1 billion
gallons greater than the proposed 2015 volume requirement--a
significant level of growth in one year. Our final 2016 volume
requirements are also ambitious, with substantial growth in all four
categories relative to 2015. We are also setting a final volume
requirement for BBD for 2017 that continues the growth in that category
of renewable fuel. The final volume requirements are shown in Table I-1
below.

                                    Table I-1--Final Volume Requirements \a\
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                                                       2014            2015            2016            2017
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Cellulosic biofuel (million gallons)............           33             123             230                n/a
Biomass-based diesel (billion gallons)..........            1.63            1.73            1.90            2.00
Advanced biofuel (billion gallons)..............            2.67            2.88            3.61             n/a
Renewable fuel (billion gallons)................           16.28           16.93           18.11             n/a
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\a\ All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.

    Our decision to finalize volumes for total renewable fuel that rely
on exercising the general waiver authority is based on the same
fundamental reasoning we relied upon in the June 10, 2015 proposal.
Despite significant increases in renewable fuel use in the United
States, real-world constraints, such as the slower than expected
development of the cellulosic biofuel industry and constraints in the
marketplace needed to supply certain biofuels to consumers, have made
the timeline laid out by Congress impossible to achieve. These
challenges remain, even as we recognize the success of the RFS program
over the past decade in boosting renewable fuel use, and the recent
signs of progress towards development of increasing volumes of
advanced, low GHG-emitting fuels, including cellulosic biofuels.
    We believe that the RFS program can and will drive renewable fuel
use and, indeed, we have considered the ability of the market to
respond to the standards we set when we assessed the

amount of renewable fuel that can be supplied. Therefore, while this
final rule applies the tools Congress provided to make adjustments to
the statutory volume targets in recognition of the constraints that
exist today, we believe the standards we are finalizing today will
drive growth in renewable fuels, particularly advanced biofuels which
achieve the lowest lifecycle GHG emissions. In our view, while Congress
recognized that supply challenges may exist as evidenced by the waiver
provisions, it did not intend growth in the renewable fuels market to
be stopped by those challenges, including those associated with the
``E10 blendwall.'' \10\ The fact that Congress chose to mandate
increasing and substantial amounts of renewable fuel clearly signals
that it intended the RFS program to create incentives to increase
renewable fuel supplies and overcome constraints in the market. The
standards we are finalizing will provide those incentives.
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    \10\ The ``E10 blendwall'' represents the volume of ethanol that
can be consumed domestically if all gasoline contains 10% ethanol
and there are no higher-level ethanol blends consumed such as E15 or
E85.
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    The final volume requirements will push the fuels sector to produce
and blend more renewable fuels in 2016 in a manner that is consistent
with the goals Congress envisioned. The final volumes are less than the
statutory targets for 2016 but higher than what the market would
produce and use in the absence of such market-driving standards. The
2016 standards are expected to spur further progress in overcoming
current challenges and lead to continued growth in the production and
use of qualifying renewable fuels, including higher-level ethanol
blends. In this regard the final standards are intended to fulfill the
spirit and intent of Congress and provide guidance to market
participants.
    Various commenters in the biofuels industry disagreed with our
assessment that the approach described in the NPRM, in which we
proposed to reduce the statutory targets using the available waiver
authorities, would nevertheless support growth in renewable fuels. We
address these comments throughout this document and the response to
comments (RTC) document. We emphasize, however, that our fundamental
goal is to implement the RFS program in such a way as to promote growth
of renewable fuel use over time. We have conducted significant
technical analysis, both in the proposed rule and in this final rule,
to better understand and characterize the renewable fuels market and
the RFS program, all in an effort to implement the program on a
schedule that matches as nearly as possible that set forth in the
statute.\11\ We believe the approach taken in this final rule--in which
we use the general waiver authority only to the extent necessary in
light of real world constraints to make the requirements reasonably
achievable, and we use the cellulosic waiver authority for advanced
biofuel in a manner that allows advanced biofuel to significantly
backfill for missing volumes of cellulosic biofuel--will achieve that
goal.
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    \11\ See, for example, the supporting documents ``A Preliminary
Assessment of RIN Market Dynamics, RIN Prices, and Their Effects,''
``An Assessment of the Impact of RIN Prices on the Retail Price of
E85,'' and ``Correlating E85 consumption volumes with E85 price''.
These documents discuss the expected impacts of the price of RINs on
the transportation fuels and renewable fuels marketplace, the
potential for the RFS program to incentivize additional production
and use of renewable fuels, and the observed impacts of the RFS on
the fuels market over the past several years.
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    The RFS program can be thought of as a market forcing policy. The
objective of the program is to introduce increasing volumes of
renewable fuels, with a focus on cellulosic and other advanced
renewable fuels, into the marketplace. Congress made the decision that
this is an appropriate policy objective, and put in place a program to
achieve that policy goal. A key issue in implementing any program
designed to advance new technologies and increase use of existing
technologies, however, is the question of lead time. Technologies are
typically phased in over time--in many cases over many years--to allow
for the development of the technology and the steady growth in
penetration of that technology into the marketplace. New technologies
do not typically start at 90 or 100 percent penetration rates; they can
take time to overcome investment, technical, and market hurdles to
their development, deployment and use. The greater the number and type
of these challenges, the longer the lead time must be to achieve the
desired policy goal. In establishing the RFS program, Congress not only
recognized that biofuels would need to phase in over time, and thus
established a ramp-up of renewable fuel volume targets over time, but
also established provisions in the law allowing EPA to waive in whole
or in part implementation of those targets under certain circumstances.
Our exercising of those waiver authorities is not an attempt to
undermine program growth, as some commenters argue, but rather a
recognition of real world constraints that necessitate an adaptive
approach to managing the program. Growth will, and must, continue under
the law, but Congress recognized that in some cases, driving the
introduction of a new technology requires an acknowledgment that new
technologies can in some cases require longer lead times to achieve
success. Trying to force growth at rates that prove infeasible would
only undermine the certainty in the RFS program that is needed to
sustain long-term growth.
    As stated in the NPRM, this final rule comes during a period of
transition for the RFS program. In the program's early years,
compliance with the advanced biofuel and total renewable volume
requirements could be readily achieved in large part by blending
increasing amounts of ethanol into gasoline and biodiesel into diesel
fuel. As the program progresses, however, significantly increasing
renewable fuel volumes will require pushing beyond current constraints
on ethanol and biodiesel use and will require sustained growth in the
development and use of advanced, non-ethanol renewable fuels, including
drop-in renewable fuels. This final rule acknowledges this transition
by finalizing volume requirements based not only on the volumes of
renewable fuels that have already been achieved in 2014 and the months
in 2015 leading up to this final action, but also on the volumes that
can be supplied in 2016 as the market addresses infrastructure and
other constraints. Our final rule includes volumes of renewable fuel
that will require either ethanol use at levels significantly beyond the
level of the E10 blendwall, or significantly greater use of non-ethanol
renewable fuels, such as biodiesel and renewable diesel, than has
occurred to date, depending on how the market responds to the standards
we set. The standards we are finalizing are consistent with the purpose
of the statute: to significantly increase the amount of renewable fuel
used in the supply of transportation fuel over time, particularly
renewable fuels with the lowest lifecycle GHG emissions.
    Since the amount of renewable fuel that can be produced and
imported is larger than the volume that can be consumed due to limited
demand for transportation fuel and constraints on supply of renewable
fuels to vehicles and engines, there is necessarily competition among
biofuels for retail consumption in the United States. In setting the
biomass-based diesel volume requirement we have worked to achieve an
appropriate and reasonable balance between setting a volume requirement
that would provide support for the established BBD industry, while also
providing opportunities under the

advanced biofuel volume requirement to incentivize continued
development and production of emerging biofuels. The approach we have
used to determine the final volumes is consistent with Congressional
intent in establishing the RFS program in that it provides an
opportunity for a diverse array of renewable fuel types to be used for
compliance. Competition is good for market participants, including
obligated parties and consumers, as it permits the market to determine
the most efficient, lowest cost, best performing fuels for meeting the
increasingly higher volume requirements anticipated over time under the
program. However, it is also important to provide support to existing
successful biofuels and to provide incentives for those fuels,
especially advanced biofuels, which produce the greatest reductions in
GHGs. To this end, as discussed in Section III, we are finalizing
specific volume requirements for biomass-based diesel (BBD) through
2017.
    As indicated in the NPRM, in establishing the standards for 2014,
we must acknowledge that the compliance year has passed and any
standard EPA sets for 2014 can no longer influence renewable fuel
production or use in that year. Therefore, we are issuing a final rule
for 2014 that reflects those volumes of renewable fuel that were
actually supplied in 2014. Details regarding how we calculated the
final ``actual'' volumes used in 2014 are discussed in Section II.C
below.
    With regard to 2015, the proposed volume requirements were based in
part on actual volumes supplied in the first part of the year, and in
part based on a determination of growth that was possible (and which
could be incentivized through the NPRM) in the balance of the year.
Actual data on supply after release of the June 10, 2015 NPRM indicates
that the market responded to the NPRM by increasing supply in
comparison to the period prior to the release of the NPRM. The final
standards for 2015 have been set based on updated production and
consumption data available as of issuance of this final rule, and a
projection of what is expected to be produced and used through the end
of 2015, taking into account the inability of the market to respond to
this final action in light of the little time remaining in the year.
    For 2016, our approach is to set final volumes that take into
account both the constraints in the supplies that exist, and the
ability of the RFS program to incentivize growth. Where appropriate we
also take into consideration other factors such as the impact of the
BBD standard on incentivizing the production and use of other advanced
biofuels, and the benefits provided by advanced biofuels in backfilling
some of the volume that Congress envisioned would be provided in 2016
by cellulosic biofuels.
    This final rule represents EPA's commitment and continued support
for steady growth in renewable fuel use. We recognize that the RFS
standards are only one element among many that factor into the success
of renewable fuel development and use over time. The standards that EPA
sets each year are an important part of the overall picture, but this
program is complemented and supported by programs managed by the U.S.
Departments of Agriculture (USDA) and Energy (DOE), as well as myriad
of efforts and initiatives at the regional and local level and within
the private sector. DOE has invested considerable resources to help
deploy the advanced technologies needed to achieve the statutory aims
of lower carbon fuels, and has leveraged several billion dollars more
in private support for development of advanced renewable fuels. USDA's
Biofuel Infrastructure Partnership program will provide $100 million in
grants for the expansion of renewable fuel infrastructure, and their
Biorefinery Assistance Program has provided loan guarantees for the
development and construction of commercial scale biorefineries with a
number of the new projects focused on producing fuels other than
ethanol. Greater GHG benefits are expected to be realized as the
production and use of advanced biofuels accelerates, and the volume
requirements that we are finalizing support this goal.

