blended with transportation fuel) or the person or place at issue (for
example, obligated party, blender or ultimate consumer), in determining
whether there is an ``inadequate domestic supply.''
---------------------------------------------------------------------------

    \32\ For example, see http://oxforddictionaries.com/us/definition/american_english/supply (a stock of a resource from which
a person or place can be provided with the necessary amount of that
resource: ``There were fears that the drought would limit the
exhibition's water supply.''); http://www.macmillandictionary.com/us/dictionary/american/supply (``A limited oil supply has made gas
prices rise.'' and ``Aquarium fish need a constant supply of
oxygen.'').
---------------------------------------------------------------------------

    We believe that our interpretation is consistent with the language
of section 211(o), and Congressional intent in enacting the program. It
is evident from section 211(o) that Congress's intent was not simply to
increase production of biofuel, but rather to provide that certain
volumes of biofuel be used by the ultimate consumer as a replacement
for the use of fossil-based fuel in the United States. The very
definition of ``renewable fuel'' requires that the fuel be ``used to
replace or reduce the quantity of fossil fuel present in a
transportation fuel.'' CAA section 211(o)(1)(J). In addition the
definition of ``additional renewable fuel'' specifies that it is fuel
that is ``used to replace or reduce the quantity of fossil fuel present
in home heating oil or jet fuel.'' CAA section 211(o)(1)(A.). Thus,
there is no ``renewable fuel'' and the RFS program does not achieve the
desired benefits of the program unless biofuels like ethanol and
biodiesel are actually used to replace fossil-based transportation
fuels, heating oil or jet fuel in the United States.\33\ For example,
the greenhouse gas reductions and energy security benefits that
Congress sought to promote through this program are realized only
through the use by consumers of renewable fuels that reduce or replace
fossil fuels present in transportation fuel, heating oil or jet fuel in
the United States. Imposing RFS volume

requirements on obligated parties without consideration of the ability
of the obligated parties and other parties to deliver the biofuel to
the ultimate consumers would achieve no such benefits and would fail to
account for the complexities of the fuel system that delivers
qualifying fuels to consumers. We do not believe it would be
appropriate to interpret the RFS general waiver provision in such a
narrow way. We are thus interpreting ``inadequate domestic supply'' in
light of the definitions of ``renewable fuel'' and ``additional
renewable fuel'' and the requirements of CAA section 211(o)(2)(A)(i)
that requires that the fuel be ``used to replace or reduce the quantity
of fossil fuel present in a transportation fuel'' or in ``home heating
oil or jet fuel'' in the United States.
---------------------------------------------------------------------------

    \33\ For this reason, EPA's implementing regulations specify
that RINs may not be generated for biofuels with multiple possible
end uses, such as biogas or electricity, absent a demonstration that
they will be used by the ultimate consumers as transportation fuel.
See 40 CFR 80.1426(f)(10)(ii)(B), (f)(11)(i)(B) and (f)(11)(ii)(B).
Similarly, although RINs are generated upon production for biofuels
like denatured ethanol that do not have uses other than as
transportation fuel, our regulations require the retirement of RINs
for any volumes of such fuels that are exported, since exported
biofuels are not used as transportation fuel in the U.S. See 72 FR
23909 col 2-3; 40 CFR 80.1430. See also Sec. Sec.  80.1460(c)(2),
and 80.1460(g), specifying that use of RINs representing fuel used
for non-qualifying purposes for compliance with RVOs is a prohibited
act.
---------------------------------------------------------------------------

    In determining whether ``supply'' is adequate, we believe that we
should consider only those volumes of biofuel that are expected to
satisfy all of the relevant statutory definitions and requirements.
There are two principal components to the definition of renewable fuel
and additional renewable fuel: That it be made from renewable biomass
and that it be used in transportation fuel. CAA section 211(o)(1)(J);
CAA section 211(o)(1)(A). Ignoring the extent to which a fuel can
actually be used in transportation fuel (or in heating oil or jet fuel)
in the inadequate domestic supply inquiry would involve ignoring a
critical element of the definition, and begs the question of whether in
assessing ``supply'' EPA should also ignore the renewable biomass
component of the definition of renewable fuel or other requirements
specified in the Act such as the requirement that transportation fuel
containing renewable fuel be used in the United States and that sub-
categories of renewable fuel achieve specified levels of GHG reduction.
We believe that ignoring any component of the definition of renewable
fuel or the other provisions of the Act that affect the types of
renewable fuels that qualify under the Act would be inconsistent with
the objective of the waiver provision, which is to determine if
sufficient qualifying fuels are present. For example, if there was
abundant production of biofuel that was not made from renewable biomass
(and therefore did not qualify as renewable fuel under the Act), but
insufficient volumes of fuel that was made from renewable biomass and
met other requirements, we believe that EPA would be authorized to
grant a waiver on the basis of inadequate domestic supply since
compliance would not be possible notwithstanding the abundance of non-
qualifying biofuel. This situation is directly comparable to the one we
are experiencing at present where an abundance of biofuels are produced
that cannot actually be used in transportation fuel, heating oil or jet
fuel in the United States. The biofuels that cannot actually be used
for qualifying uses, due to constraints discussed in Sections II.E and
II.F, are not ``renewable fuels'' and, we believe, are appropriately
excluded from our assessment of ``supply.''
    The waiver provision also does not specify what factors are
relevant in determining the adequacy of the supply. Adequacy of the
supply would logically be understood in terms of the parties who use
the supply of renewable qualifying fuels. Adequacy of supply could
affect various parties, including obligated parties, blenders, and
consumers. Adequacy of the renewable fuel supply with respect to the
consumer might well involve consideration of factors different from
those involved when considering adequacy of the upstream supply of
biofuels to the obligated parties. We believe that interpreting this
waiver provision as authorizing EPA to consider the adequacy of supply
of renewable fuel to the ultimate consumer appropriately allows
consideration of upstream supply constraints to all of the relevant
parties, including the adequacy of supply of biofuels to obligated
parties and blenders, as well as the ability to deliver qualifying
renewable fuels to the consumer. This is particularly appropriate in
the context of a fuel program that is aimed at increasing the use of
renewable fuel by consumers in transportation fuel, heating oil or jet
fuel. In our view, this is the most reasonable and appropriate
construction of this ambiguous language in light of the overall policy
goals of the RFS program.
    EPA has reviewed other fuel related provisions of the Clean Air Act
with somewhat similar waiver authorities, and they highlight both the
ambiguity of the RFS general waiver authority and the reasonableness of
applying it broadly to include adequacy of supply to the ultimate
consumer of qualifying fuels. For example, CAA section 211(k)(6)
provides EPA with authority for EPA to defer the application of
reformulated gasoline (RFG) in states seeking to opt-in to the program.
There are two categories of states that may opt-in: Those with
nonattainment classifications indicating a more serious and/or
longstanding air quality problem (leading to classification as a
Marginal, Moderate, Serious or Severe nonattainment area) and those
that do not have such serious concerns, but which are nevertheless
within the ``ozone transport region'' established by CAA section
184(a). For the states with more serious problems that seek to opt-in
to the RFS program, section 211(k)(6)(A)(ii) allows EPA to defer
application of RFG requirements if EPA determines that ``there is
insufficient domestic capacity to produce reformulated gasoline.''
(Emphasis added.) However, for states with less serious ozone
nonattainment concerns that are part of the ozone transport region, EPA
may defer application of RFG requirements if EPA finds that there is
``insufficient capacity to supply reformulated gasoline.'' (Emphasis
added.) We believe Congress likely intended the ``capacity to supply''
RFG as being broader in scope than the ``capacity to produce'' RFG.
This is consistent with the common understanding of the word ``supply''
noted above as the amount of a resource or product that is available
for use by the person or place at issue. Thus, while a source can have
a ``capacity to produce,'' regardless of whether it has a market for
its product, the concept of ``supply'' carries with it an implication
that there is a person intending to make use of the product. The term
``capacity to supply'' would therefore be expected to include
consideration of the infrastructure needed to deliver RFG to vehicles
in the state within the ozone transport region that is seeking to opt
in to the program. This distinction in the context of CAA section
211(k)(6) is logical, since Congress can be expected to have put a
higher premium on use of RFG in states with the more serious ozone
nonattainment issues, thereby constraining EPA discretion to defer RFG
requirements to the limited situation where there is ``insufficient
capacity to produce'' RFG. For states with less serious problems, it
would be logical for Congress to have provided EPA with somewhat more
latitude to defer application of RFG, and Congress referred to this
broader set of circumstances as situations where there is an
``insufficient capacity to supply'' RFG. The language of the RFS
general waiver provision, in comparison, involves use of a single
ambiguous phrase, ``inadequate domestic supply,'' without elaboration
or clarification as to whether it refers solely to production capacity
or also includes additional factors relevant to the ability to supply
the renewable fuel in transportation fuel, heating oil or jet fuel to
the ultimate consumer. As in the RFG provision, however, the adequacy
of

supply referred to in the RFS general waiver provision can logically--
and we believe should--be read to include factors beyond capacity to
produce that impact the ability of consumers to use the fuel for a
qualifying purpose.\34\ This would be consistent with Congress's
apparent intent in using the term ``supply'' in the context of the RFG
provision.
---------------------------------------------------------------------------

