Prod     Est.
  Company or organization name             Location              Feedstocks        cap      Op.     Conv. tech.
                                                                                (MGY)     date        \a\
----------------------------------------------------------------------------------------------------------------
Cellulosic Ethanol
----------------------------------------------------------------------------------------------------------------
Abengoa Bioenergy Corporation     York, NE.................  Wheat straw, corn      0.02   Sep-07  Bio.
 \b\.                                                         stover, energy
                                                              crops.
Bioengineering Resources, Inc.    Fayetteville, AR.........  MSW, wood waste,       0.04     1998  Therm.
 (BRI).                                                       coal.
BPI & Universal Entech..........  Phoenix, AZ..............  Paper waste            0.01     2004  Bio.
                                                              (sorted MSW).
Gulf Coast Energy...............  Livingston, AL...........  Wood waste (sorted     0.20   Dec-08  Therm.
                                                              MSW).
Mascoma Corporation.............  Rome, NY.................  Wood chips........     0.20   Feb-09  Bio.
POET Project Bell \b\...........  Scotland, SD.............  Corn cobs & fiber.     0.02   Jan-09  Bio.
Verenium........................  Jennings, LA.............  Sugarcane bagasse.     0.05     2006  Bio.
Verenium........................  Jennings, LA.............  Sugarcane bagasse,     1.50   Feb-09  Bio.
                                                              wood, energy cane.
Western Biomass Energy LLC.       Upton, WY................  Wood waste             1.50     2007  Bio.
 (WBE).                                                       (softwood).
----------------------------------------------------------------------------------------------------------------
Cellulosic Diesel
----------------------------------------------------------------------------------------------------------------
Cello Energy....................  Bay Minette, AL..........  Wood chips, hay...    20.00   Dec-08  CatDep.
Bell BioEnergy..................  Fort Stewart, GA.........  Wood chips........     0.01   Dec-08  Bact.
----------------------------------------------------------------------------------------------------------------
                              Total Existing Production Capacity 23 MGY
----------------------------------------------------------------------------------------------------------------
\a\ Bio = biochemical pre-treatment, Therm = thermochemical conversion, CatDep = catalytic depolymerization,
  Bact = involves the use of live bacteria to break down biomass for cellulosic diesel production.
\b\ Cellulosic pilot plant is collocated with a corn ethanol plant.

    To date, the majority of cellulosic ethanol research has focused on
biochemical pre-treatment technologies, i.e., the use of acids and/or
enzymes to break down cellulosic materials into fermentable sugars.
However, there are a growing number of companies investigating the
thermochemical pathway which involves gasification of biomass into a
synthesis gas or pyrolysis of biomass into a bio-crude oil for
processing. Cellulosic diesel can also be made from thermochemical as
well as other processes. Many companies are also researching the
potential of co-firing biomass to produce plant energy in addition to
biofuels. For more on cellulosic biofuel processing technologies, refer
to Section 1.4.3 of the DRIA.
    In addition to the existing facilities in Table V.B.2-1, our April
2009 industry assessment suggests that there are currently three
cellulosic ethanol plants under construction in the United States. Like
the existing plants, two are pilot-level facilities that are still
working towards proving their conversion technologies. However, Range
Fuels, a company that received $76 million from DOE and an $80 loan
guarantee from USDA to build one of the first commercial-scale
cellulosic ethanol plants in the U.S., is currently building a 40
million gallon per year plant in Soperton, GA.\82\ At this time, the
company is just working on the initial 10 million gallon per year
phase. Bell Bioenergy, a company that received $7.5 million in funding
from the Department of Defense to convert biomass into cellulosic
diesel using live bacteria, also has six pilot plants under
construction in various locations through the country. A summary of
these nine cellulosic biofuel plants, totaling over 10 million gallons
of annual production capacity, is presented in Table V.B.2-2.
---------------------------------------------------------------------------

    \82\ Range Fuels' ultimate goal is to expand the Soperton, GA
facility to produce 100 million gallons of cellulosic ethanol per
year.
---------------------------------------------------------------------------

    As shown in Tables V.B.2-1 and V.B.2-2, unlike corn ethanol
production, which is primarily located in the Midwest near the Corn
Belt, cellulosic biofuel production is spread throughout the country.
The geographic distribution of plants is due to the wide variety and
availability of cellulosic feedstocks. Corn stover is found primarily
in the Midwest, while the Pacific Northwest, the Northeast, and the
Southeast all have forestry residues. Some southern states have access
to sugarcane bagasse and citrus waste while MSW and C&D debris are
available in highly populated areas throughout the country. For more
information on cellulosic feedstock availability, refer to Section
1.1.2 of the DRIA.

                      Table V.B.2-2--Cellulosic Biofuel Plants Currently Under Construction
----------------------------------------------------------------------------------------------------------------
                                                                                Prod     Est.
       Company plant name                  Location              Feedstocks        cap      op.     Conv. tech.
                                                                                (MGY)    date.        \a\
----------------------------------------------------------------------------------------------------------------
Cellulosic Ethanol
----------------------------------------------------------------------------------------------------------------
Coskata.........................  Madison, PA..............  MSW, natural gas,      0.04   Jul-09  Therm.
                                                              woodchips,
                                                              bagasse,
                                                              switchgrass.
DuPont Dansico Cellulosic         Vonore, TN...............  Corn cobs then         0.25   Dec-09  Bio.
 Ethanol (DDCE).                                              switchgrass.
Range Fuels \b\.................  Soperton, GA.............  Wood waste,           10.00   Dec-09  Therm.
                                                              switchgrass.
----------------------------------------------------------------------------------------------------------------
Cellulosic Diesel
----------------------------------------------------------------------------------------------------------------
Bell Bio-Energy.................  Fort Lewis, WA...........  Cellulose.........     0.01     2009  Bact.
Bell Bio-Energy.................  Fort Drum, NY............  Cellulose.........     0.01     2009  Bact.
Bell Bio-Energy.................  Fort AP Hill, VA.........  Cellulose.........     0.01     2009  Bact.
Bell Bio-Energy.................  Fort Bragg, NC...........  Cellulose.........     0.01     2009  Bact.
Bell Bio-Energy.................  Fort Benning, GA.........  Cellulose.........     0.01     2009  Bact.
Bell Bio-Energy.................  San Pedro, CA............  Cellulose.........     0.01     2009  Bact.
----------------------------------------------------------------------------------------------------------------
                         Total Under Construction Production Capacity 10 MGY
----------------------------------------------------------------------------------------------------------------
\a\ Bio = biochemical pre-treatment, Therm = thermochemical conversion, Bact = involves the use of live bacteria
  to break down biomass for cellulosic diesel production.
\b\ The first 10 MGY phase is currently under construction in Soperton, GA. Once this second 30 MGY phase is
  added, the plant will be capable of producing 40 MGY of cellulosic ethanol.

    Increased public interest, government support, technological
advancement, and the recently-enacted EISA have helped spur many plans
for new cellulosic biofuel plants. Although more and more plants are
being announced, most are limited in size and contingent upon
technology breakthroughs and efficiency improvements at the pilot or
demonstration level. Additionally, because cellulosic biofuel
production has not yet been proven on the commercial level, financing
of these projects has primarily been through venture capital and
similar funding mechanisms, as opposed to conventional bank loans.
    Consequently, recently-announced Federal grant and loan guarantee
programs may serve as a significant asset to the cellulosic biofuel
industry in this area. In February 2007, DOE announced that it would
invest up to $385 million in six commercial-scale ethanol projects over
the next four years. Since the announcement, two of the companies have
forfeited their funding. Iogen has decided to locate its first
commercial-scale plant in Canada and Alico has discontinued plans to
produce ethanol all together. The four remaining ``pioneer'' plants
(including Range Fuels) hold promise and could very well be some of the
first plants to demonstrate the commercial-scale viability of
cellulosic ethanol production. However, there is still more to be
learned at the pilot level. Although technologies needed to convert

cellulosic feedstocks into ethanol (and diesel) are becoming more and
more understood, there are still a number of efficiency improvements
that need to occur before cellulosic biofuels can compete in today's
marketplace.
    In May 2007, DOE announced that it would provide up to $200 million
to help fund small-scale cellulosic biorefineries experimenting with
novel processing technologies that could later be expanded to
commercial production facilities. Four recipients were announced in
January 2008 and three more were announced in April 2008. Three months
later, DOE announced that it would provide $40 million more to help
fund two additional small-scale plants. Of the nine announced small-
scale plants, seven were pursuing cellulosic ethanol production
(including Verenium Corp.) and two are pursuing cellulosic diesel
production. However, Lignol Innovations, recently suspended plans to
build a 2.5 million gallon per year cellulosic ethanol plant in Grand
Junction, CO due to market uncertainty.
    The Department of Energy has also introduced a loan guarantee
program to help reduce risk and spur investment in projects that employ
new, clean energy technologies. In October 2007, DOE issued final
regulations and invited 16 project sponsors who submitted pre-
applications to submit full applications for loan guarantees. Of those
who were invited to participate, five were pursuing cellulosic biofuel
production. However, only three companies appear to still be
eligible.\83\ Of the three remaining companies, two are pursuing
cellulosic ethanol production (and are also DOE grant recipients) and
one is pursuing cellulosic diesel production. The U.S. Department of
Agriculture is also providing an $80 million loan guarantee to Range
Fuels to help support construction of its 40 million-gallon-per-year
cellulosic ethanol plant in Soperton, GA. For more on information on
Federal support for biofuel production, refer to Section 1.5.3 of the
DRIA.
---------------------------------------------------------------------------

    \83\ Iogen and Alico have also forfeited a potential loan
guarantee from DOE.
---------------------------------------------------------------------------

    In addition to the companies receiving government funding, there
are a growing number of privately-funded companies (including Cello
Energy) with plans to build more cellulosic biofuel plants in the
United States. These facilities range in size from pilot- and
demonstration-level plants (similar to those currently operational or
under construction), to small commercial plants (similar to the four
commercial-scale plants receiving DOE funding), to large commercial
plants (similar in size to an average corn ethanol plant). These
projects are also at various stages of planning. According to our April
2009 industry assessment, 11 plants are currently at advanced stages of
planning and likely to go online in the near future. Along with those
plants currently operational or under construction, we believe that
these facilities will enable the U.S. to meet the 100 million gallon
cellulosic biofuel standard in 2010. For a summary of the plants and
their respective projected contributions, refer to Table V.B.2-3 below.
For a greater discussion on these and other cellulosic biofuel
projects, refer to Section <IP_ADDRESS> of the DRIA.

                         Table V.B.2-3--Projected Cellulosic Biofuel Production in 2010
----------------------------------------------------------------------------------------------------------------
                                                                                Est 2010
                                                                                Est. 2010    ETOH-
   Company or organization name            Location         Prod cap      Est. op. date      million     equiv.
                                                             (MGY)                           gallons    million
                                                                                gallons
----------------------------------------------------------------------------------------------------------------
Cellulosic Ethanol
----------------------------------------------------------------------------------------------------------------
BPI & Universal Entech............  Phoenix, AZ..........       0.01  Online..............       0.01       0.01
POET Project Bell.................  Scotland, SD.........       0.02  Online..............       0.02       0.02
Abengoa Bioenergy Corporation.....  York, NE.............       0.02  Online..............       0.02       0.02
Bioengineering Resources, Inc.      Fayetteville, AK.....       0.04  Online..............       0.04       0.04
 (BRI).
Verenium..........................  Jennings, LA.........       0.05  Online..............       0.05       0.05
Gulf Coast Energy.................  Livingston, AL.......       0.20  Online..............       0.20       0.20
Mascoma Corporation...............  Rome, NY.............       0.20  Online..............       0.20       0.20
Verenium..........................  Jennings, LA.........       1.50  Online..............       1.50       1.50
Western Biomass Energy, LLC. (WBE)  Upton, WY............       1.50  Online..............       1.50       1.50
Coskata...........................  Madison, PA..........       0.04  Jul-09..............       0.04       0.04
DuPont Dansico Cellulosic Ethanol   Vonore, TN...........       0.25  Dec-09..............       0.25       0.25
 (DDCE).
Range Fuels.......................  Soperton, GA.........       10.0  Dec-09..............       10.0       10.0
Ecofin/Alltech....................  Springfield, KY......       1.30  2010................       0.65       0.65
Fulcrum Bioenergy.................  Storey County, NV....      10.50  2010................       5.25       5.25
ICM Inc...........................  St. Joseph, MO.......       1.50  2010................       0.75       0.75
RSE Pulp & Chemical...............  Old Town, ME.........       2.20  2010................       1.10       1.10
ZeaChem...........................  Boardman, OR.........       1.50  2010................       0.75       0.75
ClearFuels Technology.............  Kauai, HI............       1.50  End of 2010.........       0.38       0.38
Southeast Renewable Fuels LLC.....  Clewiston, FL........      20.00  End of 2010.........       5.00       5.00
----------------------------------------------------------------------------------------------------------------
Cellulosic Diesel
----------------------------------------------------------------------------------------------------------------
Cello Energy......................  Bay Minette, AL......      20.00  Online..............      20.00      32.00
Bell Bio-Energy...................  Fort Stewart, GA.....       0.01  2008................       0.01       0.01
Bell Bio-Energy...................  Fort Lewis, WA.......       0.01  2009................       0.01       0.01
Bell Bio-Energy...................  Fort Drum, NY........       0.01  2009................       0.01       0.01
Bell Bio-Energy...................  Fort AP Hill, VA.....       0.01  2009................       0.01       0.01
Bell Bio-Energy...................  Fort Bragg, NC.......       0.01  2009................       0.01       0.01
Bell Bio-Energy...................  Fort Benning, GA.....       0.01  2009................       0.01       0.01
Bell Bio-Energy...................  San Pedro, CA........       0.01  2009................       0.01       0.01

