[Federal Register Volume 83, Number 132 (Tuesday, July 10, 2018)]
[Proposed Rules]
[Pages 32024-32060]
[FR Doc No: 2018-14448]

Vol. 83

Tuesday,

No. 132

July 10, 2018

Part III

 Environmental Protection Agency

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40 CFR Part 80

 Renewable Fuel Standard Program: Standards for 2019 and Biomass-Based
Diesel Volume for 2020; Proposed Rule

Federal Register / Vol. 83 , No. 132 / Tuesday, July 10, 2018 /
Proposed Rules

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2018-0167; FRL-9980-37-OAR]
RIN 2060-AT93

Renewable Fuel Standard Program: Standards for 2019 and Biomass-
Based Diesel Volume for 2020

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: Under section 211 of the Clean Air Act, the Environmental
Protection Agency (EPA) is required to set renewable fuel percentage
standards every year. This action proposes the annual percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel that apply to gasoline and diesel
transportation fuel produced or imported in the year 2019. Relying on
statutory waiver authority that is available when the projected
cellulosic biofuel production volume is less than the applicable volume
specified in the statute, EPA is proposing volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel that are
below the statutory volume targets. We are also proposing the
applicable volume of biomass-based diesel for 2020.

DATES:
    Comments. Comments must be received on or before August 17, 2018.
    Public Hearing. EPA will announce the public hearing date and
location for this proposal in a supplemental Federal Register document.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2018-0167, at http://www.regulations.gov. Follow the online
instructions for submitting comments. Once submitted, comments cannot
be edited or removed from Regulations.gov. The EPA may publish any
comment received to its public docket. Do not submit electronically any
information you consider to be Confidential Business Information (CBI)
or other information whose disclosure is restricted by statute.
Multimedia submissions (audio, video, etc.) must be accompanied by a
written comment. The written comment is considered the official comment
and should include discussion of all points you wish to make. The EPA
will generally not consider comments or comment contents located
outside of the primary submission (i.e., on the web, cloud, or other
file sharing system). For additional submission methods, the full EPA
public comment policy, information about CBI or multimedia submissions,
and general guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.

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

SUPPLEMENTARY INFORMATION: Entities potentially affected by this
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, biodiesel, renewable diesel, and
biogas. Potentially affected categories include:

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

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

Outline of This Preamble

I. Executive Summary
    A. Summary of Major Provisions in This Action
    1. Approach to Setting Volume Requirements
    2. Cellulosic Biofuel
    3. Advanced Biofuel
    4. Total Renewable Fuel
    5. 2020 Biomass-Based Diesel
    6. Annual Percentage Standards
    B. RIN Market Operations
    C. EPA Response to Court Decision in Americans for Clean Energy
v. EPA
II. Authority and Need for Waiver of Statutory Applicable Volumes
    A. Statutory Authorities for Reducing Volume Targets
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    B. Treatment of Carryover RINs
    1. Carryover RIN Bank Size
    2. EPA's Proposed Decision Regarding the Treatment of Carryover
RINs
III. Cellulosic Biofuel Volume for 2019
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Cellulosic Biofuel Volume for 2019
    1. Liquid Cellulosic Biofuel
    2. CNG/LNG Derived From Biogas
    3. Total Cellulosic Biofuel in 2019
IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019
    A. Volumetric Limitation on Use of the Cellulosic Waiver
Authority
    B. Attainable Volumes of Advanced Biofuel
    1. Imported Sugarcane Ethanol
    2. Other Advanced Biofuel
    3. Biodiesel and Renewable Diesel
    C. Proposed Volume Requirement for Advanced Biofuel
    D. Proposed Volume Requirement for Total Renewable Fuel
V. Impacts of 2019 Volumes on Costs
    A. Illustrative Costs Analysis of Exercising the Cellulosic
Waiver Authority

Compared to the 2019 Statutory Volumes Baseline
    B. Illustrative Costs Analysis of Exercising the Cellulosic
Waiver Authority Compared to the 2018 RFS Volumes Baseline
VI. Biomass-Based Diesel Volume for 2020
    A. Statutory Requirements
    B. Determination of the 2020 Applicable Volume of Biomass-Based
Diesel
    C. Consideration of Statutory Factors Set Forth in CAA Section
211(o)(2)(B)(ii)(I)-(VI) for 2020
VII. Percentage Standards for 2019
    A. Calculation of Percentage Standards
    B. Small Refineries and Small Refiners
    C. Proposed Standards
VIII. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the Agency?
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Executive Order 13771: Reducing Regulations and Controlling
Regulatory Costs
    C. Paperwork Reduction Act (PRA)
    D. Regulatory Flexibility Act (RFA)
    E. Unfunded Mandates Reform Act (UMRA)
    F. Executive Order 13132: Federalism
    G. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    H. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    I. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
    J. National Technology Transfer and Advancement Act (NTTAA)
    K. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
X. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) that were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), leading to the
publication of major revisions to the regulatory requirements on March
26, 2010.\1\ EISA's stated goals include moving the United States (U.S)
toward ``greater energy independence and security [and] increase[ing]
the production of clean renewable fuels.'' \2\
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    \1\ 75 FR 14670, March 26, 2010.
    \2\ Public Law 110-140, 121 Stat. 1492 (2007). Hereinafter,
``EISA.''
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    The statute includes annual volume targets, and requires EPA to
translate those volume targets (or alternative volume requirements
established by EPA in accordance with statutory waiver authorities)
into compliance obligations that obligated parties must meet every
year. In this action we are proposing the applicable volumes for
cellulosic biofuel, advanced biofuel, and total renewable fuel for
2019, and biomass-based diesel (BBD) for 2020.\3\ We are also proposing
the annual percentage standards (also known as ``percent standards'')
for cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel
that would apply to all gasoline and diesel produced or imported in
2019.\4\
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    \3\ The 2019 BBD volume requirement was established in the 2018
final rule.
    \4\ For a list of the statutory provisions for the determination
of applicable volumes, see the 2018 final rule (82 FR 58486; Table
I.A-2).
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    Today, nearly all gasoline used for transportation purposes
contains 10 percent ethanol (E10), and on average diesel fuel contains
nearly 5 percent biodiesel and/or renewable diesel.\5\ However, the
market has fallen well short of the statutory volumes for cellulosic
biofuel, resulting in shortfalls in the advanced biofuel and total
renewable fuel volumes. In this action, we are proposing a volume
requirement for cellulosic biofuel at the level we project to be
available for 2019, along with an associated applicable percentage
standard. For advanced biofuel and total renewable fuel, we are
proposing reductions under the ``cellulosic waiver authority'' that
would result in advanced biofuel and total renewable fuel volume
requirements that are lower than the statutory targets by the same
magnitude as the reduction in the cellulosic biofuel reduction. This
would effectively maintain the implied statutory volumes for non-
cellulosic advanced biofuel and conventional biofuel.\6\
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    \5\ Average biodiesel and/or renewable diesel blend percentages
based on EIA's April 2018 Short Term Energy Outlook (STEO).
    \6\ The statutory total renewable fuel, advanced biofuel and
cellulosic biofuel requirements for 2019 are 28.0, 13.0 and 8.5
billion gallons respectively. This implies a conventional renewable
fuel applicable volume (the difference between the total renewable
fuel and advanced biofuel volumes, which can be satisfied by with
conventional (D6) RINs) of 15.0 billion gallons, and a non-
cellulosic advanced biofuel applicable volume (the difference
between the advanced biofuel and cellulosic biofuel volumes, which
can be satisfied with advanced (D5) RINs) of 4.5 billion gallons.
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    The resulting proposed volume requirements for 2019 are shown in
Table I-1 below. Relative to the levels finalized for 2018, the 2019
volume requirements for advanced biofuel and total renewable fuel would
be higher by 590 million gallons. Approximately 90 million gallons of
this increase would be due to the increase in the projected production
of cellulosic biofuel in 2019 relative to 2018. We are also proposing
to establish the volume requirement for BBD for 2020 at 2.43 billion
gallons. This volume is 330 million gallons higher than the volume for
2019.

                                   Table I-1--Proposed Volume Requirements \a\
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                                                                       2019
                                                     2018 \b\        Statutory    2019  Proposed  2020  Proposed
                                                                      volumes         volumes         volumes
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Cellulosic biofuel (million gallons)............             288           8,500             381             n/a
Biomass-based diesel (billion gallons)..........             2.1           >=1.0         \c\ 2.1            2.43
Advanced biofuel (billion gallons)..............            4.29           13.00            4.88             n/a
Renewable fuel (billion gallons)................           19.29           28.00           19.88             n/a
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\a\ All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.
\b\ The 2018 volume requirements for cellulosic biofuel, advanced biofuel, and renewable fuel were established
  in the 2018 final rule (82 FR 58486, December 12, 2017). The 2018 BBD volume requirement was established in
  the 2017 final rule (81 FR 89746, December 12, 2016).
\c\ The 2019 BBD volume requirement was established in the 2018 final rule (82 FR 58486, December 12, 2017).

A. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this final
rule. We are proposing applicable volume requirements and associated
percentage standards for cellulosic biofuel, advanced biofuel, and
total renewable fuel for 2019; for BBD we are proposing the percentage
standard for 2019 and the applicable volume requirement for 2020.
1. Approach to Setting Volume Requirements
    For advanced biofuel and total renewable fuel, we are proposing
reductions based on the ``cellulosic waiver authority'' that would
result in advanced biofuel and total renewable fuel volume requirements
that are lower than the statutory targets by the same magnitude as the
reduction in the cellulosic biofuel applicable volume. This follows the
same general approach as in the 2018 final rule. The proposed volumes
for cellulosic biofuel, advanced biofuel, and total renewable fuel
exceed the required volumes for these fuel types in 2018.
    Section II provides a general description of our approach to
setting volume requirements in today's rule, including a review of the
statutory waiver authorities and our consideration of carryover RINs.
Section III provides our assessment of the 2019 cellulosic biofuel
volume, based on a projection of production that reflects a neutral aim
at accuracy. Section IV describes our assessment of advanced biofuel
and total renewable fuel. Finally, Section VI provides our proposal
regarding the 2020 BBD volume requirement, reflecting a proposed
analysis of a set of factors stipulated in CAA section
211(o)(2)(B)(ii).
2. Cellulosic Biofuel
    EPA must annually determine the projected volume of cellulosic
biofuel production for the following year. If the projected volume of
cellulosic biofuel production is less than the applicable volume
specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must
lower the applicable volume used to set the annual cellulosic biofuel
percentage standard to the projected production volume. In this rule we
are proposing a cellulosic biofuel volume requirement of 381 million
ethanol-equivalent gallons for 2019 based on our production projection.
Our projection reflects consideration of RIN generation data for past
years and 2018 to date that is available to EPA through EMTS; the
information we have received regarding individual facilities'
capacities, production start dates, and biofuel production plans; a
review of cellulosic biofuel production relative to EPA's projections
in previous annual rules; and EPA's own engineering judgment. To
project cellulosic biofuel production for 2019 we used the same basic
methodology described in the 2018 final rule. However, we have used
updated data to derive percentile values used in our production
projection for liquid cellulosic biofuels and to derive the year-over-
year change in the rate of production of CNG/LNG derived from biogas
that is used in the projection for CNG/LNG. EPA anticipates that our
final projection of cellulosic biofuel will be based on additional data
we will obtain prior to issuing the final rule, including an estimate
of cellulosic biofuel production for 2019 to be provided by the Energy
Information Administration (EIA).
3. Advanced Biofuel
    If we reduce the applicable volume of cellulosic biofuel below the
volume specified in CAA section 211(o)(2)(B)(i)(III), we also have the
authority to reduce the applicable volumes of advanced biofuel and
total renewable fuel by the same or a lesser amount. We refer to this
as the ``cellulosic waiver authority.'' The conditions that caused us
to reduce the 2018 volume requirement for advanced biofuel below the
statutory target remain relevant in 2019. As for 2018, we investigated
the projected availability of non-cellulosic advanced biofuels in 2019.
We took into account the various constraints on the ability of the
market to make advanced biofuels available, the ability of the
standards we set to bring about market changes in the time available,
the potential impacts associated with diverting biofuels and/or biofuel
feedstocks from current uses to the production of advanced biofuel used
in the U.S., the fact that the biodiesel tax credit is currently not
available for 2019, the tariffs on imports of biodiesel from Argentina
and Indonesia, as well as the cost of advanced biofuels. Based on these
considerations we are proposing to reduce the statutory volume target
for advanced biofuel by the same amount as we are reducing the
statutory volume target for cellulosic biofuel. This would result in an
advanced biofuel volume for 2019 of 4.88 billion gallons, which would
be 590 million gallons higher than the advanced biofuel volume for
2018.
4. Total Renewable Fuel
    As for advanced biofuel, we are proposing the maximum reduction
permissible under the cellulosic waiver authority. We are proposing
that the reduction in total renewable fuel would be the same as the
reduction in advanced biofuel, such that the resulting implied volume
requirement for conventional renewable fuel would be 15 billion
gallons.
5. 2020 Biomass-Based Diesel
    In EISA, Congress specified increasing applicable volumes of BBD
through 2012. Beyond 2012 Congress stipulated that EPA, in coordination
with DOE and USDA, was to establish the BBD volume taking into
consideration implementation of the program to date and various
specified factors, provided that the required volume for BBD could not
be less than 1.0 billion gallons. For 2013, EPA established an
applicable volume of 1.28 billion gallons. For 2014 and 2015 we
established the BBD volume requirement to reflect the actual volume for
each of these years of 1.63 and 1.73 billion gallons.\7\ For 2016 and
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons
respectively. Finally, for 2018 and 2019 the BBD volume requirement was
set a 2.1 billion gallons. We are proposing to increase the BBD volume
for 2020 to 2.43 billion gallons.
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    \7\ The 2015 BBD standard was based on actual data for the first
9 months of 2015 and on projections for the latter part of the year
for which data on actual use was not available at the time.
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    Given current and recent market conditions, the advanced biofuel
volume requirement is driving the production and use of biodiesel and
renewable diesel volumes over and above volumes required through the
separate BBD standard, and we expect this to continue. While EPA
continues to believe it is appropriate to maintain the opportunity for
other advanced biofuels to compete for market share, the vast majority
of the advanced biofuel obligations in recent years have been satisfied
with BBD. Thus, after a review of the implementation of the program to
date and considering the statutory factors, and in light of the 500
million gallon increase we are proposing for non-cellulosic advanced
biofuels, we are proposing, in coordination with USDA and DOE, an
applicable volume of BBD for 2020 of 2.43 billion gallons.\8\
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    \8\ The proposed 330 million gallon increase for BBD would
generate approximately 500 million RINs, due to the higher
equivalence value of biodiesel (1.5 RINs/gallon) and renewable
diesel (generally 1.7 RINs/gallon).

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6. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage
and are used by each refiner and importer of fossil-based gasoline or
diesel to determine their renewable fuel volume obligations.
    Four separate percentage standards are required under the RFS
program, corresponding to the four separate renewable fuel categories
shown in Table I.A-1. The specific formulas we use in calculating the
renewable fuel percentage standards are contained in the regulations at
40 CFR 80.1405. The percentage standards represent the ratio of the
national applicable volume of renewable fuel volume to the national
projected non-renewable gasoline and diesel volume less any gasoline
and diesel attributable to small refineries granted an exemption prior
to the date that the standards are set. The volume of transportation
gasoline and diesel used to calculate the proposed percentage standards
was based on the April 2018 version of EIA's Short-Term Energy
Outlook.\9\ The proposed percentage standards for 2019 are shown in
Table I.B.6-1. Detailed calculations can be found in Section VII,
including the projected gasoline and diesel volumes used.
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    \9\ The final percentage standards will be based on the most
recent gasoline and diesel projected volumes provided by EIA.

            Table I.B.6-1--Proposed 2019 Percentage Standards
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                                                             Proposed
                                                            percentage
                                                             standards
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Cellulosic biofuel......................................           0.209
Biomass-based diesel....................................            1.72
Advanced biofuel........................................            2.67
Renewable fuel..........................................           10.88
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B. RIN Market Operations

    In the rulemaking notice proposing the 2018 RFS volume
requirements, EPA noted that various stakeholders had raised concerns
regarding lack of transparency and potential manipulation in the RIN
market. We asked for comment from the public on those issues, and
received multiple suggestions from stakeholders in response. Commenters
suggested a number of potential steps EPA could take, including
increasing the public availability of data related to the RIN market;
establishing new regulations relating to the purchase, ownership, and
retirement of RINs; and increasing coordination with sister federal
agencies. Since receiving those comments, we have held additional
meetings with stakeholders on these topics, through which we have
continued to hear various perspectives on RIN market operations and
potential changes.
    A number of the comments received in response to the 2018 NPRM
suggested increasing the amount of data related to the RIN market that
EPA makes publicly available. For example, commenters urged EPA to
consider increasing the frequency at which currently available
information is posted. EPA is currently exploring the possibility of
posting regular updates to the number of RINs we anticipate will be
required for compliance. These updates could take into account several
factors, such as updated information on gasoline and diesel consumption
throughout the year, the impact of small refinery exemptions, and the
volume of renewable fuel exported from the United States for which RINs
were generated, and would thus need to be retired. EPA is also
considering publicly posting average RIN prices based on the price
information submitted to EPA through EMTS. Other information that may
be of interest to the public could be aggregated information related to
the number of RINs held by different categories of entities, such as
renewable fuel producers, obligated parties, and parties that neither
produce renewable fuel nor have an RVO under the RFS program. Finally,
we are considering whether there may be value in increasing the
frequency of the release of data that is already posted publicly, such
as information related to RIN generation by D-code and fuel type.
    Stakeholders have also suggested ways EPA could amend the RFS
regulations to change rules related to who may purchase RINs, the
duration for which RINs could be held, and other rules related to the
buying, selling, or holding of RINs. The goal of such changes would be
to minimize or eliminate potential manipulation in the market. EPA is
currently considering a handful of ideas, including: Prohibiting
parties other than obligated parties from purchasing separated RINS;
requiring public disclosure if a party holds a certain percentage of
the RIN market; and/or requiring obligated parties to retire RINs for
compliance purposes on a more frequent basis (e.g., requiring monthly
compliance). EPA requests comment on the expected impact that these
specific potential regulatory changes could have on the RIN market,
positively or negatively, as well as on any other potential regulatory
changes commenters may recommend to address perceived vulnerabilities
in the RIN market. Today's action is not proposing to make any such
regulatory changes. Should EPA decide to move forward on any of these
ideas, we would do so through a separate proposed rulemaking. That
rulemaking would be informed by comments received in response to
today's notice.
    Finally, we note that multiple stakeholders have encouraged
cooperation and coordination between EPA and other federal agencies
that may play an oversight role in the RFS or broader fuels market,
including the Commodity Futures Trading Commission and the Federal
Trade Commission. EPA has engaged with both agencies on an ongoing
basis and will continue to do so.

C. EPA Response to Court Decision in Americans for Clean Energy v. EPA

    In the annual rule establishing the 2014-2016 renewable fuel
standards, we determined that there would be an ``inadequate domestic
supply'' of renewable fuel to consumers in 2016, and so exercised the
general waiver authority to reduce the applicable volume of total
renewable fuel to a level we believed could be supplied.\10\ In
response to a petition for review of the 2014-2016 rule, the United
States Court of Appeals for the District of Columbia Circuit ruled that
EPA improperly focused on assessing the supply of renewable fuel to
consumers, and that the statute instead requires a ``supply-side''
assessment of the volumes of renewable fuel that can be supplied to
refiners, importers and blenders. The court vacated EPA's decision to
reduce the total renewable fuel volume requirements for 2016 using
general waiver authority, and remanded the rule to EPA for further
consideration in light of the decision. Americans for Clean Energy
(``ACE'') v. EPA, 864 F.3d 691 (2017).
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    \10\ See 80 FR 77420 (December 14, 2015).
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    EPA is currently considering a number of issues raised by the need
to respond to the court's remand in a separate process from this annual
rulemaking. EPA is not requesting comment on this rulemaking process at
this time and any comments on this issue will be treated as outside of
the scope of this rulemaking. EPA understands that there is a
compelling need to respond to the remand and intends to expeditiously
move ahead with a separate rule to resolve this matter.

II. Authority and Need for Waiver of Statutory Applicable Volumes

    The CAA provides EPA with the authority to enact volume
requirements below the applicable volume targets specified in the
statute under specific circumstances. This section discusses those
authorities. As described in the executive summary, we are proposing a
single volume requirement for cellulosic biofuel at the level we
project to be available for 2019, and an associated applicable
percentage standard. For advanced biofuel and total renewable fuel, we
are proposing volume requirements and associated applicable percent
standards, based on use of the ``cellulosic waiver authority'' that
would result in advanced biofuel and total renewable fuel volume
requirements that are lower than the statutory targets by the same
magnitude as the reduction in the cellulosic biofuel reduction. This
would effectively maintain the implied statutory volumes for non-
cellulosic advanced biofuel and conventional biofuel.\11\
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    \11\ The statutory total renewable fuel, advanced biofuel and
cellulosic biofuel requirements for 2019 are 28.0, 13.0, and 8.5
billion gallons, respectively. This implies a conventional renewable
fuel applicable volume (the difference between the total renewable
fuel and advanced biofuel volumes, which can be satisfied by with
conventional (D6) RINs) and a non-cellulosic advanced biofuel
applicable volume (the difference between the advanced biofuel and
cellulosic biofuel volumes, which can be satisfied with advanced
(D5) RINs) of 15.0 and 4.5 billion gallons, respectively.
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A. Statutory Authorities for Reducing Volume Targets

