[Federal Register Volume 77, Number 5 (Monday, January 9, 2012)]
[Rules and Regulations]
[Pages 1320-1358]
[FR Doc No: 2011-33451]

Vol. 77

Monday,

No. 5

January 9, 2012

Part V

Environmental Protection Agency

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40 CFR Part 80

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards;
Final Rule

Federal Register / Vol. 77 , No. 5 / Monday, January 9, 2012 / Rules
and Regulations

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9614-4]
RIN 2060-AQ76

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under the Clean Air Act Section 211(o), the Environmental
Protection Agency is required to set the renewable fuel standards each
November for the following year. In general the standards are designed
to ensure that the applicable volumes of renewable fuel specified in
the statue are used. However, the statute specifies that EPA is to
project the volume of cellulosic biofuel production for the upcoming
year and must base the cellulosic biofuel standard on that projected
volume if it is less than the applicable volume set forth in the Act.
EPA is today finalizing a projected cellulosic biofuel volume for 2012
and annual percentage standards for cellulosic biofuel, biomass-based
diesel, advanced biofuel, and renewable fuels that will apply to all
gasoline and diesel produced or imported for domestic use in year 2012.
In the NPRM we also proposed an applicable volume of 1.28 billion
gallons for biomass-based diesel for 2013. The statute specifies that
the minimum volume of biomass-based diesel for years 2013 and beyond
must be at least 1.0 billion gallons. We are continuing to evaluate the
many comments on the NPRM from stakeholders, and will issue a final
rule setting the applicable biomass-based diesel volume for calendar
year 2013 as expeditiously as practicable. This action also presents a
number of changes to the RFS2 regulations that are designed to clarify
existing provisions and to address several unique circumstances that
have come to light since the RFS2 program became effective on July 1,
2010. Finally, today's rule also makes a minor amendment to the
gasoline benzene regulations regarding inclusion of transferred
blendstocks in a refinery's early benzene credit generation
calculations.

DATES: This final rule is effective on January 9, 2012.

ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-HQ-OAR-2010-0133. All documents in the docket are listed in the
www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in www.regulations.gov or in hard copy at the Air and Radiation Docket
and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution
Ave. NW., Washington, DC. The Public Reading Room is open from 8:30
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The
telephone number for the Public Reading Room is<PHONE_NUMBER>, and the
telephone number for the Air Docket is<PHONE_NUMBER>.

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

I. General Information

A. Does this action apply to me?

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

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

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

Outline of This Preamble

I. Executive Summary
    A. Standards for 2012
    1. Assessment of 2012 Cellulosic Biofuel Volume
    2. Advanced Biofuel and Total Renewable Fuel in 2012
    3. Percentage Standards for 2012
    4. Historical Renewable Fuel Production
    B. Regulatory Changes
    C. 2012 Price for Cellulosic Biofuel Waiver Credits
    D. Assessment of the Domestic Aggregate Compliance Approach
    E. Assessment of the Canadian Aggregate Compliance Approach
II. Projection of Cellulosic Volume and Assessment of Biomass-Based
Diesel and Advanced Biofuel for 2012
    A. Statutory Requirements
    B. Cellulosic Biofuel Volume Assessment
    1. Existing Cellulosic Biofuel Facilities
    2. Potential New Facilities in 2012
    3. Imports of Cellulosic Biofuel
    4. Projections From the Energy Information Administration
    5. Comments on the Proposed Rule
    6. Summary of Volume Projections
    C. Advanced Biofuel and Total Renewable Fuel in 2012
    D. Biomass-Based Diesel in 2012

III. Final Percentage Standards for 2012
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
    3. Final Percentage Standards
IV. Changes to RFS2 Regulations
    A. Summary of Amendments
    B. Technical Justification for Equivalence Value Application
    C. Changes to Definitions of Terms
    1. Definition of Annual Cover Crop
    2. Definition of ``Naphtha''
    D. Technical Amendments Related to RIN Generation and Separation
    1. RIN Separation Limit for Obligated Parties
    2. RIN Retirement Provision for Error Correction
    3. Production Outlook Reports Submission Deadline
    4. Attest Procedures
    E. Technical Amendments Related to Registration & Recordkeeping
    1. Construction Discontinuance & Completion Documentation
    2. Third-Party Engineering Reviews
    3. Foreign Ethanol Producers
    F. Additional Amendments and Clarifications
    1. Third-Party Engineering Review Addendum
    2. RIN Generation for Fuel Imported From a Registered Foreign
Producer
    3. Bond Posting
    4. Prohibition Against Repeat Generation of RINs
    5. Acceptance of Separated Yard Waste and Food Waste Separation
Plans
    6. Transferred Blendstocks in Early Benzene Credit Generation
Calculations
V. Annual Administrative Announcements
    A. 2011 Price for Cellulosic Biofuel Waiver Credits
    B. Assessment of the Domestic Aggregate Compliance Approach
    C. Assessment of the Canadian Aggregate Compliance Approach
VI. Comments Outside the Scope of This Rulemaking
VII. Public Participation
VIII. 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
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
    K. Congressional Review Act
IX. 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) which 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
promulgation of revised regulatory requirements on March 26, 2010.\1\
The transition from the RFS1 requirements of EPAct to the RFS2
requirements of EISA generally occurred on July 1, 2010.
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    \1\ 75 FR 14670.
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    Under RFS2, EPA is required to determine and publish the applicable
annual percentage standards for each compliance year by November 30 of
the previous year. As part of this effort, EPA must 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. When we lower the applicable volume of cellulosic
biofuel in this manner, we are also authorized to lower the applicable
volumes of advanced biofuel and/or total renewable fuel by the same or
a lesser amount. Since these evaluations are based on evolving
information about emerging segments of the biofuels industry, and may
result in the applicable volumes differing from those in the statute,
we believe that it is appropriate to establish the applicable volumes
through a notice-and-comment rulemaking process. Today's notice
provides our final evaluation of the projected production of cellulosic
biofuel for 2012, our evaluation of whether to lower the applicable
volumes of advanced biofuel and total renewable fuel, and the final
percentage standards for compliance year 2012. We are finalizing a
cellulosic biofuel requirement of 10.45 mill ethanol-equivalent gallons
for 2012, and are not reducing the advanced biofuel or total renewable
fuel requirements below the levels specified in the statute. For future
years, EPA will continue to evaluate whether it is appropriate to
adjust the volume of advanced and total renewable fuel, if EPA adjusts
the volume of cellulosic biofuel. In making such determinations, EPA
will consider all relevant factors. The evaluations that led to these
2012 volume requirements were based on our evaluation of individual
producers' production plans and progress, a consideration of comments
received in response to our notice of proposed rulemaking published on
July 1, 2011,\2\ the estimate of projected biofuel volumes that the
Energy Information Administration (EIA) is required to provide to EPA
by October 31, and other information that became available.
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    \2\ 76 FR 38844.
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    Today's final rule does not include an assessment of the
environmental impacts of the percentage standards we are setting for
2012. All of the impacts of the RFS2 program were addressed in the RFS2
final rule published on March 26, 2010, including impacts of the
biofuel standards specified in the statute. Today's rulemaking simply
sets the standards for 2012 whose impacts were already analyzed
previously.
    Today's notice also finalizes a number of changes to the RFS2
regulations. These changes are designed to reduce confusion among
regulated parties and streamline implementation by clarifying certain
terms and phrases and addressing unique circumstances that came to
light after the RFS2 program went into effect on July 1, 2010.
Additionally, this notice also makes a minor amendment to the gasoline
benzene regulations regarding inclusion of transferred blendstocks in a
refinery's early benzene credit generation calculations. Further
discussion of all of these changes can be found in Section IV.
    Finally, in today's rulemaking we are announcing the price for
cellulosic biofuel waiver credits that will be available for compliance
with the 2012 cellulosic biofuel requirement, and are also announcing
the results of our annual assessment of the aggregate compliance
approach for U.S. crops and crop residue. These announcements are
provided in Section V.
    EPA is required to determine the applicable volume of biomass-based
diesel (BBD) that will be required in 2013 and beyond based on
consideration of a variety of factors, and promulgate regulations
establishing the volumes. The statute specifies that the volume of
biomass-based diesel for years 2013 and beyond must be at least 1
billion gallons. In the NPRM we proposed an applicable volume of 1.28
bill gallons for BBD for 2013. We are continuing to evaluate the many
comments on the NPRM from stakeholders as well as fulfilling other
analytical requirements. In determining

the BBD applicable volume, the statute requires an analysis of the
impact of the BBD volume on a variety of factors such as the impact of
BBD on energy security, transportation fuel costs, job creation, water
quality, and other factors. EPA intends to gather additional
information to enhance our analysis of these factors including
consideration of costs and benefits consistent with the provisions of
E.O. 13563, to ensure an appropriately balanced decision. For these
reasons, we are not finalizing an applicable volume for 2013 BBD in
today's rulemaking. We recognize that the statute calls for EPA to
promulgate the applicable volume of BBD for 2013 no later than 14
months before that year. We do intend to issue a final determination
setting the applicable BBD volume for calendar year 2013 as
expeditiously as practicable.

A. Standards for 2012

1. Assessment of 2012 Cellulosic Biofuel Volume
    To estimate the volume of cellulosic biofuel that can be made
available in the U.S. in 2012, we researched all potential production
sources by company and facility. This included sources that were still
in the planning stages, those that were under construction, and those
that are already producing some volume of cellulosic ethanol,
cellulosic diesel, or some other type of cellulosic biofuel. Facilities
primarily focused on research and development work with no intention of
marketing any fuel produced were not considered for this assessment.
From this universe of potential cellulosic biofuel sources we
identified the subset that had a possibility of producing some volume
of qualifying cellulosic biofuel for use as transportation fuel in
2012.
    In today's final rule we specify the projected available volume for
2012 that forms the basis for the percentage standard for cellulosic
biofuel. To arrive at this final volume, we took into consideration
additional factors such as the current and expected state of funding,
the status of the technology, progress towards construction and
production goals, and other significant factors that could potentially
impact fuel production or the ability of the produced fuel to generate
cellulosic Renewable Identification Numbers (RINs). We also considered
projections of cellulosic biofuel provided by the EIA. Further
discussion of these factors can be found in Section II.B.
    In our assessment we focused on domestic sources of cellulosic
biofuel. While imports of cellulosic biofuels are possible and could be
eligible to generate RINs, we believe this is unlikely due to local
demand for cellulosic biofuels in the countries in which they are
produced as well as the cost associated with transporting these fuels
to the U.S. Of the domestic sources, we estimated that six facilities
can make volumes of cellulosic biofuel available for transportation use
in the U.S. in 2012. These facilities are listed in Table I.A.1-1 along
with our estimate of the projected 2012 volume for each.