Cello Energy......................  TBD (AL).............      50.00  2010................      16.67      26.67
Cello Energy......................  TBD (AL).............      50.00  2010................      16.67      26.67
Cello Energy......................  TBD (GA).............      50.00  2010................      16.67      26.67
Flambeau River Biofuels...........  Park Falls, WI.......       6.00  2010................       3.00       4.80
                                   -----------------------------------------------------------------------------
    Total 2010 Production Forecast  .....................  .........  ....................     100.74     144.57
----------------------------------------------------------------------------------------------------------------

b. Federal/State Production Incentives
    In addition to helping fund a series of small-scale cellulosic
biofuel plants, the Department of Energy, along with the U.S.
Department of Agriculture (USDA), is also helping to fund critical
research to help make cellulosic biofuel production more commercially
viable. In March 2007, DOE awarded $23 million in grants to four
companies and one university to develop more efficient microbes for
ethanol refining. In June 2007, DOE and USDA awarded $8.3 million to 10
universities, laboratories, and research centers to conduct genomics
research on woody plant tissue for bioenergy. Later that same month,
DOE announced plans to spend $375 million to build three bioenergy
research centers dedicated to accelerating research and development of
cellulosic ethanol and other biofuels. The centers, which will each
focus on different feedstocks and biological research challenges, will
be located in Oak Ridge, TN, Madison, WI, and Berkeley, CA. In December
2007, DOE awarded $7.7 million to one company, one university, and two
research centers to demonstrate the thermochemical conversion process
of turning grasses, stover, and other cellulosic materials into
biofuel. In February 2008, DOE awarded another $33.8 million to three
companies and one research center to support the development of
commercially-viable enzymes to support cellulose hydrolysis, a critical
step in the biochemical breakdown of cellulosic feedstocks. Finally, in
March 2008, DOE and USDA awarded $18 million to 18 universities and
research institutes to conduct research and development of biomass-
based products, biofuels, bioenergy, and related processes. Since 2007,
DOE has announced more than $1 billion and since 2006, USDA has
invested almost $600 million for the research, development, and
demonstration of new biofuel technology.
    Numerous states are also offering grants, tax incentives, and loan
guarantees to help encourage biofuel production. The majority of
efforts are centered on expanding ethanol production, and more
recently, cellulosic ethanol production.\84\ According to a July 2008
assessment of DOE's Energy Efficiency and Renewable Energy (EERE) Web
site,\85\ 33 states currently offer some form of ethanol production
incentive. The incentives range from support for ethanol producers to
support for research and development companies to support for feedstock
suppliers. Kansas, Maryland, and South Carolina each offer specific
incentives towards cellulosic ethanol production. Kansas offers revenue
bonds through the Kansas Development Finance Authority to help fund
construction or expansion of a cellulosic ethanol plant. Additionally,
these newly-built or expanded facilities are exempt from state property
tax for 10 years. Maryland offers a credit towards state income tax for
10% of cellulosic ethanol research and development expenses. They also
have a $0.20 per gallon production credit for cellulosic ethanol. South
Carolina gives a $0.30 per gallon production credit to cellulosic
ethanol producers that meet certain requirements.
---------------------------------------------------------------------------

    \84\ For more on state-level biodiesel production incentives,
refer to Section 1.5.4 of the DRIA.
    \85\ The database of ethanol incentives and laws by state is
available at: http://www.eere.energy.gov/afdc/ethanol/incentives_laws.html.
---------------------------------------------------------------------------

    In addition to individual state incentives, a group of states in
the Midwest have joined together to pursue ethanol and other biofuel
production and usage goals as part of the Midwest Energy Security and
Climate Stewardship Platform.\86\ As of June 2008, Indiana, Iowa,
Kansas, Michigan, Minnesota, North Dakota, Ohio, South Dakota, and
Wisconsin had all committed to these goals which emphasize energy
independence through the growth of cellulosic ethanol production and
availability of E85. The Platform goals are to produce cellulosic
ethanol on a commercial level by 2012 and to have E85 offered at one-
third of refueling stations by 2025. They also want to reduce the
energy intensity of ethanol production and supply 50% of their
transportation fuel needs by regionally produced biofuels by 2025.
---------------------------------------------------------------------------

    \86\ Midwest Governors Association, ``Energy Security and
Climate Stewardship Platform for the Midwest 2007'' (http://www.midwesterngovernors.org/resolutions/Platform.pdf)
---------------------------------------------------------------------------

    Finally, the passage of the Food, Conservation, and Energy Act of
2008 (also known as the ``2008 Farm Bill'') is also helping to spur
cellulosic ethanol production and use.\87\ The 2008 Farm Bill modified
the existing $0.51 per gallon alcohol blender credit to give preference
to ethanol and other biofuels produced from cellulosic feedstocks. Corn
ethanol now receives a reduced credit of $0.45/gal while cellulosic
biofuel earns a credit of $1.01/gal.\88\ The 2008 Farm Bill also has
provisions that enable USDA to assist with the commercialization of
second-generation biofuels. Section 9003 authorizes loan guarantees for
the development, construction and retrofitting of commercial scale
biorefineries. Section 9004 provides payments to biorefineries to
replace fossil fuels with renewable biomass. Section 9005 provides
payments to producers to support and ensure production of advanced
biofuels. And finally, Section 9008 provides competitive grants,
contracts and financial assistance to enable eligible entities to carry
out research, development, and demonstration of biofuels and biomass-
based based products. For more information on the Federal and state
production incentives outlined in this subsection, refer to Section
<IP_ADDRESS> of the DRIA.
---------------------------------------------------------------------------

    \87\ The Food, Conservation, and Energy Act of 2008 (http://www.usda.gov/documents/Bill_6124.pdf)
    \88\ Refer to Part II, Subparts A and B (Sections 15321 and
15331).
---------------------------------------------------------------------------

c. Feedstock Availability
    A wide variety of feedstocks can be used for cellulosic ethanol
production, including: Agricultural residues,

forestry biomass, municipal solid waste, construction and demolition
waste, and energy crops. These feedstocks are much more difficult to
convert into ethanol than traditional starch/corn crops or at least
require new and different processes because of the more complex
structure of cellulosic material.
    One potential barrier to commercially viable cellulosic biofuel
production is high feedstock cost. As such, fuel producers will seek to
acquire inexpensive feedstocks in sufficient quantities to lower their
production costs and the risk of feedstock supply shortages. At least
initially, the focus will be on feedstocks that are readily available,
already produced or collected for other reasons, and even waste biomass
which currently incurs a disposal fee. Consequently, initial volumes of
cellulosic biofuels may benefit from low-cost feedstocks. However, to
reach 16 Bgal will likely require reliance on more expensive feedstock
sources purposely grown and or harvested for conversion into cellulosic
biofuel.
    To determine the likely cellulosic feedstocks for production of 16
billion gallons cellulosic biofuel by 2022, we analyzed the data and
results from various sources. Sources include agricultural modeling
from the Forestry Agriculture Sector Optimization Model (FASOM) to
establish the most economical agriculture residues and energy crops
(see Section IX for more details on the FASOM), consultation with USDA-
Forestry Sector experts for forestry biomass supply curves, and
feedstock assessment estimates for urban waste.\89\
---------------------------------------------------------------------------

    \89\ It is important to note that our plant siting analysis for
cellulosic ethanol facilities used the most current version of
outputs from FASOM at the time, which was from April 2008. Since
then, FASOM has been updated to reflect better assumptions.
Therefore, the version used for the NPRM in Section IX on economic
impacts is slightly different than the one we used here. We do not
believe that the differences between the two versions are enough to
have a major impact on the plant siting analysis.
---------------------------------------------------------------------------

    An important assumption in our analysis projecting which feedstocks
will be used for producing cellulosic ethanol is that an excess of
feedstock would have to be available for producing the biofuel. Banks
are anticipated to require excess feedstock supply as a safety factor
to ensure that the plant will have adequate feedstock available for the
plant, despite any feedstock emergency, such as a fire, drought,
infestation of pests etc. For our analysis we assumed that twice the
feedstock of MSW, C&D waste, and forest residue would have to be
available to justify the building of a cellulosic ethanol plant. For
corn stover, we assumed 50% more feedstock than necessary. We used a
lower safety factor for corn stover because it could be possible to
remove a larger percentage of the corn stover in any given year
(usually only 50% or less of corn stover is assumed to be sustainably
removed in any one year).\90\ As a result, our projected cellulosic
facilities only consume a portion of the total supply of feedstock
available. After a cellulosic facility is fully established and certain
risks are reduced, it is entirely possible that the facility may choose
to consume excess feedstock in order to expand production. In addition,
more facilities could potentially be built if financial investors
required less excess supply. Since we are assessing the impact of
producing 16 Bgal of cellulosic biofuel by 2022, this analysis does not
project the construction of more facilities or more feedstocks consumed
than necessary.
---------------------------------------------------------------------------

    \90\ The FASOM results do not take into consideration these
feedstock safety margins. Safety margins were used, however, for the
plant siting analysis described in Section V.B.2.c.v.
---------------------------------------------------------------------------

    Another assumption that we made is that if multiple feedstocks are
available in an area, each would be used as feedstocks for a
prospective cellulosic ethanol plant. For example, a particular area
might comprise a small or medium sized city, some forest and some
agricultural land. We would include the MSW and C&D wastes available
from the city along with the corn stover and forest residue for
projecting the feedstock that would be processed by the particular
cellulosic ethanol plant.
    The following subsections describe the availability of various
cellulosic feedstocks and the estimated amounts from each feedstock
needed to meet the EISA requirement of 16 Bgal of cellulosic biofuel by
2022. Refer to Section V.B.2.c.iv for the summarized results of the
types and volumes of cellulosic feedstocks chosen based on our
analyses.
i Urban Waste
    Cellulosic feedstocks available at the lowest cost to the ethanol
producer will likely be chosen first. This suggests that urban waste
which is already being gathered today and which incurs a fee for its
disposal may be among the first to be used. Urban wood wastes are used
in a variety of ways. Most commonly, wastes are ground into mulch,
dumped into land-fills, or incinerated with other municipal solid waste
(MSW) or construction and demolition (C&D) debris. Urban wood wastes
include a variety of wood resources such as wood-based municipal solid
waste and wood debris from construction and demolition.
    MSW consists of paper, glass, metals, plastics, wood, yard
trimmings, food scraps, rubber, leather, textiles, etc. The portion of
MSW containing cellulosic material and typically the focus for biofuel
production is wood and yard trimmings. In addition, paper, which made
up approximately 34% of the total MSW generated in 2006, could
potentially be converted to cellulosic biofuel.\91\ Food scraps could
also be converted to cellulosic biofuel, however, it was noted by an
industry group that this feedstock could be more difficult to convert
to biofuel due to challenges with separation, storage, transport, and
degradation of the materials. Although recycling/recovery rates are
increasing over time, there appears to still be a large fraction of
biogenic material that ends up unused and in land-fills. C&D debris is
typically not available in wood waste assessments, although some have
estimated this feedstock based on population. In 1996, this was
estimated to be approximately 124 million metric tons of C&D
debris.\92\ Only a portion of this, however, would be made of woody
material. Utilization of such feedstocks could help generate energy or
biofuels for transportation. However, despite various assessments on
urban waste resources, there is still a general lack of reliable data
on delivered prices, issues of quality (potential for contamination),
and lack of understanding of potential competition with other
alternative uses (e.g. recycling, burning for electricity).
---------------------------------------------------------------------------