A. Purpose of This Action

    The national volume targets of renewable fuel that are intended to
be achieved under the RFS program each year (absent an adjustment or
waiver by EPA) are specified in CAA section 211(o)(2). The statutory
volumes for 2014, 2015, and 2016 are shown in Table I.A-1. The
cellulosic biofuel and BBD categories are nested within the advanced
biofuel category, which is itself nested within the total renewable
fuel category. This means, for example, that each gallon of cellulosic
biofuel or BBD that is used to satisfy the individual volume
requirements for those fuel types can also be used to satisfy the
requirements for advanced biofuel and total renewable fuel.

                         Table I.A-1--Applicable Volumes Specified in the Clean Air Act
                                              [Billion gallons] \a\
----------------------------------------------------------------------------------------------------------------
                                                                      2014             2015            2016
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.............................................            1.75              3.0            4.25
Biomass-based diesel...........................................          >=1.0             >=1.0          >=1.0
Advanced biofuel...............................................            3.75              5.5            7.25
Renewable fuel.................................................           18.15             20.5           22.25
----------------------------------------------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except values for BBD which are given in
  actual gallons.

    Under the RFS program, EPA is required to determine and publish
annual percentage standards for each compliance year. The percentage
standards are calculated to ensure use in transportation fuel of the
national ``applicable volumes'' of the four types of biofuel
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel)
that are set forth in the statute or established by EPA in accordance
with the Act's requirements. The percentage standards are used by
obligated parties (generally, producers and importers of gasoline and
diesel fuel) to calculate their individual compliance obligations. Each
of the four percentage standards is applied to the volume of non-
renewable gasoline and diesel that each obligated party produces or
imports during the specified calendar year to determine their
individual volume obligations with respect to the four renewable fuel
types. The individual volume obligations determine the number of RINs
of each renewable fuel type that each obligated party must acquire and
retire to demonstrate compliance.
    Today EPA is establishing the annual applicable volume requirements
for cellulosic biofuel, advanced biofuel, and total renewable fuel for
2014, 2015, and 2016, and for BBD for 2014, 2015, 2016,

and 2017. Table I.A-2 lists the statutory provisions and associated
criteria relevant to determining the national applicable volumes used
to set the percentage standards in this final rule.

    Table I.A-2--Statutory Provisions for Determination of Applicable
                                 Volumes
------------------------------------------------------------------------
                                                    Criteria provided in
                                  Clean Air Act         statute for
      Applicable volumes            reference         determination of
                                                     applicable volume
------------------------------------------------------------------------
Cellulosic biofuel............  211(o)(7)(D)(i)..  Required volume must
                                                    be lesser of volume
                                                    specified in CAA
                                                    section
                                                    211(o)(2)(B)(i)(III)
                                                    or EPA's projected
                                                    volume in
                                                    coordination with
                                                    other federal
                                                    agencies.
                                211(o)(7)(A).....  EPA may waive the
                                                    statutory volume in
                                                    whole or in part if
                                                    implementation would
                                                    severely harm the
                                                    economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Biomass-based diesel \12\.....  211(o)(2)(B)(ii)   Required volume for
                                 and (v).           years after 2012
                                                    must be at least 1.0
                                                    billion gallons, and
                                                    must be based on a
                                                    review of
                                                    implementation of
                                                    the program,
                                                    coordination with
                                                    other federal
                                                    agencies, and an
                                                    analysis of
                                                    specified factors.
                                211(o)(7)(A).....  EPA may waive the
                                                    statutory volume in
                                                    whole or in part if
                                                    implementation would
                                                    severely harm the
                                                    economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Advanced biofuel..............  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    section
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA may waive the
                                                    statutory volume in
                                                    whole or in part if
                                                    implementation would
                                                    severely harm the
                                                    economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
Total renewable fuel..........  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    below the statutory
                                                    volume to the
                                                    projected volume,
                                                    EPA may reduce the
                                                    advanced biofuel and
                                                    total renewable fuel
                                                    volumes in CAA
                                                    section
                                                    211(o)(2)(B)(i)(I)
                                                    and (II) by the same
                                                    or lesser volume. No
                                                    criteria specified.
                                211(o)(7)(A).....  EPA may waive the
                                                    statutory volume in
                                                    whole or in part if
                                                    implementation would
                                                    severely harm the
                                                    economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or if there is an
                                                    inadequate domestic
                                                    supply.
------------------------------------------------------------------------

    By\\ re-proposing the 2014 standards along with a proposed rule for
the 2015 and 2016 standards, we were not only able to formulate a
proposed rule for public comment that takes into account the fact that
2014 is over, but we were also able to coordinate the treatment of 2014
with the treatment of 2015, where part of the year has likewise already
passed. We therefore withdrew the November 29, 2013, NPRM,\13\ and the
June 10, 2015, NPRM replaced and superseded that earlier proposed rule.
The timing of this final rule is being issued consistent with terms of
a final consent decree entered into by the EPA on April 10, 2015. This
consent decree resolves pending litigation concerning EPA's failure to
establish standards for 2014 and 2015 by the statutory deadlines and
includes a requirement for EPA to promulgate final standards for 2014
and 2015 by November 30, 2015.\14\
---------------------------------------------------------------------------

    \12\ Section 211(o)(7)(E) also authorizes EPA to issue a
temporary waiver of applicable volumes of BBD where EPA determines
that there is a significant feedstock disruption or other market
circumstance that would make the price of BBD fuel increase
significantly.
    \13\ See 78 FR 71732 (November 29, 2013) and 79 FR 73007
(December 9, 2014).
    \14\ See American Fuel and Petrochemical Manuf. et al. v. EPA
(No. 15-cv-394, D.D.C.). The consent decree also requires that EPA
respond by November 30, 2015 to the plaintiffs' petition seeking a
waiver in part of the 2014 statutory volume targets.
---------------------------------------------------------------------------

    As shown in Table I.A-2, the statutory authorities that provide
direction to EPA for how to modify or set the applicable standards
differ for the four categories of renewable fuel. Under the statute,
EPA must annually determine the projected volume of cellulosic biofuel
production for the following year. If the projected volume of
cellulosic biofuel production is less than the applicable volume
specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must
lower the applicable volume used to set the annual cellulosic biofuel
percentage standard to the projected volume of production during the
year. In Section IV of this final rule, we present our analysis of
cellulosic biofuel production and the final applicable volumes for
2014, 2015, and 2016. This analysis is based on an assessment of actual
cellulosic biofuel supply in 2014 and parts of 2015, estimates from
EIA, an evaluation of producers' production plans and progress to date
following discussions with cellulosic biofuel producers, and review of
comments we received in response to the NPRM.
    With regard to BBD, CAA section 211(o)(2)(B) specifies the
applicable volumes of BBD to be used in the RFS program only through
year 2012. For subsequent years the statute sets a minimum volume of 1
billion gallons, and directs EPA to set the required volume after
review of the renewable fuels program, consultation with USDA and DOE
as well as consideration of a number of factors. In Section III of this
preamble we discuss our assessment of statutory and other relevant
factors and our final volume requirements for BBD for 2014, 2015, 2016,
and 2017. We are finalizing growth in the required volume of BBD in
such a way that both the BBD market and other advanced biofuels will
grow.
    Regarding advanced biofuel and total renewable fuel, Congress
provided several mechanisms through which

those volumes could be reduced if necessary. If we lower the applicable
volume of cellulosic biofuel below the volume specified in CAA section
211(o)(2)(B)(i)(III), we also have the authority to reduce the
applicable volumes of advanced biofuel and total renewable fuel by the
same or a lesser amount. We refer to this as the ``cellulosic waiver
authority.'' We may also reduce the applicable volumes of any of the
four renewable fuel types under the ``general waiver authority''
provided at CAA section 211(o)(7)(A) if EPA finds that implementation
of the statutory volumes would severely harm the economy or environment
of a State, region, or the United States, or if there is inadequate
domestic supply. Section II of this final rule describes our use of the
cellulosic waiver authority to reduce volumes of advanced biofuel and
total renewable fuel and the general waiver authority to further reduce
volumes of total renewable fuel. Exercise of our waiver authorities is
necessary to address important realities, including:
     Substantial limitations in the supply of cellulosic
biofuel,
     Insufficient supply of other advanced biofuel to offset
the shortfall in cellulosic biofuel, and
     Practical and legal constraints on the ability of the
market to supply renewable fuels to the vehicles that can use them.
    We believe these realities justify the exercise of the authorities
Congress provided us to waive the statutory volumes. At the same time,
we are mindful that the primary objective of the statute is to increase
renewable fuel use over time. For the total renewable fuel requirement
in this rule, we are using the waiver authorities only to the extent
necessary to derive applicable volumes that reflect the maximum supply
that can reasonably be expected to be produced and consumed by a market
that is responsive to the RFS standards. This is a very challenging
task not only in light of the myriad complexities of the fuels market
and how individual aspects of the industry might change in the future,
but also because we cannot precisely predict how the market will
respond to the volume-driving provisions of the RFS program. Thus the
determination of the final total renewable fuel volume requirement is
one that we believe necessarily involves considerable exercise of
judgment. Based on our assessment of available renewable fuel supply,
and after consultation with the Departments of Agriculture and Energy,
we believe that adjustments to the statutory targets for total
renewable fuel are warranted for 2014, 2015, and 2016. While the final
volume requirements for 2014 and 2015 are either equal to actual supply
or (for 2015) a projection from actual supply, the volume requirement
for 2016 will lead to growth in supply beyond the levels achieved in
the past, based on the expectation that the market can and will respond
to the standards we set.
    For the advanced biofuel volume requirements, we are using the
cellulosic waiver authority to derive a volume requirement for 2014
that is based on actual supply; a volume requirement for 2015 that is
based on actual supply during months for which data are available, and
a projection from those levels for the remaining months in the year;
and a volume requirement for 2016 that is reasonably attainable and
which to a significant extent will result in backfilling the shortfall
in cellulosic biofuel volumes with other advanced biofuels that also
provide substantial GHG emission reductions.\15\
---------------------------------------------------------------------------