    In CAA section 211(o)(2), Congress specified increasing annual
volume targets for total renewable fuel, advanced biofuel, and
cellulosic biofuel for each year through 2022, and for BBD through
2012, and authorized EPA to set volume requirements for subsequent
years in coordination with USDA and DOE, and after consideration of
specified factors. However, Congress also recognized that under certain
circumstances it would be appropriate for EPA to set volume
requirements at a lower level than reflected in the statutory volume
targets, and thus provided waiver provisions in CAA section 211(o)(7).
1. Cellulosic Waiver Authority
    Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines
that the projected volume of cellulosic biofuel production for a given
year is less than the applicable volume specified in the statute, then
EPA must reduce the applicable volume of cellulosic biofuel required to
the projected production volume for that calendar year. In making this
projection, EPA may not ``adopt a methodology in which the risk of
overestimation is set deliberately to outweigh the risk of
underestimation'' but must make a projection that ``takes neutral aim
at accuracy.'' API v. EPA, 706 F.3d 474, 479, 476 (D.C. Cir. 2013).
Pursuant to this provision, EPA has set the cellulosic biofuel
requirement lower than the statutory volume for each year since 2010.
As described in Section III.D, the projected volume of cellulosic
biofuel production for 2019 is less than the 8.5 billion gallon volume
target in the statute. Therefore, for 2019, we are proposing to set the
cellulosic biofuel volume requirement at a level lower than the
statutory applicable volume, in accordance with this provision.
    CAA section 211(o)(7)(D)(i) also provides EPA with the authority to
reduce the applicable volume of total renewable fuel and advanced
biofuel in years when it reduces the applicable volume of cellulosic
biofuel under that provision. The reduction must be less than or equal
to the reduction in cellulosic biofuel. For 2019, we are also proposing
to reduce the applicable volumes of advanced biofuel and total
renewable fuel under this authority.
    EPA has used the cellulosic waiver authority to lower the
cellulosic biofuel, advanced biofuel and total renewable fuel volumes
every year since 2014. Further discussion of the cellulosic waiver
authority, and EPA's interpretation of it, can be found in the preamble
to the 2017 final rule.\12\ See also API v. EPA, 706 F.3d 474 (D.C.
Cir. 2013) (requiring that EPA's cellulosic biofuel projections reflect
a neutral aim at accuracy); Monroe Energy v. EPA, 750 F.3d 909 (D.C.
Cir. 2014) (affirming EPA's broad discretion under the cellulosic
waiver authority to reduce volumes of advanced biofuel and total
renewable fuel); Americans for Clean Energy v. EPA (``ACE''), 864 F.3d
691 (D.C. Cir. 2017) (discussed below).
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    \12\ See 81 FR 89752-89753 (December 12, 2016).
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    In ACE, the court evaluated EPA's use of the cellulosic waiver
authority in the 2014-2016 annual rulemaking to reduce the advanced
biofuel and total renewable fuel volumes for 2014, 2015, and 2016.
There, EPA used the cellulosic waiver authority to reduce the advanced
biofuel volume to a level that was reasonably attainable, and then
provided a comparable reduction under this authority for total
renewable fuel.\13\ The Court of Appeals for the District of Columbia,
relying on the analysis in Monroe Energy, reaffirmed that EPA enjoys
``broad discretion'' under the cellulosic waiver authority ``to
consider a variety of factors--including demand-side constraints in the
advanced biofuels market.'' \14\ The Court noted that the only textual
limitation on the use of the cellulosic waiver authority is that it
cannot exceed the amount of the reduction in cellulosic biofuel.\15\
The Court contrasted the general waiver authority under CAA section
211(o)(7)(A) and the biomass based diesel waiver authority under CAA
section 211(o)(7)(E), which ``detail the considerations and procedural
steps that EPA must take before waiving fuel requirements,'' with the
cellulosic waiver authority, which identifies no factors regarding
reductions in advanced and total renewable fuel other than the
limitation that any such reductions may not exceed the reduction in
cellulosic biofuel volumes.\16\ The Court also concluded that the scope
of EPA's discretionary authority to reduce advanced and total volumes
is the same under the cellulosic waiver provision whether EPA is
declining to exercise its authority to waive volumes, or choosing to do
so.\17\
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    \13\ See 80 FR 77433-34 (December 14, 2015).
    \14\ ACE, 864 F.3d at 730.
    \15\ Id. at 733.
    \16\ Id.
    \17\ Id. at 734.
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    In this action we are proposing to use the cellulosic waiver
authority to reduce the statutory volume targets for advanced biofuels
and total renewable fuel by equal amounts, consistent with our long-
held interpretation of this provision and our approach in setting the
2014-2018 standards. This approach considers the Congressional
objectives reflected in the volume tables in the statute, and the
environmental objectives that generally favor the use of advanced
biofuels over non-advanced biofuels. See 81 FR 89752-89753 (December
12, 2016). See also 78 FR 49809-49810 (August 15, 2013); 80 FR 77434
(December 14, 2015). We are proposing, as described in Section IV, that
the applicable volume for advanced biofuels specified in the statute
for 2019 is not attainable, and thus to exercise our cellulosic waiver
authority to lower the applicable volume of advanced biofuel by the
same quantity as the reduction in cellulosic biofuel, and to provide an
equal reduction under the cellulosic waiver authority in the applicable
volume of total renewable fuel. The volumes of advanced and total
renewable fuel resulting from this exercise of the cellulosic waiver
authority provide for an implied volume allowance for conventional
biofuel of fifteen billion gallons, equal to the implied statutory
volume for 2019.

2. General Waiver Authority
    Section 211(o)(7)(A) of the CAA provides that EPA, in consultation
with the Secretary of Agriculture and the Secretary of Energy, may
waive the applicable volumes specified in the Act in whole or in part
based on a petition by one or more States, by any person subject to the
requirements of the Act, or by the EPA Administrator on his own motion.
Such a waiver must be based on a determination by the Administrator,
after public notice and opportunity for comment that: (1)
Implementation of the requirement would severely harm the economy or
the environment of a State, a region, or the United States; or (2)
there is an inadequate domestic supply. At this time, we do not believe
that the circumstances exist that would justify a waiver of volumes
under the general waiver authority.
    As discussed further in Section IV.C below, EPA is soliciting
comment on whether further reductions under the general waiver
authority could be justified.

B. Treatment of Carryover RINs

    Consistent with our approach in the final rules establishing the
RFS standards for 2013 through 2018, we have also considered the
availability and role of carryover RINs in evaluating whether we should
exercise our discretion to use our waiver authorities in setting the
cellulosic, advanced, and total volume requirements for 2019. Neither
the statute nor EPA regulations specify how or whether EPA should
consider the availability of carryover RINs in exercising the
cellulosic waiver authority.\18\ As noted in the context of the rules
establishing the RFS standards for 2014 through 2018, we believe that a
bank of carryover RINs is extremely important in providing obligated
parties compliance flexibility in the face of substantial uncertainties
in the transportation fuel marketplace, and in providing a liquid and
well-functioning RIN market upon which success of the entire program
depends.\19\ Carryover RINs provide flexibility in the face of a
variety of circumstances that could limit the availability of RINs,
including weather-related damage to renewable fuel feedstocks and other
circumstances potentially affecting the production and distribution of
renewable fuel.\20\ On the other hand, carryover RINs can be used for
compliance purposes, and in the context of the 2013 RFS rulemaking we
noted that an abundance of carryover RINs available in that year,
together with possible increases in renewable fuel production and
import, justified maintaining the advanced and total renewable fuel
volume requirements for that year at the levels specified in the
statute.\21\ EPA's approach to the consideration of carryover RINs in
exercising our cellulosic waiver authority was affirmed in Monroe
Energy and ACE.\22\
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    \18\ CAA section 211(o)(5) requires that EPA establish a credit
program as part of its RFS regulations, and that the credits be
valid to show compliance for 12 months as of the date of generation.
EPA implemented this requirement though the use of RINs, which can
be used to demonstrate compliance for the year in which they are
generated or the subsequent compliance year. Obligated parties can
obtain more RINs than they need in a given compliance year, allowing
them to ``carry over'' these excess RINs for use in the subsequent
compliance year, although use of these carryover RINs is limited to
20 percent of the obligated party's RVO. For the bank of carryover
RINs to be preserved from one year to the next, individual carryover
RINs are used for compliance before they expire and are essentially
replaced with newer vintage RINs that are then held for use in the
next year. For example, if the volume of the collective carryover
RIN bank is to remain unchanged from 2017 to 2018, then all of the
vintage 2017 carryover RINs must be used for compliance in 2018, or
they will expire. However, the same volume of 2018 RINs can then be
``banked'' for use in 2019.
    \19\ See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55
(December 12, 2016), and 82 FR 58493-95 (December 12, 2017).
    \20\ See 72 FR 23900 (May 1, 2007), 80 FR 77482-87 (December 14,
2015), 81 FR 89754-55 (December 12, 2016), and 82 FR 58493-95
(December 12, 2017).
    \21\ See 79 FR 49793-95 (August 15, 2013).
    \22\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE at
713.
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    An adequate RIN bank serves to make the RIN market liquid. Just as
the economy as a whole functions best when individuals and businesses
prudently plan for unforeseen events by maintaining inventories and
reserve money accounts, we believe that the RFS program functions best
when sufficient carryover RINs are held in reserve for potential use by
the RIN holders themselves, or for possible sale to others that may not
have established their own carryover RIN reserves. Were there to be no
RINs in reserve, then even minor disruptions causing shortfalls in
renewable fuel production or distribution, or higher than expected
transportation fuel demand (requiring greater volumes of renewable fuel
to comply with the percentage standards that apply to all volumes of
transportation fuel, including the unexpected volumes) could lead to
the need for a new waiver of the standards, undermining the market
certainty so critical to the RFS program. Moreover, a significant
drawdown of the carryover RIN bank leading to a scarcity of RINs may
stop the market from functioning in an efficient manner (i.e., one in
which there are a sufficient number of reasonably available RINs for
obligated parties seeking to purchase them), even where the market
overall could satisfy the standards. For all of these reasons, the
collective carryover RIN bank provides a needed programmatic buffer
that both facilitates individual compliance and provides for smooth
overall functioning of the program.\23\
---------------------------------------------------------------------------

    \23\ Here we use the term ``buffer'' as shorthand reference to
all of the benefits that are provided by a sufficient bank of
carryover RINs.
---------------------------------------------------------------------------

1. Carryover RIN Bank Size
    At the time of the 2018 standards final rule, we estimated that
there were approximately 2.22 billion total carryover RINs available
and decided that carryover RINs should not be counted on to avoid or
minimize the need to reduce the 2018 statutory volume targets.\24\ We
also stated that we may or may not take a similar approach in future
years, and that we would evaluate the issue on a case-by-case basis
considering the facts in future years. Since that time, obligated
parties have submitted their compliance demonstrations for the 2017
compliance year and we now estimate that there are currently
approximately 3.06 billion total carryover RINs available, an increase
of 840 million RINs from the previous estimate of 2.22 billion total
carryover RINs in the 2018 final rule.\25\ This increase in the total
carryover RIN bank compared to that projected in the 2018 final rule
results from various factors, including market factors, regulatory and
enforcement actions, and judicial proceedings. They include the
approximately 1,460 million RINs that were not required to be retired
by small refineries that were granted hardship exemptions for 2017 and
approximately 790 million RINs that were not required to be retired by
small refineries that were granted hardship exemptions for 2016, along
with the RINs that Philadelphia Energy Solutions Refining and
Marketing, LLC (``PESRM'') was not required to retire as part of its
bankruptcy settlement agreement.\26\