    \91\ EPA. Municipal Solid Waste Generation, Recycling, and
Disposal in the United States: Facts and Figures for 2006.
    \92\ Fehrs, J., ``Secondary Mill Residues and Urban Wood Waste
Quantities in the United States--Final Report,'' Northeast Regional
Biomass Program Washington, DC, December 1999.
---------------------------------------------------------------------------

    We estimated that 42 million dry tons of MSW (wood and yard
trimmings & paper) and C&D wood waste could be available for producing
biofuels after factoring in several assumptions (e.g. percent
contamination, percent recovered or combusted for other uses, and
percent moisture).93 94 We assumed that approximately 25
million dry tons (of the total 42 million dry tons) would be used.
However, many areas of the U.S. (e.g. much of the Rocky Mountain
States) have such sparse resources that a MSW and C&D cellulosic
facility would not likely be justifiable. We did assume that in areas
with other

cellulosic feedstocks (forest and agricultural residue), that the MSW
would be used even if the MSW could not justify the installation of a
plant on its own. Therefore, we have estimated that urban waste could
help contribute to the production of approximately 2.2 billion gallons
of ethanol.\95\ A more detailed discussion on this analysis is included
in the DRIA Chapter 1. Subsequent to initiating our analysis, however,
we realized that the revised renewable biomass definition in the
statute may preclude the use of most MSW. See Section III.B.4 for a
discussion of renewable biomass. When the definition of renewable
biomass is finalized, it could preclude the use of some of the lowest
cost potential feedstocks, including waste paper and C&D waste, for use
in producing cellulosic biofuel for use toward the RFS2 standard. If
this is the case, then our FRM analysis will be adjusted to reflect
this.
---------------------------------------------------------------------------

    \93\ Wiltsee, G., ``Urban Wood Waste Resource Assessment,''
NREL/SR-570-25918, National Renewable Energy Laboratory, November
1998.
    \94\ Biocycle, ``The State of Garbage in America,'' Vol. 47, No.
4, 2006, p. 26.
    \95\ Assuming 90 gal/dry ton ethanol conversion yield for urban
waste in 2022.
---------------------------------------------------------------------------

    In addition to MSW and C&D waste generated from normal day-to-day
activities, there is also potential for renewable biomass to be
generated from natural disasters. This includes diseased trees, other
woody debris, and C&D debris. For instance, Hurricane Katrina was
estimated to have damaged approximately 320 million large trees.\96\
Katrina also generated over 100 million tons of residential debris, not
including the commercial sector. The material generated from these
situations could potentially be used to generate cellulosic biofuel.
While we acknowledge this material could provide a large source in the
short-term, natural disasters are highly variable, making it hard to
predict future volumes that could be generated. We seek comment on how
to take into account such estimates to be included in future feedstock
availability analyses.
---------------------------------------------------------------------------

    \96\ Chambers, J., ``Hurricane Katrina's Carbon Footprint on
U.S. Gulf Coast Forests'' Science Vol. 318, 2007.
---------------------------------------------------------------------------

ii. Agricultural and Forestry Residues
    The next category of feedstocks chosen will likely be those that
are readily produced but have not yet been commercially collected. This
includes both agricultural and forestry residues.
    Agricultural residues are expected to play an important role early
on in the development of the cellulosic ethanol industry due to the
fact that they are already being grown. Agricultural crop residues are
biomass that remains in the field after the harvest of agricultural
crops. The most common residue types include corn stover (the stalks,
leaves, and/or cobs), straw from wheat, rice, barley, or oats, and
bagasse from sugarcane. The eight leading U.S. crops produce more than
500 million tons of residues each year, although only a fraction can be
used for fuel and/or energy production due to sustainability and
conservation constraints.\97\ Crop residues can be found all over the
United States, but are primarily concentrated in the Midwest since corn
stover accounts for half of all available agricultural residues.
---------------------------------------------------------------------------

    \97\ Elbehri, Aziz. USDA, ERS. ``An Evaluation of the Economics
of Biomass Feedstocks: A Synthesis of the Literature. Prepared for
the Biomass Research and Development Board,'' 2007; Since 2007, a
final report has been released. Biomass Research and Development
Board, ``The Economics of Biomass Feedstocks in the United States: A
Review of the Literature,'' October 2008.
---------------------------------------------------------------------------

    Agricultural residues play an important role in maintaining and
improving soil quality, protecting the soil surface from water and wind
erosion, helping to maintain nutrient levels, and protecting water
quality. Thus, collection and removal of agricultural residues must
take into account concerns about the potential for increased erosion,
reduced crop productivity, depletion of soil carbon and nutrients, and
water pollution. Sustainable removal rates for agricultural residues
have been estimated in various studies, many showing tremendous
variability due to local differences in soil and erosion conditions,
soil type, landscape (slope), tillage practices, crop rotation
managements, and the use of cover crops. One of the most recent studies
by top experts in the field showed that under current rotation and
tillage practices, about 30% of stover (about 59 million metric tons)
produced in the U.S. could be collected, taking into consideration
erosion, soil moisture concerns, and nutrient replacement costs.\98\
The same study showed that if farmers chose to convert to no-till corn
management and total stover production did not change, then
approximately 50% of stover (100 million metric tons) could be
collected without causing erosion to exceed the tolerable soil loss.
This study, however, did not consider possible soil carbon loss which
other studies indicate may be a greater constraint to environmentally
sustainable feedstock harvest than that needed to control water and
wind erosion.\99\ Experts agree that additional studies are needed to
further evaluate how soil carbon and other factors affect sustainable
removal rates. Despite unclear guidelines for sustainable removal rates
due to the uncertainties explained above, our agricultural modeling
analysis assumes that 0% of stover is removable for conventional tilled
lands, 35% of stover is removable for conservation tilled lands, and
50% is removable for no-till lands. In general, these removal
guidelines are appropriate only for the Midwest, where the majority of
corn is currently grown.
---------------------------------------------------------------------------

    \98\ Graham, R.L., ``Current and Potential U.S. Corn Stover
Supplies,'' American Society of Agronomy 99:1-11, 2007.
    \99\ Wilhelm, W.W. et. al., ``Corn Stover to Sustain Soil
Organic Carbon Further Constrains Biomass Supply,'' Agron. J.
99:1665-1667, 2007.
---------------------------------------------------------------------------

    As already noted, removal rates will vary within regions due to
local differences. Given the current understanding of sustainable
removal rates, we believe that such assumptions are reasonably
justified. We invite comment on these assumptions. Based on our
research we also note that residue maintenance requirements for the
amount of biomass that must remain on the land to ensure soil quality
is another approach for modeling sustainable residue collection
quantities, therefore we also invite comment on this approach. This
approach would likely be more accurate for all landscapes as site
specific conditions such as soil type, topography, etc. could be taken
into account. This would prevent site specific soil erosion and soil
quality concerns that would inevitably exist when using average values
for residue removal rates across all soils and landscapes. At the time
of our analyses we had limited data on which to accurately apply this
approach and therefore assumed the removal guidelines based on tillage
practices. Refer to the Section 1.1 of the DRIA for more discussion on
sustainable removal rates.
    Some of the challenges of relying on agricultural residues to
produce biofuels include the development of the technology and
infrastructure for the harvesting of biomass crops. For example, it may
be possible to reduce costs by harvesting the corn stover at the same
time that the corn is harvested, in a single pass operation, as opposed
to two separate harvests. In addition, because agricultural residues
are usually harvested only one time per year, but cellulosic ethanol
plants must receive the feedstock throughout the year, agricultural
residues would likely need to be stored at a secondary storage
facility. The transportation and storage issues and costs associated
with this secondary storage will add additional costs to using
agricultural residue as cellulosic plant feedstock. These significant
transportation and storage issues need to be resolved and the
infrastructure built before agricultural

residues can supply a steady stream of feedstock to the biorefinery. We
discuss these harvesting and storage challenges in Section 1.3 of the
DRIA.
    Our agricultural modeling (FASOM) suggests that corn stover will
make up the majority of agricultural residues used by 2022 to meet the
EISA cellulosic biofuel standard (approximately 83 million dry tons
used to produce 7.8 billion gallons of cellulosic ethanol).\100\
Smaller contributions are expected to come from other crop residues,
including bagasse (1.2 Bgal ethanol) and sweet sorghum pulp (0.1 Bgal
ethanol).\101\ At the time of this proposal, FASOM was able to model
agricultural residues but not forestry biomass as potential feedstocks.
As a result, we relied on USDA-Forest Service (FS) for information on
the forestry sector.
---------------------------------------------------------------------------

    \100\ Assuming 94 gal/dry ton ethanol conversion yield for corn
stover in 2022.
    \101\ Bagasse is a byproduct of sugarcane crushing and not
technically an agricultural residue. Sweet sorghum pulp is also a
byproduct of sweet sorghum processing. We have included it under
this heading for simplification due to sugarcane being an
agricultural feedstock.
---------------------------------------------------------------------------

    The U.S. has vast amounts of forest resources that could
potentially provide feedstock for the production of cellulosic biofuel.
One of the major sources of woody biomass could come from logging
residues. The U.S. timber industry harvests over 235 million dry tons
annually and produces large volumes of non-merchantable wood and
residues during the process.\102\ Logging residues are produced in
conventional harvest operations, forest management activities, and
clearing operations. In 2004, these operations generated approximately
67 million dry tons/year of forest residues that were left uncollected
at harvest sites.\103\ Other feedstocks include those from other
removal residues, thinnings from timberland, and primary mill residues.
---------------------------------------------------------------------------

    \102\ Smith, W. Brad et. al., ``Forest Resources of the United
States, 2002 General Technical Report NC-241,'' St. Paul, MN: U.S.
Dept. of Agriculture, Forest Service, North Central Research
Station, 2004.
    \103\ USDA-Forest Service. ``Timber Products Output Mapmaker
Version 1.0.'' 2004.
---------------------------------------------------------------------------

    Harvesting of forestry residue and other woody material can be
conducted throughout the year. Thus, unlike agricultural residue which
must be moved to secondary storage, forest material could be ``stored
on the stump.'' Avoiding the need for secondary storage and the
transportation costs for moving the feedstock there potentially
provides a significant cost advantage for forest residue over
agricultural residue. This could allow forest residue to be transported
from further distances away from the cellulosic plant compared to
agricultural residue at the same feedstock price. Section 1.1 of the
DRIA further details some of challenges with using forestry biomass as
a feedstock.
    EISA does not allow forestry material from national forests and
virgin forests that could be used to produce biofuels to count towards
the renewable fuels requirement under EISA. Therefore, we required
forestry residue estimates that excluded such material. Most recently,
the USDA-FS provided forestry biomass supply curves for various sources
(i.e., logging residues, other removal residues, thinnings from
timberland, etc.). This information suggested that a total of 76
million dry tons of forest material could be available for producing
biofuels (excluding forest biomass material contained in national
forests as required under EISA). However, much of the forest material
is in small pockets of forest which because of its regional low
density, could not help to justify the establishment of a cellulosic
ethanol plant. After conducting our feedstock availability analysis, we
estimated that approximately 44 million dry tons of forest material
could be used, which would make up approximately one fourth, or 3.8
billion gallons, of the 16 billion gallons of cellulosic biofuel
required to meet EISA.
iii Dedicated Energy Crops
    While urban waste, agricultural residues, and forest residues will
likely be the first feedstocks used in the production of cellulosic
biofuel, there may be limitations to their use due to land availability
and sustainable removal rates. Energy crops which are not yet grown
commercially but have the potential for high yields and a series of
environmental benefits could help provide additional feedstocks in the
future. Dedicated energy crops are plant species grown specifically as
renewable fuel feedstocks. Various perennial plants have been
researched as potential dedicated feedstocks. These include
switchgrass, mixed prairie grasses, hybrid poplar, miscanthus, and
willow trees.
    Perennials have several benefits over many major agricultural crops
(the majority of which are annual plants). First, energy crops based on
perennial species are grown from roots or rhizomes that remain in the
soil after harvests. This reduces annual field preparation and
fertilization costs. Second, perennial crops in temperate zones may
also have significantly higher total biomass yield per unit of land
area compared to annual species because of higher rates of net
photosynthetic CO2 fixation into sugars. Third, lower
fertilizer runoff, lower soil erosion, and increased habitat diversity
are also attributes that make perennial crops more attractive than
annual crops.\104\ Finally, energy crops tend to store more carbon in
the soil compared to agricultural crops such as corn.\105\
---------------------------------------------------------------------------