    \34\ The reasons why we believe the statute should be
interpreted in this way can be illustrated by examining the
differences between the RFG opt-in situation and the RFS program.
Limiting EPA's consideration to ``capacity to produce'' in the
context of deferring RFG implementation in a state with serious air
quality concerns is not likely to cause implementation problems
because: (1) Infrastructure upgrades necessary to shift from use of
conventional gasoline to RFG are relatively modest, (2) the statute
provides for up to one year between EPA's receipt of an opt-in
request and the effective date of a rule requiring use of RFG,
allowing time for the needed infrastructure upgrades, and (3) opt-
ins typically occur one state at a time, allowing available
infrastructure expansion resources to be focused in a relatively
small geographic area. In contrast allowing RFS waivers only where
there is insufficient ``capacity to produce'' renewable fuel would
be extremely problematic because: (1) The ethanol industry has the
ability to produce far more ethanol than can currently be
distributed and consumed in the U.S., (2) ethanol is already being
supplied at E10 levels, and any further growth in ethanol use
requires the time consuming installation of costly new E15 or E85
pumps and tanks, (3) the number of vehicles that can use higher
ethanol bends is limited, (4) the statute envisions only one month
between establishment of annual standards and the start of a
compliance year, allowing limited time for infrastructure
enhancements, and (5) the RFS is a nationwide program, and
infrastructure improvements would be needed throughout the country
at the same time to increase the nation's ability to consume
renewable fuels at levels corresponding with production capacity. An
analogous situation applies for biodiesel as discussed in section
II.E.3.
---------------------------------------------------------------------------

    CAA section 211(c)(4)(C)(ii) provides EPA with waiver authority to
address ``extreme and unusual fuel or fuel additive supply
circumstances . . . which prevent the distribution of an adequate
supply of the fuel or fuel additive to consumers.'' The supply
circumstances must be the result of a natural disaster, an Act of God,
a pipeline or refinery equipment failure or another event that could
not reasonably have been foreseen, and granting the waiver must be ``in
the public interest.'' In this case, Congress clearly specified that
the adequacy of the supply is judged in terms of the availability of
the fuel or fuel additive to the ultimate consumer, and includes
consideration of the ability to distribute the required fuel or fuel
additive to the ultimate consumer. The RFS waiver provision does not
contain any such explicit clarification from Congress, thus its broad
and ambiguous wording provides EPA the discretion to reasonably
interpret the scope of the RFS waiver provision as relating to supply
of renewable fuel to the ultimate consumer.
    CAA section 211(m)(3)(C) allows EPA to delay the effective date of
oxygenated gasoline requirements for certain carbon monoxide
nonattainment areas if EPA finds ``an inadequate domestic supply of, or
distribution capacity for, oxygenated gasoline . . . or fuel
additives'' needed to make oxygenated gasoline. Here, Congress chose to
expressly differentiate between ``domestic supply'' and ``distribution
capacity,'' indicating that each of these elements was to be considered
separately. This would indicate that the term inadequate supply,
although ambiguous for the reasons discussed above, could in
appropriate circumstances be read as more limited in scope. In contrast
to the RFS waiver provision, the section 211(m) waiver provision
includes additional text that makes clear that EPA's authority includes
consideration of distribution capacity--reducing the ambiguity inherent
in using just the general phrase ``inadequate domestic supply.''
Presumably this avoids a situation where ambiguity would result in an
overly narrow administrative interpretation. The oxygenated gasoline
waiver provision is also instructive in that it clarifies that it
applies separately to both finished oxygenated fuel and to oxygenated
fuel blending components. That is, there could be an adequate supply of
the oxygenate, such as ethanol, but not an adequate supply of the
blended fuel which is sold to the consumer. The RFS waiver provision
employs the phrase ``inadequate domestic supply'' without further
specification or clarification, thus providing EPA the discretion to
determine whether the adequacy of the supply of renewable fuel can
reasonably be judged in terms of availability for use by the ultimate
consumer, including consideration of the capacity to distribute the
product to the ultimate consumer. In contrast to the section 211(m)
waiver provision, Congress arguably did not mandate that the RFS waiver
provision be interpreted as providing authority to address problems
affecting the supply of renewable fuel to the ultimate consumer.
However, given the ambiguity of the RFS provision, we believe that it
does provide EPA the discretion to adopt such an interpretation,
resulting in a policy approach consistent with that required by the
less ambiguous section 211(m) waiver provision.\35\
---------------------------------------------------------------------------

    \35\ In CAA section 211(h)(5)(C)(ii), Congress authorized EPA to
delay the effective date of certain changes to the federal
requirements for Reid vapor pressure in summertime gasoline, if the
changes would result in an ``insufficient supply of gasoline'' in
the affected area. As with the RFS general waiver provision,
Congress did not specify what considerations would warrant a
determination of insufficient supply. EPA has not been called upon
to apply this provision to date and has not interpreted it.
---------------------------------------------------------------------------

    As the above review of various waiver provisions in Title II of the
Clean Air Act makes clear, Congress has used the terms ``supply'' and
``inadequate supply'' in different waiver provisions. In the RFS
general waiver provision, Congress spoke in general terms and did not
address the scope of activities or persons or places that are the focus
in determining the adequacy of supply. In other cases, Congress
provided, to varying degrees, more explicit direction. Overall, the
various waiver provisions lend support to the view that it is
permissible, where Congress has used just the ambiguous phrase
``inadequate domestic supply'' in the general waiver provision, to
consider supply in terms of distribution of renewable transportation
fuel, heating oil and jet fuel in the United States and use by the
ultimate consumer, and that the term ``inadequate supply'' of a fuel
need not be read as referring to just the capacity to produce biofuels
or the capacity to supply biofuels to obligated parties and blenders.
    We are aware, as a number of commenters pointed out, that prior to
final adoption of the Energy Independence and Security Act of 2007,
Congress had before it bills that would have provided for a waiver in
situations where there was ``inadequate domestic supply or distribution
capacity to meet the requirement.'' \36\ EPA is not aware of any
conference or committee reports, or other legislative history,
explaining why Congress ultimately enacted the language in EISA in lieu
of this alternative formulation. There is no discussion, for example,
of whether Congress did or did not want EPA to consider distribution
capacity, whether Congress believed the phrase ``inadequate domestic
supply'' was sufficiently broad or the definition of renewable fuel
sufficiently clear that a reference to distribution capacity would be
unnecessary or superfluous, or whether Congress considered the
alternative language as too limiting, since it might suggest that
constraints other than ``distribution capacity'' on delivering
renewable fuel to the ultimate consumer should not be considered for
purposes of granting a

waiver.\37\ Given the lack of interpretive value typically given to a
failure to adopt a legislative provision, and the lack of explanation
in this case, we find the legislative history to be uninformative with
regard to Congressional intent on this issue. It does not change the
fact that the text adopted by Congress, whether viewed by itself or in
the context of other fuel waiver provisions, is ambiguous.
---------------------------------------------------------------------------

    \36\ H.R. 6 and S. 606 as reported by Senate Envt. & Public
Works in Senate Report 109-74.
    \37\ There are, for example, legal constraints on the amount of
certain renewable fuels that may be blended into transportation
fuels. These are discussed in Section II.E.1.
---------------------------------------------------------------------------