While EPA cannot predict how obligated parties will comply in 2018 or
the amount of additional small refinery hardship exemptions that may be
granted in the future, the 2016 and 2017 exemptions have directly
increased the number of carryover RINs that will likely be available
for compliance with the 2019 standards. This total volume of carryover
RINs is approximately 15 percent of the total renewable fuel volume
requirement that EPA is proposing for 2019, which is less than the 20
percent maximum limit permitted by the regulations to be carried over
for use in complying with the 2019 standards.\27\
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    \24\ See 82 FR 58494 (December 12, 2017).
    \25\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2019 NPRM,'' available in the
docket.
    \26\ Per PESRM's bankruptcy filings, PESRM had an RVO of 467
million RINs for 2017 (including its deficit carryforward from
2016). Pursuant to the settlement agreement, which was based on the
unique facts and circumstances present in this case, including the
insolvency and risk of liquidation, PESRM agreed to retire 138
million RINs to meet its 2017 RVO and the portion of its 2018 RVO
during the bankruptcy proceedings (approximately 97 million RINs).
See docket for PES Holdings, LLC, 1:18bk10122, ECF Document Nos. 244
(proposed settlement agreement), 347 (United States' motion to
approve proposed settlement agreement), and 376 (order approving
proposed settlement agreement), (Bankr. D. Del.).
    \27\ See 40 CFR 80.1427(a)(5).
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    The above discussion applies to total carryover RINs; we have also
considered the available volume of advanced biofuel carryover RINs. At
the time of the 2018 final rule, we estimated that there were
approximately 810 million advanced carryover RINs available.\28\ Since
that time, obligated parties have submitted their compliance
demonstrations for the 2017 compliance year and we now estimate that
there are currently approximately 640 million advanced carryover RINs
available, a decrease of 170 million RINs from the previous estimate in
the 2018 final rule.\29\ This volume of advanced carryover RINs is
approximately 14 percent of the advanced renewable fuel volume
requirement that EPA is proposing for 2019, which is less than the 20
percent maximum limit permitted by the regulations to be carried over
for use in complying with the 2019 standards.\30\
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    \28\ See ``Carryover RIN Bank Calculations for 2018 Final
Rule,'' Docket Item No. EPA-HQ-OAR-2017-0091-4989.
    \29\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2019 NPRM,'' available in the
docket.
    \30\ See 40 CFR 80.1427(a)(5).
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    However, there remains considerable uncertainty surrounding these
estimates for a number of reasons, including the potential impact of
any future action to address the remand in ACE, the possibility of
additional small refinery exemptions, and the impact of 2018 RFS
compliance on the bank of carryover RINs. In addition, we note that
there have been enforcement actions in past years that have resulted in
the retirement of carryover RINs to make up for the generation and use
of invalid RINs and/or the failure to retire RINs for exported
renewable fuel. Future enforcement actions could have similar results,
and require that obligated parties and/or renewable fuel exporters
settle past enforcement-related obligations in addition to the annual
standards, thereby potentially creating demand for RINs greater than
can be accommodated through actual renewable fuel blending in 2019. In
light of these uncertainties, the net result could be a bank of total
carryover RINs larger or smaller than 15 percent of the proposed 2019
total renewable fuel volume requirement, and a bank of advanced
carryover RINs larger or smaller than 14 percent of the proposed 2019
advanced biofuel volume requirement.
2. EPA's Proposed Decision Regarding the Treatment of Carryover RINs
    We have evaluated the volume of carryover RINs currently available
and considered whether it would justify a reduced use of our cellulosic
waiver authority in setting the 2019 volume requirements in order to
intentionally draw down the carryover RIN bank. For the reasons
described above and in Section IV, we do not believe this to be the
case. The current bank of carryover RINs provides an important and
necessary programmatic buffer that will both facilitate individual
compliance and provide for smooth overall functioning of the program.
We believe that a balanced consideration of the possible role of
carryover RINs in achieving the statutory volume objectives for
advanced and total renewable fuels, versus maintaining an adequate bank
of carryover RINs for important programmatic functions, is appropriate
when EPA exercises its discretion under the cellulosic waiver
authority, and that the statute does not specify the extent to which
EPA should require a drawdown in the bank of carryover RINs when it
exercises this authority. Therefore, for the reasons noted above and
consistent with the approach we took in the final rules establishing
the RFS standards for 2014 through 2018, we are not proposing to set
the 2019 volume requirements at levels that would envision an
intentional drawdown in the bank of carryover RINs.

III. Cellulosic Biofuel Volume for 2019

    In the past several years, production of cellulosic biofuel has
continued to increase. Cellulosic biofuel production reached record
levels in 2017, driven largely by CNG and LNG derived from biogas.
Production volumes have continued to increase in 2018.\31\ Production
of liquid cellulosic biofuel has also increased in recent years, even
as the total production of liquid cellulosic biofuels remains much
smaller than the production volumes of CNG and LNG derived from biogas.
This section describes our assessment of the volume of cellulosic
biofuel that we project will be produced or imported into the U.S. in
2018, and some of the uncertainties associated with those volumes.
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    \31\ The majority of the cellulosic RINs generated for CNG/LNG
are sourced from biogas from landfills; however, the biogas may come
from a variety of sources including municipal wastewater treatment
facility digesters, agricultural digesters, separated MSW digesters,
and the cellulosic components of biomass processed in other waste
digesters.

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[GRAPHIC] [TIFF OMITTED] TP10JY18.002

    In order to project the volume of cellulosic biofuel production in
2019, we considered the accuracy of the methodologies used to project
cellulosic biofuel production in previous years, data reported to EPA
through EMTS, and information we collected through meetings with
representatives of facilities that have produced or have the potential
to produce qualifying volumes of cellulosic biofuel for consumption as
transportation fuel, heating oil, or jet fuel in the U.S. in 2019. Our
projection of cellulosic biofuel in the final rule will also reflect
Energy Information Administration's (EIA) projection of cellulosic
biofuel production, comments received on the 2019 NPRM, and updated
data on cellulosic biofuel production in 2018 and projections for 2019.
    There are two main elements to the cellulosic biofuel production
projection. To project the range of potential production volumes of
liquid cellulosic biofuel we used the same methodology as the
methodology used in the 2018 final rule. However, we have adjusted the
percentile values used to select a point estimate within a projected
production range for each group of companies based on updated
information (through the end of 2017) with the objective of improving
the accuracy of the projections. To project the production of
cellulosic biofuel RINs for CNG/LNG derived from biogas we use the same
year-over-year growth rate methodology as in the 2018 final rule. This
methodology reflects the mature status of this industry, the large
number of facilities registered to generate cellulosic biofuel RINs
from these fuels, and EPA's continued attempts to refine its
methodology to yield estimates that are as accurate as possible. This
methodology is an improvement on the methodology that EPA used to
project cellulosic biofuel production for CNG/LNG derived from biogas
in the 2017 and previous years. The methodologies used to project the
production of liquid cellulosic biofuels and cellulosic CNG/LNG derived
from biogas are described in more detail in Sections III.C-1 and III.C-
2 below.
    After a brief description of the statutory requirements in Section
III.A, we discuss the companies the EPA reviewed in the process of
projecting qualifying cellulosic biofuel production in the U.S. in 2018
in Section III.B. Section III.C discusses the methodologies used by EPA
to project cellulosic biofuel production in 2019 and the resulting
projection of 381 million ethanol-equivalent gallons.

A. Statutory Requirements

    CAA section 211(o)(2)(B)(i)(III) states the statutory volume
targets for cellulosic biofuel. The volume of cellulosic biofuel
specified in the statute for 2019 is 8.5 billion gallons. The statute
provides that if EPA determines, based on a letter provided to the EPA
by EIA, that the projected volume of cellulosic biofuel production in a
given year is less than the statutory volume, then EPA shall reduce the
applicable volume of cellulosic biofuel to the projected volume
available during that calendar year.\32\
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    \32\ CAA section 211(o)(7)(D)(i). The U.S. Court of Appeals for
the District of Columbia Circuit evaluated this requirement in API
v. EPA, 706 F.3d 474, 479-480 (D.C. Cir. 2013), in the context of a
challenge to the 2012 cellulosic biofuel standard. The Court stated
that in projecting potentially available volumes of cellulosic
biofuel EPA must apply an ``outcome-neutral methodology'' aimed at
providing a prediction of ``what will actually happen.'' Id. at 480,
479.
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    In addition, if EPA reduces the required volume of cellulosic
biofuel below the level specified in the statute, we may reduce the
applicable volumes of advanced biofuels and total renewable fuel by the
same or a lesser volume,\33\ and we are also required to make
cellulosic waiver credits available.\34\ Our consideration of the 2019
volume requirements for advanced biofuel and total renewable fuel is
presented in Section IV.
---------------------------------------------------------------------------

    \33\ CAA section 211(o)(7)(D)(i).
    \34\ See CAA section 211(o)(7)(D)(ii); 40 CFR 80.1456.
---------------------------------------------------------------------------

B. Cellulosic Biofuel Industry Assessment

    In order to project liquid cellulosic biofuel production for 2019
we have tracked the progress of a number of potential cellulosic
biofuel production facilities, located both in the U.S. and in foreign
countries. As we have done in previous years, we have focused on
facilities with the potential to produce commercial-scale volumes of
cellulosic biofuel rather than small research and development (R&D) or
pilot-scale facilities. Larger commercial-scale facilities are much
more likely to

generate RINs for the fuel they produce and the volumes they produce
will have a far greater impact on the cellulosic biofuel standard for
2019. The volume of cellulosic biofuel produced from R&D and pilot-
scale facilities is small in relation to that expected from the
commercial-scale facilities. R&D and demonstration-scale facilities
have also generally not generated RINs for the fuel they have produced
in the past. Their focus is on developing and demonstrating the
technology, not producing commercial volumes. RIN generation from R&D
and pilot-scale facilities in previous years has not contributed
significantly to the overall number of cellulosic RINs generated.\35\
We have therefore not considered production from R&D and pilot-scale
facilities in our projection of cellulosic biofuel production for 2019.
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    \35\ While a few small R&D and pilot scale facilities have
registered as cellulosic RIN generators, total production from each
of these facilities from 2011 through March 2018 has been less than
150,000 RINs. This is approximately 0.6 percent of all liquid
cellulosic biofuel production through March 2018. See ``D3 RIN
generation by Company Through March 2018--CBI.''
---------------------------------------------------------------------------

    From this list of commercial-scale facilities capable of producing
liquid cellulosic biofuel, we used information from EMTS, the
registration status of potential biofuel production facilities as
cellulosic biofuel producers in the RFS program, publicly available
information (including press releases and news reports), and
information provided by representatives of potential cellulosic biofuel
producers, to make a determination of which facilities are most likely
to produce liquid cellulosic biofuel and generate cellulosic biofuel
RINs in 2019. Each of these companies was investigated further in order
to determine the current status of its facilities and its likely
cellulosic biofuel production and RIN generation volumes for 2019. Both
in our discussions with representatives of individual companies and as
part of our internal evaluation process we gathered and analyzed
information including, but not limited to, the funding status of these
facilities, current status of the production technologies, anticipated
construction and production ramp-up periods, facility registration
status, and annual fuel production and RIN generation targets.
    As an initial matter, it is useful to review the accuracy of EPA's
past cellulosic biofuel projections. EPA used a consistent methodology
to project cellulosic biofuel production in the final three months of
2015 and all of 2016 and 2017.\36\ The record of actual production
indicates that EPA's projection was lower than the actual number of
cellulosic RINs made available in 2015,\37\ and higher than the actual
number of RINs made available in 2016 and 2017.\38\ The fact that the
projections made using this methodology have been somewhat inaccurate,
under-estimating the actual number of RINs made available in 2015 and
over-estimating in 2016 and 2017, reflects the inherent difficulty with
projecting cellulosic biofuel production. It also emphasizes the
importance of continuing to make refinements to our projection
methodology in order to make our projections more accurate.
---------------------------------------------------------------------------

    \36\ This methodology is most recently described in the 2017
final rule. See 81 FR 89746, 89755 (December 12, 2016).
    \37\ EPA only projected cellulosic biofuel production for the
final three months of 2015, since data on the availability of
cellulosic biofuel RINs (D3+D7) for the first nine months of the
year were available at the time the analyses were completed for the
final rule.
    \38\ EPA projected that 123 million, 230 million cellulosic, and
311 million RINs would be generated in 2015, 2016, and 2017
respectively. The number of available cellulosic RINs in these years
(RINs generated minus RINs retired for non-compliance reasons) was
140 million, 190 million, and 250 million RINs. All numbers are
derived from EMTS data.
---------------------------------------------------------------------------

    EPA's projections of liquid cellulosic biofuel were higher than the
actual volume of liquid cellulosic biofuel produced in 2015-2017. As a
result of these over-projections, and in an effort to take into account
the most recent data available and make the liquid cellulosic biofuel
projections more accurate, EPA adjusted our methodology in the 2018
final rule.\39\ In this 2019 proposed rule we are once again using
adjusted percentile values to project liquid cellulosic biofuel
production based on actual liquid cellulosic biofuel production in 2016
and 2017. Use of this updated data also results in different percentile
values than we used to project production of liquid cellulosic biofuel
for 2018. We believe that the use of the methodology (described in
Section III.C.1 below), with the adjusted percentile values used to
project production volumes for liquid cellulosic biofuels, results in a
projection that reflects a neutral aim at accuracy since it accounts
for expected growth in the near future by using historical data that is
free of any subjective bias. At this time, we do not have sufficient
data to assess the accuracy of this methodology to project cellulosic
biofuel production for 2018, however we anticipate that for the final
rule we will assess the accuracy of this methodology in projecting
liquid cellulosic biofuel in 2018 and will make adjustments where
appropriate.
---------------------------------------------------------------------------