                  Table I.A.1-1--Projected Available Cellulosic Biofuel Plant Volumes for 2012
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                                                                                Projected
                                                                                available  volume
                Company                           Location                  Fuel type           (million ethanol-
                                                                                equivalent
                                                                                gallons)
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American Process Inc...................  Alpena, MI...............  Ethanol..................               0.5
Fiberight..............................  Blairstown, IA...........  Ethanol..................               2.0
INEOS Bio..............................  Vero Beach, FL...........  Ethanol..................               3.0
KiOR...................................  Columbus, MS.............  Gasoline, Diesel.........               4.8
KL Energy Corp.........................  Upton, WY................  Ethanol..................               0.1
ZeaChem................................  Boardman, OR.............  Ethanol..................               0.05
                                                                                ------------------
    Total..............................  .........................  .........................              10.45
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    Each of the facilities listed in the Table I.A.1-1 are at different
points in their progress towards the production of commercial volumes
of cellulosic biofuel. KL Energy Corp. is the only facility in the
United States currently generating cellulosic biofuel RINs. American
Process Inc., Fiberight, and ZeaChem all anticipate completing
construction on their production facilities in late 2011 or early 2012
and plan to begin producing biofuel soon after their facilities are
complete. INEOS Bio and KiOR are targeting April 2012 and mid 2012 for
the start-up of their respective cellulosic biofuel production
facilities. The variation in these expected start-up times, along with
the facility production capacities, company production plans, and a
variety of other factors have all been taken into account in projecting
the available volume of cellulosic biofuel from each these facilities.
2. Advanced Biofuel and Total Renewable Fuel in 2012
    The statute indicates that we may reduce the applicable volume of
advanced biofuel and total renewable fuel if we determine that the
projected volume of cellulosic biofuel production for 2012 falls short
of the statutory volume of 500 million gallons. As shown in Table
I.A.1-1, we have determined that this is the case. Therefore, we also
must evaluate the need to lower the applicable volumes for advanced
biofuel and total renewable fuel.
    To address the need to lower the advanced biofuel standard, we
first consider whether it appears likely that the biomass-based diesel
volume of 1.0 billion gallons specified in the statute can be met in
2012. As discussed in Section II.E, we believe that the 1.0 billion
gallon standard can indeed be met. Since biodiesel has an Equivalence
Value of 1.5, 1.0 billion physical gallons of biodiesel would provide
1.5 billion ethanol-equivalent gallons that can be counted towards the
advanced biofuel standard of 2.0 billion gallons. Of the remaining 0.5
bill gallons, 10.45 mill gallons will be met with cellulosic biofuel.
Based on our analysis as described in Section II.C, we believe that
there will be sufficient volumes of other advanced biofuels, such as
imported sugarcane ethanol, additional biodiesel, or renewable diesel,
such that the applicable volume for advanced biofuel can remain at the
statutory level of 2.0 billion gallons. In addition, as discussed in
Section II.C, we believe there will be sufficient volumes to satisfy
the 15.2 billion gallon applicable

volume of total renewable fuel specified in the Act, so the 2012 total
renewable fuel percentage standard is based on that volume.
3. Percentage Standards for 2012
    The renewable fuel standards are expressed as a volume percentage,
and are used by each refiner, blender or importer to determine their
renewable fuel volume obligations. The applicable percentages are set
so that if each regulated party meets the percentages, and if EIA
projections of gasoline and diesel use are accurate, then the amount of
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced
biofuel used will meet the volumes required on a nationwide basis.
    To calculate the percentage standard for cellulosic biofuel for
2012, we have used the projected annual volume of 10.45 million
ethanol-equivalent gallons (representing 8.65 million physical
gallons). The applicable volumes for biomass-based diesel, advanced
biofuel, and total renewable fuel for 2012 will be those specified in
the statute. These volumes are shown in Table I.A.3-1.

                                      Table I.A.3-1--Final Volumes for 2012
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                                              Actual volume                Ethanol equivalent  volume \a\
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Cellulosic biofuel....................  8.65 mill gal............  10.45 mill gal.
Biomass-based diesel..................  1.0 bill gal.............  1.5 bill gal.
Advanced biofuel......................  1.3-1.5 \b\ bill gal.....  2.0 bill gal.
Renewable fuel........................  14.5-14.7 \b\ bill gal...  15.2 bill gal.
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\a\ Biodiesel and cellulosic diesel have equivalence values of 1.5 and 1.7 ethanol equivalent gallons
  respectively. As a result, ethanol-equivalent volumes are larger than actual volumes for cellulosic biofuel
  and biomass-based diesel.
\b\ Range depends on the equivalence values of advanced biofuels other than cellulosic biofuel and biomass-based
  diesel.

    Four separate standards are required under the RFS2 program,
corresponding to the four separate volume requirements shown in Table
I.A.3-1. The specific formulas we use to calculate the renewable fuel
percentage standards are contained in the regulations at Sec.  80.1405
and repeated in Section III.B.1. The percentage standards represent the
ratio of renewable fuel volume to projected non-renewable gasoline and
diesel volume. The projected volume of transportation gasoline and
diesel used to calculate the standards in today's final rule was
provided by EIA.\3\
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    \3\ Letter from Howard K. Gruenspecht, Acting Administrator,
Energy Information Administration, to Lisa P. Jackson,
Administrator, EPA. October 19, 2011.
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    In March 2011, DOE evaluated the impacts of the RFS program on
small entities and concluded that some small refineries would suffer a
disproportionate economic hardship if required to participate in the
program.\4\ As a result, we are required to exempt these few refineries
from being obligated parties for a minimum of two years (2011 and
2012), and must also exempt their gasoline and diesel volumes from the
calculation of the annual percentage standards. In addition, EPA has
approved a number of individual small refinery petitions submitted
pursuant to 40 CFR Sec.  80.1441(e)(2) since publication of the
proposed rule, and has also adjusted the final 2012 percentage
standards to reflect the exemption of these small refineries from being
RFS obligated parties in 2012. The final standards for 2012 are shown
in Table I.A.3-2 and include the adjustment for exempt small refineries
(which constitute about 3.6% of the gasoline pool and 4.5% of the
diesel pool). Detailed calculations can be found in Section III.
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    \4\ ``Small Refinery Exemption Study: An Investigation into
Disproportionate Economic Hardship,'' U.S. Department of Energy,
March 2011.

           Table I.A.3-2--Final Percentage Standards for 2012
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Cellulosic biofuel...........................................     0.006%
Biomass-based diesel.........................................       0.91
Advanced biofuel.............................................       1.21
Renewable fuel...............................................       9.23
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4. Historical Renewable Fuel Production
    To provide a comparison to the 2012 volume requirements shown in
Table I.A.3-1, we determined the actual annual production volumes for
the four RFS categories of renewable fuel. Since data on 2011
production is currently incomplete, we have shown the production
volumes for the full year beginning in July 2010 and ending in June
2011. July 2010 also marks the start of the RFS2 program when data
collection began with the EPA-Moderated Transaction System (EMTS) on
production of renewable fuel and generation of RINs.

                    Table I.A.4-1--Production of Renewable Fuel From July 2010-June 2011 \a\
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                                              Actual volume                Ethanol equivalent  volume \a\
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Cellulosic biofuel....................  0 mill gal...............  0 mill gal.
Biomass-based diesel..................  0.43 \b\ bill gal........  0.64 \b\ bill gal.
Advanced biofuel......................  0.47 bill gal............  0.70 bill gal.
Renewable fuel........................  14.05 bill gal...........  14.29 bill gal.
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\a\ Except for biomass-based diesel, data derived from the EPA-Moderated Transaction System (EMTS) at http://www.epa.gov/otaq/fuels/rfsdata/index.htm.
\b\ Due to ongoing investigations of biodiesel RIN generation, these values have been derived from Census Bureau
  data on fats and oils at http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html.

B. Regulatory Changes

    In today's action we are also finalizing a number of changes to the
RFS2 regulations. These changes are intended to:
     Clarify certain provisions because we have learned that
there is some confusion among some regulated parties
     Clarify the application of certain provisions to unique
circumstances
     Provide greater specificity in the definition of certain
terms
     Correct regulatory language that inadvertently
misrepresented our intent
    Today's rule also makes a minor amendment to the gasoline benzene
regulations regarding inclusion of transferred blendstocks in a
refinery's early benzene credit generation calculations. A detailed
discussion of these regulatory changes is provided in Section IV.

C. 2012 Price for Cellulosic Biofuel Waiver Credits

    Since we are reducing the required volume of cellulosic biofuel for
2012 below the applicable volume specified in the statute, EPA is
required to offer biofuel waiver credits to obligated parties that can
be purchased in lieu of acquiring cellulosic biofuel RINs.\5\ These
waiver credits are not allowed to be traded or banked for future use,
are only allowed to be used to meet the 2012 cellulosic biofuel
standard, and cannot be applied to deficits carried over from 2011.
Moreover, unlike cellulosic biofuel RINs, waiver credits may not be
used to meet either the advanced biofuel standard or the total
renewable fuel standard. For the 2012 compliance period, we are making
cellulosic biofuel waiver credits available to obligated parties for
end-of-year compliance should they need them at a price of $0.78 per
credit. Further discussion is provided in Section VI.A.
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    \5\ One waiver credit would apply to one gallon of an obligated
party's cellulosic biofuel Renewable Volume Obligation (RVO).
---------------------------------------------------------------------------

D. Assessment of the Domestic Aggregate Compliance Approach

    As part of the RFS2 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 feedstocks used in the
production of RIN-qualifying 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.
    The RFS2 regulations provide that EPA will make a finding
concerning whether the 2007 baseline amount of U.S. agricultural land
has been exceeded in a given year and will publish this finding in the
Federal Register by November 30 of the same year. Based on data
provided by the USDA, we have estimated that U.S. agricultural land
reached 392 million acres in 2011, and thus did not exceed the 2007
baseline acreage.
    We also stated in the preamble to the final RFS2 rule that if, at
any point, EPA finds that the total agricultural land is greater than
397 million acres, EPA will conduct further investigations to evaluate
validity of the domestic aggregate compliance approach. The total
acreage estimate of 392 million acres does not exceed the trigger point
for further investigation; therefore EPA does not plan to conduct
further investigations into this matter. Additional discussion on this
matter can be found in Section V.B of this preamble.

E. Assessment of the Canadian Aggregate Compliance Approach

    On September 29, 2011, EPA approved the use of an aggregate
compliance approach to renewable biomass verification for planted crops
and crop residue grown in Canada. On March 15, 2011, EPA issued a
notice of receipt of and solicited public comment on a petition for EPA
to authorize the use of an aggregate approach for compliance with the
Renewable Fuel Standard renewable biomass requirements, submitted by
the Government of Canada. The petition requested that EPA determine
that an aggregate compliance approach will provide reasonable assurance
that planted crops and crop residue from Canada meet the definition of
renewable biomass.
    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 nonforested on that
date (and is therefore RFS2 qualifying land). The total agricultural
land in Canada in 2011 is estimated at 121 million acres. This data was
presented to EPA in a report titled: Changes to the Renewable Fuel
Standard Program Aggregate Compliance for Canadian Crops and Crop
Residues: Data Analysis and Justification Report 2011. This report has
been docketed at EPA-HQ-OAR-2010-0133. The total acreage estimate of
121 million acres does not exceed the trigger point for further
investigation; therefore EPA does not plan to conduct further
investigations into this matter. Additional discussion on this matter
can be found in Section V.B of this preamble.