    \15\ As discussed in Section II.B.1, EPA has considerable
discretion in exercising the cellulosic waiver authority, and is not
constrained to consider any particular factor or list of factors in
doing so.
---------------------------------------------------------------------------

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this final
rule. We are establishing applicable volume requirements for cellulosic
biofuel, BBD, advanced biofuel, and total renewable fuel for 2014,
2015, and 2016, as well as the applicable volume requirement for BBD
for 2017. This action also includes a final response to several
requests we received in 2013 for a waiver of the 2014 standards. We are
also finalizing an amendment to the regulations designed to clarify the
scope of the algal biofuel pathway. Finally, we are establishing new
deadlines for annual compliance reporting and attest reporting for the
2013, 2014 and 2015 compliance years.
1. Final Approach to Setting Standards for 2014, 2015, and 2016
    Because 2014 has passed, this final rule cannot alter the volumes
of renewable fuel produced and consumed during 2014. We believe it is
appropriate, therefore, that the standards we establish for 2014
reflect the actual supply of renewable fuel in 2014. Although we
believe that the standards we set for advanced biofuel and total
renewable fuel must be ambitious to be consistent with the intent of
Congress in establishing the RFS program, we also recognize that the
final standards we set cannot affect the past. Therefore, in this
action we are basing the applicable volume requirements for 2014 on
actual renewable fuel use, as determined by data on the number of
Renewable Identification Numbers (RINs) generated from the EPA-
Moderated Transaction System (EMTS), minus the number of RINs retired
to account for renewable fuel export as reported by the Census Bureau,
or retired for other purposes unrelated to demonstrating compliance
with the annual standards as reported through EMTS.\16\ While this
approach would result in exactly the number of 2014 RINs available for
compliance that would be needed for compliance with the 2014 standards,
we recognize that it does not guarantee that every individual obligated
party will have the exact number of 2014 RINs needed for compliance
with its individual RVOs. Thus there may be some cost associated with
the reallocation of 2014 RINs to those obligated parties that need
them. However, such variations in RIN holdings between obligated
parties can occur in any year. We do not believe it would be
appropriate to exercise our waiver authority to reduce the 2014
standards below the number of 2014 RINs that were generated and are
available for compliance. Rather, we believe that we should rely on the
market to sort out the distribution of RINs among obligated parties as
was the intent in establishing the RIN trading mechanism. We are
revising the deadline for obligated parties to demonstrate compliance
with the RFS standards to afford obligated parties additional time to
engage in transactions to acquire the RINs they need for
compliance.\17\
---------------------------------------------------------------------------

    \16\ A RIN is a unique number generated by the producer and
assigned to each gallon of a qualifying renewable fuel under the RFS
program, and is used by refiners and importers to demonstrate
compliance with the volume requirements under the program. RINs may
be retired for a number of reasons, including to account for
renewable fuel spills or to correct for RIN generation errors.
    \17\ Other compliance flexibilities also exist, including use of
carryover RINs and the ability for parties that do not have a 2013
compliance deficit to carry a 2014 deficit forward into 2015.
---------------------------------------------------------------------------

    For the 2015 standards, we proposed volume requirements in the June
10, 2015 NPRM that projected growth in renewable fuel use over the
calendar year, even though the proposed volume requirements were issued
mid-way through the year. The market appears to have responded to the
proposal as monthly supply after the NPRM was about 5% higher than
monthly supply before the NPRM. We believe that the final rule,
however, will be issued too late in the year to have any further effect
on supply in 2015. Therefore, in deriving the final 2015 volume
requirements we used the data on actual

supply that is available to us (through September 2015), along with a
projection of supply for the remaining months of 2015 based on actual
supply in the months for which we have data and historical trends
regarding seasonal renewable fuel supply. In other words, the 2015
volume requirements are based on a combination of actual volumes
supplied and an extrapolation of likely volumes for the remainder of
the year that assumes that our final standards are issued too late in
the year to have further influence on the renewable fuel supply.
    For 2016, our final volume requirements are issued on the statutory
schedule, allowing the full compliance year for obligated parties and
the market to react to the standards we set. Therefore, we assume that
the standards can influence greater renewable fuel use than would be
the case in the absence of the standards. For advanced biofuel and
total renewable fuel, our assessment of 2016 supply simultaneously
reflects the statute's purpose to drive growth in renewable fuels,
while also accounting for constraints in the market that make the
volume targets specified in the statute beyond reach, as described more
fully in Section II. Our determination regarding the BBD volume
requirement has been based on consultation with USDA and DOE and an
analysis of a set of factors stipulated in CAA section
211(o)(2)(B)(ii), as described in more detail in Section III. Finally,
as described in Section IV, the cellulosic biofuel volume requirement
is based on a projection of production in 2016 that reflects a neutral
aim at accuracy.
2. Advanced Biofuel and Total Renewable Fuel
    Since the EISA-amended RFS program began in 2010, we have reduced
the applicable volume of cellulosic biofuel each year in the context of
our annual RFS standards rulemakings to the projected production
levels, and we have considered whether to also reduce the advanced
biofuel and total renewable fuel statutory volumes pursuant to the
waiver authority in section 211(o)(7)(D)(i). In the past we have
determined that reductions in the statutory targets for advanced
biofuel and total renewable fuel were not necessary. However, for 2014
and later years this is not the case. For 2014, this final rulemaking
is too late to influence the market, and renewable fuel supply must
necessarily be determined based on historical data. This is also
largely the case for 2015, though we have included a projection for the
latter part of the year for which data on actual use is not available.
For both of these years, the supply of advanced and total renewable
fuels was insufficient to satisfy the statutory targets.
    For 2016 we have determined that the volume of ethanol in the form
of E10 or higher ethanol blends that can be supplied to vehicles,
together with the volume of non-ethanol renewable fuels that can be
supplied to vehicles, is insufficient to attain the statutory targets
for both total renewable fuel and advanced biofuel. As a result, we are
using the waiver authorities provided in CAA section 211(o)(7) to set
lower volume requirements for these renewable fuel categories in 2016.
We expect future standards to both reflect and anticipate progress of
the industry and market in providing for continued expansion of the
supply of renewable fuels.
    Our determination in this final rule that the required volumes of
advanced biofuel and total renewable fuel should be reduced from the
statutory targets is based on a consideration of the ability of the
market to supply such fuels through domestic production or import; the
ability of available renewable fuels to be used as transportation fuel,
heating oil, or jet fuel; and the ability of the standards to bring
about market changes in the time available.\18\ Increasing renewable
fuel supply requires all aspects of the market to be in place to
support those increased volumes. Yet the renewable fuel marketplace is
very complex, and includes such diverse elements as feedstock (e.g.
corn, soybeans) production and transport, renewable fuel production and
import facilities, distribution capacity (e.g., pipeline, rail, barge,
and tank truck), terminal storage, facilities at terminals to blend
renewable fuel into gasoline and diesel, vehicles/engines designed to
use renewable fuel, and consumer fuel consumption. Compounding this
complexity is the fact that these elements are typically under the
control of different entities, making coordinated investment decisions
more difficult. A constraint anywhere in this system can lead to
shortfalls in renewable fuel supply in comparison to the statutory
targets. As described in more detail in Section II.B, we believe that
the availability of qualifying renewable fuels and constraints on their
supply to vehicles that can use them are valid considerations under
both the cellulosic waiver authority under section 211(o)(7)(D)(i) and
the general waiver authority under section 211(o)(7)(A). We are using
the waiver authorities in a limited way that reflects our understanding
of how to reconcile real marketplace constraints with Congress' intent
to cause growth in renewable fuel use over time.
---------------------------------------------------------------------------

    \18\ While the fuels that are subject to the percentage
standards are currently only non-renewable gasoline and diesel,
renewable fuels that are valid for compliance with the standards
include those used as transportation fuel, heating oil, or jet fuel.
---------------------------------------------------------------------------