    \39\ 82 FR 58486 (December 12, 2017).
---------------------------------------------------------------------------

    We next turn to the projection of CNG/LNG derived from biogas. For
2018, EPA used for the first time an industry-wide approach, rather
than an approach that projects volumes for individual companies or
facilities, to project the production of CNG/LNG derived from biogas.
This updated approach reflects the fact that this industry is far more
mature than the liquid cellulosic biofuel industry, and that there are
a large number of facilities registered to generate cellulosic biofuel
RINs from biogas, rendering a facility-by-facility analysis difficult
and unnecessary for purposes of accuracy. As described in Section
III.C.2 below, EPA is again proposing to project production of CNG/LNG
derived from biogas by calculating a year-over-year rate of growth in
the renewable CNG/LNG industry by comparing RIN generation for CNG/LNG
derived from biogas from April 2016-March 2017 to the RIN generation
for these same fuels from April 2017-March 2018 (the most recent month
for which data are available). We then apply this year-over-year growth
rate to the total number of cellulosic RINs available for compliance
from CNG/LNG in 2017 (the most recent year for which complete data are
available), to estimate the production of CNG/LNG derived from biogas
in 2019.
    The remainder of this section describes in more detail the
methodology EPA is using to project cellulosic biofuel production in
2019 (including a review of cellulosic biofuel production and the
accuracy of the projection methodology in previous years).
1. Potential Domestic Producers
    There are several companies and facilities \40\ located in the U.S.
that have either already begun producing cellulosic biofuel for use as
transportation fuel, heating oil, or jet fuel at a commercial scale, or
are anticipated to be in a position to do so at some time during 2019.
The financial incentive provided by cellulosic biofuel RINs,\41\
combined with the fact that to date nearly all cellulosic biofuel

produced in the U.S. has been used domestically \42\ and all the
domestic facilities we have contacted in deriving our projections
intend to produce fuel on a commercial scale for domestic consumption
and plan to use approved pathways, gives us a high degree of confidence
that cellulosic biofuel RINs will be generated for any fuel produced by
domestic commercial scale facilities. In order to generate RINs, each
of these facilities must be registered with EPA under the RFS program
and comply with all the regulatory requirements. This includes using an
approved RIN-generating pathway and verifying that their feedstocks
meet the definition of renewable biomass. Most of the domestic
companies and facilities considered in our assessment of potential
cellulosic biofuel producers in 2018 have already successfully
completed facility registration, and have successfully generated
RINs.\43\ A brief description of each of the domestic companies (or
group of companies for cellulosic CNG/LNG producers) that EPA believes
may produce commercial-scale volumes of RIN generating cellulosic
biofuel by the end of 2019 can be found in a memorandum to the docket
for this final rule.\44\ General information on each of these companies
or group of companies considered in our projection of the potentially
available volume of cellulosic biofuel in 2019 is summarized in Table
III.B.3-1 below.
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    \40\ The volume projection from CNG/LNG producers does not
represent production from a single company or facility, but rather a
group of facilities utilizing the same production technology.
    \41\ According to data from Argus Media, the price for 2017
cellulosic biofuel RINs averaged $2.78 in 2017. Alternatively,
obligated parties can obtain a RIN value equivalent to a cellulosic
biofuel RIN by purchasing an advanced (or biomass-based diesel) RIN
and a cellulosic waiver credit. The price for 2017 advanced biofuel
RINs averaged $0.99 in 2017 while the price for a 2017 cellulosic
waiver credit is $2.00 (EPA-420-B-17-036).
    \42\ The only known exception was a small volume of fuel
produced at a demonstration scale facility exported to be used for
promotional purposes.
    \43\ Most of the facilities listed in Table III.B.3-1 are
registered to produce cellulosic (D3 or D7) RINs with the exception
of several of the producers of CNG/LNG derived from biogas and
Ensyn's Port-Cartier, Quebec facility.
    \44\ ``Cellulosic Biofuel Producer Company Descriptions (May
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167.
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2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located
in the U.S., there are several foreign cellulosic biofuel companies
that may produce cellulosic biofuel in 2019. These include facilities
owned and operated by Beta Renewables, Enerkem, Ensyn, GranBio, and
Raizen. All of these facilities use fuel production pathways that have
been approved by EPA for cellulosic RIN generation provided eligible
sources of renewable feedstock are used and other regulatory
requirements are satisfied. These companies would therefore be eligible
to register their facilities under the RFS program and generate RINs
for any qualifying fuel imported into the U.S. While these facilities
may be able to generate RINs for any volumes of cellulosic biofuel they
import into the U.S., demand for the cellulosic biofuels they produce
is expected to be high in their own local markets.
    In addition to projecting the domestic production of cellulosic
biofuel, EPA also projects the volume of cellulosic biofuel that will
be imported into the U.S.\45\ For the purposes of this final rule we
have considered all the registered foreign facilities under the RFS
program to be potential sources of cellulosic biofuel in 2019. We
believe that due to the strong demand for cellulosic biofuel in local
markets, the significant technical challenges associated with the
operation of cellulosic biofuel facilities, and the time necessary for
potential foreign cellulosic biofuel producers to register under the
RFS program and arrange for the importation of cellulosic biofuel to
the U.S., cellulosic biofuel imports from foreign facilities not
currently registered to generate cellulosic biofuel RINs are generally
highly unlikely in 2019. For purposes of our 2019 cellulosic biofuel
projection we have, with one exception (described below), excluded
potential volumes from foreign cellulosic biofuel production facilities
that are not currently registered under the RFS program.
---------------------------------------------------------------------------

    \45\ EPA has consistently interpreted the term ``projected
volume of cellulosic biofuel production'' in CAA section
211(o)(7)(D)(i) to include volumes of cellulosic biofuel likely to
be made available in the U.S., including from both domestic
production and imports (see 80 FR 77420 (December 14, 2015) and 81
FR 89746 (December 12, 2016)). We do not believe it would be
reasonable to include in the projection all cellulosic biofuel
produced throughout the world, regardless of likelihood of import to
the U.S., since volumes that are not imported would not be available
to obligated parties for compliance and including them in the
projection would render the resulting volume requirement and
percentage standards unachievable.
---------------------------------------------------------------------------

    Cellulosic biofuel produced at three foreign facilities (Ensyn's
Renfrew facility, GranBio's Brazilian facility, and Raizen's Brazilian
facility) generated cellulosic biofuel RINs for fuel exported to the
U.S. in 2017; projected volumes from each of these facilities are
included in our projection of available volumes for 2019. EPA has also
included projected volume from two additional foreign facilities. One
of these facilities has completed the registration process as a
cellulosic biofuel producer (Enerkem's Canadian facility). The other
facility (Ensyn's Port-Cartier, Quebec facility), while not yet
registered as a cellulosic biofuel producer, is owned by a Ensyn, a
company that has previously generated cellulosic biofuel RINs using the
same technology at a different facility. We believe that it is
appropriate to include volume from these facilities in light of their
proximity to the U.S., the proven technology used by these facilities,
the volumes of cellulosic biofuel exported to the U.S. by the company
in previous years (in the case of Ensyn), and the company's stated
intentions to market fuel produced at these facilities to qualifying
markets in the U.S. All of the facilities included in EPA's cellulosic
biofuel projection for 2019 are listed in Table III.B.3-1 below.
3. Summary of Volume Projections for Individual Companies
    General information on each of the cellulosic biofuel producers (or
group of producers in the case of producers of CNG/LNG derived from
biogas and liquid cellulosic biofuel facilities using Edeniq's
technology) that factored into our projection of cellulosic biofuel
production for 2019 is shown in Table III.B.3-1. This table includes
both facilities that have already generated cellulosic RINs, as well as
those that have not yet generated cellulosic RINs, but are projected to
do so by the end of 2019. As discussed above, we have focused on
commercial-scale cellulosic biofuel production facilities. Each of
these facilities (or group of facilities) is discussed further in a
memorandum to the docket.\46\
---------------------------------------------------------------------------

    \46\ ``Cellulosic Biofuel Producer Company Descriptions (May
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167.

                                           Table III.B.3-1--Projected Producers of Cellulosic Biofuel in 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Facility
                                                                                capacity (million     Construction
          Company name                Location            Feedstock             Fuel           gallons  per        start date      First production \48\
                                                                                year) \47\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \49\.........  Various...........  Biogas............  CNG/LNG..........  Various..........  Various..........  August 2014.
Edeniq.........................  Various...........  Corn Kernel Fiber.  Ethanol..........  Various..........  Various..........  October 2016.
Enerkem........................  Edmonton, AL,       Separated MSW.....  Ethanol..........  10 \50\..........  2012.............  September 2017.\51\
                                  Canada.
Ensyn..........................  Renfrew, ON,        Wood Waste........  Heating Oil......  3................  2005.............  2014.
                                  Canada.
Ensyn..........................  Port-Cartier, QC,   Wood Waste........  Heating Oil......  10.5.............  June 2016........  January 2018.
                                  Canada.
Envia Energy...................  Oklahoma City, OK.  Biogas............  Diesel...........  2................  May 2015.........  February 2017.
GranBio........................  S[atilde]o Miguel   Sugarcane bagasse.  Ethanol..........  21...............  Mid 2012.........  September 2014.
                                  dos Campos,
                                  Brazil.
Poet-DSM.......................  Emmetsburg, IA....  Corn Stover.......  Ethanol..........  20...............  March 2012.......  4Q 2015.
QCCP...........................  Galva, IA.........  Corn Kernel Fiber.  Ethanol..........  4................  Late 2013........  October 2014.
Raizen.........................  Piracicaba City,    Sugarcane bagasse.  Ethanol..........  11...............  January 2014.....  July 2015.
                                  Brazil.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Cellulosic Biofuel Volume for 2019
---------------------------------------------------------------------------

    \47\ The Facility Capacity is generally equal to the nameplate
capacity provided to EPA by company representatives or found in
publicly available information. Capacities are listed in physical
gallons (rather than ethanol-equivalent gallons). If the facility
has completed registration and the total permitted capacity is lower
than the nameplate capacity then this lower volume is used as the
facility capacity. For companies generating RINs for CNG/LNG derived
from biogas the Facility Capacity is equal to the lower of the
annualized rate of production of CNG/LNG from the facility at the
time of facility registration or the sum of the volume of contracts
in place for the sale of CNG/LNG for use as transportation fuel
(reported as the actual peak capacity for these producers).
    \48\ Where a quarter is listed for the first production date EPA
has assumed production begins in the middle month of the quarter
(i.e., August for the 3rd quarter) for the purposes of projecting
volumes.
    \49\ For more information on these facilities see ``May 2018
Assessment of Cellulosic Biofuel Production from Biogas (2019),''
memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-
0167.
    \50\ The nameplate capacity of Enerkem's facility is 10 million
gallons per year. However, we anticipate that a portion of their
feedstock will be non-biogenic MSW. RINs cannot be generated for the
portion of the fuel produced from non-biogenic feedstocks. We have
taken this into account in our production projection for this
facility (See ``May 2018 Liquid Cellulosic Biofuel Projections for
2018 CBI'').
    \51\ This date reflects the first production of ethanol from
this facility. The facility began production of methanol in 2015.
---------------------------------------------------------------------------