    We believe that it is permissible under the statute to interpret
the term ``inadequate domestic supply'' to authorize EPA to consider
the full range of constraints, including legal, fuel infrastructure and
other constraints, that could result in an inadequate supply of
qualifying renewable fuels to consumers in the United States in the
form of transportation fuel, heating oil or jet fuel. Under this
interpretation, we do not limit ourselves to consideration of the
capacity to produce or import biofuels but also consider practical and
legal constraints affecting the volume of qualifying renewable fuel
supplied to the ultimate consumer in the United States.
    As described in more detail in Section II.E. below, although at
least for 2014 and possibly 2015 and 2016, there is sufficient capacity
to produce and import biofuels such as ethanol to meet the statutory
applicable volume of total renewable fuel, there are practical and
legal constraints on the ability of sufficient volumes to be delivered
to and used in transportation fuel by vehicles in the United States, or
in jet fuel or heating oil. 10% ethanol blends (E10) can legally be
used in all gasoline vehicles, but only some subsets of vehicles and
nonroad equipment can legally use up to either 15% ethanol (for 2001
and newer light-duty vehicles, which represent about 85% of the in-use
fleet) or up to 85% ethanol (for flex fuel vehicles, which represent
about 6% of all light-duty cars and trucks).\38\ Similarly, according
to ASTM standards diesel fuel blends up to 5% biodiesel (B5) are simply
considered to be diesel fuel, but only a subset of diesel vehicles and
engines have been designed and warranted to use higher concentrations.
In addition there are marketplace and infrastructure constraints,
including access to limited numbers of retail fuel pumps, that limit
the use of higher level (>10%) ethanol blends. These considerations
prevent the fuel market from supplying vehicles and engines with the
volumes of qualifying ethanol and other renewable fuels needed to meet
the statutory level of total renewable fuel, and as such they result in
an inadequate domestic supply of qualifying renewable fuel, since
insufficient renewable fuel can actually be delivered to consumers and
used in transportation fuel, heating oil or jet fuel in the United
States. We have evaluated this situation, and in this final rule are
using the general waiver authority to address this inadequate domestic
supply situation.
---------------------------------------------------------------------------

    \38\ See, e.g., EPA partial waiver decisions at 75 FR 68094
(Nov. 4, 2010) and 76 FR 4662 (Jan. 26, 2011).
---------------------------------------------------------------------------

    A number of stakeholders disagreed that a review of other CAA
waiver authorities supports the conclusion that the term ``inadequate
domestic supply'' is ambiguous, and that it can be interpreted to
include consideration of infrastructure and other constraints related
to the delivery to and use of renewable fuel by vehicles. They argued
that inadequate domestic supply unambiguously refers to the production
capacity of biofuels that could become renewable fuel if put to
qualifying uses. Commenters also focused on section 211(m)(3)(C)(i),
which provides for a waiver of the requirement to use oxygenated
gasoline in certain carbon monoxide nonattainment areas where there is
``an inadequate domestic supply of, or distribution capacity for,
oxygenated gasoline.'' They argued that this provision demonstrates
that infrastructure considerations are distinct from supply, and that
Congress would have used similar language in section 211(o)(7)(A) if it
intended EPA to consider infrastructure and other constraints as a
basis for an RFS waiver. These stakeholders asserted that there can be
no inadequate domestic supply if there is sufficient biofuels produced
and available for purchase by obligated parties and, consequently, that
any difficulty that obligated parties may experience in delivering
renewable fuels to consumers is irrelevant under CAA section
211(o)(7)(A). However, these stakeholders' analysis is clearly not
persuasive when sections 211(m)(3)(C)(i) and 211(o)(7)(A) are
considered together with all of the CAA provisions containing similar
waiver provisions. For example, as discussed above, in section
211(k)(6) Congress used the term ``capacity to produce'' in one RFG
waiver context for opt-in states and ``capacity to supply'' in another
context. This suggests that the term ``supply'' does not unambiguously
mean the same thing as ``produce,'' as these commenters argue. The term
``supply'' can mean something different, and logically does in the
context of section 211(k)(6) where the two waiver provisions at issue
use these different terms and apply in different contexts, to states
with considerably different levels of air quality concern. The
different ways that the term ``supply'' is used in the various CAA
provisions indicates that in section 211(o)(7)(A) the word ``supply''
is ambiguous and may reasonably be interpreted consistent with the
Act's objectives.
    Some stakeholders have asserted that interpreting the general
waiver authority to allow consideration of all constraints on the use
of ethanol by the ultimate consumer would amount to focusing on
``demand'' rather than ``supply'' and would, therefore, be
impermissible under the Act. EPA does not agree that a broad
consideration of such factors as physical limitations in infrastructure
(e.g., availability of E15 and E85 pumps), legal barriers to use of
renewable fuel, or ability of vehicles to use renewable fuel at varying
concentrations, represent consideration of ``demand'' rather than
``supply.'' These factors operate as practical and legal limits to how
much biofuel can be distributed to and used by consumers in the United
States, and therefore clearly relate to how much biofuel can be
``supplied'' to them as renewable fuel. Although there may be some
element of consumer preference (i.e., demand) reflected in the historic
growth patterns of renewable fuel infrastructure and the current status
of the infrastructure, it is nevertheless the case as of today that
there are a limited number of fueling stations selling high-ethanol
blends (approximately 3,000 retail stations), and as a result, the
number of stations operates as a constraint on how much ethanol can be
delivered. Similarly, only flex fuel vehicles (FFVs) can legally use
fuel with ethanol concentrations greater than 15 percent. The
population of FFVs has grown considerably in recent years, but is still
only a small fraction of the passenger vehicle fleet and there is an
even smaller number of FFVs that have ready access to an E85 retail
outlet. As a result, the number of FFVs with access to E85 also
operates as a constraint on how much ethanol can be delivered. These
constraints limit the supply of ethanol to vehicles in the 2014-2016
time period and, we believe, are appropriately considered in evaluating
the need for an RFS waiver under section 211(o)(7)(A).
    Some stakeholders have stated that even if the term ``inadequate
domestic supply,'' were ambiguous, EPA's final interpretation is not
reasonable because it would either reward obligated parties for their
intransigence in planning to

supply the volumes set forth in the statute, or because EPA's
interpretation would effectively enshrine the status quo, and would
prevent the growth in renewable fuel use that Congress sought to
achieve in establishing the program. We agree that obligated parties
have had years to plan for the E10 blendwall and that there clearly are
steps that obligated parties could take to increase investments needed
to increase renewable fuel use above current levels, as we have noted
in prior actions, and note in Section II.B.5.\39\ We also note,
however, that biofuel producers could also have taken appropriate
measures, and that nothing precludes biofuel producers from
independently marketing E85 or increasing the production of non-ethanol
renewable fuels. The regulatory structure created in the RFS1 program
places the responsibility on producers and importers to ensure that
transportation fuel sold or introduced into commerce contains the
required volumes of renewable fuel, but does not require obligated
parties to take specific actions other than acquiring RINs. EPA agrees
that its approach to interpreting the term `inadequate domestic supply'
should be consistent with the objectives of the statute to grow
renewable fuel use over time by placing appropriate pressure on all
stakeholders to act within their spheres of influence to increase
biofuel production and use of renewable fuels, while also providing the
relief to obligated parties that was intended through the statutory
waiver authorities to address supply difficulties that cannot be
remedied in the time period over which a waiver would apply. We believe
that our final action appropriately reflects these concepts.
---------------------------------------------------------------------------

    \39\ See, for instance, 77 FR 70773 (November 27, 2012), column
1.
---------------------------------------------------------------------------

3. Assessment of Past Versus Future Supply
    EPA is taking somewhat different approaches for its assessment of
renewable fuel supply for past time periods covered by this rule as
compared to future time periods. For 2014 and most of 2015, our
assessment of the ``supply'' available for RFS compliance must
necessarily focus on the number of RINs actually generated that are
available for compliance with the applicable standards because this
final rule cannot influence the volumes of renewable fuel produced and
consumed in the past. To set the volume requirements at a higher level
would require either noncompliance, which EPA deems an unreasonable
approach, or the drawdown of the bank of carryover RINs. Although the
availability of carryover RINs is a relevant consideration in
determining the extent to which a waiver is justified, see Monroe 750
F.3d at 917, we believe that the current bank of carryover RINs serves
an important function under the program, including providing a means of
compliance in the event of natural disasters and other unforeseen
circumstances, and that in the present circumstances EPA should not set
the annual standards at levels that would clearly necessitate a
reduction in the current bank of carryover RINs. See Section II.H for
further discussion of our consideration of carryover RINs in this final
rule.
    For 2014, we have set the volume requirements for renewable fuel as
equal to the number of RINs generated that are available for
compliance. With respect to 2015, because this final rule is being
signed at the end of November, it cannot influence renewable fuel use
during prior months, and, given lead-time considerations cannot
reasonably be expected to influence renewable fuel use in the remaining
month of the year. Accordingly, we have assessed the supply of total
renewable fuel in 2015 by determining the number of RINs generated and
available for compliance in the part of 2015 for which data are
available and projecting that renewable fuel will be used at the same
rate for the remainder of the year.\40\
---------------------------------------------------------------------------

    \40\ We projected that our NPRM would incentivize some growth in
renewable fuel use during the latter half of 2015, and available
data indicates that indeed the monthly average supply after the NPRM
was released was about 5% higher than the monthly average supply in
the first half of the year.
---------------------------------------------------------------------------