    We have established applicable volumes for advanced biofuel and
total renewable fuel for 2016 that would result in significant volume
growth over the levels supplied in previous years. Moreover, the 2016
volume requirement for total renewable fuel is, in our judgment, as
ambitious as can reasonably be justified, and reflects the growth rates
that can be attained under a program explicitly designed to compel the
market to respond. The advanced biofuel volume requirement is set at a
level that will allow reasonably attainable volumes of advanced biofuel
to backfill for missing cellulosic biofuel volumes.
3. Biomass-Based Diesel
    As for advanced and total renewable fuel in 2014 and 2015, we
believe that it is appropriate to establish the 2014 and 2015 volume
requirements of BBD to reflect actual supply (including a projection
for the latter part of 2015 that is primarily based on supply in the
earlier part of the year for which data is available). For 2016 and
2017, to preserve the important role that BBD plays in the RFS program,
as well as to support the volume requirements for advanced biofuel, we
believe that it is appropriate to increase the BBD volume requirement
for each year. However, we also believe that it is of ongoing
importance that opportunities for other types of advanced biofuel, such
as renewable diesel co-processed with petroleum, renewable gasoline
blendstocks, and renewable heating oil, as well as others that are
under development be incentivized and expanded. Thus, based on a review
of the implementation of the program to date and all the factors
required under the statute, we are not only finalizing the 2014 and
2015 BBD volume requirement at the actual volumes of 1.63 and 1.73
billion gallons,\19\ respectively, but we are also finalizing increases
in the applicable volume of BBD to 1.9 and 2.0 billion gallons for
years 2016 and 2017, respectively. We believe that these increases
support the overall goals of the program while also maintaining the
incentive for development and growth in production

of other advanced biofuels. We believe establishing the volumes at
these levels will encourage BBD producers to manufacture higher volumes
of fuel that will contribute to the advanced biofuel and total
renewable fuel requirements, while also leaving considerable
opportunity within the advanced biofuel mandate for investment in and
growth in production of other types of advanced biofuel with comparable
or potentially superior environmental or other attributes.
---------------------------------------------------------------------------

    \19\ The 2015 BBD standard is based on actual data for the first
9 months of 2015 and a projection for the latter part of the year
for which data on actual use is not available.
---------------------------------------------------------------------------

4. Cellulosic Biofuel
    The cellulosic biofuel industry continues to transition from
research and development (R&D) and pilot scale operations to commercial
scale facilities, leading to significant increases in production
capacity. RIN generation from the first commercial scale cellulosic
biofuel facility began in March 2013. Cellulosic biofuel production
increased substantially in 2014, with over 33 million gallons in that
year. This volume included a significant number of cellulosic biofuel
RINs generated for cellulosic CNG/LNG from biogas through a new pathway
approved by EPA in 2014.\20\ For 2014 we are finalizing a cellulosic
biofuel standard of 33 million gallons, consistent with the total
number for RINs generated in 2014 that may be used toward satisfying an
obligated party's cellulosic biofuel obligation (both cellulosic
biofuel (D3) and cellulosic diesel (D7) RINs). We are also finalizing a
cellulosic biofuel standard of 123 million ethanol-equivalent gallons
for 2015 and 230 million ethanol-equivalent gallons in 2016 based on
the information we have received regarding individual facilities'
capacities, production start dates and biofuel production plans, as
well as input from other government agencies, and EPA's own engineering
judgment.
---------------------------------------------------------------------------

    \20\ See 79 FR 42128 (July 18, 2014).
---------------------------------------------------------------------------

    As part of estimating the volume of cellulosic biofuel that will be
made available in the U.S. in 2015 and 2016, we researched all
potential production sources by company and facility. This included
sources still in the planning stages, facilities under construction,
facilities in the commissioning or start-up phases, and facilities
already producing some volume of cellulosic biofuel. Facilities
primarily focused on R&D were not the focus of our assessment, as
production from these facilities represents very small volumes of
cellulosic biofuel, and these facilities typically have not generated
RINs for the fuel they have produced. From this universe of potential
cellulosic biofuel sources, we identified the subset that is expected
to produce commercial volumes of qualifying cellulosic biofuel for use
as transportation fuel, heating oil, or jet fuel by the end of 2016. To
arrive at projected volumes, we collected relevant information on each
facility. We then developed projected production ranges based on
factors such as the current and expected state of funding, the status
of the technology being used, progress towards construction and
production goals, facility registration status, production volumes
achieved, and other significant factors that could potentially impact
fuel production or the ability of the produced fuel to qualify for
cellulosic biofuel RINs. We also used this information to group these
companies based on production history and to select a value within the
aggregated projected production ranges that we believe best represents
the most likely production volumes from each group for each year. EPA
also received a projection of liquid cellulosic biofuel production in
2016 from EIA, which helped form the basis of our production for these
types of cellulosic biofuels. Further discussion of these factors and
the way they were used to determine our final cellulosic biofuel
projections for 2014, 2015, and 2016 can be found in Section IV.
5. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage
and are used by each producer and importer of fossil-based gasoline or
diesel to determine their renewable fuel volume obligations. The
percentage standards are set so that if each obligated party meets the
standards, and if EIA projections of gasoline and diesel use for the
coming year prove to be accurate, then the amount of renewable fuel,
cellulosic biofuel, BBD, and advanced biofuel actually used will meet
the volumes required on a nationwide basis.
    Four separate percentage standards are required under the RFS
program, corresponding to the four separate renewable fuel categories
shown in Table I.A-1. The specific formulas we use in calculating the
renewable fuel percentage standards are contained in the regulations at
40 CFR 80.1405 and repeated in Section V.B.1. The percentage standards
represent the ratio of renewable fuel volume to projected non-renewable
gasoline and diesel volume. The volume of transportation gasoline and
diesel used to calculate the final percentage standards was provided by
EIA. The final percentage standards for 2014, 2015, and 2016 are shown
in Table I.B.5-1. Detailed calculations can be found in Section V,
including the projected gasoline and diesel volumes used.

                                    Table I.B.5-1--Final Percentage Standards
----------------------------------------------------------------------------------------------------------------
                                                                     2014 (%)        2015 (%)        2016 (%)
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel..............................................           0.019           0.069           0.128
Biomass-based diesel............................................           1.41            1.49            1.59
Advanced biofuel................................................           1.51            1.62            2.01
Renewable fuel..................................................           9.19            9.52           10.10
----------------------------------------------------------------------------------------------------------------

6. Response to Requests for a Waiver of the 2014 Standards
    Concurrently with the November 29, 2013, proposed rule for 2014 RFS
standards, we also published a separate Federal Register Notice \21\
indicating that the American Petroleum Institute (API) and the American
Fuel & Petrochemical Manufacturers (AFPM) had submitted a joint
petition requesting a partial waiver of the 2014 applicable RFS
volumes, and that several individual refining companies had also
submitted similar petitions. We noted that any additional similar
requests would also be docketed and considered together with requests
already received. EPA has subsequently received additional waiver
petitions, including those submitted by eight Governors.\22\
---------------------------------------------------------------------------

    \21\ 78 FR 71732 (November 29, 2013) and 78 FR 71607 (November
19, 2013), respectively.
    \22\ EPA has received, to date, waiver petitions from Governors
Deal (GA), Fallin (OK), Perry (TX), Otter (ID), LePage (ME),
Martinez (NM), Herbert (UT), and Haley (SC). In addition to the
waiver petition from API/AFPM, EPA has also received waiver
petitions from the following companies: Delek, ExxonMobil, Holly
Frontier, Lion Oil Petroleum, Marathon Oil, NCRA, PBF Holding
Company, Phillips 66, and Tesoro.