1. Liquid Cellulosic Biofuel
    For our 2019 liquid cellulosic biofuel projection, we use the same
general approach as we have in projecting these volumes in previous
years. We begin by first categorizing potential liquid cellulosic
biofuel producers in 2019 according to whether or not they have
achieved consistent commercial scale production of cellulosic biofuel
to date. Next we define a range of likely production volumes for 2019
for each group of companies. Finally, we use a percentile value to
project from the established range a single projected production volume
for each group of companies in 2019. As in 2018, we are proposing to
calculate percentile values for each group of companies based on the
past performance of each group relative to our projected production
ranges. This methodology is briefly described here, and is described in
detail in memoranda to the docket.\52\
---------------------------------------------------------------------------

    \52\ ``May 2018 Liquid Cellulosic Biofuel Projections for 2018
CBI'' and ``Calculating the Percentile Values Used to Project Liquid
Cellulosic Biofuel Production for the 2019 NPRM,'' memorandums from
Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------

    Consistent with our approach in previous years, we separated the
list of potential producers of cellulosic biofuel (listed in Table
III.B.3-1) into two groups according to whether the facilities have
achieved consistent commercial-scale production and cellulosic biofuel
RIN generation. We next defined a range of likely production volumes
for each group of potential cellulosic biofuel producers. The low end
of the range for each group of producers reflects actual RIN generation
data over the last 12 months for which data are available at the time
our technical assessment was completed (April 2017-March 2018).\53\ For
potential producers that have not yet generated any cellulosic RINs,
the low end of the range is zero. For the high end of the range of
production volumes for companies expected to produce liquid cellulosic
biofuel we considered a variety of factors, including the expected
start-up date and ramp-up period, facility capacity, and the number of
RINs the producer expects to generate in 2019.\54\ The projected range
for the groups of companies considered in our 2019 cellulosic biofuel
projection are shown in Tables III.C.1-1 and III.C.1-2 below.\55\
---------------------------------------------------------------------------

    \53\ Consistent with previous years, we have considered whether
there is reason to believe any of the facilities considered as
potential cellulosic biofuel producers for 2019 is likely to produce
a smaller volume of cellulosic biofuel in 2019 than in the previous
12 months for which data are available. At this time, EPA is not
aware of any information that would indicate lower production in
2019 from any facility considered than in the previous 12 months for
which data are available.
    \54\ As in our 2015-2018 projections, EPA calculated a high end
of the range for each facility (or group of facilities) based on the
expected start-up date and a six-month straight line ramp-up period.
The high end of the range for each facility (or group of facilities)
is equal to the value calculated by EPA using this methodology, or
the number of RINs the producer expects to generate in 2019,
whichever is lower.
    \55\ More information on the data and methods EPA used to
calculate each of the ranges in these tables in contained in ``May
2018 Liquid Cellulosic Biofuel Projections for 2018 CBI'' memorandum
from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. We have
not shown the projected ranges for each individual company. This is
because the high end of the range for some of these companies are
based on the company's production projections, which they consider
confidential business information (CBI). Additionally, the low end
of the range for facilities that have achieved consistent commercial
scale production is based on actual RIN generation data in the most
recent 12 months, with is also claimed as CBI. EPA has included
additional information on the calculations used to define the
production ranges, including the production ranges for each
individual company or facility, in a memo to the docket, ``May 2018
Liquid Cellulosic Biofuel Projections for 2018 CBI''.

  Table III.C.1-1--2019 Production Ranges for Liquid Cellulosic Biofuel
        Producers Without Consistent Commercial Scale Production
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
                                         Low end of the  High end of the
          Companies included                 range          range \a\
------------------------------------------------------------------------
Enerkem, Ensyn (Port Cartier                         0               18
 facility), Envia Energy..............
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.

  Table III.C.1-2--2019 Production Ranges for Liquid Cellulosic Biofuel
          Producers With Consistent Commercial Scale Production
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
                                         Low end of the  High end of the
          Companies included               range \a\        range \b\
------------------------------------------------------------------------
Facilities using Edeniq's technology                15               56
 (registered facilities), Ensyn
 (Renfrew facility), Poet-DSM,
 GranBio, Quad County Corn Processors,
 Raizen...............................
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.

    After defining likely production ranges for each group of companies
we next considered the percentile values to use in projecting a
production volume for each group of companies. In this proposed rule we
have calculated the percentile values used to project liquid cellulosic
biofuel production from within the range of projected production
values, using data on actual liquid cellulosic biofuel production from
both 2016 and 2017. This is consistent with the approach taken in the
2018 final rule, however we now have complete data from 2017, rather
than only data through September 2017. For the final rule we anticipate
using available production data from 2018 to make further adjustments
to the percentile values used to project liquid cellulosic biofuel
production for 2019.
    The projected ranges for liquid cellulosic biofuel production in
2016 and 2017, along with the actual number of cellulosic RINs
generated in each year that are/were available for compliance, and the
percentile values that would have resulted in a projection equal to the
actual production volume are shown in Table III.C.1-3 below.

           Table III.C.1-3--Projected and Actual Liquid Cellulosic Biofuel Production in 2016 and 2017
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                Actual
                        _                         Low end of the    High end of     production        Actual
                                                       range         the range         \56\         percentile
----------------------------------------------------------------------------------------------------------------
New Facilities: \57\
    2016........................................               0              76            1.06             1st
    2017........................................               0              33            8.79            27th
    Average \a\.................................             N/A             N/A             N/A            14th
Consistent Producers \58\
    2016........................................               2               5            3.28            43rd
    2017........................................             3.5               7            3.02           -14th
Average \a\.....................................             N/A             N/A             N/A            15th
----------------------------------------------------------------------------------------------------------------
\a\ We have not averaged the low and high ends of the ranges, or actual production, as we believe it is more
  appropriate to average the actual percentiles from 2016 and 2017 rather than calculating a percentile value
  for 2016 and 2017 in aggregate. This approach gives equal weight to the accuracy of our projections from 2016
  and 2017, rather than allowing the average percentiles calculated to be dominated by years with greater
  projected volumes.

    For this proposed rule EPA has projected cellulosic biofuel
production from facilities that have not yet achieved consistent
commercial scale production at the 14th percentile of the calculated
range and projected cellulosic biofuel production from facilities that
have achieved commercial scale production at the 15th percentile.\59\
These percentiles are calculated by averaging the percentiles that
would have produced cellulosic biofuel projections equal to the volumes
produced by each group of companies in 2016 and 2017. We have not
considered data from years prior to 2016, as prior to 2016 a different
methodology was used to project available volumes of cellulosic
biofuel. In determining the percentile values to use for 2019 we have
decided to weight the observed actual percentile values from 2016 and
2017 equally. While the

percentile value from 2017 represents the most recent data available,
it is also dependent on the performance of a relatively small number of
companies in a single year. Using data from multiple years is likely
more representative of the future performance of these groups of
companies than data from any single year. For the final rule we
anticipate using available production data from 2018 (likely January-
September), along with updated production projections for months in
which data is not available (likely October-December) to make further
adjustments to the percentile values used to project liquid cellulosic
biofuel production for 2019. We propose using production volumes for
months for which data is not available (likely October-December 2018)
in a similar manner to the way we projected production volumes for
months in which data were not available in the 2018 final rule (based
on available historical data along with seasonal production trends; see
``Calculating the Percentile Values Used to Project Liquid Cellulosic
Biofuel Production for 2018, EPA-HQ-OAR-2017-0091). We request comment
on this projection methodology, as well as the appropriateness of using
data from 2018 to adjust the percentile values used to projection
liquid cellulosic biofuel production for 2019. We believe that
adjusting the percentile values used in this final rule will improve
the accuracy of the production projection and will further EPA's
objective to project volumes with a ``neutral aim at accuracy.'' We
request comment on the data that should be used to calculate the
percentile values used to project liquid cellulosic biofuel production
in 2019 (e.g. whether we should use data from 2016-2018, or just a sub-
set of this data) and how to weight data from each of these years.\60\
---------------------------------------------------------------------------

    \56\ Actual production is calculated by subtracting RINs retired
for any reason other than compliance with the RFS standards from the
total number of cellulosic RINs generated.
    \57\ Companies characterized as new producers in the 2014-2016
and 2017 final rules were as follows: Abengoa (2016), CoolPlanet
(2016), DuPont (2016, 2017), Edeniq (2016, 2017), GranBio (2016,
2017), IneosBio (2016), and Poet (2016, 2017).
    \58\ Companies characterized as consistent producers in the
2014-2016 and 2017 final rules were as follows: Ensyn (2016 and
2017) and Quad County Corn Processors (2016 and 2017).
    \59\ In the 2018 final rule EPA used the 10th and 12th
percentile for new facilities and consistent producers respectively.
The slightly higher percentile values used to project liquid
cellulosic biofuel production in 2019 reflect additional production
data from the fourth quarter of 2017 that was not available at the
time the analyses were completed for the 2018 final rule. For more
detail on the calculation of the percentile values used in this
proposed rule see ``Calculating the Percentile Values Used to
Project Liquid Cellulosic Biofuel Production for the 2019 NPRM,''
available in EPA docket EPA-HQ-OAR-2018-0167.
    \60\ For example, rather than weighting the percentiles that
would have resulted in the actual production volumes in 2016 and
2017 equally, EPA could first aggregate the projected ranges for
companies with and without consistent commercial scale production
for 2016 and 2017 (5.5 million-12 million and 0-109 million
respectively) and then use the combined production volumes for 2016
and 2017 for each group (6.3 million and 9.8 million respectively)
to calculate percentile values for each group of companies for 2019.
This would result in slightly different percentile values (12th
percentile for companies with consistent production and the 9th
percentile for companies without consistent production).
---------------------------------------------------------------------------

    Finally, we used these percentile values, together with the ranges
determined for each group of companies discussed above, to project a
volume for each group of companies in 2019. These calculations are
summarized in Table III.C.1-4 below.

                     Table III.C.1-4--Projected Volume of Liquid Cellulosic Biofuel in 2019
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                     range \a\     the range \a\    Percentile      volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers                 0              18            14th               3
 without Consistent Commercial Scale Production.
Liquid Cellulosic Biofuel Producers; Producers                15              56            15th              21
 with Consistent Commercial Scale Production....
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A              24
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.

    EPA also considered whether it would be appropriate to modify other
individual components of the past methodology for projecting liquid
cellulosic biofuel (such as the factors used to calculate the high or
low end of the projected range for each company), but we do not believe
that such changes are warranted at this time. Making the adjustment to
the percentile values used in the methodology while keeping other
components of the methodology constant should, we believe, provide an
appropriate refinement of the methodology that reflects recent
experience. We acknowledge, however, that using the calculated
percentile values from previous years to project liquid cellulosic
biofuel production in future years does not eliminate the possibility
that actual production will differ from our projections. This is
especially true for the liquid cellulosic biofuel industry, which is
currently in the early stages of commercialization. Nevertheless, based
on the record before us, we believe the ranges of projected production
volumes for each company (or group of companies for those using the
Edeniq technology) are reasonable, and that projecting overall
production in 2019 in the manner described above results in a neutral
estimate (neither biased to produce a projection that is too high or
too low) of likely liquid cellulosic biofuel production in 2019 (24
million gallons).
2. CNG/LNG Derived From Biogas
    For 2019, EPA is using the same methodology as in the 2018 final
rule, an industry wide projected based on a year-over-year growth rate,
to project production of CNG/LNG derived from biogas used as
transportation fuel.\61\ For this proposed rule, EPA has calculated the
year-over-year growth rate in CNG/LNG derived from biogas by comparing
RIN generation from April 2017-March 2018 (the most recent 12 months
for which data are available) to RIN generation in the 12 months that
immediately precede this time period (April 2016-March 2017). These RIN
generation volumes are shown in Table III.C.2-1 below.
---------------------------------------------------------------------------

    \61\ Historically RIN generation for CNG/LNG derived from biogas
has increased each year. It is possible, however, that RIN
generation for these fuels in the most recent 12 months for which
data are available could be lower than the preceding 12 months. We
believe our methodology accounts for this possibility. In such a
case, the calculated rate of growth would be negative.