    In the context of a forward-looking annual RFS standards rulemaking
issued consistent with the statutory schedule, such as for 2016 in this
rule, we believe that the evaluation of ``supply'' for purposes of
determining the appropriate volume reduction of total renewable fuel
under section 211(o)(7)(A) should compare the statutory targets, and
the ability of the market to both produce and consume renewable fuels,
in the context of a market that is responsive to the standards that we
set. In the context of this assessment, while we have examined the
circumstances and issues related to individual sources of renewable
fuel, our determination of the final volume requirements is based on an
assessment of overall volumes that can be achieved given the
interactions that occur between individual sources under the influence
of the standards we set.
4. Combining Authorities for Reductions in Total Renewable Fuel
    EPA is reducing the applicable volumes of total renewable fuel for
2014, 2015 and 2016 using two separate authorities. We are making
initial reductions in total renewable fuel for these years that are
equal to the volume reductions in advanced biofuel, using the
cellulosic waiver authority.\41\ We are also further reducing total
renewable fuel volumes based on a determination of inadequate domestic
supply, including consideration of both the limitations in the
production and import of biofuels and factors that constrain supplying
available volumes for the qualifying uses (as transportation fuel,
heating oil or jet fuel) specified in the Act. These considerations are
relevant to an assessment of inadequate domestic supply. We believe
that using the general waiver authority to reduce the applicable
volumes of total renewable biofuel in these years is an appropriate
response to these circumstances. We are using the cellulosic biofuel
waiver authority to reduce the statutory volumes for total renewable
fuel by an initial increment of 1.08 billion gallons in 2014, 2.62
billion gallons in 2015 and 3.64 billion gallons in 2016. In addition,
as the volume reduction required to address supply limitations for
total renewable fuel is greater than can be achieved using the
cellulosic waiver authority, we are using the general waiver authority
exclusively as the basis for further reducing the applicable volume of
total renewable fuel by an additional 0.79 billion gallons in 2014,
0.95 billion gallons in 2015 and 0.50 billion gallons in 2016.
---------------------------------------------------------------------------

    \41\ In the final rule we are only using our cellulosic waiver
authority to make the initial reduction in the total renewable fuel
volume, but note that this reduction could also be justified under
the general waiver authority due to inadequate domestic supply.

                                 Table II.B.4-1--Final Total Volume Requirements
                                                [Billion gallons]
----------------------------------------------------------------------------------------------------------------
                                                                       2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Statutory Applicable Volumes....................................           18.15           20.5            22.25
Initial Use of Cellulosic Waiver Authorities....................           17.07           17.88           18.61
Use of General Waiver Authority.................................           16.28           16.93           18.11
----------------------------------------------------------------------------------------------------------------

5. Inability To Reach Statutory Volumes
    In order to use the general waiver authority in CAA section
211(o)(7)(A) to reduce the applicable volumes of total renewable fuel,
we must make a determination that there is either ``inadequate domestic
supply'' or that implementation of the statutory volumes would severely
harm the economy or environment of a State, a region or the United
States. This section summarizes our determination that there is an
inadequate domestic supply of total renewable fuel in the time period
2014-2016, and thus that the statutory volume targets are not
achievable with volumes supplied in these three years. Additionally,
this determination that the statutory volume targets are not achievable
with volumes supplied also supports our use of the cellulosic waiver
authority under CAA section 211(o)(7)(D) to reduce the applicable
volumes of advanced and total renewable fuel.
    As described in Section II.C below, actual supply of renewable fuel
in 2014, determined by an assessment of RINs generated minus RINs
retired for non-compliance reasons such as exports of renewable fuel or
spills, was below the applicable volume targets in the statute. For
total renewable fuel, actual supply was 1.87 billion gallons below the
statutory volume target of 18.15 billion gallons, while for advanced
biofuel, actual supply was 1.08 billion gallons below the statutory
volume target of 3.75 billion gallons. As we noted in the NPRM, the
requirements we establish at this time for 2014 cannot change what
occurred in the past, and as a result our assessment of the ``supply''
available for RFS compliance during 2014 must necessarily focus on
actual renewable fuel use. While many stakeholders agreed with this
position, some did not. Those that disagreed generally pointed to the
bank of carryover RINs as additional ``supply'' that could be used to
increase the 2014 standards above actual wet gallon supply in 2014, or
to the fact that renewable fuel volumes that were exported in 2014
would have been available for compliance purposes if EPA had set the
2014 standards by the statutory deadline of November 30, 2013. As
described in Section II.H, we do not believe it would be appropriate to
intentionally reduce the current bank of carryover RINs to increase the
applicable 2014 volume requirements above the supply of wet gallons to
consumers in 2014. Regarding exports of renewable fuels, many of those
volumes were produced specifically for the purpose of export rather
than being produced for general domestic distribution. Stakeholders who
suggested that they would have been used for compliance purposes
provided no evidence that they would have been available for compliance
given export agreements and/or contracts. Furthermore, as discussed in
Section II.E.1, legal and practical constraints on the domestic use of
renewable fuel are operating in the 2014-2016 time period to limit
renewable fuels that have been produced from actually being supplied to
consumers. Finally, regardless of any possibility that they could have
been used if EPA had acted by the statutory deadline to establish RFS
requirements for 2014, it is undisputed that RINs representing fuel
exported in 2014 are not currently available for compliance, and it is
the current circumstances that are relevant in determining what the
applicable volume requirements for 2014 should be. Thus, we do not
believe that these arguments warrant an increase in the applicable 2014
volume requirements above the volume of wet gallons actually supplied
to consumers in 2014. In sum, we have determined that there was a 1.87
billion gallon shortfall in the supply of total renewable fuel in 2014,
and that a waiver of the 2014 statutory target for total renewable fuel
is therefore warranted pursuant to section 211(o)(7)(A) on the basis of
inadequate domestic supply. In addition, we believe the same set of
facts support a waiver of the total renewable fuel applicable volume
using the cellulosic waiver authority in section 211(o)(7)(D), and we
are also asserting that waiver authority in support of 1.08 billion
gallons of this volume reduction (which is equal to the reduction in
the advanced biofuel volume using the cellulosic waiver authority, as
described below).
    Because this final rulemaking is being released after almost all of
2015 has passed, the factual situation for 2015 is essentially the same
as it is for 2014: the requirements we establish at this time for 2015
cannot change what occurred in the past, and in addition it is being
issued too late to influence the fuels market in the remaining month of
the year. Therefore, our assessment of the ``supply'' available for RFS
compliance during 2015 is based on actual renewable fuel use for the
months for which data are available, together with a projection for the
remainder of the year. In sum, we have concluded that the statutory
volumes for 2015 cannot be met with available supply, and that a waiver
is justified.
    The statute sets a target of 22.25 billion gallons of total
renewable fuel in 2016. We have determined that this volume cannot be
achieved under even the most optimistic assumptions given current and
near-future circumstances. To make this determination, we first assumed
that every gallon of gasoline would contain 10% ethanol, and also
assumed production and use of BBD \42\ volumes at the highest annual
historical level, which occurred in 2014. When these supplies of
renewable fuel are taken into account, a significant additional volume
of renewable fuel would still be needed for the statutory volume
targets to be met.
---------------------------------------------------------------------------

    \42\ BBD includes both advanced biodiesel and advanced renewable
diesel.

   Table II.B.5-1--Additional Volumes Needed in 2016 To Meet Statutory
                     Target for Total Renewable Fuel
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------

------------------------------------------------------------------------
Statutory target for total renewable fuel....................     22,250
Maximum ethanol consumption as E10 \a\.......................    -14,000
Historical maximum biomass-based diesel supply \b\...........     -2,490
Additional volumes needed....................................      5,760
------------------------------------------------------------------------
\a\ Derived from projected gasoline energy demand from EIA's Short-Term
  Energy Outlook (STEO) from October 2015.
\b\ Represents the 1.63 billion gallons of biodiesel and renewable
  diesel supplied in 2014.