---------------------------------------------------------------------------

    The petitions generally asserted that for 2014 there is an
inadequate domestic supply of renewable fuel and therefore RINs, due
both to the E10 blendwall and constraints on the supply of higher-level
ethanol blends, and of non-ethanol renewable fuels. Many of the
petitioners argued that this inadequate supply of renewable fuel (and
RINs) will lead to an inadequate supply of gasoline and diesel, because
refiners and importers, faced with a shortage of RINs, will reduce
their production of gasoline and diesel for the domestic market. They
argued that this will in turn severely harm the economy.
    As calendar year 2014 has passed, we believe it is appropriate to
set the applicable volume requirements at the volumes that were
actually supplied in 2014. We do not believe that use of 2014 renewable
fuel volumes severely harmed the economy, and we believe that it is
straightforward to conclude that there was an adequate supply of the
volumes of renewable fuel that were actually used in 2014. For total
renewable fuel, cellulosic biofuel and advanced biofuels, this approach
results in volume requirements as close to the statutory volume targets
as possible absent using the availability of carryover RINs as a
justification for setting higher requirements. We considered that
option, but, as described in detail in Section II.H., we do not
interpret carryover RINs to be part of the ``supply'' of renewable fuel
for purposes of assessing whether an inadequate domestic supply exists
to justify a waiver under section 211(o)(7)(A) and, although they are a
relevant consideration in determining whether or not we should exercise
our discretion to grant a waiver under either the general waiver
authority or the cellulosic waiver authority, we have determined that
the current bank of carryover RINs serves important program functions,
and that the requirements for 2014-2016 should not be intentionally set
at levels that would require a draw-down in the current bank of
carryover RINs. We also considered, given the late nature of this
rulemaking with respect to 2014, the possibility of setting the 2014
requirements at the levels originally proposed in November 2013, as
suggested by some obligated party commenters that asserted that they
used those proposed levels for planning purposes. However, we do not
believe it would have been reasonable for obligated parties to assume
that the November 2013 proposed volumes would be finalized unchanged.
The statutory volume targets for cellulosic biofuel, advanced biofuel
and total renewable fuel, as well as NPRM preamble statements for these
fuels and biomass-based diesel, clearly provided notice to obligated
parties that the final volume requirements could be substantially
different than proposed. Nevertheless, we have extended the 2014
compliance demonstration deadline to allow such parties additional time
to acquire the RINs needed for compliance. In light of all of these
considerations, we have determined that it is appropriate to establish
volume requirements for 2014 that reflect actual renewable fuel supply
in that year.
    To the extent that EPA's independent action to reduce statutory
volumes satisfies the petition requests, those requests are now moot
and EPA is taking no further action with respect to them. EPA is
denying the waiver petitions to the extent they seek differing
reductions in applicable volumes than are set forth in this final rule.
We believe it is unnecessary to evaluate concerns raised by certain
petitioners that implementation of the statutory applicable volumes
would cause severe economic harm, since such concerns were predicated
on underlying concerns of inadequate domestic supply and such supply
concerns are directly addressed by this final rule.
7. Changes to Regulations
    In addition to finalizing the aforementioned volume requirements
and associated percentage standards, we are also finalizing amendments
to the RFS requirements to address two issues. First, we are finalizing
changes with respect to the previously-approved algal oil pathways in
Table 1 to 40 CFR 80.1426 to clarify that only biofuels produced from
oil from algae grown photosynthetically qualify for the RFS program
under the algal oil pathways in Table 1 to 40 CFR 80.1426. Since EPA
assumed that algae would be grown photosynthetically when it evaluated
the lifecycle greenhouse gas emissions associated with the existing
algal oil pathways, we are clarifying the regulatory description of
these pathways to align with EPA's technical assessment and
interpretation of the scope of the pathways.
    We are aware of companies that plan to produce biofuels from algae
that use non-photosynthetic types of metabolism. Companies wishing to
produce biofuels from algae grown with a non-photosynthetic stage of
growth must apply to EPA for approval of their pathway pursuant to 40
CFR 80.1416. EPA has not conducted a full lifecycle GHG analysis of
emissions associated with biofuel produced using non-photosynthetic
algae. Such analysis would need to be completed in order to determine
whether fuels produced using these microorganisms meet the lifecycle
GHG threshold for advanced biofuels.
    We are also finalizing revisions to the annual compliance reporting
deadlines for obligated parties and renewable fuel exporters, and the
attest engagement reporting deadlines for obligated parties, RIN-
generating renewable fuel producers and importers, other parties
holding RINs, renewable fuel exporters, and independent third-party
auditors for the 2013, 2014, and 2015 compliance years. The deadlines
vary for each of these parties depending on the applicable compliance
period, and some parties will be required to submit partial annual
reports representing a portion of the 2014 compliance year. A detailed
description of our changes to reporting deadlines can be found in
Section VI.B.
8. Assessment of Aggregate Compliance Approach
    By November 30 of each year we are required to assess the status of
the aggregate compliance approach to land-use restrictions under the
definition of renewable biomass for both the U.S. and Canada. In
today's action we are providing the final announcements for these
administrative actions.
    As part of the RFS regulations, EPA established an aggregate
compliance approach for renewable fuel producers who use planted crops
and crop residue from U.S. agricultural land. This compliance approach
relieved such producers (and importers of such fuel) of the individual
recordkeeping and reporting requirements otherwise required of
producers and importers to verify that such feedstocks used in the
production of renewable fuel meet the definition of renewable biomass.
EPA determined that 402 million acres of U.S. agricultural land was
available in 2007 (the year of EISA enactment) for production of crops
and crop residue that would meet the definition of renewable biomass,
and determined that as long as this total number of acres is not
exceeded, it is unlikely that new land has been devoted to crop
production based on historical trends and economic considerations. We
indicated that we would conduct an annual evaluation of total U.S.
acreage that is cropland, pastureland, or conservation reserve program
land, and that if the value exceed 402 million

acres, producers using domestically grown crops or crop residue to
produce renewable fuel would be subject to individual recordkeeping and
reporting to verify that their feedstocks meet the definition of
renewable biomass. As described in Section VII.A, based on data
provided by the USDA, we have estimated that U.S. agricultural land did
not exceed the 2007 baseline acreage in 2013, 2014, or 2015. This
assessment means that the aggregate compliance provision can continue
to be used in the U.S. for calendar years 2014, 2015, and 2016.
    On September 29, 2011, EPA approved the use of a similar aggregate
compliance approach for planted crops and crop residue grown in Canada.
The Government of Canada utilized several types of land use data to
demonstrate that the land included in their 124 million acre baseline
is cropland, pastureland or land equivalent to U.S. Conservation
Reserve Program land that was cleared or cultivated prior to December
19, 2007, and was actively managed or fallow and non-forested on that
date (and is therefore RFS2 qualifying land). As described in Section
VII.B, based on data provided by Canada, we have estimated that
Canadian agricultural land did not exceed the 2007 baseline acreage in
2013, 2014, or 2015. This assessment means that the aggregate
compliance provision can continue to be used in Canada for calendar
years 2014, 2015, and 2016.

C. Authority for Late Action and Applicability of the Standards

    Under CAA section 211(o)(3)(B)(i), EPA must determine and publish
the annual percentage standards by November 30 of the preceding year,
and under CAA section 211(o)(3)(B)(ii) it must establish applicable
volumes for biomass-based diesel 14 months in advance of the
corresponding compliance year. EPA did not meet these statutory
deadlines for the 2014 and 2015 percentage standards, or for the BBD
applicable volumes established in this rule. Nevertheless, the
percentage standards established through this rulemaking will apply to
all gasoline and diesel produced or imported in calendar years 2014,
2015, or 2016 as applicable, and the 2017 applicable volume will form
the basis for the BBD percentage standard that is required by statute
to be established by November 30, 2016, that will apply to all
biodiesel produced or imported in 2017.
    We acknowledge that this rule is being finalized later than the
statutory deadlines noted above. However, the statute requires that EPA
established percentage standards applicable to each calendar year, and
applicable volumes for BBD, and we do not believe we are relieved of
these obligations by missing the statutory deadlines. Moreover, parties
have been producing and using renewable fuels, and generating and
acquiring RINs for compliance even in the absence of the annual
standards being in place, with the expectation that the requirements
would ultimately be finalized. We believe it is important not to upset
these reasonable expectations, both for the parties involved and for
the long-term integrity of the RFS program. The delay does not deprive
EPA of authority to issue applicable volumes and standards for these
calendar years. The United States Court of Appeals for the District of
Columbia Circuit upheld the 2013 RFS standards even though they were
issued more than eight months after statutory deadline. Monroe Energy
v. EPA, 750 F.3.d 909 (D.C. Cir. 2014). The court noted that it had
resolved the question of EPA's authority to issue RFS standards after
the statutory deadline for issuing the annual RFS standards in NPRM v.
EPA, 630 F.3d 145 (D.C. Cir. 2010). In that case, the court explained
that courts have declined to treat a statutory direction that an agency
``shall'' act within a specified time period as a jurisdictional limit
that precludes action later. Id. at 154 (citing Barnhart v. Peabody
Coal, 537 U.S. 149, 158 (2003)). Moreover, the court noted that the
statute here requires that EPA regulations ``ensure'' that
transportation fuel sold or introduced into commerce ``on an annual
average basis, contains at least the volumes of renewable fuel'' that
are required pursuant to the statute. Id. at 152-153. This statutory
directive requires EPA action, even if late. Therefore EPA believes it
has authority to issue RFS standards for calendar years 2014 and 2015,
and BBD applicable volumes for 2014-2017, notwithstanding EPA's delay.
    EPA is exercising its authority to issue standards applicable to
past time periods in a reasonable way. Thus, for 2014, EPA is
establishing renewable fuel obligations that reflect actual renewable
fuel used as transportation fuel, heating oil, or jet fuel during that
time period, and the final August 1, 2016 compliance deadline for 2014
(which is two months later than proposed) will allow time for obligated
parties to complete necessary transactions to meet obligations. For
2015 we are similarly taking into account actual renewable fuel use
during the time that has already passed in 2015, and establishing an
extended compliance demonstration deadline of December 1, 2016--a full
year after signature of today's rule, and 11 months after the close of
the 2015 compliance period. Renewable fuel producers generated RINs
throughout 2014, and have also been generating 2015 RINs since the
beginning of the calendar year. To varying degrees, obligated parties
have been acquiring RINs since the beginning of 2014 in anticipation of
the final volume requirements and standards. While we acknowledge the
uncertainty that the market has experienced due to the delay, our final
rule bases the applicable volume requirements for 2014 and 2015 on an
assessment of past production. As a result, there will be an adequate
quantity of RINs available to satisfy those portions of the final
requirements. In addition, there are a number of program flexibilities
that will facilitate compliance. There is a bank of carryover RINs that
will make the RIN market more fluid, and facilitate the acquisition of
RINs that can be used to comply with the 2014 RVOs. That same bank of
carryover RINs can be rolled forward to assist in compliance with 2015
and 2016 requirements. We acknowledge that there is a theoretical
possibility that parties that accumulate RINs through their own
blending activities could decide to bank the maximum quantity of RINs
for their own future use or for future sale, and that if this practice
were widespread that there could be a shortfall in available RINs for
parties who do not engage in renewable fuel blending activities
themselves and have not entered into sufficient contracts with blenders
or other parties to acquire sufficient RINs. Such practices are
possibilities in any year, and in any competitive marketplace, and we
believe that obligated parties have had sufficient experience with the
RFS program to have learned to take appropriate precautionary measures
to avoid such results. Even where they have not done so, and find
compliance with a given year's standards infeasible, they may avail
themselves of the option of carrying a compliance deficit forward for
that compliance year to the next. Some commenters asserted that BBD
volume requirements for 2014 and 2015 should be set at the level
proposed in November, 2013, rather than levels actually supplied in
those years. Some commenters suggested that all 2014 volume
requirements should be set equal to those proposed in 2013. As
described in Section III, EPA disagrees with these commenters that
obligated parties lacked notice that EPA could set final volume
requirements for these

years higher than proposed in 2013, or that setting the requirements to
reflect actual supply would pose an unreasonable burden on obligated
parties, particularly in light of the nested nature of the standards.
Sufficient RINs were generated in these years to allow compliance, and
carryover RINs, deficit carryforwards and delayed compliance
demonstration deadlines are all in place to facilitate compliance. In
sum, we believe that EPA's final approach is authorized and reasonable,
though late.