    \104\ DOE., ``Breaking the Biological Barriers to Cellulosic
Ethanol: A Joint Research Agenda,'' 2006.
    \105\ Tolbert, V.R., et al., ``Biomass Crop Production: Benefits
for Soil Quality and Carbon Sequestration,'' March 1999.
---------------------------------------------------------------------------

    The introduction of dedicated energy crops could present some
potential risks, however. Dedicated energy crops for cellulosic
biofuels can be non-native to the region where their production is
proposed.\106\ As a result, these species may potentially escape
cultivation and damage surrounding ecosystems.\107\ In addition
breeding and genetic engineering to increase environmental tolerance,
increase harvestable biomass production, and enhance energy conversion
may have unexpected ecological consequences. To minimize such risks,
non-native species and non-wild-type native species (i.e. native
species after genetic modification) should be introduced in a
responsible manner and evaluated carefully in order to weigh the
potential risks against the benefits.
---------------------------------------------------------------------------

    \106\ Lewandowski, I., J. M. O. Scurlock, E. Lindvall, and M.
Chistou, ``The development and current status of perennial
rhizomatous grasses as energy crops in the U.S. and Europe,''
Biomass Bioenergy 25:335-361, 2003.
    \107\ The Council for Agricultural Science and Technology
(CAST), ``Biofuel Feedstocks: The Risk of Future Invasions,'' CAST
Commentary QTA2007-1. November 2007. Accessed at: http://pdf.cast-science.org/websiteUploads/publicationPDFs/Biofuels%20Commentary%20Web%20version%20with%20color%20%207927146.pdf

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

    Currently, an energy crop receiving much attention is switchgrass.
Switchgrass has many qualities that make it a prime cellulosic
feedstock option. However, switchgrass and other energy crops are not
currently harvested on a large scale. Switchgrass would likely be grown
on a 10-year crop rotation basis, with harvest beginning in year 1 or
2, depending on location. Because switchgrass and other dedicated
energy crops would not be harvested annually, there will be some
economic challenges in terms of price forecasting and contracts.
Accordingly, 10- to 15-year arrangements may be needed to stabilize the
market for energy crops.\108\ Despite these challenges, dedicated
energy crops are still projected to be needed in 2022 in order to meet
the aggressive goal of 16 Bgal of

cellulosic biofuel by 2022 as outlined in EISA.
---------------------------------------------------------------------------

    \108\ Zeman, N., ``Feedstock: Potential Players,'' Ethanol
Producer Magazine, October 2006.
---------------------------------------------------------------------------

    Since energy crops are not being grown today to make fuels, their
production and use depends on the development of a successful strategy.
One issue is that if they were to be grown on farmland currently used
to grow crops, the growth of switchgrass would have an opportunity cost
associated with the loss of agricultural production. For this reason,
energy crops may instead be grown on more marginal farm land such as
fallow farmland and farmland which has been converted over to prairie
grass. A study by Stanford and the Carnegie Institution found that 58
million hectares (145 million acres) of abandoned farmland would
potentially be available for growing energy crops here in the U.S.\109\
However, they also concluded that this land is marginal in quality and
thus the production per acre would be much lower compared to prime farm
land. Additionally, a substantial amount of this abandoned farm land is
a part of the Conservation Reserve Program (CRP). The CRP is the U.S.
Department of Agriculture's voluntary program that was established by
the Food Security Act of 1985 to provide farmers with a dependable
source of income, reduce erosion on unused farmland, and serve to
preserve wildlife and water quality.\110\ A large portion of the 36
million acres in the CRP land is currently planted with switchgrass and
mixed prairie grasses.\111\ However, the 2008 Farm Bill capped the
number of CRP acres at 32 million acres for 2010-2012, and we expect
that some of the CRP acres that are not re-enrolled will go into crop
production. While it may be possible to use some of the CRP acres to
produce biofuels from switchgrass and prairie grass, the potential loss
of the wildlife habitat and water quality benefits of CRP land would
have to be weighed against the potential use for this land for growing
energy crops. Also, a significant portion of the CRP land is wetlands
and likely could not be used for growing energy crops without impacting
water quality and wildlife.
---------------------------------------------------------------------------

    \109\ Campbell, J.E. at al., ``The global potential of bioenergy
on abandoned agriculture lands,'' Environ. Sci. Technology, 2008.
    \110\ Charles, Dan; ``The CRP: Paying Farmers not to Farm,''
National Public Radio, May 5, 2008.
    \111\ Farm Service Agency, ``Conservation Reserve Program,
Summary and Enrollment Statistics FY2006,'' May 2007.
---------------------------------------------------------------------------

    In addition to estimating the extent that agricultural residues
might contribute to cellulosic ethanol production, FASOM also estimated
the contribution that energy crops might provide.\112\ FASOM covers all
cropland and pastureland in production in the 48 conterminous United
States, however it does not contain all categories of grassland and
rangeland captured in USDA's Major Land Use data sets. Therefore, it is
possible there is land appropriate for growing dedicated energy crops
that is not currently modeled in FASOM. Furthermore, we constrained
FASOM to be consistent with the 2008 Farm Bill and assumed 32 million
acres would stay in CRP.\113\ These constraints on land availability
may have contributed to the model choosing a substantial amount of
agricultural residues mostly as corn stover and a relatively small
portion of energy crops as being economically viable feedstocks. The
use of other models, such as USDA's Regional Environment and
Agriculture Programming (REAP) model and University of Tennessee's
POLYSYS model, have shown that the use of energy crops in order to meet
EISA may be more significant than our current FASOM modeling
results.\114\ As such, we plan to revisit these land availability
assumptions in order to arrive at a more consistent basis for the FRM.
We request comment on these assumptions, in addition to all the
cellulosic yield assumptions that are contained in DRIA Chapter 1.
---------------------------------------------------------------------------

    \112\ Assuming 16 Bgal cellulosic biofuel total, 2.2 Bgal from
Urban Waste, and 3.8 Bgal from Forestry Biomass; 10 Bgal of
cellulosic biofuel for ag residues and/or energy crops would be
needed.
    \113\ Beside the economic incentive of a farmer payment to keep
land in CRP, local environmental interests may also fight to
maintain CRP land for wildlife preservation. Also, we did not know
what portion of the CRP is wetlands which likely could not support
harvesting equipment.
    \114\ Biomass Research and Development Initiative (BR&DI),
``Increasing Feedstock Production for Biofuels: Economic Drivers,
Environmental Implications, and the Role of Research,'' http://www.brdisolutions.com December 2008.
---------------------------------------------------------------------------

iv. Summary of Cellulosic Feedstocks for 2022
    Table V.B.2-4 summarizes our internal estimate of cellulosic
feedstocks and their corresponding volume contribution to 16 billion
gallons cellulosic biofuel by 2022 for the purposes of our impacts
assessment.

    Table V.B.2-4--Cellulosic Feedstocks Assumed To Meet EISA in 2022
------------------------------------------------------------------------
                                                                 Volume
                          Feedstock                              (Bgal)
------------------------------------------------------------------------
Agricultural Residues........................................        9.1
    Corn Stover..............................................        7.8
    Sugarcane Bagasse........................................        1.2
    Sweet Sorghum Pulp.......................................        0.1
Forestry Biomass.............................................        3.8
Urban Waste..................................................        2.2
Dedicated Energy Crops (Switchgrass).........................        0.9
                                                              ----------
        Total................................................       16.0
------------------------------------------------------------------------

v. Cellulosic Plant Siting
    Future cellulosic biofuel plant siting was based on the types of
feedstocks that would be most economical as shown in Table V.B.2-4,
above. As cellulosic biofuel refineries will likely be located close to
biomass resources in order to take advantage of lower transportation
costs, we've assessed the potential areas in the U.S. that grow the
various feedstocks chosen. To do this, we used data on harvested acres
by county for crops that are currently grown today, such as corn stover
and sugarcane (for bagasse).\115\ In some cases, crops are not
currently grown, but have the potential to replace other crops or
pastureland (e.g. dedicated energy crops). We used the output from our
economic modeling (FASOM) to help us determine which types of land are
likely to be replaced by newly grown crops. For forestry biomass, USDA-
Forestry Service provided supply curve data by county showing the
available tons produced. Urban waste (MSW wood, paper, and C&D debris)
was estimated to be located near large population centers.
---------------------------------------------------------------------------

    \115\ NASS database. http://www.nass.usda.gov/.
---------------------------------------------------------------------------

    Using feedstock availability data by county/city, we located
potential cellulosic sites across the U.S. that could justify the
construction of a cellulosic plant facility. For more details on this
analysis, refer to Section 1.5 of the DRIA. Table V.B.2-5 shows the
volume of cellulosic facilities by feedstock by state projected for
2022. The total volumes given in Table V.B.2-5 match the total volumes
given in Table V.B.2-4 within a couple hundred million gallons. As
these differences are relatively small, we believe the cellulosic
facilities sited are a good estimate of potential locations.

                          Table V.B.2-5--Projected Cellulosic Ethanol Volumes by State
                                            [Million gallons in 2022]
----------------------------------------------------------------------------------------------------------------
                                                             Agricultural     Energy     Urban
                     State                         Total        residue        crop      waste       Forestry
                                                   volume       volume        volume     volume       volume
----------------------------------------------------------------------------------------------------------------
Alabama........................................        532               0          0        140             392
Arkansas.......................................        298               0          0          0             298
California.....................................        450               0          0        221             229
Colorado.......................................         28               0          0         28               0
Florida........................................        421             390          0         31               0
Georgia........................................        437               0          0         67             370
Illinois.......................................      1,525           1,270          0        198              58
Indiana........................................      1,109             948          0        101              60
Iowa...........................................      1,697           1,635          0         32              30
Kansas.........................................        310             250          0         29              32
Kentucky.......................................         70              70          0          0               0
Louisiana......................................      1,001             590          0        103             308
Maine..........................................        191               0          0          2             189
Michigan.......................................        505             283          0        171              51
Minnesota......................................        876             750          0         50              76
Mississippi....................................        214               0          0         22             192
Missouri.......................................        654             504          0         78              72
Montana........................................         92               0          0          9              83
Nebraska.......................................        956             851          0         31              75
Nevada.........................................         17               0          0         17               0
New Hampshire..................................        171               0         35         29             107
New York.......................................         72               0          0         72               0
North Carolina.................................        315               0          0         98             217
Ohio...........................................        598             410          0        156              32
Oklahoma.......................................        793               0        777          0              16
Oregon.........................................        244               0          0         44             200
Pennsylvania...................................         42               0          0         42               0
South Carolina.................................        213               0          0         57             156
South Dakota...................................        434             350          0          6              78
Tennessee......................................         97               0          0         19              78
Texas..........................................        576             300          0        131             145
Virginia.......................................        197               0          0         95             102
Washington.....................................        175               0          0         17             158
West Virginia..................................        149               0        101          0              48
Wisconsin......................................        581             432          0         43             106
                                                ----------------------------------------------------------------
    Total Volume...............................     16,039           9,034        913      2,139           3,955
----------------------------------------------------------------------------------------------------------------

    It is important to note, however, that there are many more factors
other than feedstock availability to consider when eventually siting a
plant. We have not taken into account, for example, water constraints,
availability of permits, and sufficient personnel for specific
locations. As many of the corn stover facilities are projected to be
located close to corn starch facilities, there is the potential for
competition for clean water supplies. Therefore, as more and more
facilities draw on limited resources, it may become apparent that
various locations are infeasible. Nevertheless, our plant siting
analysis provides a reasonable approximation for analysis purposes
since it is not intended to predict precisely where actual plants will
be located. Other work is currently being done that will help address
some of these issues, but at the time of this proposal, was not yet
available.\116\
---------------------------------------------------------------------------

    \116\ USDA, WGA, Bioenergy Strategic Assessment project findings
upcoming as noted in report WGA. Transportation Fuels for the Future
Biofuels: Part I. 2008.
---------------------------------------------------------------------------