    Based on the current and near-future capabilities of the industry,
we expect that only a relatively small portion of the additional
volumes needed would come from non-ethanol cellulosic biofuel, non-
ethanol advanced biofuels other than BBD, and non-ethanol conventional
renewable fuels; non-ethanol supply other than BBD was 237 million
gallons in 2013, 165 million gallons in 2014, and 323 million gallons
in 2015. In total these sources could account for several hundred
million gallons, as demonstrated by supply of these sources in previous
years.\43\ Aside from these relatively small sources, renewable fuel
that could fulfill the need for 5.76 billion gallons in 2016 would be
ethanol or BBD. As discussed below, we do not believe that these fuels
could be produced and used in sufficient quantities to attain this
volume.
---------------------------------------------------------------------------

    \43\ Details of actual supply in 2013, 2014, and 2015 can be
found in the docket.
---------------------------------------------------------------------------

    If all of the additional volumes needed were biodiesel, the
industry would need to supply a total of about 5.5 billion physical
gallons in 2016. As described more fully in Section II.D, actual supply
of biodiesel through the end of 2015 is expected to be about 1.73
billion gallons. While this final rule will be released before 2016, we
nevertheless do not believe that the market could supply 5.5 billion
gallons of biodiesel in 2016; as described more fully in Section II.E.3
below, the constraints on biodiesel supply are such that 5.5 billion
gallons is beyond reach. For instance, there currently exist only about
2.7 billion gallons of registered biodiesel production capacity in the
U.S. In addition to expanding the registered production capacity, the
industry would need to restart all idled facilities, secure sufficient
feedstocks including diverting them from current uses, implement
significantly expanded distribution, blending, and retail sales
infrastructure, and establish new contracts for distribution and sales.
    Just as importantly, biodiesel volumes on the order of 5.5 billion
physical gallons in 2016 are far in excess of what could actually be
consumed in this short timeframe. This volume of BBD would constitute
about 10% of the diesel pool in 2016.\44\ Although most medium and
heavy-duty engine manufacturers now warrant the use of blends up to B20
in their more recent models, the largest of these manufacturers does
not, and neither do some light-duty engine manufacturers. Furthermore,
much of the in-use fleet is made up of highway and nonroad diesel
engines that were produced in the past and are warranted for no more
than 5% biodiesel.\45\ Also, as pointed out by CountryMark Cooperative
Holding Corporation, biodiesel concentrations in the winter months are
sometimes kept to lower levels by engine owners due to cold weather
operability and storage concerns, and some parties avoid selling
biodiesel at all during winter months. Constraints on the use of
biodiesel at concentrations above 5% due to engine warranty
limitations, plus resistance on the part of some parties to using
biodiesel in winter months, means that a nationwide average of 10%
biodiesel in the diesel pool, for an entire calendar year, is not
reasonably achievable in 2016. We acknowledge that the National
Biodiesel Board has extensive efforts underway working with the vehicle
and engine manufacturers to continue to expand product offerings
capable of operating on B20, working with their membership to improve
fuel quality, expanding infrastructure to address cold temperature
issues, and working with dealers and technicians to clear away
obstacles standing in the way of expanding biodiesel acceptance in the
marketplace.\46\ There are also efforts to increase the use of
biodiesel in heating oil. These will continue to bear fruit, allowing
the biodiesel volume to continue to rise over time, but not to the
levels that would be needed in 2016 if 5.5 billion gallons of biodiesel
were to be required.
---------------------------------------------------------------------------

    \44\ Based on EIA's October 2015 Short-Term Energy Outlook
(online interactive table), nationwide diesel consumption is
projected to be 56.3 bill gal in 2015 and 57.7 bill gal in 2016.
    \45\ While some stakeholders provided information on when
certain manufacturers began permitting the use of biodiesel blends
higher than B5 in their engines, stakeholders provided no data on
which models or model years were affected, nor did any stakeholder
provide an analysis of the fraction of the current in-use fleet
whose warranties specifically permit the use of B5 versus higher
blend levels. Based on the fact that engine manufacturers have only
been warranting their new engines for B20 for the last five years or
so, and heavy-duty engines typically have a long lifespan, a
significant fraction of the in-use fleet must be warranted for no
more than B5. See further discussion of this issue in Section
II.E.3.
    \46\ ``NBB Technical Update for EPA, April 30, 2015'' in docket
EPA-HQ-OAR-2015-0111. See also comments submitted by NBB in response
to the June 10, 2015 NPRM.
---------------------------------------------------------------------------

    Alternatively, if all of the additional volumes shown in Table
II.B.5-1 were ethanol, the U.S. would need to consume volumes of E85
far higher, in our estimation, than the market is capable of supplying:
In 2016 it would need to be about 8.7 billion gallons.47 48
These volumes are about 60 times higher than actual E85 consumption in
2014, and would require many of those FFVs that do not have an E85
retail outlet anywhere close by (due to the fact that only 2% of retail
stations currently offer E85) to use it.\49\
---------------------------------------------------------------------------

    \47\ In general when discussing efforts to increase the use of
ethanol beyond the blendwall we focus on the volume of E85 that is
consumed, since volumes of E15 are likely to be small by comparison.
See additional discussion of this issue in Section II.E.2.iv below.
    \48\ Due to relative ethanol content (74% versus 10%) and the
fact that E85 displaces some E10, each gallon of ethanol above the
E10 blendwall requires the use of 1.51 gallons of E85.
    \49\ Further discussion of E85 can be found in Section II.E.2.v.
---------------------------------------------------------------------------

    The additional volume of 5.76 billion gallons in 2016 could also be
satisfied through production and use of a combination of BBD and E85.
However, even in this case the volumes are untenable. For instance, one
possible combination for 2016 would be 4.4 billion gallons of E85 and
3.6 billion gallons of biodiesel. While both of these volumes are
considerably less than the maximums that would be required if the
market supplied only one or the other, both levels are beyond the reach
of the market under current circumstances.\50\ Based on this
assessment, we do not believe that the statutory volumes for advanced
biofuel and total renewable fuel can be met in 2016.
---------------------------------------------------------------------------

    \50\ See further discussion of E85 in Section II.E.2.v and
further discussion of biodiesel in II.E.3.
---------------------------------------------------------------------------

    In response to the NPRM, some parties said that EPA had not
sufficiently described why the statutory target for advanced biofuel
cannot be reached in 2016. In the NPRM we did point out that more than
70% of the additional ethanol-equivalent volumes that would be needed
to reach the statutory targets would need to be advanced biofuel, and
discussed the impracticability of attaining those volumes. After a
consideration of comments received, we have determined that for our
final volume requirements for 2016, about 80% of the 5.76 billion
gallons of additional volumes would need to be advanced biofuel in
order to reach the statutory target of 7.25 billion gallons of advanced
biofuel.\51\ However, we agree that it is appropriate to elaborate on
the limitations in the supply of advanced biofuel that have led us to
conclude that the statutory target for advanced biofuel cannot be
reached in 2016. A more detailed discussion of constraints on supply of
advanced biofuel can be found in Section II.F.
---------------------------------------------------------------------------

    \51\ Assumes that all ethanol consumed as E10 in Table II.B.5-1
is conventional (non-advanced).
---------------------------------------------------------------------------

    The RINs available for meeting the advanced biofuel standard
include all cellulosic biofuel RINs, all biomass-based diesel RINs, and
all advanced biofuel RINs. Cellulosic biofuel that is expected to be
available, including all

biogas, is accounted for within the context of the determination of the
cellulosic biofuel standard as discussed in Section IV. While there are
some opportunities for moderate growth through the end of 2016 in such
advanced biofuels as domestically-produced ethanol, heating oil,
naphtha, and renewable diesel, it is possible that only about a hundred
million gallons will be available from these sources.\52\ Thus the
primary sources of advanced biofuel that are in a position to help meet
the advanced biofuel standard are imported sugarcane ethanol and
biomass-based diesel.
---------------------------------------------------------------------------

    \52\ The total ethanol-equivalent volume of advanced biofuel
other than imported sugarcane ethanol was 87 mill gal in 2013, 79
mill gal in 2014, and projected to be 53 mill gal in 2015. We expect
some growth in the industries providing these fuels, such that
supply is likely to be somewhat higher in 2016 than it was in the
recent past.
---------------------------------------------------------------------------

    The statutory target for advanced biofuel in 2016 is 7.25 billion
gallons. After accounting for cellulosic biofuel, the BBD volume
requirement, and potential other domestically-produced advanced
biofuels, the total volume of advanced biofuel that would be needed to
meet the statutory target of 7.25 billion gallons is 4.07 billion
gallons.

 Table II.B.5-2--Additional Volumes Needed To Meet Statutory Targets for
                        Advanced Biofuel in 2016
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------

------------------------------------------------------------------------
Statutory target for advanced biofuel........................      7,250
Requirement for cellulosic biofuel...........................        230
Requirement for biomass-based diesel.........................  \a\ 2,850
Potential other advanced (ethanol and non-ethanol)...........        100
Additional volumes needed....................................      4,070
------------------------------------------------------------------------
\a\ Represents 1.9 bill gal of biodiesel.