D. Outlook for 2017 and Beyond

    We recognize the important public policy goals at the heart of the
RFS program, and we acknowledge that a number of challenges must be
overcome in order to fully realize the potential for greater use of
renewable fuels in the United States. We also recognize that the RFS
program plays a central role in creating the incentives for realizing
that potential. The standards being finalized today require that
significant progress is made in overcoming those challenges. We expect
future standards to both reflect and anticipate progress of the
industry and market in providing for continued expansion in the supply
of renewable fuels, and we intend to set standards in future years that
continue to capitalize on the market's ability to respond to those
standards with expansions in production and infrastructure.
    We believe that the supply of renewable fuels can continue to
increase in the coming years despite the constraints associated with
shortfalls in cellulosic biofuel production and other advanced
biofuels, and constraints associated with supplying renewable fuels to
the vehicles and engines that can use them. As described in Section
II.E, we believe that the market is capable of responding to ambitious
standards by expanding all segments of the market needed to increase
renewable fuel supply and modify fuel pricing to provide incentives for
the production and use of renewable fuels.
    In future years, we would expect to use the most up-to-date
information available to project the growth that can realistically be
achieved considering the ability of the RFS program to spur growth in
the volume of ethanol, biodiesel, and other renewable fuels that can be
supplied and consumed by vehicles as we have for the 2016 volumes in
this rule. In particular we will focus on the emergence of advanced
biofuels including cellulosic biofuel consistent with the statute. Many
companies are continuing to invest in efforts ranging from research and
development to the construction of commercial-scale facilities to
increase the production potential of next generation biofuels. We will
continue to evaluate new pathways especially for advanced biofuels and
respond to petitions, expanding the availability of feedstocks,
production technologies, and fuel types eligible under the RFS program.
    We also intend to take additional steps to facilitate the
development and use of advanced biofuels. In particular, we will be
initiating action to allow the production of renewable fuels to occur
in steps at more than one facility. Partial conversion of a renewable
feedstock into a so-called ``biointermediate'' at remote facilities for
subsequent final processing into renewable biofuel at the primary
production facility has been identified by several industry members as
an important option to reduce the cost and enhance the availability of
cellulosic and other advanced biofuels. However, under the existing RFS
regulations, renewable fuels must generally be produced from renewable
feedstocks at a single facility in order to be eligible to generate
RINs. We are currently working on a rulemaking that would propose
amendments to the RFS program to allow for more favorable treatment of
such biointermediates. We believe a rulemaking is necessary to provide
clarity for stakeholders and for proper compliance and enforcement
oversight.
    We believe that the use of biointermediates to produce renewable
fuels holds considerable promise for the future growth in production of
the cellulosic and advanced biofuels required under the RFS program.
While near-term production may be modest, significant potential for
further growth in the long-term exists, as these technologies can lower
the cost of utilizing cellulosic and other feedstocks for the
production of renewable fuels by reducing the storage and
transportation costs associated with cellulosic biomass and taking
advantage of existing ethanol and petroleum refinery assets to convert
the biomass to renewable fuel. This makes biointermediates a critical
component of the growth of the RFS program in the future and in
particular the growth of cellulosic biofuel volumes.
    In addition to ongoing efforts to evaluate new pathways for
advanced biofuel production, we are aware that other actions can also
play a role in improving incentives provided by the RFS program to
overcome challenges that limit the potential for increased volumes of
renewable fuels. A number of commenters provided ideas in this regard,
including suggestions that EPA take regulatory action to modify the
administration of the cellulosic waiver credit (CWC) program to better
provide stronger support for actual volume purchases, and to change the
RFS program's point of obligation from its current focus on producers
and importers of gasoline and diesel. Both of these issues are beyond
the scope of this rulemaking. However, we will continue to actively
monitor the functioning of the market, assess all relevant data, and
review our options as necessary.

II. Advanced Biofuel and Total Renewable Fuel Volumes for 2014-2016

    The national volume targets of advanced biofuel and total renewable
fuel to be used under the RFS program each year through 2022 are
specified in CAA section 211(o)(2). However, two statutory provisions
authorize EPA to reduce these volumes under certain circumstances. EPA
may reduce these volumes to the extent that we reduce the applicable
volume for cellulosic biofuel pursuant to CAA section 211(o)(7)(D), or
if the criteria are met for use of the general waiver authority under
CAA section 211(o)(7)(A). We have evaluated the capabilities of the
market and have concluded that the volumes for advanced biofuel and
total renewable fuel specified in the statute cannot be achieved in
2014, 2015, or 2016. As a result we are exercising our discretion under
these statutory provisions to reduce the applicable volumes of advanced
biofuel and total renewable fuel to reflect the fact that this final
rule cannot have an impact on renewable fuel use in the past, and to
address constraints on the supply of renewable fuels in the future that
are driven by both limitations in production or importation of these
fuels and factors that limit supplying them to vehicles that can
consume them.
    While we are using our waiver authorities under the law to reduce
applicable volumes from the statutory levels, we are setting the final
volume requirements at levels that are intended to drive significant
growth in renewable fuel use beyond what would occur in the absence of
such requirements, as Congress intended. The final volume requirements
recognize the ability of the market to respond to the standards we set
while staying within the limits of feasibility. The net impact of these
final volume requirements is that the necessary volumes of both
advanced biofuel and conventional (non-advanced) renewable fuel would
significantly increase over levels used in the past. The volumes that
we are finalizing today are shown below.

                                      Table II-1--Final Volume Requirements
                                                [Billion gallons]
----------------------------------------------------------------------------------------------------------------
                                                                       2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Advanced biofuel................................................            2.67            2.88            3.61
Total renewable fuel............................................           16.28           16.93           18.11
----------------------------------------------------------------------------------------------------------------

A. Fulfilling Congressional Intent To Increase Use of Renewable Fuels

    Although there is scant legislative history for the Energy
Independence and Security Act (EISA) to confirm the facts that were
considered by Congress at the time of enactment, we believe that when
Congress specified the renewable fuel volume targets that the RFS
program was to attain, that it likely was with the understanding that
the growth reflected in the statutory tables of applicable volumes
would be well beyond any previously demonstrated ability of the
industry to produce, distribute, and consume renewable fuels. For
example, the annual average growth reflected in the statutory volumes
for the time period between 2009 and 2022 is 1.6 billion gallons per
year for advanced biofuel and 1.9 billion gallons per year for total
renewable fuel. However, in the period 2001 to 2007 leading up to
enactment of EISA, annual average supply growth rates were far lower:
0.8 billion gallons per year for ethanol (what has to date been the
principal non-advanced renewable fuel under the RFS program), and 0.07
billion gallons per year for biodiesel (the principal advanced biofuel
to date under the RFS program).\23\ The supply of other renewable fuels
during this timeframe was close to zero. In other words, Congress set
targets that envisioned growth at a pace that far exceeded historical
growth and prioritized that growth as occurring principally in advanced
biofuels (contrary to historical growth patterns). Congressional intent
is evident in the fact that the non-advanced volumes remain at a
constant 15 billion gallons in the statutory volume tables starting in
2015 while the advanced volumes continue to grow through 2022 to a
total of 21 billion gallon. It is apparent, therefore, that Congress
intended changes in the extent and pace of growth of renewable fuel use
that would be unlikely to occur absent the new program.
---------------------------------------------------------------------------

    \23\ Based on data from the Energy Information Administration.
---------------------------------------------------------------------------

    Moreover, it is highly unlikely that Congress expected the very
high volumes that it specified in the statute to be reached only
through the consumption of E10; indeed the statute does not explicitly
require the use of ethanol at all. At the time EISA was passed in 2007,
EIA's Annual Energy Outlook for 2007 (AEO 2007) projected that 17.3
billion gallons of ethanol was the maximum that could be consumed in
2022 if all gasoline contained E10 and there was no E0, E15, or
E85.\24\ Furthermore, the AEO 2007 did not reflect the fuel economy
standards that were also enacted in EISA, which has further reduced the
amount of gasoline consumed based on more strict vehicle fuel economy
and efficiency standards. However, 17.3 billion gallons is far less
than the 36 billion gallons of renewable fuel that Congress targeted
for use in 2022.\25\ Thus, if the statutory targets for 2022 were to be
achieved, 18.7 billion gallons of renewable fuel would need to be
consumed in 2022 either as higher level ethanol blends (E11-E85), or as
non-ethanol fuels. Such levels were far beyond the industry's abilities
at the time of EISA's enactment, strongly suggesting that Congress
expected the RFS program to drive substantial market changes in a
relatively short period of time.
---------------------------------------------------------------------------

    \24\ Assumes that AEO2007's 2022 demand for gasoline energy was
fulfilled entirely by E10. AEO2007 however, projected that
considerably less gasoline used in 2022 would be E10. We have
converted the projected 2022 gasoline energy demand into an
equivalent volume of E10 to determine the maximum volume of ethanol
that could have been consumed in 2022, based on the AEO2007, if all
gasoline was E10.
    \25\ Congress specified that a minimum of 1 billion gallons of
the 2022 total would be biomass-based diesel, but did not otherwise
specify what specific fuel types would comprise the total. For
example, although Congress envisioned substantial growth in
cellulosic biofuels, that fuel category is defined by reference to
the feedstock used and the GHG reductions obtained; finished
cellulosic biofuels could include such diverse products as ethanol,
renewable gasoline, naphtha, compressed natural gas, or electricity.
---------------------------------------------------------------------------

    Some commenters stated that EPA would be acting in a manner
inconsistent with Congressional intent to increase renewable fuel use
if we finalized volumes below the statutory volume targets. These
commenters believed Congress set these targets at a level that would
help incentivize investments such as building out new and existing
capacity, installing storage/distribution infrastructure and advancing
technology--all of which would help to increase volumes and achieve the
targets within the specified timeframe in the statute. We agree that
Congress set ambitious volume targets as a mechanism to push renewable
fuel volume growth under the RFS program. However, Congress also
provided EPA with waiver authority, in part to address the situation
where supply of renewable fuel does not match these ambitious target
levels. As a result we disagree with commenters who asserted that any
EPA action to lower applicable volumes is not aligned with
Congressional intent. The final volume requirements are set consistent
with the Congressionally-established waiver authorities. The volumes
required by this rule are ambitious and to attain them will require new
investments and a responsive market.
    Congress did not explicitly indicate, in EISA or in any other
document associated with the legislation, the sort of changes that may
have been expected to occur to reach 36 billion gallons by 2022. Today
we know that possible approaches to significantly expand renewable fuel
use fall into a number of areas, such as:
     Increased use of E15 in model year 2001 and later
vehicles,
     Increased use of E85 or other higher level ethanol blends
in flex-fuel vehicles (FFVs),
     Increased production and/or importation of non-ethanol
biofuels (e.g., biodiesel, renewable diesel, renewable gasoline, and
butanol) for use in conventional vehicles and engines,
     Increased use of biogas in CNG vehicles,
     Increased use of renewable jet fuel and heating oil,
     Increased use of cellulosic and other non-food based
feedstocks, and
     Co-development of new technology vehicles and engines
optimized for new fuels.