    As we are projecting the location of cellulosic plants in 2022, it
is important to keep in mind the various uncertainties in the analysis.
For example, future analyses could determine better recommendations for
sustainable removal rates. In the case where lower removal rates are
recommended, agricultural residues may be more limited and could
require more growth in dedicated energy crops. Also, the feedstocks
could be processed in the field to a liquid by a pyrolysis process,
facilitating the ability to ship the preprocessed biomass to plants
located further away from the feedstock source. Given the information
we have to date, we believe our projected locations for cellulosic
facilities represent a reasonable forecast for estimating the impacts
of this rule.
3. Imported Ethanol
a. Historic World Ethanol Production and Consumption
    Although ethanol can be used for multiple purposes (fuel,
industrial, and beverage), fuel ethanol is by far the largest market,
accounting for about two-thirds of the total world ethanol consumed.
According to forecasts, fuel ethanol might even exceed 80% of the
market share by the end of the decade.\117\ In 2008, the top three fuel
ethanol producers were the U.S., Brazil, and the European Union (EU),
producing 9.0, 6.5, and 0.7 billion gallons, respectively.\118\ Other
countries that have produced ethanol include

China, Canada, Thailand, Colombia, and India.
---------------------------------------------------------------------------

    \117\ F.O. Licht., ``World Ethanol Markets: The Outlook to
2015'', 2006, pg. 21.
    \118\ Renewable Fuels Association (RFA), ``2007 World Fuel
Ethanol Production,'' http://www.ethanolrfa.org/industry/statistics/#E, March 31, 2009.
---------------------------------------------------------------------------

    Consumption of fuel ethanol, like production, is also dominated by
the United States and Brazil. The U.S. dominates world fuel ethanol
consumption, with 9.6 billion gallons consumed in 2008 (domestic
production plus imports).\119\ Brazil is second in consumption, with
about 4.9 billion gallons projected to be consumed in 2007/2008.\120\
The EU is also a significant consumer of ethanol; however, consumption
for the EU countries was only approximately 0.7 billion gallons in
2007.\121\
---------------------------------------------------------------------------

    \119\ Ibid.
    \120\ UNICA, ``Sugarcane Industry in Brazil: Ethanol Sugar,
Bioelectricity'' Brochure, 2008.
    \121\ European Bioethanol Fuel Association (eBio), ``The EU
Market: Production and Consumption,'' http://www.ebio.org/EUmarket.php, March 31, 2009.
---------------------------------------------------------------------------

b. Historic/Current Domestic Imports
    Ethanol imports have traditionally played a relatively small role
in the U.S. transportation fuel market due to historically low crude
prices and the tariff on imported ethanol. While low crude prices made
it difficult for both domestic and imported ethanol to compete with
gasoline, the addition of the federal excise tax credit made it
possible for domestic ethanol to be economically competitive.
    Between 2000 and 2003, the total volume of fuel ethanol imports
into the United States remained relatively stable at 46-68 million
gallons.\122\ During this period of time, mostly Brazilian-based
ethanol entered the U.S. primarily through the Caribbean Basin
Initiative (CBI) countries where it could avoid the tariff. From 2004-
2005, with rising crude oil prices, most estimates show U.S. fuel
ethanol imports increased slightly to 135-164 million gallons, or about
4% of the total U.S. fuel ethanol consumption (3.5 to 4.0 billion
gallons). The volume of imports rose dramatically in 2006 to 654-720
million gallons, or about 13% of the 2006 total ethanol consumption of
5.4 billion gallons. The largest volume of imports in 2006 was from
direct Brazilian imports. This increase in ethanol imports was mainly
due to the withdrawal of MTBE from the fuel pool which increased the
price of ethanol. MTBE was used in gasoline to fulfill the oxygenate
requirements set by Congress in the 1990 Clean Air Act Amendments.
EPAct further accelerated the withdrawal of MTBE because gasoline
marketers were no longer required to use an oxygenate and gasoline
marketers did not receive the MTBE liability protection that they had
petitioned for. Refiners responded by removing MTBE and replacing its
use with ethanol. As a result, the demand for ethanol increased at
unprecedented rates as most refiners replaced MTBE with ethanol. The
dramatic increase in crude oil costs at this time also made ethanol
more economical by comparison.
---------------------------------------------------------------------------

    \122\ Values given report USITC and RFA data, however, EIA
reports slightly lower numbers prior to 2004.
---------------------------------------------------------------------------

    By the end of 2006, almost all MTBE was phased out of gasoline.
However, crude oil prices remained high, allowing ethanol imports to
the U.S. to remain economical in comparison to the past. Although not
as high as the volume of ethanol imported in 2006, the U.S. continued
to import ethanol in 2007 (425-450 million gallons). In 2008, the U.S.
imported 519-556 million gallons.\123\ As the data show, the volume of
imported ethanol can fluctuate greatly. By looking at historical import
data it is difficult to project the potential volume of future imports
to the U.S. Rather, it is necessary to assess future import potential
by analyzing the major players for foreign biofuels production and
consumption.
---------------------------------------------------------------------------

    \123\ USITC and EIA import data reported.
---------------------------------------------------------------------------

c. Projected Domestic Imports
    In our assessment of foreign ethanol production and consumption, we
analyzed the following countries or group of countries: Brazil, the EU,
Japan, India, and China. Our analyses indicate that Brazil would likely
be the only nation able to supply any meaningful amount of ethanol to
the U.S. in the future. Depending on whether the mandates and goals of
the EU, Japan, India, and China are enacted or met in the future, it is
likely that this group of countries would consume any growth in their
own production and be net importers of ethanol, thus competing with the
U.S. for Brazilian ethanol exports.
    Brazil is expected to supply the majority of future ethanol demand
and to expand their capacity for several reasons. First, Brazil has
over 30 years experience in developing the research and technologies
for producing sugarcane ethanol. As a result, Brazilians have been able
to improve agricultural and conversion processes so that sugarcane
ethanol is currently the least costly method for producing biofuels.
See Section VIII for further discussion on the production costs for
sugarcane ethanol.
    Second, it is believed that domestic demand for ethanol in Brazil
will begin to slow as most of the national fleet of vehicles will have
transitioned to flex-fuel within the next few years.\124\ Thus, as
domestic demand begins to level off, some experts see a significant
possibility that exports will become more relevant in market share
terms.
---------------------------------------------------------------------------

    \124\ Agra FNP, ``Sugar and Ethanol in Brazil: A Study of the
Brazilian Sugar Cane, Sugar and Ethanol Industries,'' 2007.
---------------------------------------------------------------------------

    Lastly, Brazil has large land areas for potential expansion for
sugarcane. A study commissioned by the Brazilian government produced an
analysis in which Brazil's arable land was evaluated for its
suitability for cane.\125\ Setting aside areas protected by
environmental regulations and those with a slope greater than 12%
(those not suitable for mechanized farming), tripling ethanol
production (a goal set by the Brazilian government by 2020) would
require only an additional 14 million acres. This additional acreage
would only be about 2% of suitable land for sugarcane production. Refer
to Section 1.5 of the DRIA for more details.
---------------------------------------------------------------------------

    \125\ CGEE, ABDI, Unicamp, and NIPE, Scaling Up the Ethanol
Program in Brazil, n.d. as quoted in Rothkopf, Garten, ``A Blueprint
for Green Energy in the Americas,'' 2006.
---------------------------------------------------------------------------

    Although Brazil is in an excellent position to help meet the
growing global demand for ethanol, several constraints could limit the
expansion of ethanol production. As Brazil's government has adopted
plans to meet global demand by tripling production by 2020,\126\ this
would mean a total capacity of about 12.7 billion gallons, to be
achieved through a combination of efficiency gains, greenfield
projects, and infrastructure expansions. Estimates for the investment
required tend to range from $2 to $4 billion a year.\127\ In addition,
Brazil will need to improve its current ethanol infrastructure (i.e.
improvements in power, transportation, storage, distribution logistics,
and communications). It is estimated that Brazil will need to invest $1
billion each year for the next 15 years in infrastructure to keep pace
with capacity expansion and export demand.\128\ Refer to Section 1.5 of
the DRIA for further details on the improvements needed for Brazil to
increase ethanol production capacity.
---------------------------------------------------------------------------

    \126\ Rothkopf, Garten, ``A Blueprint for Green Energy in the
Americas,'' 2006.
    \127\ Ibid.
    \128\ Ibid.
---------------------------------------------------------------------------

    Due to uncertainties in the future demand for ethanol domestically
and internationally as well as uncertainties in the actual investments
made in the Brazilian ethanol industry, there appears to be a wide
range of Brazilian production and domestic consumption estimates. The
most current and complete estimates indicate that total

Brazilian ethanol exports will likely reach 3.8-4.2 billion gallons by
2022.129 130 131 As this volume of ethanol export is
available to countries around the world, only a portion of this will be
available exclusively to the United States. If the balance of the EISA
advanced biofuel requirement not met with cellulosic biofuel and
biomass-based diesel were to be met with imported sugarcane ethanol
alone, it would require 3.2 billion gallons (see Table V.A.2-1), or
approximately 80% of total Brazilian ethanol export estimates.
---------------------------------------------------------------------------

    \129\ EPE, ``Plano Nacional de Energia 2030,'' Presentation from
Mauricio Tolmasquim, 2007.
    \130\ UNICA, ``Sugarcane Industry in Brazil: Ethanol, Sugar,
Bioelectricity,'' 2008.
    \131\ USEPA International Visitors Program Meeting October 30,
2007, correspondence with Mr. Rodrigues, Technical Director from
UNICA Sao Paulo Sugarcane Agro-industry Union, stated approximately
3.7 billion gallons probable by 2017/2020; Consistent with brochure
``Sugarcane Industry in Brazil: Ethanol Sugar, Bioelectricity'' from
UNICA (3.25 Bgal export in 2015 and 4.15 Bgal export in 2020).
---------------------------------------------------------------------------

    The amount of Brazilian ethanol available for shipment to the U.S.
will be dependent on the biofuels mandates and goals set by other
foreign countries (i.e., the EU, Japan, India, and China) in addition
to U.S. policies to promote the use of renewable fuels. Our estimates
show that there could be a potential demand for imported ethanol of
4.6-14.6 billion gallons by 2020/2022 from these countries. This is due
to the fact that some countries are unable to produce large volumes of
ethanol because of land constraints or low production capacity. As
such, foreign countries may have limited domestic biofuel production
capability and may therefore require importation of biofuels in order
to meet their mandates and goals. Refer to Section 1.5 of the DRIA for
further details. Therefore, if other foreign country mandates and goals
are to be met, then Brazil may need to either increase production much
more than its government projects or export less ethanol to the U.S.
This suggests that the U.S. may be competing for Brazilian ethanol
exports if supplies are limited in the future. For our analysis we
assumed that the U.S. would consume the majority of Brazilian exports
(i.e. 80% of export estimates in 2022). This is aggressive, yet within
the bounds of reason, therefore, we have made this simplifying
assumption for the purposes of further analysis. We seek comment on the
legitimacy of this assumption given the ethanol export deals and
commitments that Brazil has made or may potentially make with other
nations in the future.
    Generally speaking, Brazilian ethanol exporters will seek routes to
countries with the lowest transportation costs, taxes, and tariffs.
With respect to the U.S., the most likely route is through the
Caribbean Basin Initiative (CBI).\132\ Brazilian ethanol entering the
U.S. through the CBI countries is not currently subject to the 54 cent
imported ethanol tariff and yet receives the 45 cent ethanol blender
tax subsidy. Due to the economic incentive of transporting ethanol
through the CBI, we expect the majority of the tariff rate quota (TRQ)
to be met or exceeded, perhaps 90% or more. The TRQ is set each year as
7% of the total domestic ethanol consumed in the prior year. If we
assume that 90% of the TRQ is met and that total domestic ethanol (corn
and cellulosic ethanol) consumed in the prior year was 28.5 Bgal, then
approximately 1.8 Bgal of ethanol could enter the U.S. through CBI
countries. The rest of the Brazilian ethanol exports not entering the
CBI will compete on the open market with the rest of the world
demanding some portion of direct Brazilian ethanol. We calculated the
amount of direct Brazilian ethanol exports in 2022 to the U.S. as the
total imported ethanol required (3.14 billion gallons) to meet the RFS2
volume requirements subtracted by imported ethanol from CBI countries
(1.8 billion gallons), or equal to 1.34 billion gallons.
---------------------------------------------------------------------------