II. Projection of Cellulosic Volume and Assessment of Biomass-Based
Diesel and Advanced Biofuel for 2012

    In order to project production volume of cellulosic biofuel in 2012
for use in setting the percentage standard, we collected information on
individual facilities that have the potential to produce qualifying
volumes for consumption as transportation fuel, heating oil, or jet
fuel in the U.S. in 2012. This section describes the projected
available volume of cellulosic biofuel in 2012 as well as some of the
uncertainties associated with those volumes. Section III describes the
derivation of the percentage standards that will apply to obligated
parties in 2012.
    The 2012 volume projections in today's final rule were based on
several sources of information:
     An estimate from EIA of the volumes of transportation
fuel, biomass-based diesel, and cellulosic biofuel that they project
will be sold or introduced into commerce in the U.S. in 2012.
     Progress that the cellulosic biofuel industry is making in
2011
     Our own assessment of the cellulosic biofuel industry's
projected volumes for 2012
     Comments in response to the NPRM
    In addition to the sources of information listed above EPA had also
intended to consider the Production Outlook Reports that are required
under Sec.  80.1449 for all registered renewable

fuel producers and importers. These Production Outlook Reports were not
as useful as EPA had hoped in helping to provide information on the
intentions of cellulosic biofuel producers in 2012 as very few had
registered under the RFS program and they were thus not required to
submit a report. EPA expects that in future years as more cellulosic
biofuel producers register under the RFS program these reports will
become of greater value in helping to determine the appropriate
projected available volume of cellulosic biofuel.
    In directing EPA to project cellulosic biofuel production for
purposes of setting the annual cellulosic biofuel standard, Congress
did not specify what degree of certainty should be reflected in the
projections. However, in response to the NPRM, some commenters cited
Executive Order 13563 which states that regulations must in general
``promote predictability and reduce uncertainty.'' We agree that this
must be a goal in the process of determining the appropriate cellulosic
biofuel requirement for 2012. The greatest certainty is achieved when
the level of the standard is firmly established before it becomes
applicable, and all regulated parties can have confidence regarding
that standard. Doing this ensures that obligated parties know what
their obligations will be so that they can begin efforts to meet those
obligations, and biofuel producers know what baseline demand for their
product will be so that they can secure financing and ramp up
production with confidence.
    In contrast to statements made by several obligated parties,
meeting the dual goals of predictability and reducing uncertainty does
not require EPA to specify an applicable volume for cellulosic biofuel
that is as low as possible, or based only on demonstrated (as opposed
to reasonably anticipated) production. Due to the availability of
cellulosic waiver credits, obligated parties always have the means to
comply with the cellulosic biofuel standard that we set,\6\ and at a
cost that is predictable. There is, therefore, no uncertainty with
regard to the level of their obligations or the means available to
achieve it.
---------------------------------------------------------------------------

    \6\ So long as the required volume is below the volume specified
in the statute, such that cellulosic biofuel waiver credits are
available.
---------------------------------------------------------------------------

    Moreover, Executive Order 13563 also states that regulations must
in general promote ``economic growth, innovation, competitiveness, and
job creation,'' while ``taking into account benefits and costs, both
quantitative and qualitative.'' While the cellulosic biofuel standard
that we set should be within the range of what can be attained based on
projected domestic production and import potential, the standard that
we set helps drive the production of volumes that will be made
available. This is consistent with comments submitted by the
Biotechnology Industry Organization and the Renewable Fuels
Association. Thus while any standard we set for cellulosic biofuel
standard for 2012 will have some uncertainty in terms of actual
attainment, our intention is to balance such uncertainty with the
objective of promoting growth in the industry. Our final projected
available volume of 8.65 million gallons of cellulosic biofuel (10.45
million ethanol-equivalent gallons) for 2012 reflects these
considerations.

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS2 program
each year (absent an adjustment or waiver by EPA) are specified in CAA
211(o)(2). These volumes for 2012 are shown in Table II.A-1.

      Table II.A-1--Required Volumes in the Clean Air Act for 2012
                               [Bill gal]
------------------------------------------------------------------------
                                                     Ethanol equivalent
                                  Actual volume            volume
------------------------------------------------------------------------
Cellulosic biofuel..........               \a\ 0.5                   0.5
Biomass-based diesel........                   1.0                   1.5
Advanced biofuel............               \a\ 2.0                   2.0
Renewable fuel..............              \a\ 15.2                  15.2
------------------------------------------------------------------------
\a\ These values assume that the biofuels would be ethanol. If any
  portion of the biofuels used to meet these applicable volumes has a
  volumetric energy content greater than that for ethanol, these values
  will be lower.

    By November 30 of each year, the EPA is required under CAA 211(o)
to determine and publish in the Federal Register the renewable fuel
percentage standards for the following year. These standards are to be
based in part on transportation fuel volumes estimated by the EIA for
the following year. The calculation of the percentage standards is
based on the formulas in Sec.  80.1405(c) which express the required
volumes of renewable fuel as a volume percentage of gasoline and diesel
sold or introduced into commerce in the 48 contiguous states plus
Hawaii.
    The statute requires that if EPA determines that the projected
volume of cellulosic biofuel production for the following year is less
than the applicable volume shown in Table II.A-1, then EPA is to reduce
the applicable volume of cellulosic biofuel to the projected volume
available during that calendar year. In addition, if EPA reduces the
required volume of cellulosic biofuel below the level specified in the
statute, the Act also indicates that we may reduce the applicable
volume of advanced biofuels and total renewable fuel by the same or a
lesser volume.

B. Cellulosic Biofuel Volume Assessment

    In order to project cellulosic biofuel production for 2012, EPA has
tracked the progress of over 100 biofuel production facilities. From
this list of facilities we used publically available information, as
well as information provided by DOE and USDA, to make a preliminary
determination of which facilities are the most likely candidates to
produce cellulosic biofuel and make it commercially available in 2012.
Each of these companies was investigated further in order to determine
the current status of their facilities and their likely cellulosic
biofuel production volumes for the coming years. Information such as
the funding status of these facilities, announced construction and
production ramp up periods, and annual fuel production targets were
taken into account. We also considered each company's history of
meeting milestone targets and production goals where

applicable. Our projection of the volume of cellulosic biofuel
production in 2012 is based on this information as well as our own
assessment of the likelihood of these facilities successfully producing
cellulosic biofuel in the volumes indicated. A brief description of
each of the companies we believe can produce cellulosic biofuel and
make it commercially available in 2012 can be found below.
1. Existing Cellulosic Biofuel Facilities
    The rule that established the required 2011 cellulosic biofuel
volume identified five production facilities that we projected would
produce cellulosic biofuel and make the fuel commercially available in
2011. Each of these production facilities are now structurally
complete, however they are in various stages of biofuel production. All
of these facilities have either produced some volume of cellulosic
biofuel in 2011, or are on schedule to do so later in the year. Only KL
Energy and Range Fuels, however, have completed registration of
cellulosic biofuel production facilities under the RFS2 program and as
such they are currently the only facilities of the five listed here
currently eligible to generate cellulosic biofuel RINs. For more
background information on each of these facilities see the 2011
standards rule.\7\
---------------------------------------------------------------------------

    \7\ 75 FR 76790, December 9, 2010.
---------------------------------------------------------------------------

    DuPont Danisco Cellulosic Ethanol (DDCE) successfully started up
their small demonstration facility in Vonore, Tennessee in late 2010.
This facility has a maximum production capacity of 250,000 gallons of
ethanol per year and uses an enzymatic hydrolysis process to convert
corn cobs into ethanol. In conversations with EPA in July 2011 DDCE
indicated that this facility was currently producing ethanol at
approximately half the nameplate capacity, corresponding to a volume of
125,000 gallons per year. The focus of this facility, however, remains
gathering information to help successfully design and operate DDCE's
first commercial scale facility. All the cellulosic ethanol currently
produced at this facility is used for testing purposes or given away.
No RINs are currently generated for this ethanol and it is not
available for purchase by obligated parties. DDCE has indicated that
they have no plans to generate RINs or sell ethanol produced at their
facility in Vonore in 2012. No volume of cellulosic ethanol has
therefore been included in the projections of available cellulosic
biofuel for 2012.
    Fiberight uses an enzymatic hydrolysis process to convert the
biogenic portion of separated municipal solid waste (MSW) into ethanol.
Construction on the first stage of Fiberight's Blairstown, Iowa
facility was completed in the summer of 2010. The production capacity
of the first stage of this project is 2 million gallons of ethanol per
year. Fiberight had planned to begin production of cellulosic biofuel
from this facility in late 2010 but poor economic conditions, due in
part to low cellulosic RIN values in 2010, caused them to postpone fuel
production. Fiberight had also planned to begin construction on an
expansion of this facility in late 2010 that would increase the
production potential to 6 million gallons of ethanol per year, but were
unable to secure funding to carry out the construction as planned. They
have since secured funding and began construction on the expansion of
their Blairstown facility in April 2011. Fiberight anticipates that
they will begin fuel production in early 2012 and will ramp up
production at this facility throughout 2012. EPA projects the
production of 2 million gallons of cellulosic ethanol from this
facility in 2012.
    KiOR continues to produce a small volume of renewable crude from
agricultural residue at their demonstration facility in Houston, Texas
using a technology they call Biomass Catalytic Cracking (BCC). This
technology uses heat and a proprietary catalyst to convert biomass to a
renewable crude with a relatively low oxygen content. The renewable
crude is then upgraded to produce renewable gasoline and diesel, as
well as a small quantity of fuel oil. While KiOR plans to continue to
operate their Houston facility in 2012 its main purpose will be to
provide small quantities of fuel for testing purposes and to provide
data for the optimization of KiOR's first commercial facility. In
conversations with EPA KiOR has indicated that it is unlikely that any
significant volume of fuel from this facility will be sold
commercially. EPA has therefore not included any volume from KiOR's
Houston facility in our projected available volumes for 2012.
    KL Energy has developed a process to convert cellulose and
hemicellulose into cellulosic sugars using a thermal-mechanical
pretreatment process followed by an enzymatic hydrolysis. It had
initially planned to used woody biomass as their feedstock for
cellulosic biofuel production; however its production process is
versatile enough to allow for a wide variety of cellulosic feedstocks
to be used. In August 2010 KL Energy announced a joint development
agreement with Petrobras America Inc. As part of the agreement
Petrobras has invested $11 million to modify KL Energy's facility in
Upton, Wyoming to allow it to process bagasse and other waste products.
If successful, Petrobras and KL Energy plan to work together to
integrate the technology into currently existing ethanol production
facilities in Brazil. The modifications to KL Energy's facility were
completed earlier this year. KL Energy is currently producing small
volumes of cellulosic ethanol and plans to continue to do so throughout
2012. In August 2011 KL Energy successfully registered its cellulosic
biofuel production facility under the RFS program making it eligible to
generate RINs for biofuel produced from this facility. KL Energy has
indicated to EPA its intent to generate RINs for the fuel it produces
and to sell it commercially in the United States. EPA projects that
100,000 gallons of cellulosic ethanol will be available from this
facility in 2012.
    Range Fuels began production of methanol at their Soperton, Georgia
facility in the third quarter of 2010. This facility uses a
thermochemical technology to produce syngas (consisting of mostly
hydrogen and carbon monoxide) from a woody biomass feedstock. The
syngas is then converted into fuel with the aid of a chemical catalyst
developed by Range. Range has developed the capability to produce both
methanol and ethanol, depending on the catalyst used. In January 2011,
after producing a small volume of ethanol from this facility and
proving this capability, Range Fuels shut down the Soperton facility in
order to work through technical difficulties they had been
experiencing. No timeline has been given for the restart of this
facility and fuel production from this facility in 2012 appears
unlikely. No cellulosic fuel production from Range Fuels has been
included in EPA's 2012 projected available volume.
2. Potential New Facilities in 2012
    In the proposed rule EPA discussed five new cellulosic biofuel
production facilities that had plans to begin commercial production at
some point in 2012. These facilities were at various stages in the
construction process, and as such had various degrees of uncertainty
associated with any projected 2012 commercial production. Three of
these facilities, those being developed by INEOS Bio, KiOR, and
ZeaChem, have made significant progress towards completion and are
expected to produce and market cellulosic biofuel in 2012. Two of the
companies mentioned in the proposed rule, Fulcrum Bioenergy and
Terrabon,