Some commenters stated that the changes in these areas (which were also
noted in the NPRM) cannot help to achieve growth in renewable fuel use
within the timeframe necessary to help meet the 2015 and 2016 volumes
requirements. Commenters further stated that some of these ideas should
not be supported at all, such as increasing imports of biofuels because

doing so would be inconsistent with Congressional intent to increase
energy security through domestic biofuels. We agree with commenters
that we will not see dramatic changes in every area we highlighted in
the timeframe necessary to increase renewable fuel supply through 2016,
but we believe that developments in some of these areas have been and
will continue to occur, and that such changes will contribute to
attaining the volumes finalized in this rule. We disagree with
commenters that supporting imports of biofuels is inconsistent with
Congressional intent. The statute does not discriminate between
domestically-produced and imported biofuels and an increased diversity
of fuels, including those imported from a variety of countries, helps
improve energy security. For further discussion of imports, see
Sections II.E.3.iii and II.F.
    In the near term we expect that increases in E85 and biodiesel will
dominate efforts to increase the use of renewable fuel, with smaller
roles played by other renewable fuels (e.g., increased E15 use and
other non-ethanol renewable fuels such as naphtha). In the longer term,
sustained ambitious volume requirements are necessary to provide the
certainty of a guaranteed future market that is needed by investors;
the development of new technology won't occur unless there is clear
profit potential, and it requires multiple years to build new
production, distribution, and consumption capacity. We believe that the
approach we take to setting the standards must be consistent with
Congress' clear goal of ambitiously increasing the use of renewable
fuel over time. To this end, the approach presented in this action
makes use of the statutory waiver authorities only to the degree
necessary.
    We believe that over time use of both higher level ethanol blends
and non-ethanol biofuels can and will increase, consistent with
Congress' intent in enacting EPAct and EISA. As stated above, while
Congress provided waiver authority to account for supply and other
challenges, we do not believe that Congress intended that the E10
blendwall or any other particular limitation would present a barrier to
the expansion of renewable fuels. The fact that Congress set volume
targets reflecting increasing and substantial amounts of renewable fuel
use clearly signals that it intended the RFS program to create
incentives to increase renewable fuel supplies and overcome supply
limitations. Notwithstanding these facts, Congress also authorized EPA
to adjust statutory volumes as necessary to reflect situations where
only partial progress had been made towards eliminating supply
limitations, as well as to address situations involving unexpected
severe economic or environmental harm resulting from program
implementation.

B. Statutory Authorities for Reducing Volume Targets

    Congress specified increasing annual volume targets in the statute
for total renewable fuel, advanced biofuel, and cellulosic biofuel for
every year through 2022, and for biomass-based diesel (BBD) through
2012, and authorized EPA to set volume requirements for subsequent
years after consideration of several specified factors. However,
Congress recognized that circumstances could arise that might require a
reduction in the volume targets specified in the statute as evidenced
by the waiver provisions in CAA section 211(o)(7). As described below,
we believe that limitations in production and importation of cellulosic
biofuels provide EPA with authority to waive volumes of cellulosic
biofuel, total renewable fuel, and advanced biofuel volumes pursuant to
section 211(o)(7)(D). In addition, limitations in the production and
importation of qualifying renewable fuels, along with factors that
limit supplying those fuels to the vehicles that can consume them
constitute circumstances that warrant a waiver of the total renewable
fuel requirement under section 211(o)(7)(A).
    With regard to ethanol, a number of market factors combine to place
significant restrictions on the continued growth in the volume of
ethanol that can be supplied to vehicles at the present time. The
maximum amount of ethanol that can be consumed if all gasoline was E10,
the limited number and limited geographic distribution of retail
stations that offer higher ethanol blends such as E15 and E85, and the
limited number of FFVs that have access to E85. Additionally, available
information indicates that biodiesel also faces marketplace constraints
in the rate at which it can grow, not only in the past (e.g., 2013 when
despite rapid growth it was still insufficient to achieve the total and
advanced standards) but also in the future. These constraints on the
availability of biodiesel to U.S. consumers include a combination of
competing uses for feedstocks, international competition for biodiesel,
the inconsistent nature of the biodiesel tax credit, limited
investments to ensure quantity and quality of biodiesel product,
limited infrastructure to distribute and blend biodiesel, and the
limited ability of the market to consume biodiesel. Based on our
assessment of the maximum amount of renewable fuel that can be supplied
in 2014, 2015 and 2016 in light of these constraints, we believe that
circumstances exist that warrant a reduction in the statutory
applicable volumes of total renewable fuel and advanced biofuel for
2014, 2015 and 2016.
    EPA is separately using two complementary legal authorities to set
required volumes of advanced biofuel and total renewable fuel at levels
below the volume targets provided in the statute: The cellulosic waiver
authority under CAA section 211(o)(7)(D)(i), and the general waiver
authority under CAA section 211(o)(7)(A). This section discusses both
of these statutory authorities and briefly describes how we have used
them to determine appropriate reductions in advanced biofuel and total
renewable fuel in comparison to the statutory volumes.
1. Cellulosic Waiver Authority
    Under CAA section 211(o)(7)(D)(i), if EPA determines that the
projected volume of cellulosic biofuel production for the following
year is less than the applicable volume provided in the statute, then
EPA must reduce the applicable volume of cellulosic biofuel to the
projected volume available during that calendar year. We refer to this
provision as the agency's ``cellulosic wavier authority'' under the
statute.
    Section 211(o)(7)(D)(i) also provides that ``[f]or any calendar
year in which the Administrator makes such a reduction, the
Administrator may also reduce the applicable volume of renewable fuel
and advanced biofuels requirement established under paragraph (2)(B) by
the same or a lesser volume.'' Using this authority, the reductions in
total renewable fuel and advanced biofuel can be less than or equal to,
but no more than, the amount of reduction in the cellulosic biofuel
volume. In prior actions EPA has interpreted this provision as
authorizing EPA to reduce both total renewable fuel and advanced
biofuel, by the same amount, if EPA reduces the volume of cellulosic
biofuel.
    The cellulosic waiver provision was discussed by the United States
Court of Appeals for the District of Columbia Circuit, in the context
of its review of EPA's 2013 annual RFS rule. As the Court explained,

    [T]he Clean Air Act provides that if EPA reduces the cellulosic
biofuel requirement, as it did here, then it ``may also reduce'' the
advanced biofuel and total renewable fuel quotas ``by the same or a
lesser volume.'' 42 U.S.C. 7545(o)(7)(D)(i). There is no requirement
to reduce these latter quotas, nor

does the statute prescribe any factors that EPA must consider in
making its decision. See id. In the absence of any express or
implied statutory directive to consider particular factors, EPA
reasonably concluded that it enjoys broad discretion regarding
whether and in what circumstances to reduce the advanced biofuel and
total renewable fuel volumes under the cellulosic biofuel waiver
provision. Monroe v. EPA, 750 F.3d 909, 915 (D.C. Cir. 2014).