             Table III.C.2-1--Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas
                                             [Million gallons] \62\
----------------------------------------------------------------------------------------------------------------
  RIN Generation (April 2016-March      RIN Generation (April 2017-March
                2017)                                 2018)                        Year-Over-Year Increase
----------------------------------------------------------------------------------------------------------------
                          189                                   247                                 30.5%
----------------------------------------------------------------------------------------------------------------

    EPA then applied this 30.5 percent year-over-year growth rate to
the total number of 2018 cellulosic RINs projected to be generated for
CNG/LNG in the 2018 final rule. This methodology results in a
projection of 358 million gallons of CNG/LNG derived from biogas in
2019.\63\ We believe that projecting the production of CNG/LNG derived
from biogas in this manner appropriately takes into consideration the
actual recent rate of growth of this industry, and that this growth
rate accounts for both the potential for future growth and the
challenges associated with increasing RIN generation from these fuels
in future years. This methodology may not be appropriate to use as the
projected volume of CNG/LNG derived from biogas approaches the total
volume of CNG/LNG that is used as transportation fuel, as RINs can be
generated only for CNG/LNG used as transportation fuel. We do not
believe that this is yet a constraint, however, as our projection for
2019 is well below the total volume of CNG/LNG that is currently used
as transportation fuel.\64\ We request comment on estimates of the
volume of CNG/LNG likely to be used as transportation fuel in 2019, as
well as the ability of the CNG/LNG market to provide the documentation
necessary to verify the use of this fuel as transportation fuel.
---------------------------------------------------------------------------

    \62\ Further detail on the data used to calculate each of these
numbers in this table, as well as the projected volume of CNG/LNG
derived from biogas used as transportation fuel in 2019 can be found
in ``May 2018 Assessment of Cellulosic Biofuel Production from
Biogas (2019)'' memorandum from Dallas Burkholder to EPA Docket EPA-
HQ-OAR-2018-0167.
    \63\ To calculate this value, EPA multiplied the number of 2018
RINs projected to be generated for CNG/LNG derived from biogas in
the 2018 final rule (274 million), see 82 FR 58502-03, by 1.305
(representing a 30.5 percent year-over-year increase).
    \64\ EPA projects that 580 million ethanol-equivalent gallons of
CNG/LNG will be used as transportation fuel in 2019 based on EIA's
March 2018 Short Term Energy Outlook (STEO). To calculate this
estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom
Table Builder (0.13 billion cubic feet/day in 2019). This projection
includes all CNG/LNG used as transportation fuel from both renewable
and non-renewable sources. EIA does not project the amount of CNG/
LNG from biogas used as transportation fuel. To convert billion
cubic feet/day to ethanol-equivalent gallons EPA used conversion
factors of 946.5 BTU per cubic foot of natural gas (lower heating
value, per calculations using ASTM D1945 and D3588) and 77,000 BTU
of natural gas per ethanol-equivalent gallon per Sec.
80.1415(b)(5).
---------------------------------------------------------------------------

    EPA has also reviewed data submitted by potential producers of CNG/
LNG derived from biogas that is used as transportation fuel. The total
volume of CNG/LNG derived from biogas projected to be produced in 2019
by the potential producers of these fuels exceeds the volume that EPA
is projecting for 2019. Since producers of CNG/LNG derived from biogas
have historically over-estimated their production of these fuels, it
would not be appropriate to simply adopt this projection for 2019. The
fact that the industry projections exceed EPA's projected volume,
however, indicates that the volume of these fuels projected for 2019
can be satisfied by a combination of projects currently producing CNG/
LNG derived from biogas for these purposes and projects expected to
product biogas by the end of 2019.
    We believe that while our projection methodology uses a growth rate
based on historical data it adequately anticipates higher production
volumes in future years, including both increased production from
existing facilities as well as production from new facilities. In this
way it satisfies our charge to project future cellulosic biofuel
production in a reasonable manner, and with neutrality, despite the
fact that it does not consider all potential producers of these fuels
on a facility-by-facility basis. For the final rule we anticipate using
all available data from 2018 to update both the year-over-year increase
as well as the projected production volume of cellulosic biofuel for
2018 to which we apply the year-over-year increase to project the
production of CNG/LNG derived from biogas in 2019.
3. Total Cellulosic Biofuel in 2019
    After projecting production of cellulosic biofuel from liquid
cellulosic biofuel production facilities and producers of CNG/LNG
derived from biogas, EPA combined these projections to project total
cellulosic biofuel production for 2019. These projections are shown in
Table III.C.3-1. Using the methodologies described in this section, we
project that 381 million ethanol-equivalent gallons of cellulosic
biofuel will be produced in 2019. We believe that projecting overall
production in 2019 in the manner described above results in a neutral
estimate (neither biased to produce a projection that is too high nor
too low) of likely cellulosic biofuel production in 2019.

     Table III.C.3-1--Projected Volume of Cellulosic Biofuel in 2019
                            [Million gallons]
------------------------------------------------------------------------
                                                             Projected
                                                            volume \a\
------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers without                 3
 Consistent Commercial Scale Production.................
Liquid Cellulosic Biofuel Producers; Producers with                   21
 Consistent Commercial Scale Production.................
CNG/LNG Derived from Biogas.............................             358
                                                         ---------------
    Total...............................................         \b\ 381
------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.
\b\ Total projection of cellulosic biofuel appears less than the sum of
  the projected volume for each group of companies due to rounding

    Further discussion of the individual companies we believe will
produce cellulosic biofuel and make it commercially available in 2019
can be found in a memorandum to the docket.\65\ We request comment on
this projection of cellulosic biofuel production for 2019, including
the various aspects of the methodology used to project production of
both liquid cellulosic biofuels and CNG/LNG derived from biogas.
---------------------------------------------------------------------------

    \65\ ``Cellulosic Biofuel Producer Company Descriptions (May
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167. In the case of cellulosic biofuel produced from CNG/LNG
and facilities using Edeniq's technology, we have discussed the
production potential from these facilities as a group rather than
individually.
---------------------------------------------------------------------------

IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019

    The national volume targets for advanced biofuel and total
renewable fuel to be used under the RFS program each year through 2022
are specified in CAA section 211(o)(2)(B)(i)(I) and (II).

Congress set annual renewable fuel volume targets that envisioned
growth at a pace that far exceeded historical growth and, for years
after 2011, prioritized that growth as occurring principally in
advanced biofuels (contrary to previous growth patterns where most
growth was in conventional renewable fuel). Congressional intent is
evident in the fact that the implied statutory volume for conventional
renewable fuel is 15 billion gallons for all years after 2014, while
the advanced volumes, driven largely by growth in cellulosic volumes,
continue to grow each year through 2022 to a total of 21 billion
gallons.
    Due to a shortfall in reasonably attainable volumes of cellulosic
and advanced biofuel, and consistent with our long-held interpretation
of the cellulosic waiver authority as best interpreted and applied by
providing equal reductions in advanced biofuel and total renewable
fuel, we are proposing a reduction from the statutory volumes for both
advanced biofuel and total renewable fuel for 2019 using the full
extent of the cellulosic waiver authority.
    In this Section we discuss our proposed use of the discretion
afforded by the cellulosic waiver authority at CAA 211(o)(7)(D)(i) to
reduce volumes of advanced biofuel and total renewable fuel. We first
discuss our assessment of advanced biofuel and the considerations which
have led us to conclude that the advanced biofuel volume target in the
statute should be reduced by the full amount permitted under the
cellulosic waiver authority. We then address total renewable fuel in
the context of our interpretation, articulated in previous annual
rulemakings, that advanced biofuel and total renewable fuel should be
reduced by the same amount under the cellulosic waiver authority.
    To begin, we have evaluated the capabilities of the market and are
proposing to find that the 13.0 billion gallons specified in the
statute for advanced biofuel cannot be reached in 2019. This is
primarily due to the expected continued shortfall in cellulosic
biofuel; production of this fuel type has consistently fallen short of
the statutory targets by 95 percent or more, and as described in
Section III, we project that it will fall far short of the statutory
target of 8.5 billion gallons in 2019. For this and other reasons
described in this section we are proposing to reduce the advanced
biofuel statutory target by the full amount of the shortfall in
cellulosic biofuel for 2019.
    In previous years when we have used the cellulosic waiver
authority, we have determined the appropriate amount of the permissible
waiver to apply to advanced biofuel by taking into account the
availability of advanced biofuels, their energy security and GHG
impacts, the availability of carryover RINs, the apparent intent of
Congress as reflected in the statutory volumes tables to substantially
increase the use of advanced biofuels over time, as well as factors
such as increased costs associated with the use of advanced biofuels
and the reduced benefits likely associated with use of advanced volumes
achieved through diversion of foreign fuels or substitution of advanced
feedstocks from other uses to biofuel production. Until the 2018
standards rule, the consideration of these factors led us to conclude
that it was appropriate to set the advanced biofuel standard in a
manner that would allow the partial backfilling of missing cellulosic
volumes with non-cellulosic advanced biofuels.\66\ For the 2018
standards, we placed a greater emphasis on cost considerations in the
context of balancing the various considerations, ultimately concluding
that partial backfilling with non-cellulosic advanced biofuels was not
warranted and the applicable volume requirement for advanced biofuel
should be based on the maximum reduction permitted under the cellulosic
waiver authority.
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    \66\ For instance, see 81 FR 89750 (December 12, 2016).
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    Although we continue to believe that the factors earlier considered
in exercising the cellulosic waiver authority are relevant and
appropriate, we project that there will be insufficient reasonably
attainable volumes of non-cellulosic biofuels in 2019 to allow any
backfilling for missing volumes of cellulosic biofuel. As a result of
this projection and our proposed consideration of carryover RINs, we
are proposing to reduce the statutory volume target for advanced
biofuel by the same amount as the reduction in cellulosic biofuel. This
would result in the non-cellulosic component of the advanced biofuel
volume requirement being equal to the implied statutory volume of 4.5
billion gallons in 2019.
    We note that the predominant non-cellulosic advanced biofuels
available in the near term are advanced biodiesel and renewable
diesel.\67\ We expect a decreasing rate of growth in the availability
of feedstocks used to produce these fuel types, absent the diversion of
these feedstocks from other uses. In addition, we expect diminishing
GHG benefits and higher per gallon costs as the required volumes of
advanced biodiesel and renewable diesel increase. These outcomes are a
result of the fact that the lowest cost and most easily available
feedstocks are typically used first, and each additional increment of
advanced biodiesel and renewable diesel requires the use of feedstocks
that are incrementally more costly and/or more difficult to obtain.
Moreover, to the extent that higher advanced biofuel requirements
cannot be satisfied through growth in the production of advanced
biofuel feedstocks, they would instead be satisfied through a re-
direction of such feedstocks from competing uses. Products that were
formerly produced using these feedstocks are likely to be replaced by
products produced using the lowest cost alternatives, likely derived
from palm or petroleum sources. This in turn could increase the
lifecycle GHG emissions associated with these incremental volumes of
non-cellulosic advanced biofuel. There would also likely be market
disruptions and increased burden associated with shifting feedstocks
among the wide range of companies that are relying on them today and
which have optimized their processes to use them. Higher advanced
biofuel standards could also be satisfied by diversion of foreign
advanced biofuel from foreign markets, and there would also likely be
diminished benefits associated with such diversions. Taking these
considerations into account, we believe, as discussed in more detail
below, that we should exercise our discretion under the cellulosic
waiver authority to set the advanced biofuel volume requirement at a
level that would minimize such diversions.
---------------------------------------------------------------------------

    \67\ While sugarcane ethanol, as well as a number of other fuel
types, can also contribute to the supply of advanced biofuel, in
recent years supply of these other advanced biofuels has been
considerably lower than supply of advanced biodiesel or renewable
diesel. See Table IV.B.3-1.
---------------------------------------------------------------------------

    Furthermore, two other factors have added uncertainty regarding the
volume of advanced biofuels that we project to be attainable in 2019.
The first is the fact that the tax credit for biodiesel has not been
renewed for 2019. The second is the final determination by the
Department of Commerce that tariffs should be imposed on biodiesel
imports from Argentina and Indonesia, and the potential for those
tariffs to increase.68 69 Each of these factors is discussed
in more detail in Section IV.B.2 below.
---------------------------------------------------------------------------

    \68\ ``Affirmative Final Antidumping Duty Determinations on
Biodiesel From Argentina and Indonesia,'' available in docket EPA-
HQ-OAR-2018-0167.
    \69\ ``US adds more duties on biodiesel from Argentina &
Indonesia,'' Reuters article available in docket EPA-HQ-OAR-2018-
0167.