are no longer on a schedule to produce cellulosic biofuel in 2012.
Finally, EPA has become aware of a sixth company, American Process
Inc., which is developing a cellulosic biofuel project that is likely
to produce and market some volume of cellulosic biofuel in 2012. The
following section provides updated information on each of the companies
discussed in the proposed rule, as well as a summary of the project
being developed by American Process Inc.
    Fulcrum Bioenergy is planning to build a facility capable of
producing 10.5 million gallons of cellulosic ethanol and 16 megawatts
of renewable electricity per year. It has developed a thermochemical
technology to produce ethanol from separated MSW via syngas using a
chemical catalyst. In November 2010 Fulcrum announced that it had
received a term sheet for an $80 million loan guarantee from DOE and
was entering into the final phase of the loan guarantee program. Prior
to that Fulcrum had announced that it had signed long term feedstock
supply contracts for this facility as well as engineering, procurement,
and construction contracts. In January 2011 Fulcrum announced it had
closed on a $75 million Series C financing that would provide the
remaining necessary capital for the construction of its first
commercial production facility pending the closing of its DOE loan
guarantee. The loan guarantee, however, has yet to be finalized. As a
result the start of the construction of this facility, originally
planned for the second quarter of 2011, is now expected to begin in
late 2011. EPA has not included any volume of cellulosic biofuel from
Fulcrum Bioenergy's facility in our 2012 projected available volume
because of this delay.
    INEOS Bio has developed a process for producing cellulosic ethanol
by first gasifying feedstock material into a syngas and then using
naturally occurring bacteria to ferment the syngas into ethanol. In
January 2011 USDA announced a $75 million loan guarantee for the
construction of INEOS Bio's first commercial facility to be built in
Vero Beach, Florida. This was in addition to the grant of up to $50
million INEOS Bio received from DOE in January 2010. This facility will
be capable of producing 8 million gallons of cellulosic biofuel as well
as 6 megawatts of renewable electricity from a variety of feedstocks
including yard, agricultural, and wood waste, as well as separated MSW.
On February 9, 2011 INEOS Bio broke ground on this facility. Since
February significant progress has been made and INEOS Bio remains on
target to complete construction on this facility in April 2012.
Commercial production of cellulosic ethanol is expected to begin soon
after construction is complete. Three million gallons of cellulosic
ethanol from this facility has been included in EPA's projected
available volume for 2012.
    After successful operation of their demonstration plant in Houston,
Texas KiOR began construction on its first commercial scale facility in
May 2011. This facility, located in Columbus, Mississippi, will convert
biomass to a low oxygen biocrude using a process KiOR calls Biomass
Catalytic Cracking (BCC). BCC uses a catalyst developed by KiOR in a
process similar to Fluid Catalytic Cracking currently used in the
petroleum industry. KiOR's Columbus facility will also be capable of
upgrading this biocrude into finished gasoline and diesel as well as a
small quantity of fuel oil. KiOR plans to finish construction on this
facility in the first half of 2012 and begin commercial production
early in the third quarter of 2012. KiOR has also announced plans to
construct several more commercial scale biofuel production facilities
in Mississippi and across the southeastern United States. It is
unlikely any of these additional facilities will begin production of
biofuel in 2012. EPA has included 3 million gallons of cellulosic
biofuel (4.8 million ethanol equivalent gallons) from KiOR's Columbus
facility in our projected available volume for 2012.
    Terrabon completed construction of a small demonstration scale
facility for the conversion of MSW and other waste materials into
gasoline in 2010 and are currently developing plans for their first
commercial scale facility. Terrabon utilizes a unique production
process that can be used to produce gasoline, diesel, or jet fuel.
Feedstock is first fermented into carboxylic acids by a variety of
micro organisms. These carboxylic acids are then neutralized to form
carboxylate salts that are dewatered, dried, and thermally converted to
ketones. Finally, the ketones are hydrogenated to form alcohols which
can then be refined into gasoline, diesel, or jet fuel. Terrabon had
hoped to begin producing cellulosic biofuel at their first commercial
scale facility some time in 2012, however difficulties in securing the
necessary funding have delayed the expected start up of their first
commercial scale facility to 2013. EPA has not included any volume of
cellulosic biofuel from Terrabon in our 2012 projected available
volume.
    ZeaChem has begun construction on a small demonstration scale
facility in Boardman, Oregon capable of producing 250,000 gallons of
cellulosic ethanol per year. Its production process uses a combination
of biochemical and thermochemical technologies to produce ethanol and
other renewable chemicals from cellulosic materials. The feedstock is
first fractionated into two separate streams containing cellulosic
sugars and lignin. The cellulosic sugars are fermented into ethyl
acetate using a naturally occurring acetogen, which can then be
hydrogenated into ethanol. The hydrogen necessary for this process is
produced by gasifying the lignin stream from the cellulosic biomass.
ZeaChem's process is flexible and is capable of producing a wide range
of renewable chemical and fuel molecules in addition to ethanol.
ZeaChem received a grant of up to $25 million from DOE in January 2010
for the construction of their demonstration facility. Since then
ZeaChem has made significant progress on its demonstration facility and
currently plans to begin production of cellulosic ethanol from this
facility in early 2012. It has indicated to EPA, however, that it is
highly unlikely to achieve full production capacity at this facility in
its first year of production and has suggested that the production of
50,000 gallons of cellulosic ethanol from this facility in 2012 is a
more realistic expectation. Despite this small volume, ZeaChem does
intend to generate RINs for the fuel that they produce and to market it
commercially. Based on this information EPA has included 0.05 million
gallons of cellulosic ethanol in our projected available volume for
2012.
    American Process Inc. (API) is developing a project in Alpena,
Michigan capable of producing up to 900,000 gallons of cellulosic
ethanol per year from woody biomass. This facility will use a
technology developed by API called GreenPower+TM. This
technology extracts the hemicelluloses portion of woody biomass using
hot water and hydrolyzes it into cellulosic sugars. These cellulosic
sugars are then converted to ethanol or other alcohols, while the
remaining portion of the woody biomass, containing mostly cellulose and
lignin, is processed into wood paneling at a co-located facility. At
larger scale facilities API anticipates burning the residual biomass in
a boiler to produce renewable steam and electricity as well as
cellulosic biofuel. In January 2010 API received a grant from DOE for
up to $18 million for the construction of their demonstration facility.
Construction of the Alpena, Michigan facility began in March 2011 and
API anticipates beginning the production of cellulosic ethanol at this
site early in 2012. API was not

discussed as a potential producer of cellulosic biofuels in 2012 in our
proposed rule due to uncertainty about its ability to generate RINs
with the intended feedstock and production process. EPA anticipates
these issues will be resolved. Cellulosic biofuel produced at API's
facility will therefore likely be eligible for cellulosic RINs. For our
2012 projected available volume of cellulosic biofuels we have included
500,000 gallons of cellulosic ethanol from this facility. This volume
represents the low end of API's production target for that year due to
the uncertainties associated with the start up of a new industrial
facility utilizing a technology unproven at industrial scale.
    Another potential source of cellulosic biofuel in 2012 is the
application of a technology being developed by EdeniQ. EdeniQ is
developing a suite of enzymes capable of breaking down cellulose into
simple sugars that can then be fermented into ethanol. Rather than
build its own production facilities EdeniQ plans to license its enzymes
to existing corn ethanol facilities. Such licensing would be
accompanied by the Cellunator, an advanced milling device EdeniQ has
developed to reduce the particle size of corn kernels to enable greater
conversion of starch to ethanol as well as the conversion of cellulose
to simple sugars. EdeniQ claims that its technology would allow corn
ethanol facilities to increase ethanol production by 1-2% by converting
the cellulosic portion of the corn kernel into ethanol. EdeniQ is also
working to increase the effectiveness of its enzymes in order to enable
ethanol production increases of 3-4% from the cellulose in the corn
kernel in the future. EdeniQ plans to begin commercial trials of its
technology in the second half of 2011. This technology has the
potential to be implemented rapidly and produce significant amounts of
cellulosic ethanol in 2012 as it requires relatively small capital
additions to already existing corn ethanol facilities. While this
technology is promising, there is currently no pathway in the RFS2
regulations for the generation of cellulosic biofuel RINs using the
cellulosic portion of the corn kernel as a feedstock. Moreover, EdeniQ
has not announced any agreements with corn ethanol producers to install
this technology to enable the production of cellulosic ethanol. For
these reasons, EPA has not included any cellulosic ethanol production
from EdeniQ's technology in our 2012 projections.
    In addition to the facilities mentioned above, EPA is also aware of
three companies planning to begin the production of cellulosic biofuels
in early 2013. Coskata, Enerkem, and Poet are planning on completing
construction on their first commercial scale cellulosic biofuel
facilities in late 2012 or early 2013 and producing commercial volumes
of biofuels in 2013. While all of these facilities continue to make
progress towards commercial production of cellulosic biofuel in 2013 it
is highly unlikely that any of these facilities will be capable of
producing cellulosic biofuels by the end of 2012. EPA has therefore not
included any volume of cellulosic biofuel from these facilities in our
projected available volume for 2012. These facilities, along with
several other commercial cellulosic biofuel facilities planning to
begin production in 2013, notably the first commercial scale facilities
from Abengoa and Mascoma, indicate that the potential exists for the
rapid expansion of production volumes in future years.
3. Imports of Cellulosic Biofuel
    While domestically produced cellulosic biofuels are the most likely
source of cellulosic biofuel available in the United States, producers
and/or importers of cellulosic biofuel produced in other countries may
also generate RINs and participate in the RFS2 program. While the RFS2
program does provide a financial incentive for companies to import
cellulosic biofuels into the United States, the combination of local
demand, financial incentives from other governments, and transportation
costs for the cellulosic biofuel has resulted in no cellulosic biofuel
being imported to the United States thus far. EPA believes this
situation is likely to continue in the near future. Additionally, the
majority of internationally based cellulosic biofuel facilities that
currently exist or plan to complete construction by the end of 2012 are
small research and development or pilot facilities not designed for the
commercial production of fuel.
    Two notable exceptions, both located in Canada, are Enerkem and
Iogen. Enerkem has a currently existing commercial production facility
in Westbury, Quebec and is expecting to complete construction on a
second facility in Edmonton, Alberta in late 2011. Iogen has a small
demonstration facility in Ottawa and is currently exploring the
possibility of building its first commercial facility near Prince
Albert, Saskatchewan. The large expected production volumes and
relatively small distance this fuel would have to be transported to
reach the United States make these facilities the most likely
candidates to import cellulosic biofuel into the United States. In
conversations with EPA, however, both companies indicated that they had
no current intentions of importing fuel from their Canadian production
facilities into the United States. On September 1, 2010 the government
of Canada finalized regulations requiring all gasoline sold in Canada
to have a renewable content of 5% and all diesel fuel and heating oil
to have a renewable content of 2%. These regulations will further
increase local demand for any cellulosic biofuel produced from these
two facilities and decrease the likelihood of any of this fuel being
exported to the United States. For these reasons we have not included
any cellulosic biofuel production from foreign facilities in our
projections of cellulosic biofuel availability in 2012.
4. Projections From the Energy Information Administration
    Section 211(o)(3)(A) of the Clean Air Act requires EIA to ``* * *
provide to the Administrator of the Environmental Protection Agency an
estimate, with respect to the following calendar year, of the volumes
of transportation fuel, biomass-based diesel, and cellulosic biofuel
projected to be sold or introduced into commerce in the United
States.'' EIA provided these estimates to us on October 19, 2011.\8\
With regard to cellulosic biofuel, the EIA estimated that the available
volume in 2012 would be 6.9 million gallons based on its assessment of
the utilization of production capacity. A summary of the commercial
scale plants they considered and associated production volumes is shown
below in Table II.B.4. In addition to the facilities listed in this
table EIA also projects that three pilot-scale facilities, those owned
by American Process (Alpena, MI), KL Process Design (Upton, WY) and
ZeaChem (Boardman, OR) will produce an additional 0.2 million gallons
of cellulosic biofuel and make it available for sale in the U.S. in
2012.
---------------------------------------------------------------------------

    \8\ Letter from Howard K. Gruenspecht, EIA Acting Administrator,
to Lisa Jackson, EPA Administrator, October 19, 2011.

                      Table II.B.4--Commercial-Scale Cellulosic Biofuel Plants Expected To Generate Cellulosic Biofuel RINs in 2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Nameplate                       Projected
                                                                                capacity        Projected      production
          Year online                    Company                Location                 Product             (million       utilization      (million
                                                                                gallons)           (%)          gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011/12........................  Fiberight, LLC........  Blairstown, IA........  Ethanol................             6.4              25             1.6
2012...........................  INP Bioenergy \a\.....  Vero Beach, FL........  Ethanol................             8.0              25             2.0
2012...........................  KiOR..................  Columbus, MS..........  Liquids................            12.2              25             3.1
                                                                                -----------------------------------------------
    Total......................  ......................  ......................  .......................            26.6             25%             6.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ EPA refers to INEOS New Planet (INP) Bioenergy as INEOS Bio throughout this rule.