For the 2013 RFS rule, the Court determined that EPA had reasonably
declined to use the cellulosic waiver authority to reduce the advanced
and total renewable fuel statutory applicable volumes by analyzing
``the availability of renewable fuels that would qualify as advanced
biofuel and renewable fuel, the ability of those fuels to be consumed,
and carryover RINs from 2012.'' Id. at 916.
    Some stakeholders commented that EPA may only exercise the
cellulosic waiver authority to reduce total and advanced volumes in
circumstances described in section 211(o)(7)(A) (that is, where there
is inadequate domestic supply or severe harm to the environment or
economy), or that it must in considering use of the cellulosic waiver
authority consider the factors specified in section 211(o)(2)(B)(ii)
that are required considerations when EPA sets applicable volumes for
years in which the statute does not do so. Contrary to these comments,
the D.C. Circuit found in Monroe that the statute does not prescribe
any factors that EPA must consider in making its decision; EPA has
broad discretion under section 211(o)(7)(D)(i) to determine when and
under what circumstances to reduce the advanced and total renewable
fuel volumes when it reduces the statutory applicable volume of
cellulosic biofuel.
    In general, we do not believe that it would be consistent with the
energy security and greenhouse gas reduction goals of the statute to
reduce the applicable volumes of renewable fuel set forth in the
statute absent a substantial justification for doing so. When using the
cellulosic waiver authority, we believe that there would be a
substantial justification to exercise our discretion to lower volumes
of total and advanced renewable fuels in circumstances where there is
inadequate projected production or import of potentially qualifying
renewable fuels, or where constraints exist that limit the ability of
those biofuels to be used for purposes specified in the Act (i.e., in
transportation fuel, heating oil or jet fuel). In particular, we
believe that the cellulosic waiver authority is appropriately used to
provide adequate lead time and a sufficient ramp-up period for non-
cellulosic biofuels to be produced and constraints on their use for
qualifying purposes eliminated, so they can fill the gap presented by a
shortfall in cellulosic biofuels. As discussed in Section IV, we are
reducing the applicable volume of cellulosic biofuel for 2014, 2015,
and 2016, and thus are authorized to reduce the required volumes of
advanced biofuel and total biofuel by the same or a lesser amount under
the provisions of section 211(o)(7)(D)(i).\26\ For this rulemaking, we
have ascertained the availability of other advanced biofuel to satisfy
some of the cellulosic biofuel volume shortfall, taking into
consideration the constraints (including distribution and
infrastructure constraints) that limit the use of non-cellulosic
advanced biofuels to completely fill the cellulosic volume shortfall
and are exercising our cellulosic waiver authority to reduce the
advanced biofuel applicable volume to a level we have determined to be
reasonably attainable.\27\
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    \26\ EPA had proposed to use both the cellulosic waiver
authority and the general waiver authority as a basis for reducing
the advanced biofuel applicable volume. However, such an approach is
unnecessary given that the reductions in advanced biofuel volumes in
2014, 2015 and 2016 are less than the reductions in cellulosic
biofuel applicable volumes in those years. Thus, for the final rule,
EPA is relying only on the cellulosic waiver authority in section
211(o)(7)(D) as a basis for its reductions in the advanced biofuel
applicable volumes.
    \27\ We have considered the possible role of carryover RINs in
avoiding the need to reduce the statutory applicable volumes, as we
did in setting the 2013 RFS standards. However, we have determined
that the current volume of the carryover RIN bank is needed as a
program buffer to ensure flexibility to address unforeseen
circumstances, and provide RIN market liquidity, and so should not
be used as a basis for setting volume requirements higher than can
be achieved through renewable fuel production and use. For further
discussion of our assessment of the use of carryover RINs, see
Section II.H.
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    We are also using this authority to reduce total renewable volumes
by the same amount. In past actions we have interpreted the cellulosic
waiver authority as requiring equal reductions in advanced and total
renewable fuel, based on concerns that EPA waiver decisions should not
allow non-advanced biofuels to backfill volumes intended by Congress to
be satisfied by advanced biofuels. In addition to this consideration,
the equal reduction in total renewable fuel is justifiable under the
cellulosic waiver authority based on an assessment of volumes that can
be produced and imported, and consideration of the extent to which
those volumes can be distributed and used as specified in the Act.
However, this level of reduction is insufficient to address all of the
supply limitations associated with total renewable fuel. Therefore, we
are also using the general waiver authority as justification for
further reductions in total renewable fuel volumes, as discussed in the
next section.\28\
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    \28\ The volume reduction for advanced biofuels is not larger
than the final reduction in the applicable volume of cellulosic
biofuel, thus, EPA could rely on the cellulosic waiver authority
alone for its final action with respect to advanced biofuel.
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    Some commenters argued that to the extent volume reductions are
needed at all, EPA could rely solely on the cellulosic waiver authority
to provide such reductions.\29\ These commenters suggested that a
reduction of the total renewable fuel and advanced biofuel volumes by
the full amount of the waiver of cellulosic biofuel targets would
result in volumes that are ``reasonably achievable,'' and that
consequently additional reductions under the general waiver authority
would be unnecessary. However, commenters' interpretation of a
``reasonably achievable'' volume assumed that a large number of
carryover RINs would be used, and largely ignored the practical and
legal constraints on the consumption of renewable fuel. As discussed in
Section II.E, we have determined that we should not set standards for
the 2014-2016 time period so as to intentionally draw down the current
bank of carryover RINs. We also present a detailed discussion of the
constraints on renewable fuel supply in this and subsequent sections.
Additionally, we believe that a reduction of the advanced biofuel
volume by the full amount of the waiver of cellulosic biofuels is not
necessary; higher advanced volumes can be attained by substituting
other advanced biofuels for the shortfall in cellulosic biofuel, and
moreover requiring their use at higher levels furthers the GHG
reduction objectives of the Act. What commenters suggested would result
in increased volumes of conventional renewable fuel, and decreased
volumes of advanced fuels as compared to the levels EPA is finalizing
today. Given the superior GHG performance of advanced biofuels, and the
important role of the current volume of carryover RINs to RFS program
operation, EPA does not believe that the commenters' suggested approach
would be either an appropriate exercise of its waiver authorities or be
in the best interest of the RFS program.
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    \29\ See, e.g., Comments from Growth Energy, RFA, POET,
Novozymes, The Andersons, ACORE.
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2. General Waiver Authority
    CAA section 211(o)(7)(A) provides that EPA, in consultation with
the Secretary of Agriculture (USDA) and the

Secretary of Energy (DOE), may waive the applicable volume specified in
the Act in whole or in part based on a petition by one or more States,
by any person subject to the requirements of the Act, or by the EPA
Administrator on her own motion. Such a waiver must be based on a
determination by the Administrator, after public notice and opportunity
for comment, that:
     Implementation of the requirement would severely harm the
economy or the environment of a State, a region, or the United States;
or
     There is an inadequate domestic supply.

In today's final action, we are using the general waiver authority
based on the statute's authorization for the Administrator to act on
her own motion on a finding of inadequate domestic supply.\30\ As
required by statute, we have consulted with both USDA and DOE in taking
this action. We are using this authority to provide an additional
increment of volume reduction for total renewable fuel beyond the
reduction accomplished through the use of the cellulosic waiver
authority.
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    \30\ We note that there are also pending requests pursuant to
CAA section 211(o)(7(A) from a number of parties for EPA to exercise
its waiver authorities to reduce applicable volumes for 2014. While
the Administrator is acting on her own motion, she also resolves
those petitions through and/or consistent with this final rule
establishing 2014 volume requirements.
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    Because the general waiver provision provides EPA the discretion to
waive the volume requirements of the Act ``in whole or in part,'' we
interpret this section as granting EPA authority to waive any or all of
the four applicable volume requirements in appropriate circumstances.
Thus, for example, unlike the cellulosic waiver authority, a reduction
in total renewable fuel pursuant to the general waiver authority is not
limited to the reduction in cellulosic biofuel.
    EPA has had only limited opportunity to date to interpret and apply
the waiver provision in CAA section 211(o)(7)(A)(ii) related to
``inadequate domestic supply,''has never before done so in the context
of deriving an appropriate annual RFS standard.\31\ As explained in
greater detail below, we believe that this undefined ambiguous
provision is reasonably and best interpreted to encompass the full
range of constraints that could result in an inadequate supply of
renewable fuel to the ultimate consumers, including fuel infrastructure
and other constraints. This would include, for instance, factors
affecting the ability to produce or import qualifying renewable fuels
as well as factors affecting the ability to distribute, blend,
dispense, and consume those renewable fuels in vehicles.
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    \31\ Some commenters referred to EPA's 2010 RFS2 rule, 75 at
14698, where we stated that ``. . . it is ultimately the
availability of qualifying renewable fuel, as determined in party by
the number of RINs in the marketplace, that will determine the
extent to which EPA should issue a waiver of RFS requirements on the
basic of inadequate domestic supply,'' as indicating that EPA had
previously determined that carryover RINs must be counted as part of
``supply.'' We disagree. The quoted language makes no explicit
reference to carryover RINs, and the content indicates that the
point of passage was to explain that it is in the interest of
biofuel producers to generate RINs for all qualifying biofuel to
avoid or minimize the possibity that EPA would grant waivers. The
commenter attempts to make too much of this generally-worded
sentence; it does not specify in what way the EPA will consider the
``RINs in the marketplace'' as ``part'' of its assessment of the
availability of renewable fuels. Indeed, contrary to the commenters'
suggestion, the focus on the ``availability of renewable fuels'' in
this sentence could suggest that only those RINs in the marketplace
representing liquid volumes used in the compliance year (and not
carryover RINs representing historic volumes) should be taken into
considertion. In any case, this sentence is entirely consistent with
the approach we are taking today to interpret ``supply'' to refer to
the volume of biofuels that is available and which can be expected
to satify all of the definitional requirements to be renewable fuel
(including ultimate use as transportation fuel, heating oil or jet
fuel). To the extent we find inadequate supply of such fuels, we
then determine whether or not we should exercise our discretion to
issue a waiver, and we explicitly consider the availability of
carryover RINs as part of that assessment. To extent the
interpretation of general waiver authority we are asserting in this
final rule appears inconsistent with our statement in 2010, or
inconsistent with any other past statement made at a time when we
were not actually exercising the authority, we intend for the
interpretation we are clearly setting forth today to be
clarification/modification of such prior statements.
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    The waiver provision at CAA section 211(o)(7)(A)(ii) is ambiguous
in several respects. First, it does not specify what the general term
``supply'' refers to. The common understanding of this term is an
amount of a resource or product that is available for use by the person
or place at issue.\32\ Hence the evaluation of the supply of renewable
transportation fuel, a product, is best understood in terms of the
person or place using the product. In the RFS program, various parties
interact across several industries to make renewable transportation
fuel available for use by the ultimate consumers in transportation
fuel. Supplying biofuel to obligated parties and terminal blenders is
one part of this process, while supplying renewable fuel to the
ultimate consumer as part of their transportation fuel is a different
and later aspect of this process. For example, the biofuels ethanol and
biodiesel are typically supplied to obligated parties or blenders as a
neat fuel, but in almost all cases are supplied to the consumer as a
blend with conventional fuel (ethanol blended in gasoline or biodiesel
blended in diesel). The waiver provision does not specify what product
is at issue (for example, neat biofuel or renewable fuel that is