    We do not believe that 4.07 billion gallons of additional advanced
biofuel can be supplied in 2016, even if the burden of meeting this
requirement were shared between biomass-based diesel and imports of
sugarcane ethanol. For instance, if sugarcane ethanol imports reached
1.5 billion gallons in 2016, the total volume of BBD would need to be
3.6 billion gallons.\53\ We do not believe that either of these levels
is achievable in 2016. Notwithstanding UNICA's comments to the contrary
as discussed in Section II.F, imports of sugarcane ethanol have been
highly variable in the past and appear to be highly dependent on
factors others than the RFS program. Moreover, as explained in the
NPRM, the highest volume of sugarcane ethanol that has ever been
imported to the U.S. was 680 million gallons in 2006, and since that
time international demand has increased substantially.\54\ Similarly,
we do not believe that 3.6 billion gallons of BBD are possible in 2016.
The total amount of domestic biodiesel production capacity in the U.S.
that is registered under the RFS program is about 2.7 billion
gallons.\55\ Not only would the market need to supply 900 million
gallons more than existing registered capacity, but substantial
feedstocks would need to be diverted from the current uses to the
production of biodiesel. Even if some portion of the increase were
supplied from imports, the total volume of biodiesel supplied to diesel
engines would more than double in comparison to that supplied in 2014,
requiring that distribution, blending, storage, and dispensing routes
would need to be expanded in an extremely short period.\56\ We do not
believe that this is possible in 2016. As a result, we do not believe
that the statutory target for advanced biofuel can be met in 2016.\57\
---------------------------------------------------------------------------

    \53\ (4.07 bill gal needed - 1.5 bill gal sugarcane ethanol)/1.5
= 1.71 bill gal biodiesel + 1.9 bill gal BBD requirement = 3.6 bill
gal biodiesel needed. The 1.5 factor used in this equation
represents the equivalence value of biodiesel.
    \54\ ``Global ethanol consumption 2006-2012,'' docket EPA-HQ-
OAR-2015-0111.
    \55\ See ``Registered biodiesel production capacity as of 8-24-
15'' in EPA docket EPA-HQ-OAR-2015-0111.
    \56\ Supply of biodiesel and renewable diesel in 2015 is
projected to be 1.8 bill gal. The current infrastructure is
sufficient to manage this level, and is likely to be capable of
managing volumes above 2.0 bill gal. However, 3.6 bill gal of
biodiesel is far larger than the current infrastructure is prepared
to manage.
    \57\ We note that if an obligated party could not be attain
compliance in 2016, it could carry a deficit into 2017 if it did not
carry a deficit into 2016, and that deficit would need to be
satisfied in 2017 along with the 2017 requirements. However,
establishing the 2016 total renewable fuel volume requirement at the
statutory volume target would result in massive deficits among many
parties, and would likely only defer for one year the need for a
substantial waiver of the total renewable fuel volume requirements.
Accordingly, we do not believe that the flexibility offered by
deficit carryovers is a valid basis for setting the 2016 volume
requirements at the statutory targets.
---------------------------------------------------------------------------

    In response to the NPRM, a number of stakeholders placed the blame
for the market's inability to meet the statutory targets on both the
EPA for not meeting the statutory deadlines for setting standards and
obligated parties for not investing sufficiently in the required
infrastructure. While we agree that the delay in setting standards has
created some uncertainty and could have led to a slowdown in investment
in both production capacity and infrastructure for blending and
dispensing renewable transportation fuels, we do not believe that the
statutory targets could have been met in 2014, 2015, and 2016 if only
EPA had established the applicable standards on the statutory schedule.
Stakeholders who took the position that the statutory targets were
achievable in 2014 and 2015 generally based that position on the
potential for a substantial draw-down in the bank of carryover RINs. As
described in the NPRM and in Section II.H, we believe that it would be
inappropriate to intentionally drawn down the current bank of carryover
RINs in order to raise the applicable volume requirements above the
levels that could be met with RINs generated for actual renewable fuel
supplied in 2014, 2015, and 2016. Many of these same stakeholders also
argued that the statutory targets could be met if the EPA merely set
the standards at the statutory levels. They argued, in essence, that
the market's ability to respond to the standards EPA sets is
effectively unlimited and that the market will rise to meet the
expectations placed upon it. As described in Section II.E.1, we believe
that the market is in fact limited in its ability to respond to the
standards that EPA sets for 2016. Setting the volume requirements at
the statutory targets would not compel the market to respond with
sufficient changes in production levels, infrastructure, and fuel
pricing at retail to result in the statutory volumes actually being
consumed in 2016, but would instead lead to noncompliance and/or
additional petitions for a waiver of the standards.
    Many stakeholders also decried obligated parties' failure to invest
in the infrastructure needed to permit expanded use of higher ethanol
blends such as E15 and E85. They argued that EPA should not reward
obligated parties for their recalcitrance by reducing the applicable
volume requirements below the statutory targets. In taking these
positions, stakeholders cited both the statutory requirement that
obligations be placed on ``refineries, blenders, and importers, as
appropriate'' and EPA's regulations which (with limited exceptions)
further narrow the applicability of the obligations to producers and
importers of gasoline and diesel. Suggestions in the NPRM that
renewable fuel producers could contribute to efforts to expand
infrastructure were generally met by these commenters with references
to the statutory language and their belief that all responsibility for
investing in expanded infrastructure rests on obligated parties.
    We agree that the statutory language, in combination with the
regulatory structure, generally places the

responsibility on producers and importers of gasoline and diesel to
ensure that transportation fuel sold or introduced into commerce
contains the required volumes of renewable fuel. Obligated parties have
a variety of options available to them, both to increase volumes in the
near term (i.e. through the period being addressed by this final rule)
and the longer term. The standards that we are establishing today
reflect both the responsibility placed on obligated parties as well as
the short-term activities available to them, and we expect obligated
parties to be taking actions now that will help to increase renewable
fuel volumes in future years. However, this general responsibility does
not require obligated parties to take actions specific to E15 and/or
E85 infrastructure, as the RFS program does not require ethanol
specifically. Moreover, we do not believe the statute should be
interpreted to require that refiners and importers change the nature of
their businesses so as to comply with RFS requirements, as this would
be a far-reaching result that Congress can be expected to have clearly
specified if it was intended. For example, to the extent that
commenters imply that refiners should be required to build or purchase
renewable fuel production facilities, take ownership of retail
stations, produce or sell cars capable of using high-ethanol blends, or
plant cropland to provide feedstock for increased renewable fuel
production, we would disagree. Rather, if other parties engaged in
these activities fail to adjust those activities to allow the statutory
volume targets to be met, we believe the result is an inadequate
domestic supply of renewable fuel that justifies granting a waiver
pursuant to section 211(o)(7)(A). The primary role that obligated
parties play in the RFS program is to acquire RINs, and it is this
demand for RINs that in turn drives demand for renewable fuel and which
should stimulate other parties to increase their activities to supply
it.
    Nevertheless, there are actions that obligated parties can take
that are more directly related to their roles as importers and
refiners, such as investing in or otherwise influencing business
practices in such a way as to promote increases in renewable fuel use.
We noted several ways in which this could happen in the NPRM.\58\ In
response, obligated parties described why the suggestions were not
practical or would not provide any benefits for 2016. We disagree.
There are actions that obligated parties can take in the near-term to
increase renewable fuel use and which are consistent with their current
businesses. These could include modifying their requirements for
branded retail stations to make it easier to offer and advertise sales
of E15, E85, and biodiesel, creating a consortium to pool funds for
investment in infrastructure at retail, and coprocessing renewable
biomass with fossil fuel in their existing facilities to produce a fuel
that is partly renewable. These are certainly not the only options
available to obligated parties, and we expect them to make ongoing
efforts to further the goals of the RFS program. It would also be in
the interests of renewable fuel producers to take similar, related,
and/or complementary steps to increase the ability of the marketplace
to supply their products to the vehicles and engines that can use them,
notwithstanding the fact that the legal and regulatory responsibility
for the purchase of RINs rests upon obligated parties.
---------------------------------------------------------------------------

    \58\ See third column of page 33129 of the June 10, 2015 NPRM.
---------------------------------------------------------------------------