    EIA's projections of cellulosic biofuel production in 2012 are very
similar to EPA's projections discussed above and summarized in Section
II.B.6 below. The lists of companies that EIA and EPA expect to
generate cellulosic biofuel RINS in 2012 are the same. There are,
however, several small differences in the volumes of cellulosic biofuel
expected to be produced at some of the production facilities listed.
EPA has slightly higher projections of cellulosic biofuel production
for Fiberight (2 million gallons vs. 1.59 million gallons), INEOS Bio
(3 million gallons vs. 2 million gallons), and American Process Inc.
(0.5 million gallons vs. less than 0.2 million gallons). These slight
variations are a result of different methodologies used by EIA and EPA
to project biofuel production in future years. Both Fiberight and INEOS
Bio are commercial scale facilities that plan to begin production in
2012. As a result, EIA has used a standard utilization factor of 25%
(used for the first year of production for all commercial scale
facilities) along with the nameplate capacity of these facilities to
project their production volumes for 2012. EPA believes it is more
appropriate to consider the timing of the anticipated start up of these
facilities within 2012. Facilities planning to begin production early
in the year should not have the same expected utilization factor as
those planning to begin production near the end of the year. Both
Fiberight and INEOS Bio plan to complete construction and begin the
production of fuel in early 2012, and therefore EPA has projected
production volumes from these facilities that are equivalent to 2012
utilization rates of slightly higher than 25% in comparison to their
full, long-term production potential.
    EIA's projected production volume for American Process Inc. assumes
a utilization factor of 10%, consistent with the factor that EIA uses
for all demonstration scale facilities. While this may be reasonable in
many cases as the purpose of most pilot plants is not to produce fuel
for commercial scale, American Process Inc. has communicated to EPA
that it plans to produce volumes approaching its facility's nameplate
capacity in their first year. While EPA believes this is unlikely due
to the challenges of starting up a facility utilizing a technology that
has not been proven at commercial scale, we believe a volume
corresponding to a utilization rate higher than 10%, but at the low end
of American Process Inc.'s target production range is appropriate.
While the production volumes of the other companies listed in EIA and
EPA's projected available volume tables are not identical, the
differences are small and their impact on the overall volume projection
is negligible.
    There is also a slight variation in the nameplate capacities for
two of the listed facilities, Fiberight and KiOR. This is once again
the result of differing methods for determining the nameplate
capacities used by EIA and EPA. EIA used publically available
information to calculate the nameplate capacities for these two
facilities. The Fiberight plant is a converted corn ethanol facility
that had a production capacity of 25.5 million gallons per year.
Fiberight announced they expected to be able produce cellulosic ethanol
at 25% of the original capacity and these numbers formed the basis for
EIA's nameplate capacity. Similarly for KiOR EIA's nameplate capacity
was based on the number of tons the facility could process per day and
the expected yield. EPA's nameplate capacities, conversely, are based
on conversations with each of these companies. EPA does not believe
these slight differences in nameplate capacities have a significant
impact on the cellulosic biofuel volume projections made by EPA and
EIA.
    While the cellulosic biofuel volume projections for 2012 provided
by EIA are not identical to those being finalized in this rule EPA
believes that they are similar enough to support the volumes we are
finalizing. Where differences exist they are primarily due to EPA's
consideration of facility specific situations rather than use of
uniform utilization factors. As discussed above, EPA believes this is
appropriate, and that wherever possible these facility specific factors
should be taken into account. CAA 211(o)(7)(D) vests the authority for
making the projection with EPA, since it provides that the projection
is ``determined by the Administrator based on the estimate provided [by
EIA].'' If Congress intended that EPA simply adopt EIA's projection
without an independent evaluation, it would not have specified that the
projection is ``determined by the [EPA] Administrator''. Although the
statute provides that our determination must be ``based on the estimate
provided'' by EIA, we believe that our consideration of EIA's estimate
in deriving our own projection as described above satisfies this
statutory requirement.
5. Comments on the Proposed Rule
    EPA received comments on our proposed rule recommending various
methodologies or suggested volumes for the final rule. Several parties
supported our projected volumes and emphasized the importance of
maintaining a consistent policy supporting growth in the cellulosic
biofuel industry. Other comments we received recommended that the
volume we set for cellulosic biofuel be based only on the demonstrated
production rates of facilities that have been in production for at
least three months. EPA believes this approach is inconsistent with the
requirement that the mandated volume of cellulosic biofuel be based on
the projected, not demonstrated, volume for any given year. Using the
approach recommended by the commenters would effectively project no
market growth from the end of 2011 through 2012, and would lead to no
2012 market demand for additional cellulosic biofuel capacity that
comes on line during the course of 2012, hindering industry growth. As
a result, the incentives for the cellulosic biofuels industry to grow,
which are one of the primary purposes

of the RFS program and which are consistent with Executive Order 13563,
would be compromised.
    Several other commenters claimed that cellulosic biofuel technology
was not yet capable of producing the volumes of fuel indicated in our
proposal and that the proposed range of cellulosic biofuels was too
high. Chevron suggested that EPA finalize the lower end of the proposed
range (3.55 million ethanol-equivalent gallons). After reassessing the
state of the cellulosic biofuel industry and tracking the progress
being made towards the production of cellulosic biofuels at commercial
scale facilities, EPA believes the industry is capable of exceeding the
lower end of the range of projected volume from our proposed rule. In
order to provide the appropriate economic conditions for the cellulosic
biofuel industry to grow in accordance with the objectives of the
statute, it is important that these fuels, once produced, have a viable
market. EPA believes that setting the 2012 standard for cellulosic
biofuels at the low end of the proposed range, or some lower volume,
could potentially result in a depressed market for cellulosic biofuel
and would discourage cellulosic biofuel producers from producing
quantities of fuel in 2012 that are actually attainable.
    Alternatively, we also received comments requesting that EPA
finalize the high end of the proposed volume (15.7 ethanol-equivalent
gallons). While this approach would provide a strong incentive for
potential cellulosic biofuel producers to maximize their production of
fuel, EPA does not believe it would be consistent with the requirement
that the volume mandate be based on the projected production volume. As
discussed above, several companies have experienced delays in their
construction plans since the proposed rule has been published, and
others have lowered their production targets or indicated that they no
longer intend to generate RINs for the cellulosic biofuel they produce.
While it is possible that one or more of the companies for whom we have
included volumes in our 2012 projection may produce a greater volume of
fuel than we currently anticipate, EPA does not believe it would be
appropriate to rely on such speculation in setting the applicable
volume of cellulosic biofuel for 2012. We believe that the 2012
cellulosic biofuel applicable volume of 8.65 million gallons (10.45
million ethanol-equivalent gallons) finalized in this rule is a
reasonable projection of the volume of cellulosic biofuel that will be
produced and made available for RFS compliance in 2012. While this
volume is slightly higher than the volume projected by EIA we believe
this is appropriate based on the consideration of company specific
factors such as when in the year the companies anticipate the start of
fuel production and production targets shared with EPA. The difference
in the methodologies used for EIA and EPA's projections is discussed in
further detail in Section II.B.4.
    The Consumers Energy Alliance, in addition to suggesting that the
range of cellulosic biofuel production in our proposed rule was too
high, also requested that EPA perform a cost-benefit analysis to
determine the implications of our proposed standards. The Clean Air Act
clearly states that in the event that the projected volume of
cellulosic biofuel production for the following year is less than the
applicable volume shown in Table II.A-1, EPA is to reduce the
applicable volume of cellulosic biofuel to the projected volume
available during that calendar year. Since the mandated volume for any
given year is to be based solely on the projected volume available for
that year, a cost-benefit analysis is not necessary.
    Two cellulosic biofuel companies, American Process Inc. and
ZeaChem, commented on the volume of cellulosic biofuels they expect to
produce in 2012 and requested that EPA's projections of available
volumes of cellulosic biofuel be adjusted accordingly. After
consideration of these comments and additional information provided by
these two companies EPA agrees that the adjustments they suggested are
appropriate. As a result a volume of 500,000 gallons of cellulosic
ethanol from American Process Inc., a volume representing the lower end
of their production target for 2012, has been included in our projected
available volume. The volume of fuel projected from ZeaChem's facility
has been changed to 50,000 gallons of cellulosic ethanol in 2012 to
more accurately reflect their current expectations for their facility.
    Finally, EPA received several comments from obligated parties
requesting that in any year in which actual annual production of
cellulosic biofuel falls below the applicable volume used to set the
annual standard, that EPA use its waiver authority to waive a volume of
cellulosic biofuel equal to the shortfall in February of the following
year, prior to the February 28 deadline for submission of compliance
demonstration reports by obligated parties. This approach, these
commenters argued, would ensure that their obligations match the number
of cellulosic biofuel RINs that are available in the market. These
comments deal with EPA's general waiver authority under CAA
211(o)(7)(A), and thus are not directly related to the annual standard
setting process or the waiver authority that is specific to cellulosic
biofuel under 211(o)(7)(D). At this time EPA has received no petitions
for a waiver of the 2011 cellulosic biofuel volume under 211(o)(7)(A)
due to inadequate domestic supply, and thus we are not considering at
this time whether and how any portion of the 2011 cellulosic biofuel
applicable volume should be waived.
6. Summary of Volume Projections
    The information EPA has gathered on the potential cellulosic
biofuel producers in 2012, described above, allows us to project
facility-specific volumes of cellulosic biofuel production for 2012.
This information is summarized in Table II.B.6-1 below.

                                           Table II--B.6-1--Cellulosic Biofuel 2012 Projected Available Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                2012
                                                                                Capacity         Earliest        Projected      Ethanol
          Company name                Location            Feedstock             Fuel             (MGY)         production       available    equivalent
                                                                                volume (MG)  gallons (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
American Process Inc...........  Alpena, MI........  Waste Wood........  Ethanol...........          0.9   Early 2012.......          0.5           0.5
Fiberight......................  Blairstown, IA....  MSW...............  Ethanol...........          6     Early 2012.......          2.0           2.0
INEOS Bio \a\..................  Vero Beach, FL....  Ag Residue, MSW...  Ethanol...........          8     May 2012.........          3.0           3.0
KiOR...........................  Columbus, MS......  Pulp Wood.........  Gasoline, Diesel..         10     Mid 2012.........          3.0           4.8
KL Energy......................  Upton, WY.........  Bagasse...........  Ethanol...........          1.5   Online...........          0.1           0.1

ZeaChem........................  Boardman, OR......  Planted Trees.....  Ethanol...........          0.25  Early 2012.......          0.05          0.05
                                                                                ----------------------------------------------
    Total......................  ..................  ..................  ..................  ............  .................          8.65         10.45
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ This facility is listed as INP Bioenergy in EIA's projections.