    \132\ Other preferential trade agreements include the North
American Free Trade Agreement (NAFTA) which permits tariff-free
ethanol imports from Canada and Mexico and the Andean Trade
Promotion and Drug Eradication Act (ATPDEA) which allows the
countries of Columbia, Ecuador, Bolivia, and Peru to import ethanol
duty-free. Currently, these countries export or produce relatively
small amounts of ethanol, and thus we have not assumed that the U.S.
will receive any substantial amounts from these countries in the
future for our analyses.
---------------------------------------------------------------------------

    In the past, companies have also avoided the ethanol import tariff
through a duty drawback.\133\ The drawback is a loophole in the tax
rules which allowed companies to import ethanol and then receive a
rebate on taxes paid on the ethanol when jet fuel is sold for export
within three years. The drawback considered ethanol and jet fuel as
similar commodities (finished petroleum derivatives).134 135
Most recently, however, Senate Representative Charles Grassley from
Iowa included a provision into the Farm Bill of 2008 that ended such
refunds. The provision states that ``any duty paid under subheading
9901.00.50 of the Harmonized Tariff Schedule of the United States on
imports of ethyl alcohol or a mixture of ethyl alcohol may not be
refunded if the exported article upon which a drawback claim is based
does not contain ethyl alcohol or a mixture of ethyl alcohol.'' \136\
The provision is effective on or after October 1, 2008 and companies
have until October 1, 2010 to apply for a duty drawback on prior
transactions. With the loophole closed, it is anticipated that there
may be less ethanol directly exported from Brazil in the future.\137\
---------------------------------------------------------------------------

    \133\ Rapoza, Kenneth, ``UPDATE: Tax Loophole Helps US Import
Ethanol `Duty Free'--ED&F,'' INO News, Dow Jones Newswires, March
2008. http://news.ino.com/.
    \134\ Peter Rhode, ``Senate Finance May Take Up Drawback
Loophole As Part of Energy Bill,'' EnergyWashington Week, April 18,
2007. As sited in Yacobucci, Brent, ``Ethanol Imports and the
Caribbean Basin Initiative,'' CRS Report for Congress, Order Code
RS21930, Updated March 18, 2008.
    \135\ Perkins, Jerry, ``BRAZIL: Loophole Hurt U.S. Ethanol
Prices,'' DesMoinesRegister.com, October 18, 2007.
    \136\ Public Law Version 6124 of the Farm Bill. 2008. http://www.usda.gov/documents/Bill_6124.pdf.
    \137\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End;
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News,
Issue 45, November 4, 2008.
---------------------------------------------------------------------------

    For our distribution and air quality analyses, we had to make a
determination as to where the projected imported ethanol would likely
enter the United States. To do so, we started by looking at 2006
ethanol import data and made assumptions as to which countries would
likely contribute to the CBI ethanol volumes in Table V.B.3-1, and to
what extent.\138\ We estimated that, on average, in future years, 30%
would come from Jamaica, 20% each would come from El Salvador and Costa
Rica, and 15% each would originate from Trinidad & Tobago and the
Virgin Islands. Even though to date there have not been a lot of
ethanol imports from the Virgin Islands, we believe that they could
become a comparable importer to Trinidad & Tobago in the future under
the proposed RFS2 program.
---------------------------------------------------------------------------

    \138\ Source: EIA data on company-level imports (http://www.eia.doe.gov/oil_gas/petroleum/data_publications/company_level_imports/cli_historical.html).
---------------------------------------------------------------------------

    From there, we looked at 2006-2007 import data and estimated the
general destination of Brazilian ethanol and the five contributing CBI
countries' domestic imports. Based on these countries' geographic
locations and import histories, we estimated that in 2022 about 75% of
the ethanol would be imported to the East and Gulf Coasts and the
remainder would go to the West Coast and Hawaii. To estimate import
locations, we considered coastal port cities that had received ethanol
or finished gasoline imports in 2006 and distributed the ethanol
accordingly based on ethanol demand. For more information on this
analysis, refer to Section 1.5 of the DRIA.

4. Biodiesel & Renewable Diesel
    Biodiesel and renewable diesel are replacements for petroleum
diesel that are made from plant or animal fats. Biodiesel consists of
fatty acid methyl esters (FAME) and can be used in low-concentration
blends in most types of diesel engines and other combustion equipment
with no modifications. The term renewable diesel covers fuels made by
hydrotreating plant or animal fats in processes similar to those used
in refining petroleum. Renewable diesel is chemically analogous to
blendstocks already used in petroleum diesel, thus its use can be
transparent and its blend level essentially unlimited. The goal of both
biodiesel and renewable diesel conversion processes is to change the
properties of a variety of feedstocks to more closely match those of
petroleum diesel (such as its density, viscosity, and energy content)
for which the engines and distribution system have been designed. Both
processes can produce suitable fuels from biogenic sources, though we
believe some feedstocks lend themselves better to one process or the
other. The definition of biodiesel given in applicable regulations is
sufficiently broad to be inclusive of both fuels.\139\ However, the
EISA stipulates that renewable diesel that is co-processed with
petroleum diesel cannot be counted as ``biomass-based diesel'' for
purposes of complying with its volume mandates.\140\
---------------------------------------------------------------------------

    \139\ See Section 1515 of the Energy Policy Act of 2005. More
discussion of the definitions of biodiesel and renewable diesel are
given in the preamble of the Renewable Fuel Standard rulemaking,
Section III.B.2, as published in the Federal Register Vol. 72, No.
83, p. 23917.
    \140\ For more detailed discussion of the definition of
coprocessing and its implications for compliance with EISA, see
Section III.B.1 of this preamble.
---------------------------------------------------------------------------

    In general, plant and animal oils are valuable commodities with
many uses other than transportation fuel. Therefore we expect the
primary limiting factor in the supply of both biodiesel and renewable
diesel to be feedstock availability and price. Expansion of their
market volumes is dependent on being able to compete on price with the
petroleum diesel they are displacing, which will depend largely on
continuation of current subsidies and other incentives.
    Other biomass-based diesel fuel plants are either already built or
being considered for construction. Cello Energy has already started up
a 20 million gallon per year catalytic depolymerization plant that is
producing diesel fuel from cellulose and other feedstocks, and Cello
intends on building several 50 million gallon per year plants to be
started up in 2010. Also, numerous other companies are planning on
building biomass to liquids (BTL) plants that produce diesel fuel
through the syngas and Fischer Tropsch pathway. However, for our
analysis for this proposed rulemaking, we did not project that biomass-
based diesel fuel would be produced from these processes.
a. Historic and Projected Production
i. Biodiesel
    As of September 2008, the aggregate production capacity of
biodiesel plants in the U.S. was estimated at 2.6 billion gallons per
year across approximately 176 facilities.\141\ Biodiesel plants exist
in nearly all states, with the largest density of plants in the Midwest
and Southeast where agricultural feedstocks are most plentiful.
---------------------------------------------------------------------------

    \141\ Figures here were taken from National Biodiesel Board fact
sheet dated September 29, 2008 (http://biodiesel.org/pdf_files/fuelfactsheets/Producers%20Map%20-%20existing.pdf). This information
was current at the time these analyses were being done. More recent
data maintained by Biodiesel Magazine suggests that by April 2009
the industry had contracted to approximately 137 plants with
aggregate capacity of 2.3 billion gal/yr (see http://www.biodieselmagazine.com/plant-list.jsp).
---------------------------------------------------------------------------

    Table V.B.4-1 gives U.S. biodiesel production capacity, sales, and
capacity utilization in recent years. The figures suggest that the
industry has grown out of proportion with actual biodiesel demand.
Reasons for this include various state incentives to build plants,
along with state and federal incentives to blend biodiesel, which have
given rise to an optimistic industry outlook over the past several
years. Since the cost of capital is relatively low for the biodiesel
production process (typically four to six percent of the total per-
gallon cost), this industry developed a more grassroots profile in
comparison to the ethanol industry, and, with median size less than 10
million gallons/yr, consists of a large number of small plants.\142\
These small plants, with relatively low operating costs other than
feedstock, have generally been able to survive producing below their
nameplate capacities.
---------------------------------------------------------------------------

    \142\ Capital figures derived from USDA production cost models.
A publication describing USDA modeling of biodiesel production costs
can be found in Bioresource Technology 97(2006) 671-8.
    \143\ Capacity data taken from National Biodiesel Board.
Production figures taken from F.O. Licht World Ethanol and Biofuels
Report, vol. 6, no. 11, p S271, except 2008, which is an estimate
taken from National Biodiesel Board (http://www.biodiesel.org/pdf_files/fuelfactsheets/Production_graph_slide.pdf).

                          Table V.B.4-1--U.S. Biodiesel Capacity and Production Volumes
                                             [Million gallons] \143\
----------------------------------------------------------------------------------------------------------------
                                                                                Utilization
                              Year                                   Capacity       Production       (percent)
----------------------------------------------------------------------------------------------------------------
2003............................................................             150              21             14%
2004............................................................             245              36              15
2005............................................................             395             115              29
2006............................................................             792             241              30
2007............................................................           1,809             499              28
2008............................................................           2,610             700              27
----------------------------------------------------------------------------------------------------------------

    Some of this industry capacity may not be dedicated specifically to
fuel production, instead being used to make oleochemical feedstocks for
further conversion into products such as surfactants, lubricants, and
soaps. These products do not show up in renewable fuel sales figures.
    In 2004-5, demand for biodiesel grew rapidly, but the trend of
increasing capacity utilization was quickly overwhelmed by additional
plant starts. Since then, high commodity prices followed by reduced
demand for transportation fuel have caused additional economic strain
beyond the overcapacity situation. According to a survey conducted by
Biodiesel Magazine staff, more than 1 in 5 plants were already idle or
defunct as of late 2007 (though this likely varies by

region).\144\ A significant portion of the 2007 and 2008 production was
exported to Europe or Asia where fuel prices and additional tax
subsidies on top of those provided in the U.S. help cover
transportation overseas and offset high feedstock costs. The Energy
Information Administration is beginning to collect data on biodiesel
imports and exports, but reports are not expected until later in 2009.
Therefore precise figures are not available on what fraction of
production was consumed domestically, but sources familiar with the
industry suggest exports may have been as much as 200 million gallons
in 2007 and likely more in 2008.\145\ We do not account for any
biodiesel exports in our analysis, though there will be sufficient
plant capacity to produce material beyond the volumes required in the
EISA should an export market exist.
---------------------------------------------------------------------------

    \144\ Derived from figures published in Biodiesel Magazine, May
2008, p. 39.
    \145\ Staff-level communication with National Biodiesel Board
(April 2008).
---------------------------------------------------------------------------

    To perform our distribution and emission impacts analyses for this
proposal, it was necessary to forecast the state of the biodiesel
industry in the timeframe of the fully-phased-in RFS. In general, this
consisted of reducing the over-capacity to be much closer to the amount
demanded, which we assumed to be equal to the requirement under the
EISA given uncertainties about feedstock prices and changes in tax
incentives in the long term. This was accomplished by considering as
screening factors the current production and sales incentives in each
state as well as each plant's primary feedstock type and whether it was
BQ-9000 certified.\146\ Going forward producers will compete for
feedstocks and markets will consolidate. During this period the number
of operating plants is expected to shrink, with surviving plants adding
feedstock segregation and pre-treatment capabilities, giving them
flexibility to process any mix of feedstocks available in their area.
By the end of this period we project a mix of large regional plants and
some smaller plants taking advantage of local market niches, with an
overall average capacity utilization around 80% for dedicated fuel
plants. Table V.B.4-2 summarizes this forecast. See Section 1.5.4 of
the DRIA for more details.
---------------------------------------------------------------------------

    \146\ Information on state incentives was taken from U.S.
Department of Energy Web site, accessed July 30, 2008, at http://www.eere.energy.gov/afdc/fuels/biodiesel_laws.html. Information on
feedstock and BQ-9000 status was taken from Biodiesel Board fact
sheet, accessed July 30, 2008, at http://biodiesel.org/pdf_files/fuelfactsheets/Producers%20Map%20-%20existing.pdf.