6. Inability To Reach Volumes Using Only the Cellulosic Waiver
Authority
    In the NPRM we proposed that for each of years 2014, 2015, and 2016
we would reduce both the advanced biofuel and total renewable fuel
volumes by the same amount using the cellulosic waiver authority, and
then further reduce the total renewable fuel volumes using just the
general waiver authority. However, we requested comment on whether it
would be appropriate in the final rule to use the cellulosic waiver
authority alone. In response to the NPRM, a number of parties agreed
that some reductions from the statutory targets are warranted, but,
they suggested that reductions under the cellulosic waiver authority
would be sufficient, and that the market would be capable of meeting
the applicable volume requirements using this approach with the use of
carryover RINs to meet any shortfalls in actual renewable fuel supply.
Stakeholders who suggested this approach included Growth Energy and the
Renewable Fuels Association, among others.
    We continue to believe that the applicable standards should be
based on available information on actual renewable fuel supplied in
2014 and 2015, as described more fully in Sections II.C and II.D below.
Today's rule cannot influence renewable fuel use in either year.
Furthermore, we do not believe it would be appropriate to intentionally
draw down the bank of carryover RINs as a means for increasing the
applicable volume requirements for 2014, 2015, and 2016 beyond the
actual renewable fuel supply, since we believe that the current bank of
carryover RINs provides important program benefits, as discussed in
Section II.H. Even if we were to use the availability of carryover RINs
as a basis for setting the standards for 2014 and 2015 at the statutory
targets instead of setting them at actual renewable fuel supply, then,
assuming we entered the 2014 compliance year with 1.74 billion
carryover RINs, the amount of carryover RINs available for 2016 would
only be on the order of 0.1 billion RINs. This would be insufficient to
maintain the statutory volumes for 2016 contrary to the commenter's
claims. Since the appropriate volume reductions in total renewable fuel
(to levels representing actual renewable fuel supply) can only be
achieved through the use of the general waiver authority, we continue
to believe that it would be inappropriate to use only the cellulosic
waiver authority.
    With regard to 2016 specifically, stakeholders that supported the
use of the cellulosic waiver authority alone differed in whether the
advanced biofuel and total renewable fuel requirements ought to be
reduced by the full amount permitted under the cellulosic waiver
authority, or instead only the amount needed to bring the advanced
biofuel volume requirement to a level consistent with projected supply.
Those supporting the former view pointed out that advanced biofuels in
excess of the advanced biofuel standard can be used to meet the non-
advanced portion of the total renewable fuel standards. While we agree
that this is the case, explicitly and intentionally establishing a
volume requirement for advanced biofuel that is below the level that we
believe is reasonably attainable would be inconsistent with the goals
of the RFS program. Since advanced biofuels have significantly superior
GHG reduction performance, we believe we should structure our decision
so as to promote the production and use of advanced biofuel volumes
that can be reasonably supplied. Therefore, our assessment of the use
of the cellulosic waiver authority alone focused on a case in which
advanced biofuel and total renewable fuel are both reduced only to the
degree necessary to yield an appropriate volume of advanced biofuel
(i.e., both are reduced by a lesser amount than the reduction in
cellulosic biofuel). Furthermore, for the reasons described in Section
II.H, the scenario does not envision a draw-down in the bank of
carryover RINs.
    Using the advanced biofuel volume requirement of 3.61 billion
gallons that we have determined to be reasonably attainable in 2016,
and which we are finalizing today, represents a volume

reduction of 3.64 billion gallons in comparison to the statutory target
of 7.25 billion gallons. A corresponding reduction in the statutory
target for total renewable fuel would result in a total volume of 18.6
billion gallons.

  Table II.B.6-1--Hypothetical 2016 Volume Requirements Using Only the
                       Cellulosic Waiver Authority
                            [Billion gallons]
------------------------------------------------------------------------

------------------------------------------------------------------------
Advanced biofuel:
  Volume Requirement.........................................       3.61
  Statutory Target...........................................       7.25
  Reduction..................................................       3.64
Total renewable fuel:
  Volume Requirement.........................................      18.61
  Statutory Target...........................................      22.25
  Reduction..................................................       3.64
------------------------------------------------------------------------

Using only the cellulosic waiver authority, the need for non-advanced
(conventional) renewable fuel would be 15.0 billion gallons (18.61-
3.61). If only ethanol was used in 2016 to supply this volume of
conventional renewable, more than 1.6 billion gallons of E85 would be
required.\59\ This level is in excess of what we believe is possible in
2016 under even the most optimistic assumptions as described more fully
in Section II.E.2.iii. Accounting for expected 2016 volumes of
cellulosic ethanol and other advanced ethanol would make it even more
difficult for 15 billion gallons of conventional ethanol to be used.
---------------------------------------------------------------------------

    \59\ It is also possible that the use of E15 could rise to help
provide a means for consuming 15.0 bill gal of ethanol. However, as
described in Section II.E.2.v, it is highly unlikely that increases
in E15 could rise high enough to significantly reduce the amount of
E85 needed.
---------------------------------------------------------------------------

    Under a hypothetical scenario wherein reductions were made only
under the cellulosic waiver authority, the required volumes of non-
ethanol renewable fuel would be in excess of the levels we believe can
be achieved in 2016. Even in the unlikely event that E85 volumes
reached 400 million gallons,\60\ a very high but perhaps possible
level, there would need to be 385 million ethanol-equivalent gallons of
non-ethanol supplied, equivalent to about 250 million gallons of
biodiesel (the predominant source of non-ethanol renewable fuel, which
in this case could be either advanced biofuel or conventional renewable
fuel).
---------------------------------------------------------------------------

    \60\ As discussed in a memorandum to the docket, 400 mill gal of
E85 in 2016 would likely require significant and unprecedented
reductions in the retail price of E85 compared to E10 and increases
in the number of service stations offering E85. See ``Correlating
E85 consumption volumes with E85 price,'' memorandum from David
Korotney to docket EPA-HQ-OAR-2015-0111. See also further discussion
of E85 in Section II.E.2.iii.

 Table II.B.6-2--Inability Under Even Highly Unlikely Supply Conditions
 To Meet an 18.61 Billion Gallon Requirement for Total Renewable Fuel in
                                  2016
                            [Million gallons]
------------------------------------------------------------------------

------------------------------------------------------------------------
E10..........................................................        \a\
                                                                 139,688
E85..........................................................    \b\ 400
Total ethanol................................................     14,265
Non-ethanol cellulosic biofuel...............................        210
Advanced and conventional biodiesel and renewable diesel.....  \c\ 3,750
Total renewable fuel.........................................     18,225
Shortfall in comparison to the 18.61 bill gal needed under           385
 the cellulosic waiver authority.............................
------------------------------------------------------------------------
\a\ This level is less than the amount of ethanol that can be used as
  E10 in all 2016 gasoline, because some of that gasoline is used in
  this scenario to make E85.
\b\ Assumed to contain 74% denatured ethanol.
\c\ Represents 2.5 billion gallons, the maximum supply that is
  reasonably achievable as described in Section II.E.3.

    When added to the 2.5 billion gallons of biodiesel and renewable
diesel (3.75 billion RINs) that, as discussed in Section II.E.3, is the
maximum we believe can reasonably be achieved in 2016, the total volume
of 2.75 billion gallons of biodiesel and renewable diesel is beyond the
reach of a responsive market. Attaining a total of 2.75 billion gallons
of biodiesel and renewable diesel in 2016 would require that all of the
idled registered biodiesel capacity in the U.S. be brought into
production at the beginning of 2016, with the attendant hiring of
workers, arranging for feedstock purchases including diverting many
feedstocks from existing uses, and arranging routes for distribution,
blending, and sale of the finished product. In combination with other
challenges as described in Section II.E.3, it is highly unlikely that
2.75 billion gallons of biodiesel supply could be achieved in 2016.
Especially when combined with the fact that 400 million gallons of E85
is highly unlikely, we do not believe that this scenario is tenable.
    A number of stakeholders said that using the cellulosic waiver
authority alone would ensure that 15 billion gallons of corn-ethanol
would be used in the U.S. in 2016. Although the implied requirement for
conventional renewable fuel would be 15 billion gallons under this
scenario, domestic use of corn-ethanol would be essentially no
different than it would be under the volume requirements we are
finalizing today using both the cellulosic waiver authority and the
general waiver authority. This is due to the fact that the legal and
practical constraints on the supply of ethanol to consumers are not
likely to be relieved to a greater extent with higher standards than
they are with the standards we are adopting today, as described more
fully in Section II.E.2 below. While the supply of renewable fuel,
including ethanol, can increase over time under the influence of the
standards we set, the volume requirements for 2016 would not be
achievable if only the cellulosic waiver authority were used. Thus we
believe that using the cellulosic waiver authority alone would provide
no practical advantage to the corn-ethanol industry, but instead would
simply lead to a draw-down in the bank of carryover RINs and/or
noncompliance.