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

    We believe that the factors and considerations noted above are all
appropriate to consider under the broad discretion provided under the
cellulosic waiver authority, and that consideration of these factors
supports our proposed use of this authority. Many of the considerations
discussed in this proposed rule are related to the availability of non-
cellulosic advanced biofuels (e.g., historic data on domestic supply,
expiration of the biodiesel blenders' tax credit, potential imports of
biodiesel in light of the Commerce Department's determination on
tariffs on biodiesel imports from Argentina and Indonesia, potential
imports of sugarcane ethanol, and anticipated decreasing growth in
production of feedstocks for advanced biodiesel and renewable diesel),
while others focus on the potential benefits and costs of requiring use
of available volumes (e.g., relative cost of advanced biofuels to the
petroleum fuels they displace, GHG reduction benefits, and energy
security benefits). As discussed in further detail in the following
sections, EPA's preliminary projection of the available volume of
advanced biofuel in 2019 suggests that while achieving the implied
statutory volume for non-cellulosic advanced biofuel in 2019 (4.5
billion gallons) may be attainable, doing so would likely require a
higher rate of growth in the domestic advanced biofuel industry than we
have seen in recent years. This is especially true if the tariffs on
biodiesel imported from Argentina and Indonesia result in decreased
volumes of imported advanced biofuel in 2019. While it may also be
possible that a volume of non-cellulosic advanced biofuel greater than
4.5 billion gallons may be attainable, this higher volume would very
likely result in the diversion of advanced feedstocks from other uses
or diversion of advanced biofuels from foreign sources. In that case,
our preliminary assessment of other factors, such as cost and GHG
impacts, indicate that it would not be appropriate to set the advanced
biofuel volume requirement so as to require use of such volumes to
partially backfill for missing cellulosic volumes.
    The impact of our exercise of the cellulosic waiver authority is
that after waiving the cellulosic biofuel volume down to the projected
available level, and applying the same volume reduction to the
statutory volume target for advanced biofuel, the resulting volume
requirement for advanced biofuel for 2019 would be 590 million gallons
more than the applicable volume used to derive the 2018 percentage
standard. Furthermore, after applying the same reduction to the
statutory volume target for total renewable fuel, the volume
requirement for total renewable fuel would also be 590 million gallons
more than the applicable volume used to derive the 2018 percentage
standard.

A. Volumetric Limitation on Use of the Cellulosic Waiver Authority

    As described in Section II.A, when making reductions in advanced
biofuel and total renewable fuel under the cellulosic waiver authority,
the statute limits those reductions to no more than the reduction in
cellulosic biofuel. As described in Section III.D, we are proposing to
establish a 2019 applicable volume for cellulosic biofuel of 381
million gallons, representing a reduction of 8,119 million gallons from
the statutory target of 8,500 million gallons. As a result, 8,119
million gallons is the maximum volume reduction for advanced biofuel
and total renewable fuel that is permissible using the cellulosic
waiver authority. Use of the cellulosic waiver authority to this
maximum extent would result in volumes of 4.88 and 19.88 billion
gallons for advanced biofuel and total renewable fuel,
respectively.\70\
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    \70\ When expressing volumes in billion gallons, we use standard
rounding methods to two decimal places, as done in previous annual
standard-setting rulemakings. Volumes are sometimes shown in million
gallons for clarity, but with the exception of cellulosic biofuel it
is volumes in billion gallons that are used to calculate the
applicable percentage standards. For cellulosic biofuel, it is
million gallons that are used to calculate the percentage standards.

   Table IV.A-1--Lowest Permissible Volumes Using Only the Cellulosic
                            Waiver Authority
                          [Million gallons] \a\
------------------------------------------------------------------------
                                             Advanced          Total
                                              biofuel     renewable fuel
------------------------------------------------------------------------
Statutory target........................          13,000          28,000
Maximum reduction permitted under the              8,119           8,119
 cellulosic waiver authority............
Lowest 2019 volume requirement permitted           4,881          19,881
 using only the cellulosic waiver
 authority..............................
------------------------------------------------------------------------
\a\ Calculations are typically shown in million gallons for all four
  standards for clarity. However, when using volumes to calculate
  percentage standards, we specify the volume requirements as billion
  gallons with two decimal places to be consistent with the volume
  targets as given in the statute. The only exception is for cellulosic
  biofuel which we specify in million gallons due to the substantial
  reduction from the statutory target.

    We are authorized under the cellulosic waiver authority to reduce
the advanced biofuel and total renewable fuel volumes ``by the same or
a lesser'' amount as the reduction in the cellulosic biofuel
volume.\71\ As discussed in Section II.A, EPA has broad discretion in
using the cellulosic waiver authority in instances where its use is
authorized under the statute, since Congress did not specify factors
that EPA must consider in determining whether to use the authority or
what the appropriate volume reductions (within the range permitted by
statute) should be. This broad discretion was affirmed in both Monroe
and ACE.\72\ Thus, EPA could potentially set the 2019 advanced biofuel
standard at a level that is designed to partially backfill for the
shortfall in cellulosic biofuel. However, based on our consideration of
a number of relevant factors, we are proposing to use the full extent
of the cellulosic waiver authority in deriving volume requirements for
2019.
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    \71\ CAA section 211(o)(7)(D)(i).
    \72\ See ACE, 864 F.3d at 730-35 (citing Monroe, 750 F.3d 909,
915-16).
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B. Attainable Volumes of Advanced Biofuel

    We have considered both reasonably attainable and attainable
volumes of advanced biofuel to inform our exercise of the cellulosic
waiver authority. Volumes described as ``reasonably attainable'' are
those that can be reached without market disruptions and/or higher
costs, such as those that could result from diverting advanced biofuels
or advanced biofuel feedstocks from existing uses. We use this phrase
in today's action in the same way that we

used it in previous actions. Volumes described as ``attainable,'' in
contrast, are those we believe can be reached, but would likely result
in market disruption and/or higher costs. Neither ``reasonably
attainable'' nor ``attainable'' are meant to convey the ``maximum
achievable'' level, which as described in the 2017 final rule we do not
consider, in our discretion, to be an appropriate target under the
cellulosic waiver authority.\73\
---------------------------------------------------------------------------

    \73\ 81 FR 89762 (December 12, 2016).
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    As in prior rulemakings, EPA has considered what volumes of
advanced biofuels are reasonably attainable. As the Court noted in ACE,
EPA may consider demand-side considerations in addition to supply-side
considerations when it assesses ``reasonably attainable'' volumes for
purposes of its cellulosic waiver assessment.\74\ Our proposed
assessment of reasonably attainable volumes of advanced biofuel is
described below.
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    \74\ See ACE, 864 F.3d at 730-35. However, EPA may not consider
demand-side factors in assessing whether there is an ``inadequate
domestic supply'' that would justify use of the general waiver
authority. See id. at 704-13.
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    In ACE, the Court noted that in assessing what volumes are
``reasonably attainable,'' EPA had considered the availability of
feedstocks, domestic production capacity, imports, and market capacity
to produce, distribute, and consume renewable fuel.\75\ We are taking a
similar approach for 2019, with the added consideration of the
possibility that higher volume requirements would lead to ``feedstock
switching'' or diversion of advanced biofuels from use in other
countries, which we took into account in setting the 2017 and 2018
volume requirements and, we believe, are appropriate considerations
under the broad discretion provided by the cellulosic waiver authority.
---------------------------------------------------------------------------

    \75\ See ACE, 864 F.3d at 735-36.
---------------------------------------------------------------------------

    As noted above, a higher advanced biofuel volume requirement has a
greater potential to increase the incentive for switching advanced
biofuel feedstocks from existing uses to biofuel production. We are
proposing to set the advanced biofuel volume requirement at a level
that would seek to minimize such feedstock/fuel diversions. Our
individual assessments of reasonably attainable volumes of each type of
advanced biofuel reflects this approach. That is, while we refer to
them as ``reasonably attainable'' volumes for convenience, they
represent those volumes that are not likely to lead to feedstock/fuel
diversions. Greater volumes could likely be made available if such
diversions were not of concern.
    EPA proposes to find that 100 million gallons of advanced ethanol,
60 million gallons of other advanced biofuels, and 2.65 billion gallons
of advanced biodiesel and renewable diesel are reasonably attainable.
Together with our projected volume of 381 million gallons of cellulosic
biofuel, the sum of these volumes falls short of 4.88 billion gallons,
which is the lowest advanced biofuel requirement that EPA can determine
under the cellulosic waiver authority.
    Therefore, we also have considered whether the market can
nonetheless make available 4.88 billion gallons of advanced biofuel,
notwithstanding likely feedstock/fuel diversions. In particular, we
assess whether additional volumes of advanced biodiesel and renewable
diesel are attainable. We conclude that 2.8 billion gallons of advanced
biodiesel and renewable diesel is likely attainable notwithstanding
likely feedstock/fuel diversions. This quantity of advanced biodiesel
and renewable diesel, together with the cellulosic biofuel, sugarcane
ethanol, and other advanced biofuels described above, would enable the
market to make available 4.88 billion gallons of advanced biofuels.
1. Imported Sugarcane Ethanol
    The predominant available source of advanced biofuel other than
cellulosic biofuel and BBD is imported sugarcane ethanol. In setting
the 2018 standards, we estimated that 100 million gallons of imported
sugarcane ethanol would be reasonably attainable.\76\ This was a
reduction from the 200 million gallons we had assumed for 2016 and
2017, and was based on a combination of data from 2016 and part of 2017
as well as an attempt to balance the lower-than-expected imports from
recent data with indications that higher volumes were possible based on
older data. We also noted the high variability in ethanol import
volumes in the past (including of Brazilian sugarcane ethanol, the
predominant form of imported ethanol, and the only significant source
of imported advanced ethanol), increasing gasoline consumption in
Brazil, and variability in Brazilian production of sugar as reasons
that it would be inappropriate to assume that sugarcane ethanol imports
would reach the much higher levels suggested by some stakeholders.
---------------------------------------------------------------------------

    \76\ 82 FR 58507 (December 12, 2017).
---------------------------------------------------------------------------

    During 2017 when we were developing the 2018 standards rulemaking,
we used available data from a portion of 2017 to estimate that import
volumes of sugarcane ethanol were likely to fall significantly below
the 200 million gallons we had assumed when we set the 2017 standards.
Import data for most of 2017 is now available, and indicates that
imports of sugarcane ethanol reached just 77 million gallons.

[GRAPHIC] [TIFF OMITTED] TP10JY18.003

    While it is difficult to predict imports for 2019, we believe it