 Table V.B.4-2--Summary of Projected Biodiesel Industry Characterization
                       Used in Our Analyses \147\
------------------------------------------------------------------------
                                                          2008     2022
------------------------------------------------------------------------
Total production capacity on-line (million gal/yr)....    2,610    1,050
Number of operating plants............................      176       35
Median plant size (million gal/yr)....................        5       30
Total biodiesel production (million gal)..............      700      810
Average plant utilization.............................     0.27     0.77
------------------------------------------------------------------------

ii. Renewable Diesel
    Renewable diesel is a fuel (or blendstock) produced from animal
fats, vegetable oils, and waste greases using chemical processes
similar to those employed in petroleum hydrotreating. These processes
remove oxygen and saturate olefins, converting the triglycerides and
fatty acids into paraffins. Renewable diesel typically has higher
cetane, lower nitrogen, and lower aromatics than petroleum diesel fuel,
while also meeting stringent sulfur standards.
---------------------------------------------------------------------------

    \147\ Industry data for 2008 taken from National Biodiesel Board
fact sheets at http://www.biodiesel.org/buyingbiodiesel/producers_marketers/Producers%20Map-Existing.pdf and http://www.biodiesel.org/pdf_files/fuelfactsheets/Production_graph_slide.pdf (both
accessed April 27, 2009).
---------------------------------------------------------------------------

    In comparison to biodiesel, renewable diesel has improved storage,
stability, and shipping properties as a result of the oxygen and
olefins in the feedstock being removed. This allows renewable diesel
fuel to be shipped in existing petroleum pipelines used for
transporting fuels, thus avoiding one significant issue with
distribution of biodiesel. For more on fuel distribution, refer to
Section V.C.
    Considering that this industry is still in development and that
there are no long-term projections of production volume, we base our
production estimates primarily on the potential volume of feedstocks
for this process, in the context of recent industry project
announcements involving proven technology. We project that
approximately two-thirds of renewable diesel will be produced at
existing petroleum refineries, and half will be co-processed with
petroleum (thus prohibiting it from counting as ``biomass-based
diesel'' under the EISA). Tables V.B.4-3 and V.B.4-4 summarize these
volumes.

Table V.B.4-3--Projected Renewable Diesel Volumes by Production Category
                        [Million gallons in 2022]
------------------------------------------------------------------------
                                                  Existing       New
                                                  facility     facility
------------------------------------------------------------------------
Co-processed with petroleum...................          188           --
Not co-processed with petroleum...............           63          125
------------------------------------------------------------------------

b. Feedstock Availability
    The primary feedstock for domestic biodiesel production has
historically been soybean oil, with other plant and animal fats as well
as recycled greases making up a smaller but significant portion of the
biodiesel pool. Agricultural commodity modeling we have done for this
proposal (see Section IX.A) suggests that soybean oil production will
stay relatively flat in the future, causing supplies to tighten and
prices to rise as demand increases for biofuels and food uses
worldwide. The output of these models suggests that domestic soy oil
production could support about 550 million gallons per year in 2022.
This material is most likely to be processed by biodiesel plants due to
the large available capacity of these facilities and their proximity to
soybean production. Compared to other feedstocks, virgin plant oils are
more easily processed into biofuel via simple transesterification due
to their homogeneity of composition and lack of contaminants.
    Another source of feedstock which could provide increasing and
significant volume is oil extracted from corn or its co-products in the
dry mill ethanol production process. Sometimes referred to as corn
fractionation or dry separation, these processes get additional
products of value from the dry milling process. This idea is not

new, as existing wet mill plants create several product streams from
their corn input, including oil. Corn fractionation can be seen as a
way to get some of this added value without incurring the larger
capital costs and potentially lower ethanol yields associated with wet
mill plants. More detailed discussion of these processes and how they
affect the co-product stream(s) can be found in DRIA Section <IP_ADDRESS>.
    The corn oil process on which we have chosen to focus for cost and
volume estimates in this proposal is one that extracts oil from the
thin stillage after fermentation (the non-ethanol liquid material that
typically becomes part of distillers' grains with solubles). We believe
installation of this type of equipment will be attractive to industry
because it can be added onto an existing dry mill plant and does not
impact ethanol yields since it does not process the corn prior to
fermentation. Depending on the configuration, such a system can extract
20-50% of the oil from the co-product streams, and produces a
distressed corn oil (non-food-grade, with some free fatty acids and/or
oxidation by-products) product stream which can be used as feedstock by
biodiesel facilities. Since it offers another stream of revenue, we
believe it is reasonable to expect about 40% of projected total ethanol
production to implement some type of oil extraction process by 2022,
generating approximately 150 million gallons per year of corn oil
biofuel feedstock.\148\ We expect this material to be processed in
biodiesel plants.
---------------------------------------------------------------------------

    \148\ See Table 3 in Mueller, Steffen. An analysis of the
projected energy use of future dry mill corn ethanol plants (2010-
2030). October 10, 2007. Available at http://www.chpcentermw.org/pdfs/2007CornEthanolEnergySys.pdf.
---------------------------------------------------------------------------

    Rendered animal fats and reclaimed cooking oils and greases are
another potentially significant source of biodiesel feedstock. We
estimate that just two to four percent of biodiesel in 2007 was
produced from waste cooking oils and greases, though this number is
likely higher more recently.\149\ Tyson Foods, in joint efforts with
ConocoPhilips and Syntroleum, announced construction plans in 2008 for
renewable diesel production facilities to begin operating in 2010 and
producing up to 175 million gallons annually (combined capacity). By
the end of our projection period, as much as 30% of rendered fats and
waste grease could be converted to biofuel while still supporting
production of pet food, soaps and detergents, and other
oleochemicals.\150\ We request comment from members of these industries
on any potential impacts of diversion of rendered materials to biofuel.
---------------------------------------------------------------------------

    \149\ Based on plant capacities reported by the National
Biodiesel Board and data reported by F.O. Licht.
    \150\ Based on statements from the National Renderer's
Association.
---------------------------------------------------------------------------

    Under this assumption, this material could make approximately 500
million gallons of biofuel (though we have not chosen to allocate all
of it in our analyses here). We estimate this type of material could be
most economically made into renewable diesel in the long term, as that
process does not have the same sensitivities to free fatty acids and
other contaminates typically present in waste greases as the biodiesel
process; however, some amount of this material may continue to be
processed in biodiesel plants that have acid pretreatment capabilities
where it makes economic sense. Recent market shifts and changes in tax
subsidies enacted after analyses were done for this NPRM have affected
the relative economics of using waste fats and greases for biodiesel
versus renewable diesel. We will reevaluate our assumptions in the FRM.
    Our analysis of the countries with the most potential to produce
and consume biodiesel in the future suggests that supplies of finished
biodiesel will be tight, and prices of its feedstocks will remain high.
Supplies to the U.S. will be limited by biofuel mandates and targets of
other countries, preferential shipment of biodiesel to European and
Asian nations, and the speed at which non-traditional crops such as
jatropha can be developed. Thus, we cannot at this time project more
than negligible amounts of biodiesel or its feedstocks being available
for import into the U.S. in the future. For more discussion of
international movement of biodiesel and its feedstocks, refer to
Section 1.1 of the DRIA.
    Table V.B.4-4 shows the projected potential contribution of these
sources we have chosen to quantify. Other potential, but less certain,
sources for biodiesel feedstocks include conversion of some existing
croplands used for soybeans to higher-yielding oilseed crops.
Production of oil from algae farms is also being investigated by a
number of companies and universities as a source of biofuel feedstock.
For additional discussion of such sources, refer to Section 1.1 of the
DRIA.

    Table V.B.4-4--Estimated Potential Biodiesel and Renewable Diesel
                             Volumes in 2022
                        [Million gallons of fuel]
------------------------------------------------------------------------
                                     Biomass-based diesel       Other
                                  --------------------------   advanced
                                                               biofuel
                                                 Renewable  ------------
                                    Biodiesel      diesel     Renewable
                                                                diesel
------------------------------------------------------------------------
Virgin plant oils................          660           --           --
Corn fractionation...............          150           --           --
Rendered fats and greases........           --          188          188
------------------------------------------------------------------------

C. Renewable Fuel Distribution

    The following discussion pertains to the distribution of biofuels.
A discussion of the distribution of biofuel feedstocks and co-products
is contained in Section 1.3.3 and 5.1 of the DRIA respectively. In
conducting our analysis of biofuel distribution, we took into account
the projected size and location of biofuel production facilities and
where we project biofuels would be used.\151\
---------------------------------------------------------------------------

    \151\ The location of biofuel production facilities and where
biofuels would be used is discussed in Sections 1.5 and 1.7 of the
DRIA respectively and earlier in this Section V of the preamble.
---------------------------------------------------------------------------

    The current motor fuel distribution infrastructure has been
optimized to facilitate the movement of petroleum-based fuels.
Consequently, there are very efficient pipeline-terminal networks that
move large volumes of petroleum-based fuels from production/import
centers on the Gulf Coast and the Northeast into the heartland of the

country. In contrast, the majority of renewable fuel is expected to be
produced in the heartland of the country and will need to be shipped to
the coasts, flowing roughly in the opposite direction of petroleum-
based fuels. This limits the ability of renewable fuels to utilize the
existing fuel distribution infrastructure.
    The modes of distributing renewable fuels to the end user vary
depending on constraints arising from their physical/chemical nature
and their point of origination. Some fuels are compatible with the
existing fuel distribution system, while others currently require
segregation from other fuels. The location of renewable fuel production
plants is also often dictated by the need to be close to the source of
the feedstocks used rather than to fuel demand centers or to take
advantage of the existing petroleum product distribution system. Hence,
the distribution of renewable fuels raises unique concerns and in many
instances requires the addition of new transportation, storage,
blending, and retail equipment.
    Significant challenges must be faced in reconfiguring the
distribution system to accommodate the large volumes of ethanol and to
a lesser extent biodiesel that we project will be used. While some
uncertainties remain, particularly with respect to the ability of the
market to support the use of the volume of E85 needed, no technical
barriers appear to be insurmountable. The response of the
transportation system to date to the unprecedented increase in ethanol
use is encouraging. A U.S. Department of Agriculture (USDA) report
concluded that logistical concerns have not hampered the growth in
ethanol production, but that concerns may arise about the adequacy of
transportation infrastructure as the growth in ethanol production
continues.\152\
---------------------------------------------------------------------------

    \152\ ``Ethanol Transportation Backgrounder, Expansion of U.S.
Corn-based Ethanol from the Agricultural Transportation
Perspective'', USDA, September 2007, http://www.ams.usda.gov/tmd/TSB/EthanolTransportationBackgrounder09-17-07.pdf.
---------------------------------------------------------------------------

    Considerable efforts are underway by individual companies in the
fuel distribution system, consortiums of such companies, industry
associations, independent study groups, and inter-agency governmental
organizations to evaluate what steps may be necessary to facilitate the
necessary upgrades to the distribution system to support compliance
with the RFS2 standards.\153\ EPA will continue to participate/monitor
these efforts as appropriate to keep abreast of potential problems in
the biofuel distribution system which might interfere with the use of
the volumes of biofuels that we project will be needed to comply with
the RFS2 standards. The 2008 Farm Act (Title IX) requires USDA, DOE,
DOT, and EPA to conduct a biofuels infrastructure study that will
assess infrastructure needs, analyze alternative development
approaches, and provide recommendations for specific infrastructure
development actions to be taken.\154\
---------------------------------------------------------------------------

    \153\ For example: (1) The Biomass Research and Development
Board, a government study group, has formed a task group on biofuels
distribution infrastructure that is composed of experts on biofuel
distribution from a broad range of governmental agencies. (2) The
National Commission on Energy Policy, an independent advisory group,
has formed a task group of fuel distribution experts to make
recommendations on the steps needed to facilitate the distribution
of biofuels. (3) The Association of Oil Pipelines is conducting
research to evaluate what steps are necessary to allow the
distribution of ethanol blends by pipeline.
    \154\ http://www.ers.usda.gov/FarmBill/2008/Titles/TitleIXEnergy.htm#infrastructure.
---------------------------------------------------------------------------

    Considerations related to the distribution of ethanol, biodiesel,
and renewable diesel are discussed in the following sections as well as
the changes to each segment in the distribution system that would be
needed to support the volumes of these biofuels that we project would
be used to satisfy the RFS2 standards.\155\ We request comments on the
challenges that will be faced by the fuel distribution system under the
RFS2 standards and on what steps will be necessary to facilitate making
the necessary accommodations in a timely fashion.\156\
---------------------------------------------------------------------------