    While the production volumes in Table II.B.6-1 have some
uncertainty, we believe that a total volume of 8.65 million gallons
(10.45 million ethanol-equivalent gallons) is reasonably attainable. By
basing the 2012 cellulosic biofuel standard on the reasonably
attainable volumes rather than proven production volumes, we aim to
avoid a scenario in which cellulosic biofuel production exceeds the
mandated volume; no mechanism exists for this standard to be raised
should cellulosic biofuel production exceed the 2011 standard. Such a
scenario would result in weak demand for cellulosic biofuels and RINs.
Moreover, the standard that we set determines in large part the volumes
of cellulosic biofuel that will be produced. We believe that the intent
of Congress in establishing steadily increasing applicable volumes of
cellulosic biofuel in the RFS program through EISA was to provide a
reliable market for these fuels and in so doing to spur growth in the
cellulosic biofuels industry. EPA believes the projected available
volume finalized in this rule best reflects these intentions.
    Based on our assessment of the potential production capabilities of
individual companies as described above, EPA is finalizing the
cellulosic biofuel standard for 2012 at 10.45 million ethanol-
equivalent gallons of cellulosic biofuel. This number represents the
volume of RIN-generating cellulosic biofuel that we believe can be made
available for use as transportation fuel, heating oil, or jet fuel in
2012. It incorporates reductions from the annual production capacity of
each facility based on when fuel production can begin and assumptions
regarding a ramp-up period to full production. We believe that a
production volume of 10.45 million ethanol-equivalent gallons is
reasonably attainable despite the uncertainties. Moreover, by setting
the standard for cellulosic biofuel based on the volumes that are
reasonably attainable, we are providing incentives for producers to
overcome uncertainties and greater opportunities for funding based on
an established demand.
    There are also a variety of factors that could lead to production
volumes greater than those listed in Table II.B.6-1 and make up for
potential shortfalls elsewhere. For instance:
     For each of the facilities listed, we are projecting that
their production will be some volume less than the capacity of their
facility. It is possible, however, that these companies could produce a
greater volume of fuel than they are currently anticipating or has been
projected by EPA.
     It is possible that companies that are currently targeting
2013 for commercial production may produce cellulosic biofuel ahead of
schedule and generate RINs in 2012. None of this volume was included in
our projection for 2012.
     A high demand for cellulosic biofuels may be sufficient to
cause companies to import fuel into the United States, even if they
currently have no plans to do so. As described in Section II.B.3 above,
there are several foreign producers that are either producing
cellulosic biofuel now, or could potentially produce some cellulosic
biofuel volume in 2012.
    Finally, we note that if the actual volume of cellulosic biofuel
RINs that are available in 2012 falls short of the 10.45 million gallon
RINs used to derive the 2012 cellulosic biofuel standard, obligated
parties have other recourses:
     Purchase cellulosic biofuel waiver credits from the EPA
(see further discussion in Section V.A)
     Carry over a deficit from 2012 into 2013 according to
Sec.  80.1427(b) under certain conditions

C. Advanced Biofuel and Total Renewable Fuel in 2012

    Under CAA 211(o)(7)(D)(i), EPA has the discretion to reduce the
applicable volumes of advanced biofuel and total renewable fuel in the
event that the projected volume of cellulosic biofuel production is
determined to be below the applicable volume specified in the statute.
As described in Section II.B above, we are indeed projecting the volume
of cellulosic biofuel production for 2012 at significantly below the
statutory applicable volume of 500 million gallons. Because cellulosic
biofuel is used to satisfy the cellulosic biofuel standard, the
advanced biofuel standard, and the total renewable fuel standard, any
reductions in the applicable volume of cellulosic biofuel will also
affect the means through which obligated parties comply with the
advanced biofuel standard and the total renewable fuel standard.
Therefore, we have considered whether and to what degree to lower the
advanced biofuel and total renewable fuel applicable volumes for 2012.
    If the required volume of cellulosic biofuel for a given year is
less than the volume specified in the statute, it is important to
evaluate whether there would be sufficient volume of advanced biofuels
to satisfy the applicable volume of advanced biofuel volume set forth
in the statute. Even with a reduced volume of cellulosic biofuel, other
advanced biofuels, such as biomass-based diesel, sugarcane ethanol, or
other biofuels, may be available in sufficient volumes to make up for
the shortfall in cellulosic biofuel.
    Several commenters stated their belief that the applicable volume
of advanced biofuel should always be lowered concurrently, and to the
same degree, that the applicable volume of cellulosic biofuel is
lowered from the levels set forth in the statute. Since we are
finalizing a cellulosic biofuel applicable volume today that is
approximately 490 million gallons below the 500 mill gal applicable
volume specified in the statute, this approach would lead to a
reduction in the advanced biofuel standard of 490 million gallons as
well, from 2,000 mill gallons to 1,510 mill gallons. However, as
described in the NPRM, we believe that it would not be consistent with
the energy security and greenhouse gas reduction goals of the statute
to reduce the applicable volume of advanced biofuel set forth in the
statute if there are sufficient volumes of advanced biofuels available,
even if those volumes do not include the amount of cellulosic biofuel
that Congress may have desired. Our authority to lower the advanced
biofuel and/or total renewable fuel applicable

volumes is discretionary, and in general we believe that actions to
lower these volumes should only be taken if insufficient volumes of
qualifying biofuel can be made available, based on such circumstances
as insufficient production capacity, insufficient feedstocks, competing
markets, constrained infrastructure, or the like. As discussed below,
we project that sufficient volumes of advanced biofuel can be made
available in 2012 such that the 2.0 bill gallon advanced biofuel
requirement need not be reduced.
    If we were to maintain the advanced biofuel, biomass-based diesel,
and total renewable fuel volume requirements at the levels specified in
the statute, while also lowering the cellulosic biofuel standard to
10.45 million ethanol-equivalent gallons, then 1,510 million gallons of
the 2.0 billion gallon advanced biofuel mandate would be satisfied
automatically through the satisfaction of the cellulosic and biomass
based diesel standards. An additional 490 million ethanol-equivalent
gallons of additional advanced biofuels would be needed. See Table
II.C-1.

 Table II--C-1--Projected Fuel Mix in 2012 Assuming No Change in Advanced Biofuel or Total Renewable Fuel Volume
                                                  Requirements
                                                 [Mill gallons]
----------------------------------------------------------------------------------------------------------------
                                                        Ethanol-equivalent volume          Physical volume
----------------------------------------------------------------------------------------------------------------
Total renewable fuel................................                        15,200                 14,535-14,698
Conventional renewable fuel \a\.....................                        13,200                        13,200
Total advanced biofuel..............................                         2,000                   1,335-1,498
Cellulosic biofuel..................................                         10.45                          8.65
Biomass-based diesel................................                         1,500                         1,000
Other advanced biofuel \b\..........................                           490                   \c\ 326-490
----------------------------------------------------------------------------------------------------------------
\a\ Predominantly corn-starch ethanol.
\b\ Rounded to nearest million gallons for simplicity.
\c\ Physical volume is a range because other advanced biofuel may be ethanol, biodiesel, or some combination of
  the two.

    The most likely sources of additional advanced biofuel would be
imported sugarcane ethanol and additional biomass-based diesel, though
there may also be some volumes of other types of advanced biofuel
available as discussed below. To determine if there are likely to be
sufficient volumes of these biofuels to meet the need for 490 million
gallons of other advanced biofuel, we first examined historical data on
ethanol imports and projections from EIA and USDA for 2012. Brazilian
imports have made up a sizeable portion of total ethanol imported into
the U.S. in the past, and these volumes were predominantly produced
from sugarcane. Ethanol imports averaged about 380 million gallons per
year over the last five years, and reached an all-time high of 730
million gallons in 2006.\9\ However, ethanol imports were significantly
lower in 2010 than in previous years, and continue to be low in the
first half of 2011. This decline in imports may be related to the
cessation of the duty drawback that became effective on October 1,
2008, to changes in world sugar prices, and increases in demand within
Brazil.\10\ Several commenters cited these lower import volumes in the
last two years as evidence that importation of sugarcane ethanol will
be low in 2012 as well.
---------------------------------------------------------------------------

    \9\ ``Monthly U.S. Imports of Fuel Ethanol,'' EIA, released 3/
30/2011.
    \10\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End;
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News,
Issue 45, November 4, 2008.
---------------------------------------------------------------------------

    However, we believe that the broader view of historical data on
sugarcane ethanol imports supports our view that Brazil has significant
export potential under the appropriate economic circumstances. Monthly
ethanol imports in June and July of 2011 were significantly higher than
during any of the previous 16 months, at 3 and 13 million gallons,
respectively.\11\ Moreover, Brazil continues to be second worldwide in
the production of ethanol, producing a total of 6.9 bill gallons in
2009.\12\ By establishing an increased U.S. demand for 490 million
gallons of other advanced biofuel in 2012, we would be enhancing the
export market for Brazilian sugarcane ethanol. This could increase the
percentage of ethanol produced from sugarcane (as opposed to sugar
production), and lead to higher volumes of sugarcane ethanol exported
to the U.S. Insofar as there is insufficient availability of
domestically produced advanced biofuel to meet the need for 490 mill
gallons, the price of advanced biofuel RINs would likely increase,
providing the incentive for Brazil to export more sugarcane ethanol
into the U.S. California's Low Carbon Fuel Standard also went into
effect in 2010, and may result in some refiners importing additional
volumes of sugarcane ethanol from Brazil into California in 2012. These
same volumes would count towards the federal RFS2 program as well.
---------------------------------------------------------------------------

    \11\ Monthly U.S. Imports of Fuel Ethanol, Energy Information
Administration, Release Date 9/29/2011.
    \12\ Portal Brasil, Energy Matrix for Ethanol, http://www.brasil.gov.br/sobre/economy/energy-matrix/ethanol/br_model1?set_language=en.
---------------------------------------------------------------------------

    Projections from other sources also suggest that a large portion of
the 490 million gallons of advanced biofuel needed could be supplied by
imported sugarcane ethanol. For instance, in its Annual Energy Outlook
2011, EIA projects ethanol imports of approximately 300 million gallons
for 2012.\13\ In addition, the university-based Food and Agricultural
Policy Research Institute (FAPRI) released its 2011 U.S. and World
Agricultural Outlook report in which it projects 2012 ethanol imports
of 728 million gallons.\14\ This is a substantial increase compared to
FAPRI's previous projection of 317 mill gallons as cited in our NPRM.
While other sources suggest that total Brazillian exports of sugarcane
ethanol decreased in 2011 and may decrease in 2012, the higher RIN
prices associated with the advanced biofuel mandate would be expected
to create an incentive for a greater proportion of Brazillian exports
to be imported into the U.S. For instance, according to the FAPRI
report, the increase in imports into the U.S. would be concurrent with
reductions in imports into other countries rather than an increase in
exports of sugarcane ethanol from Brazil.
---------------------------------------------------------------------------

    \13\ Table 11 of AEO2011, Report Number DOE/EIA-0383(2011).
http://www.eia.doe.gov/forecasts/aeo/tables_ref.cfm.
    \14\ Table ``Ethanol Trade'', Commodity Outlook/Biofuels, FAPRI-
ISU 2011 World Agricultural Outlook. http://www.fapri.iastate.edu/outlook/2011/.

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

    We also examined the potential for excess biodiesel to help meet
the need for 490 million gallons of advanced biofuel. The applicable
volume of biomass based diesel established in the statute for 2012 is
1.0 billion gallons (which corresponds to 1.5 billion ethanol-
equivalent gallons). As discussed more fully in Section II.D below, we
believe that the biodiesel industry has the potential for producing
volumes above 1.0 billion gallons if demand for such volume exists.
    There are also other potential sources of advanced biofuels. Based
on RIN generation reports collected via the EPA-Moderated Transaction
System (EMTS), 32 million ethanol-equivalent gallons of advanced
biofuel with a D code of 5 were produced in the first half of 2011.\15\
Extrapolated to the end of the year, it would be reasonable to expect a
total of over 60 million ethanol-equivalent gallons of such advanced
biofuel to be produced in 2011. Production Outlook Reports also
provided some insight into producers' expectations for 2012. For 2012,
producers of advanced biofuel projected that they would produce about
80 million ethanol-equivalent gallons, composed of some combination of
ethanol, renewable diesel, and heating oil.
---------------------------------------------------------------------------

    \15\ RFS2 EMTS Informational Data, updated on August 18, 2011.
http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfsdata.htm.
---------------------------------------------------------------------------

    Another potential source of advanced biofuels is electricity
generated from renewable biomass that is used as a transportation fuel.
EIA data indicates that in 2009, the most recent year for which data is
available, 36.05 million megawatt-hours of electricity was generated
from wood and wood derived fuels, and an additional 18.4 million
megawatt-hours was generated from other biomass in the United
States.\16\ This is significantly more than the 6.8 million megawatt-
hours of electricity used in the transportation sector in 2009,\17\
equivalent to about 300 mill ethanol-equivalent gallons. While not all
the feedstocks used to generate the electricity included in these
totals would meet the RFS2's renewable biomass definition, this remains
a very large potential source of advanced biofuel RINs.
---------------------------------------------------------------------------

    \16\ Table ES1 of Electric Power Industry 2009: Year in Review.
Available online: http://www.eia.doe.gov/cneaf/electricity/epa/epayir.pdf.
    \17\ Table 36 of AEO2011, Report Number DOE/EIA-0383(2011).
Number based on the conversion that 1 megawatt hour is equivalent to
3.41 million BTU http://www.eia.doe.gov/forecasts/aeo/tables_ref.cfm.
---------------------------------------------------------------------------

    Currently, there are no valid pathways in Table 1 to Sec.  80.1426
for the generation of RINs representing electricity used as
transportation fuel. However, several companies have approached EPA
with requests for such a pathway, and investigations are underway. It
is possible that one or more new pathways for electricity may be
available for use in 2012.
    In addition to verifying that the feedstocks used to generate
renewable electricity meet the renewable biomass definition, producers
would also be required to document that the electricity they produce is
used as a transportation fuel in order to be eligible to generate RINs.
Until recently there were very few vehicles capable of using
electricity as a transportation fuel, limited mainly to electric trains
and trolley cars. Expected increases in the number of vehicles with
this capability, such as electric vehicles and plug in hybrids, has the
potential to dramatically increase the degree to which electricity is
able to be used as a transportation fuel. Verifying that the renewable
electricity produced is used as a transportation fuel would still
remain a challenge, however the potential for capitalizing on the RIN
value, without the necessity of making major changes in the areas of
fuel production, distribution, or end use, may be a large enough
incentive to overcome this challenge. While the uncertainties
associated with the generation of advanced biofuel RINs representing
renewable electricity used as transportation fuel prevent EPA from
making a quantitative projection for 2012, such RINs may nevertheless
play a role in meeting the advanced biofuel standard.
    In light of the potential volumes of imported sugarcane ethanol,
excess biodiesel, and other sources of advanced biofuel, we continue to
believe that there will likely be sufficient volumes of advanced
biofuels to meet the need for 490 million ethanol-equivalent gallons.
As a result, the applicable volume of advanced biofuel set forth in the
statute need not be lowered. A number of commenters on the NPRM agreed
with this assessment. However, several commenters raised a concern
about the ethanol blendwall, saying that the volume of ethanol that can
be legally and practically consumed in 2012 is a limiting factor in how
much advanced biofuel can be consumed. We disagree. Based on gasoline
energy demand projections from EIA,\18\ a total of about 14.3 bill
gallons of ethanol could be consumed in 2012 if all gasoline contained
10% ethanol.\19\ Under the requirements of the RFS program, however,
the total volume of ethanol that would need to be consumed to meet the
RFS standards would be no more than 13.7 bill gallons in 2012.\20\ This
assumes an extreme case in which all renewable fuel that is not
advanced biofuel is assumed to be ethanol, and all advanced biofuel
other than biomass-based diesel is also assumed to be ethanol.
---------------------------------------------------------------------------

    \18\ Total energy demand for light-duty vehicles, motorcycles,
and nonroad per AEO 2011 Tables 10, 45, and 46.
    \19\ In reality, there may be some areas where gasoline without
ethanol endures, but there will also be some E85 and potentially
other gasoline-ethanol blends as well. We have used a scenario
consisting of 100% E10 for this exercise.
    \20\ From Table II.C-1, sum of ethanol-equivalent gallons of
conventional renewable fuel, cellulosic biofuel, and other advanced
biofuel.
---------------------------------------------------------------------------

    It is possible that more ethanol may be produced/imported in 2012
than is necessary to meet the RFS requirements, and such circumstances
could accelerate the arrival of the blendwall. However, this would only
occur if market forces favored the consumption of higher volumes of
ethanol, and we cannot make reliable predictions of such market forces.
Since the applicable standards are set before a given compliance year
begins, obligated parties should be coordinating with producers,
distributors, and blenders of the various forms of ethanol (e.g.
cellulosic ethanol, corn-ethanol, sugarcane ethanol) to ensure that all
RFS standards are met by the end of the compliance period.
    Based on our assessment of the availability of volumes of advanced
biofuel beyond those required to meet the cellulosic biofuel and
biomass-based diesel standards, we do not believe that the advanced
biofuel standard need be lowered below the 2.0 billion gallon level
specified in the Act. Thus, we are not reducing the applicable volume
of advanced biofuel for 2012.
    A number of parties that commented on the NPRM requested that the
applicable volume for total renewable fuel in 2012 be reduced. However,
all such commenters tied the reduction in total renewable fuel to a
reduction in the advanced biofuel standard. Since we are not lowering
the advanced biofuel standard for 2012, and there are expected to be
sufficient volumes of corn-ethanol to meet the need for 13.2 bill
gallons of conventional renewable fuel (see Table II.C-1), we do not
believe that there is a need to lower the total renewable fuel
standard.

D. Biomass-Based Diesel in 2012

    Unlike for cellulosic biofuel, the statute does not require EPA to
project available volumes of biomass-based

diesel for years up through 2012 and to base the standard on the
projected available volume. Instead, the standard for 2012 is to be
based on the statutory applicable volume of 1.0 bill gallons. However,
the statute does include waiver provisions that allow for lowering the
applicable volume of biomass-based diesel under certain circumstances.
Moreover, as described more fully in Section II.C above, we must
determine whether the required volumes of advanced biofuel and/or total
renewable fuel should be reduced if we reduce the required volume of
cellulosic biofuel. Since biomass-based diesel is also an advanced
biofuel, the amount of biomass-based diesel that is consumed in 2012
directly affects our consideration of adjustments to the volumetric
requirements for advanced biofuel and total renewable fuel. We
therefore investigated whether the applicable volume of 1.0 bill
gallons for biomass-based diesel is achievable in 2012, and whether
additional volumes are also feasible.
    We examined recent production rates, production capacity of the
industry, and projections for future production from a variety of
sources. Although there are several different fuel types that can
qualify as biomass-based diesel, biodiesel is by far the predominant
type. Thus, our assessment focused primarily on biodiesel, though we
also investigated potential volumes of renewable diesel.
    According to information from the EPA-Moderated Transaction System
(EMTS) and RIN generation reports submitted to EPA from producers, we
estimate that the volume of biomass-based diesel produced in 2010 was
about 380 mill gallons.\21\ A number of commenters pointed to this low
volume as an indication that the volume requirements of 800 mill
gallons in 2011 and 1.0 bill gallons in 2012 are not achievable.
However, many of the activities of the biodiesel industry in 2010 were
due to unique circumstances that may not apply in 2012. It is likely
that a contributing factor to the lower production volumes in 2010 was
the expiration of the biodiesel tax credit at the end of 2009 and its
absence throughout 2010, and the fact that the RFS program effectively
created a demand for about 345 mill gallons in 2010.\22\ A more
comprehensive view of historical biodiesel production levels strongly
indicates that the U.S. biodiesel industry has produced higher volumes
when demand for it existed, and that as a result the industry has the
capability to produce greater volumes than it did in 2010 under the
appropriate circumstances. This point is illustrated in Figure II.D-1
below.
---------------------------------------------------------------------------

    \21\ Consists of approximately 209 mill gallons as recorded
through EMTS for volume produced under the RFS2 regulations in July
through December, and approximately 171 mill gallons as recorded
through RIN generation reports submitted by producers for volume
produced under the RFS1 regulations in January through June.
    \22\ See question 6.7 in EPA's ``Questions and Answers on
Changes to the Renewable Fuel Standard Program (RFS2)'', http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-aq.htm#6.
[GRAPHIC] [TIFF OMITTED] TR09JA12.000

    The biodiesel industry's production potential supports the view
that it can more than satisfy the applicable volume of biomass based
diesel specified in the statute for 2012. As of August, 2011, the
aggregate production capacity of biodiesel plants in the U.S. was
estimated at 2.4 billion gallons per year across 148 facilities.\23\ We
expect the time and reinvestment required to ramp up production at
existing facilities to be less than the time required to build and
begin production at new plants, which takes about a year on
average.\24\ Thus, restarting idled plants will not be a hindrance to
meeting the applicable volumes for biomass-based diesel in 2011 or
2012. A higher mandate for biomass-based diesel will increase demand
for biodiesel with associated increases in RIN prices. This in turn

will create the incentive for biodiesel producers to put idled capacity
into production.
---------------------------------------------------------------------------

    \23\ Figures taken from National Biodiesel Board's Member Plant
List as of August 22, 2011. Some plants did not report production
capacity. http://biodiesel.org/buyingbiodiesel/plants/showall.aspx.
    \24\ Based on construction times for new plants listed in
Biodiesel Magazine from July 2006 through May 2009.
---------------------------------------------------------------------------

    Additionally, information from the U.S. Census Bureau indicates
that monthly production volumes of biodiesel have increased steadily in
the first half of 2011, reaching about 78 mill gallons by July.\25\ See
Figure II.D-2.
---------------------------------------------------------------------------

    \25\ U.S. Census Bureau, Fats and Oils, Production, Consumption,
and Stocks, Survey M311K. http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html. Assumes 7.68 lb/gal conversion.
[GRAPHIC] [TIFF OMITTED] TR09JA12.001

Over the seven months shown in this figure, biodiesel production
increased by an average of about 16% each month. This trend
demonstrates that the industry is responding to the higher demand
created by the 800 mill gal biomass-based diesel volume requirement
under the RFS program in 2011. Biodiesel production will only need to
increase at a more modest rate of about 3% each month after July in
order for the total 2011 production volume to reach 800 mill gallons.
Moreover, further increases in monthly production volumes would not be
necessary after December 2011 for the industry to reach a total
production volume of 1.0 bill gallons in 2012. We believe, therefore,
that the 1.0 bill gallon requirement for biomass-based diesel in 2012
can be met. Moreover, given the increases in monthly production volumes
that occurred in the first half of 2011 and the significant amount of
underutilized production capacity that exists within the biodiesel
industry, there is also reason to believe that monthly production
volumes will increases after July 2011 at a rate that is more than
needed to meet the statutory biomass-based diesel volume requirements,
providing additional volumes that can be used to meet the advanced
biofuel standard.
    Projections from other sources provide additional support to our
conclusions that 1.0 bill gal biomass-based diesel can be produced in
2012. For instance, the U.S. Department of Agriculture projects that
over 400 mill gallons of biodiesel will be produced from soybean oil in
2012, and adds that ``Although some other first-use vegetable oils are
also used to produce biodiesel, most of the remaining biodiesel
production needed to reach the 1-billion-gallon mandate of the 2007
Energy Act uses animal fats or recycled vegetable oil as the
feedstock.'' \26\ This projection is further supported by the
Agricultural Marketing Resource Center at Iowa State University, which
projects that soy-oil biodiesel production may reach as high as 470
mill gallons and that non-soy biodiesel may reach as high as 460 mill
gallons.\27\ Both of these sources project more growth in non-soy oil
feedstock volumes than soy oil. Finally, EIA projects that the total
volume of biodiesel in 2012 would be about 830 mill gallons.\28\ While
all of these projections suggest that volumes of biodiesel may fall
short of 1.0 bill gallons, they do not take into account the increase
in monthly production volumes as noted above, nor sources of renewable
diesel that will also be available. For instance, Dynamic Fuels has
constructed one plant in Geismar, Louisiana that started production of
renewable diesel in November, 2010.\29\ In the final RFS2 rule, we
projected that

annual renewable diesel production could reach 150 mill gallons based
on feedstock availability. Renewable diesel can also be produced at
existing refineries with little modification to processing
equipment.\30\ Thus, we currently believe that the total production
volume of biomass-based diesel can readily reach 1.0 bill gal in 2012.
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    \26\ USDA Agricultural Projections to 2020, Long-Term
Projections Report OCE-2011-1, February 2011. See Table 24. Assumes
7.68 lb/gal.
    \27\ Soybean Oil and Biodiesel Usage Projections and Balance
Sheet, updated 2/18/2011. A version made available on 8/1/2011 shows
similar volumes of soybean oil for biodiesel use, but does not
provide information about non-soy oil sources of biodiesel. http://www.extension.iastate.edu/agdm/crops/outlook/soybeanbalancesheet.pdf. Values cited are for the ``High'' case.
    \28\ Short-Term Energy Outlook, August 2011. Table 8.
    \29\ Project status updates are available via the Syntroleum Web
site, http://dynamicfuelsllc.com/wp-news/.
    \30\ For such a product to qualify for biomass-based diesel,
however, it cannot be co-processed with petroleum feedstock. This
might limit its potential for refinery-based production of
qualifying product.
---------------------------------------------------------------------------