    \155\ Additional discussion can be found in Section 1.6 of the
DRIA.
    \156\ The costs associated with making the necessary changes to
the fuel distribution infrastructure are discussed in Section VIII.B
of today's preamble.
---------------------------------------------------------------------------

    To the extent that biofuels other than ethanol and biodiesel are
produced in response to the RFS2 standards, this might lessen the need
for added segregation during distribution. Distillate fuel produced
from cellulosic feedstocks might be treated as petroleum-based diesel
fuel blendstocks or a finished distillate fuel in the distribution
system. Likewise, bio-gasoline or bio-butanol could potentially be
treated as petroleum-based gasoline blendstocks.\157\ This also might
open the possibility for additional transport by pipeline. However, the
location of plants that produce such biofuels relative to petroleum
pipeline origination points would continue to be an issue limiting the
usefulness of existing pipelines for biofuel distribution.\158\
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    \157\ Biogasoline might also potentially be treated as finished
fuel.
    \158\ The projected location of biofuel plants would not be
affected by the choice of whether they are designed to produce
ethanol, distillate fuel, bio-gasoline, or butanol. Proximity to the
feedstock would continue to be the predominate consideration. The
use of pipelines is being considered for the shipment of bio-oils
manufactured from cellulosic feedstocks to refineries where they
could be converted into renewable diesel fuel or renewable gasoline.
The distribution of biofuel feedstocks is discussed in Section 1.3
of the DRIA.
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1. Overview of Ethanol Distribution
    Pipelines are the preferred method of shipping large volumes of
petroleum products over long distances because of the relative low cost
and reliability. Ethanol is currently not commonly shipped by pipeline
because it can cause stress corrosion cracking in pipeline walls and
its affinity for water and solvency can result in product contamination
concerns.\159\ Shipping ethanol in pipelines that carry distillate
fuels as well as gasoline also presents unique difficulties in coping
with the volumes of a distillate-ethanol mixture which would typically
result.\160\ It is not possible to re-process this mixture in the way
that diesel-gasoline mixtures resulting from pipeline shipment are
currently handled.\161\ Substantial testing and analysis is currently
underway to resolve these concerns so that ethanol may be shipped by
pipeline either in a batch mode or blended with petroleum-based
fuel.\162\ By the time of the publication of this proposal, results of
these evaluations may be available regarding what actions are necessary
by multi-product pipelines to overcome safety and product contamination
concerns associated with shipping 10% ethanol blends. A short gasoline
pipeline in Florida has begun shipping

batches of ethanol.\163\ Thus, existing petroleum pipelines in some
areas of the country might play a role in the shipment of ethanol from
the points of production/importation to petroleum terminals.
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    \159\ Stress corrosion cracking could lead to a pipeline leak.
The potential impacts on water from today's proposal are discussed
in Section X of today's preamble.
    \160\ Different grades of gasoline and diesel fuel are typically
shipped in multi-product pipelines in batches that abut each other.
To the extent possible, products are sequenced in a way to allow the
interface mixture between batches to be cut into one of the
adjoining products. In cases where diesel fuel abuts gasoline in the
pipeline, the resulting mixture must typically be reprocessed into
its component parts by distillation for resale as gasoline and
diesel fuel.
    \161\ Gasoline-ethanol mixtures can be blended into finished
gasoline.
    \162\ Association of Oil Pipelines: http://aopl.org/go/searchresults/888/?q=ethanol&sd=&ed=. ``Hazardous Liquid Pipelines
Transporting Ethanol, Ethanol Blends, and Other Biofuels'', Notice
of policy statement and request for comment, Pipeline and Hazardous
Materials Safety Administration, Department of Transportation,
August 10, 2007, 72 FR 45002.
    \163\ Article on shipment of ethanol in Kinder Morgan pipeline:
http://www.ethanolproducer.com/article.jsp?article_id=5149.
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    However, the location of ethanol plants in relation to existing
pipeline origination points will limit the role of existing pipelines
in the shipment of ethanol.\164\ Current corn ethanol production
facilities are primarily located in the Midwest far from the
origination points of most existing product pipelines and the primary
gasoline demand centers. We project that a substantial fraction of
future cellulosic ethanol plants will also be located in the Midwest,
although a greater proportion of cellulosic plants are expected to be
dispersed throughout the country compared to corn ethanol plants. The
projected locations for this subset of future cellulosic ethanol plants
more closely coincide with the origination points of product pipelines
in the Gulf Coast.\165\ Imported ethanol could also be brought into
ports near the origination point of product pipelines in the Gulf Coast
and the Northeast. Nevertheless, the majority of ethanol will continue
to be produced at locations distant from the origination points of
product pipelines and gasoline demand centers. The gathering of ethanol
from production facilities located in the Midwest and shipment by barge
down the Mississippi for introduction to pipelines in the Gulf Coast is
under consideration. However, the additional handling steps to bring
the ethanol to the pipeline origin points in this manner could negate
any potential benefit of shipment by existing petroleum pipelines
compared to direct shipment by rail.
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    \164\ Some small petroleum product refineries are currently
limited in their ability to ship products by pipeline because their
relatively low volumes were not sufficient to justify connection to
the pipeline distribution system.
    \165\ A discussion of the projected location of cellulosic
ethanol plants is contained in Section 1.5 of the DRIA.
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    Evaluations are also currently underway regarding the feasibility
of constructing a new dedicated ethanol pipeline from the Midwest to
the East Coast.\166\ Under such an approach, ethanol would be gathered
from a number of Midwest production facilities to provide sufficient
volume to justify pipeline operation. To the extent that ethanol
production would be further concentrated in the Midwest due to the
siting of cellulosic ethanol plants, this would tend to help justify
the cost of installing a dedicated ethanol pipeline. Substantial issues
would need to be addressed before construction on such a pipeline could
proceed, including those associated with securing new rights-of-ways
and establishing sufficient surety regarding the return on the several
billion dollar investment.
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    \166\ Magellan and Poet joint assessment of dedicated ethanol
pipeline: http://www.magellanlp.com/news/2009/20090316_5.htm.
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    Due to the uncertainties regarding the degree to which pipelines
will be able to participate in the transportation of ethanol, we
assumed that ethanol will continue to be transported by rail, barge,
and truck to the terminal where it will be blended into gasoline. The
distribution by these modes can be further optimized primarily through
the increased shipment by unit train and installation of additional hub
delivery terminals that can accept large volumes of ethanol for further
distribution to satellite terminals. To the extent that pipelines do
eventually play a role in the distribution of ethanol, this could tend
to reduce distribution costs and improve reliability in supply.
    USDA estimated that in 2005 approximately 60% of ethanol was
transported by rail, 30% was transported by tank truck, and 10% was
transported by barge.\167\ Denatured ethanol is shipped from
production/import facilities to petroleum terminals where it is blended
with gasoline. When practicable, shipment by unit train is the
preferred method of rail shipment rather than shipping on a manifest
rail car basis. The use of unit trains, sometimes referred to as a
virtual pipeline, substantially reduces shipping costs and improves
reliability. Unit trains are composed entirely of 70-100 ethanol tank
cars, and are dedicated to shuttle back and forth to large hub
terminals.\168\ Manifest rail car shipment refers to the shipment of
ethanol in rail tank cars that are incorporated into trains which are
composed of a variety of other commodities. Unit trains can be
assembled at a single ethanol production plant or if a group of plants
is not large enough to support such service individually, can be formed
at a central facility which gathers ethanol from a number of producers.
The Manly Terminal in Iowa, which is the first such ethanol gathering
facility, accepts ethanol from a number of nearby ethanol production
facilities for shipment by unit train. Regional (Class 2) railroad
companies are an important link bringing ethanol to gathering
facilities for assembly into unit trains for long-distance shipment by
larger (Class 1) railroads. Ethanol is sometimes carried by multiple
modes before finally arriving at the terminal where it is blended into
gasoline. For example, some ethanol is currently shipped from the
Midwest to a hub terminal on the East Coast by unit train where a
portion is further shipped to satellite terminals by barge or tank
truck.
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    \167\ ``Ethanol Transportation Backgrounder, Expansion of U.S.
Corn-based Ethanol from the Agricultural Transportation
Perspective'', USDA, September 2007, http://www.ams.usda.gov/tmd/TSB/EthanolTransportationBackgrounder09-17-07.pdf.
    \168\ Hub ethanol receipt terminals can be located at large
petroleum terminals or at rail terminals.
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    Ethanol is blended into gasoline at either 10 or 85 volume percent
at terminals (to produce E10 and E85) for delivery to retail and fleet
facilities by tank truck. Special retail delivery hardware is needed
for E85 which can be used in flexible fuel vehicles only.\169\ The
large volume of ethanol that we project will be used by 2022 means that
more ethanol will need to be used than can be accommodated by blending
to the current legal limit of 10% in all of the gasoline used in the
country. This will require the installation of a substantial number of
new E85 refueling facilities and the addition of a substantial number
of flex-fuel vehicles to the fleet. Concerns have been raised regarding
the inducements that would be necessary for retailers to install the
needed E85 facilities and for consumers to purchase E85.\170\ As
discussed in Section V.D. of today's preamble, this is prompting many
to evaluate whether a mid-level ethanol blend (e.g. E15) might be
allowed for use in existing (non-flex-fuel) vehicles. Current refueling
equipment (not designed for E85) is only certified for ethanol blends
up to 10 volume percent (E10).\171\ Hence, if a mid-level ethanol blend
were to be introduced, fuel retail facilities would need to ensure that
the equipment used to store/dispense mid-level ethanol

blends is compatible with the mid-level ethanol blend.\172\
Underwriters Laboratories has one certification standard for fuel
retail equipment that covers ethanol blends up to 10%, and a separate
certification standard for equipment that dispenses ethanol blends
above 10% (including E85).\173\
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    \169\ The cost of retail dispensing hardware which is tolerant
to ethanol blends greater than E10 is discussed in Section VIII.B.
of today's preamble and discussed in more detail in Section 4.2 of
the DRIA.
    \170\ See Section V.D of today's preamble for a discussion of
issues related to use of the projected volumes of ethanol that would
be produced to comply with the RFS2 standards.
    \171\ Underwriters Laboratory certifies retail refueling
equipment. UL stated that they have data which indicates that the
use of fuel dispensers certified for up to E10 blends to dispense
blends up to a maximum ethanol content of 15 volume percent would
not result in critical safety concerns (http://www.ul.com/newsroom/newsrel/nr021909.html). Based on this, UL stated that it would
support authorities having jurisdiction who decide to permit legacy
equipment originally certified for up to E10 blends to be used to
dispense up to 15 volume percent ethanol. The UL announcement did
address the compatibility of underground storage tank systems with
greater than E10 blends.
    \172\ Although it has yet to be established, most underground
steel storage tanks themselves would likely be compatible with
ethanol blends greater than 10 percent. The compatibility of piping,
submersed pumps, gaskets, and seals associated with these tanks with
ethanol blends greater than 10% would also need to be evaluated.
Some fiberglass tanks are incompatible and would need to be
replaced. It is difficult and sometimes impossible to verify the
suitability of underground storage tanks and tank-related equipment
for E85 use. The State of California prohibits the conversion of
underground storage tanks to E85 use. Significant changes to
dispensers, including hoses, nozzles, and other miscellaneous
fittings would be needed to ensure they are compatible with ethanol
blends greater than 10 percent.
    \173\ Joint UL/DOE Legacy System Certification Clarification
http://www.ul.com/global/eng/documents/offerings/industries/chemicals/flammableandcombustiblefluids/development/UL_DOE_LegacySystemCertification.pdf.
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    Should other biofuels be introduced that do not require
differentiation from diesel fuel or gasoline in place of some of the
volume of ethanol that we project would be used under the RFS2
standards, this may tend to reduce the need for changes at fuel retail
facilities and the need for flex-fuel vehicles. Concerns about the
difficulties/costs associated with expanding the ethanol distribution
infrastructure and adding a sufficient number of vehicles capable of
using 10% ethanol to fleet is generating increased industry interest in
renewable diesel and gasoline which would be more transparent to the
existing fuel distribution system.
2. Overview of Biodiesel Distribution
    Biodiesel is currently transported from production plants by truck,
manifest rail car, and by barge to petroleum terminals where it is
blended with petroleum-based diesel fuel. Unblended biodiesel must be
transported and stored in insulated/heated containers in colder climes
to prevent gelling. Insulated/heated containers are not needed for
biodiesel that has been blended with petroleum-based diesel fuel (i.e.,