    We also reviewed information submitted by registered producers of
biomass-based diesel under the requirements of Sec.  80.1449 for
Production Outlook Reports. Of the 65 facilities that submitted a
report, the total projected 2012 volume of biomass-based diesel was 937
mill gallons. We believe that this projection is indicative of the
industry's expectation that the applicable volume requirement for 2012
will be 1.0 bill gallons and its intention to meet that requirement.
Moreover, the projection provided in these reports likely
underestimates the actual expectations and capabilities of the
industry, since the number of facilities that submitted a report is far
less than the total number of facilities capable of producing biodiesel
and renewable diesel.
    In additional to production capacity and projections of 2012
production volume, we also investigated feedstocks used to produce
biomass-based diesel. We believe that there will be sufficient sources
of qualifying renewable biomass to more than meet the needs of the
biodiesel industry in 2012. The largest sources of feedstock for
biodiesel in 2012 are expected to be soy oil, canola oil, rendered
fats, and corn oil extracted during production of fuel ethanol. In
response to the NPRM, the National Biodiesel Board (NBB) cited
historically high soybean production rates for 2011 as evidence that
there will be ample volumes of soybean oil available for biodiesel
production. Likewise, the Renewable Energy Group (REG) provided
information on significant increases in the availability of inedible
corn oil from ethanol producers that it believes will occur in the next
1-2 years.
    While commenters did not provide any information suggesting that
the applicable volume of 1.0 bill gallons cannot be reached, some
raised concerns about impacts on other industries and feedstock price.
For instance, the American Trucking Association (ATA) stated that
feedstocks will need to be diverted from other uses in order to meet
the 1.0 bill gallon requirement, and the American Cleaning Institute
(ACI) provided information about how such a diversion could affect the
oleochemical industry. We address concerns about price in more detail
below in our discussion of ATA's request for a waiver of the 2012
applicable volume of 1.0 bill gallons.
    While we agree that the total volume of animal fats is largely
inelastic and is unlikely to grow significantly due to the presence of
the increasing market for biomass-based diesel, we also agree with the
statement from ACI that ``there is nothing in EISA or the proposed rule
that limits the amount of animal fats that can be used to meet the
mandate.'' Under the statutory definition of renewable biomass, valid
feedstocks include animal waste material and animal byproducts. We
believe that animal fats fall into these categories, and as a result we
do not have the authority to exclude or limit volumes of animal fats
that are used for production of biomass-based diesel. Such wastes could
potentially be considered ``biogenic waste oils/fats/greases'' or
``non-cellulosic portions of separated food waste'' under the RIN-
generating pathways listed in Table 1 to Sec.  80.1426, and could thus
be eligible for the production of RIN-generating biofuel.
    In response to the NPRM, we received comments both in support of
and opposed to our proposal to maintain the statute's applicable volume
of 1.0 bill gallons for biomass-based diesel in 2012. In general,
producers of biodiesel and crop-based feedstocks were supportive,
citing the sufficiency of available feedstocks and production capacity.
Several supporters indicated that historically low biodiesel production
volumes are not an appropriate reference point on which to base the
capabilities of the industry for the future, since the higher biomass-
based diesel mandates established by Congress for 2011 and 2012 are
expected to drive production volumes more than any other factor.
    Parties opposed to maintaining the statutory applicable volume of
1.0 bill gallons for 2012 were primarily obligated parties, as well as
representatives of diesel trucking companies and the oleochemical
industry. To a large degree, these commenters pointed to historical
biodiesel production levels in support of their belief that 1.0 bill
gallons in 2012 is not achievable. As described above, we do not agree
with this conclusion.
    One party opposed to maintaining the 1.0 bill gal requirement for
2012 also raised concerns about infrastructure. We acknowledge that the
required expansion of the biodiesel handling capacity at terminals will
represent a challenge to industry. However, as discussed in the NPRM,
we continue to believe that there will be sufficient biomass-based
diesel distribution infrastructure in place to support the use of 1.0
bill gal biodiesel in 2012. For instance, NBB stated in their comments
that in most markets, terminals can treat 5% biodiesel blends as a
fungible commodity like diesel fuel and that they believe that many
terminals may be storing B5 blends. To the extent terminals store a
finished B5 blend, it would obviate the need for much of the segregated
biodiesel storage and blending capability that is assumed in our
infrastructure analysis. The Iowa Biodiesel Board stated that claims
that industry cannot accommodate the distribution of the target gallons
are baseless and cited various examples of recent biodiesel blending
initiatives at Iowa terminals.
    Industry activities are currently progressing to ramp up biodiesel
consumption from the approximately 380 mill gallons estimated to be
used in the U.S. in 2010 to the volumes that will be needed in 2011 to
meet the biomass-based diesel volume requirement. For example, Kinder
Morgan and the Renewable Energy Group opened a substantial biodiesel
distribution facility to serve the Chicago area in December of
2010.\31\ Magellan also recently announced that it plans to complete
its biodiesel blending facility in Sioux Falls Minnesota in 2011.\32\
In June of this year, Sunoco Logistics and Sprague Energy opened a new
terminal facility to supply biodiesel blended transportation fuel and
heating fuel to New Jersey.\33\ These new terminal facilities employ
segregated biodiesel storage and blending capability. Just as there has
been considerable biodiesel production capacity idled due to lack of
demand which will be brought back on line as biodiesel volumes ramp up,
we believe that there may also be substantial idled biodiesel
distribution assets that could be brought back into service. It seems
reasonable to assume that at least some of the distribution assets used
previously to deliver biodiesel

manufactured at now idled production plants would still be available.
---------------------------------------------------------------------------

    \31\ Biodiesel Magazine, November 17, 2010. http://www.biodieselmagazine.com/articles/4568/chicago-area-terminal-soon-to-offer-biodiesel.
    \32\ Report to the Legislature, Annual Report on Biodiesel,
Minnesota Department of Agriculture, January 15, 2011. http://
www.mda.state.mn.us/en/news/government/~/media/Files/news/
govrelations/legrpt-biodiesel2011.ashx.
    \33\ http://www.tankterminals.com/news_detail.php?id=1284.
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    Of the parties that requested a reduction in the applicable volume
of 1.0 bill gallons for 2012, the American Trucking Association (ATA)
and Chevron explicitly invoked the waiver mechanism provided at
211(o)(7)(E). The full text of this statutory provision is shown below:

    (E) BIOMASS-BASED DIESEL.--
    (i) MARKET EVALUATION.--The Administrator, in consultation with
the Secretary of Energy and the Secretary of Agriculture, shall
periodically evaluate the impact of the biomass-based diesel
requirements established under this paragraph on the price of diesel
fuel.
    (ii) WAIVER.--If the Administrator determines that there is a
significant renewable feedstock disruption or other market
circumstances that would make the price of biomass-based diesel fuel
increase significantly, the Administrator, in consultation with the
Secretary of Energy and the Secretary of Agriculture, shall issue an
order to reduce, for up to a 60-day period, the quantity of biomass-
based diesel required under subparagraph (A) by an appropriate
quantity that does not exceed 15 percent of the applicable annual
requirement for biomass-based diesel. For any calendar year in which
the Administrator makes a reduction under this subparagraph, 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.
    (iii) EXTENSIONS.--If the Administrator determines that the
feedstock disruption or circumstances described in clause (ii) is
continuing beyond the 60-day period prescribed in clause (ii) or
this clause, the Administrator, in consultation with the Secretary
of Energy and the Secretary of Agriculture, may issue an order to
reduce, for up to an additional 60-day period, the quantity of
biomass-based diesel required under subparagraph (A) by an
appropriate quantity that does not exceed an additional 15 percent
of the applicable annual requirement for biomass-based diesel.

    The waiver authority provided in paragraph 211(o)(7)(E)(ii) is
based on an EPA determination that there ``is'' a feedstock disruption
or other market circumstance that would make the price of biomass-based
diesel rise significantly. The authority to extend a temporary waiver
in paragraph (iii) is based on an EPA determination that such
disruption or circumstance ``is continuing.'' Thus, we believe that any
waiver of the 2012 biomass-based diesel requirements under this
statutory provision must be based on an evaluation of feedstock
conditions or other circumstances that exist currently and ``would
make'' the price of biomass based diesel rise significantly in 2012. If
Congress had intended that we project future market circumstances that
might lead to significant prices increases, it could have used ``will
be'' in place of ``is'' in paragraph 211(o)(7)(E)(ii). Thus, we believe
that any waiver of the biomass-based diesel requirements for 2012 must
be based on a current evaluation of the market, rather than a projected
one.
    We do not believe that the information provided by Chevron and ATA
warrants a waiver of the 2012 biomass-based diesel volume at this time.
While ATA provided some information on the relative price of biodiesel
and conventional diesel, it did not demonstrate how this price
difference represented a price increase as required under the statute.
Also, they did not cite any particular renewable feedstock disruption
or other market circumstance to demonstrate how the difference in price
between conventional diesel fuel and biomass-based diesel meets the
statutory criterion for a significant increase in the price of biomass-
based diesel.
    Both Chevron and ATA cite an expected expiration of the biodiesel
tax credit at the end of 2011 as a reason that prices will increase
significantly. EPA has not determined whether the expiration of a tax
credit should be considered a ``market circumstance'' within the
meaning of CAA 211(o)(7)(E)(ii), and is making no determination
regarding that matter at this time. Whether or not such a development
would be a ``market circumstance,'' it is clear that it is not an
existing circumstance, and conjecture that the tax credit may not be
continued in the future does not provide an appropriate basis for a
waiver under 211(o)(7)(E)(ii). Apart from possible consideration under
the statutory waiver provisions, however, we note that the applicable
volumes set by Congress must be met regardless of the status of Federal
or state tax credits, subsidies, incentives, and the like.
    One commenter requested a cost-benefit analysis in the context of
determining the appropriate volume for biomass-based diesel in 2012.
Under the statute, we are to set the percentage standard for biomass-
based diesel for 2012 based on the applicable volume of 1.0 bill
gallons specifically set forth in the statute in CAA 211(o)(2)(B)(IV).
While the statute does provide limited mechanisms for waiving all or a
portion of any annual biomass-based diesel standard in 2012 under CAA
211(o)(7), the statute does not require a cost-benefit analysis either
in setting a standard based on the statutory applicable volume or in
considering whether or not to issue a waiver. For instance, under
211(o)(7)(A), waivers can be granted based on an EPA finding of severe
harm to the economy or environment of a state, region, or the United
States, or inadequate domestic supply. Under 211(o)(7)(E) waivers can