C. 2014 Advanced Biofuel and Total Renewable Fuel Volume Requirements

    In the NPRM, we proposed to base the applicable volume requirements
for 2014 on the number of RINs supplied in 2014 that are expected to be
available for use in complying with the standards. We based this
approach on the notion that the standards we set cannot affect actual
supply of renewable fuel in 2014, and that consequently the only result
of setting a higher standard would be to require a draw-down in the
bank of carryover RINs, which we explained would not be in the best
interests of the program.
    While many stakeholders agreed with our proposed approach, some did
not. The primary objection was that carryover RINs should be counted as
part of the ``supply'' available for compliance with the 2014 standards
and, therefore, that the 2014 statutory volume targets cannot or should
not be waived so long as the existing supply of RINs in 2014 that are
available for compliance plus carryover RINs is sufficient to attain
the statutory targets. As described in Section II.H below, we continue
to believe that it would be imprudent and contrary to the long term
objectives of the program to intentionally set renewable fuel volume
requirements at a level higher than the estimated supply of renewable
fuel based on an intentional draw down of the current bank of carryover
RINs to achieve compliance. The statute does not define the term
``supply,'' and it is logical to interpret the term to mean the supply
of actual renewable fuel to the vehicles that can use it. However, in
assessing whether this supply is ``inadequate,'' and whether EPA should
use its discretion to waive the statutory targets, it is appropriate to
consider the extent to which the available bank of

carryover RINs can be drawn down without negatively impacting program
operation.\61\ Thus, we do not interpret carryover RINs to be part of
the ``supply'' referenced in the term ``inadequate domestic supply,''
but we do consider them as a factor that may influence our discretion
regarding whether or not to issue a waiver when we have found that an
inadequate supply of renewable fuel exists. However, as described in
detail in Section II.H, we have assessed the number of carryover RINs
available at the current time, and have determined that this bank of
carryover RINs should not be intentionally drawn down by setting volume
requirements at a level higher than the supply of renewable fuel in the
2014-2016 time period. In other words, for purposes of this rule, we
have determined that the availability of carryover RINs does not
provide a good basis for EPA to either decline to exercise its
discretion to reduce volumes under the general waiver authority in CAA
section 211(o)(7)(A), or to use that authority in a manner that would
result in volume requirements for total renewable fuel at a level
higher than the supply of renewable fuel in 2014.\62\
---------------------------------------------------------------------------

    \61\ The statute provides that EPA ``may'' waive the statutory
volume targets if it finds inadequate domestic supply or other
conditions justifying a waiver under CAA section 211(o)(7)(A). Thus,
exercise of the waiver authority is discretionary.
    \62\ For the same reasons, EPA has not assumed a draw-down in
the current bank of carryover RINs in deciding the extent to which
it should exercise its discretion under CAA section 211(o)(7)(D) to
reduce the statutory targets for advanced biofuel and total
renewable fuel.
---------------------------------------------------------------------------

    A secondary objection to setting the 2014 volume requirements at
the level of actual supply focused on our proposed calculation of the
number of RINs generated in 2014 that would actually be available for
compliance with the standards. Specifically, some parties argued that
all RINs generated in 2014 should be counted as being available for
compliance regardless of whether some were retired for purposes other
than compliance with the annual percentage standards by obligated
parties. In addition to exports, such ``non-compliance'' RIN
retirements could occur for a variety of reasons, such as:

 Spills
 Contaminated or spoiled fuel
 Enforcement obligation
 Fuel not used as transportation fuel, heating oil, or jet fuel
 Improperly generated or otherwise invalid RINs
 Volume corrections
 RINs generated by foreign producers for volumes exported to
other countries

Parties taking this position argued that, had the 2014 standards been
in place by the statutory deadline of November 30, 2013, at least some
of the RINs retired for non-compliance reasons would instead have been
used for compliance purposes. We disagree. The earlier issuance of 2014
standards would not have changed events such as spills, improperly
generated RINs, or enforcement obligations, and is very unlikely to
have resulted in fuel being used in transportation fuel, heating oil,
or jet fuel rather than for some non-qualifying use. It is
theoretically possible that qualifying renewable fuel that was exported
in 2014 might instead have been used in the U.S. had the applicable
standards been in place and had been at a level that discouraged
exports. However, even if this were so, it would nevertheless be
inappropriate to identify exported renewable fuel as being available
for compliance since the standards that we set now cannot cause a
change in 2014 exports. If we were to include exported renewable fuel
in the volume available for compliance with the 2014 standards,
obligated parties would be forced to draw down the bank of carryover
RINs to account for those exports. As described above and in Section
II.H, we do not believe this would be appropriate.
    Some stakeholders who argued for the consideration of carryover
RINs in setting the 2014 standards did so recognizing that 2014 supply
of renewable fuel would be unaffected, but said that doing so might
actually increase supply in 2015 or 2016 above levels that would occur
otherwise. More specifically, these stakeholders expressed concern that
obligated parties would respond to increasing volume requirements in
2015 and 2016 by using carryover RINs rather than entering into
contracts or other arrangements to increase the actual supply of
renewable fuel. Given the value of carryover RINs to obligated parties
as a compliance flexibility tool that is available to address
unforeseen RIN shortfalls such as those that may be caused by natural
disasters and other supply problems, and considering that obligated
parties are likely to consider that increasing RFS requirements in the
future could make compliance more difficult in coming years, we do not
believe it is likely that obligated parties would intentionally draw
down their carryover RIN banks as an alternative to purchasing RINs
generated from increasing supplies of renewable fuel. As described
further below, we are setting the applicable volume requirements for
2014, 2015, and 2016 at levels that we believe can be supplied by
actual gallons of renewable fuel used in those years, without the need
for carryover RINs.
    In the NPRM, we explained that the total number of RINs that will
be retired to cover exports of renewable fuel in 2014 will only be
recorded in EMTS after the compliance demonstration deadline for 2014
has passed. As described in Section VI.B, we are amending the current
rules in this action to specify March 1, 2016 as the deadline for
renewable fuel exporters to demonstrate compliance with those 2014 RVOs
not already satisfied. Since we recognized in the NPRM that the
compliance deadline for all 2014 RIN exports would not have passed by
the time we issued the final 2014 standards, we proposed to estimate
likely RIN retirements for renewable fuel exports by using renewable
fuel export information from EIA. Ethanol export data reported by EIA
is derived from surveys collected by the Census Bureau. These surveys
distinguish between ethanol that is denatured and ethanol that is
undenatured, with approximately 460 million gallons being described as
denatured and approximately 350 million gallons being described as
undenatured for 2014. In the NPRM we assumed that all 810 million
gallons of ethanol exported in 2014 had been denatured in the United
States. We based this approach on the expectation that ethanol
producers had an incentive to denature all ethanol for tax purposes,
and thus would only sell undenatured ethanol if it was contractually
designated for export. Because denatured ethanol meets the regulatory
definition of renewable fuel, we assumed that RINs had been generated
for this entire volume, and that an equal number of RINs would need to
be retired by the exporters of this renewable fuel. RINs retired for
exported renewable fuel are not available for use by obligated parties
in complying with their 2014 obligations. Thus we calculated the supply
of renewable fuel for 2014 by subtracting the exported volumes
represented by both categories of ethanol from the amount of RINs
generated for domestic production or imports of renewable fuel in 2014.
    In response to the NPRM, some stakeholders indicated that they
believed we had erred in assuming that all exported ethanol was
denatured in the U.S., and had RINs generated for it prior to export.
Based on these comments and further investigation into

the manner in which the Census Bureau data are collected, we believe
that the Census Bureau survey data are likely to be more reliable than
we previously believed with regards to whether exported batches were
denatured or undenatured. That is, we believe the Census Bureau data
provides the best information available on the amount of denatured
versus undenatured ethanol that was exported in 2014. Therefore, the
volume of undenatured ethanol the Census Bureau reported as exported in
2014 should not be subtracted from the total number of RINs generated
for fuel ethanol in 2014 for purposes of calculating the available
supply of renewable fuel for 2014. We have made this correction to the
calculation of 2014 supply by only subtracting the approximately 460
million gallons of exported denatured ethanol from those generated in
2014, rather than the full volume of about 810 million gallons of
denatured and undenatured ethanol exported.
    Several stakeholders raised a similar issue with respect to
biodiesel exports, contending that producers never generated RINs for
some biodiesel that was exported, and thus all biodiesel exports should
not have been subtracted from the number of biodiesel RINs generated in
2014 in assessing the 2014 domestic supply of biodiesel. These parties
based their argument on comparisons between EIA export data and
biodiesel RINs separated from biodiesel intended for export as recorded
in EMTS for previous years. As pointed out by these stakeholders, a
comparison of data from EMTS and EIA for 2011 through 2013 does appear
to suggest incongruous measurements of biodiesel exports.

                                         Table II.C-1--Biodiesel Exports
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                                       2011            2012            2013
----------------------------------------------------------------------------------------------------------------
EMTS (based on RINs separated from exported biodiesel)..........              15              46             106
EIA.............................................................              73             128             196
Difference......................................................              58              82              91
----------------------------------------------------------------------------------------------------------------

As a preliminary matter, we note that the discrepancy between EMTS data
on biodiesel RINs separated for biodiesel intended for export and EIA
data on biodiesel exports is much smaller for 2014 than it was for
previous years--the difference is only 10 million gallons.\63\ However,
we do not believe that these discrepancies between EIA and EMTS data
can credibly be used to suggest that EPA's approach to assessing
biodiesel supply in 2014 was flawed. Since exporters can receive
biodiesel without assigned RINs and can retire RINs to address exports
of renewable fuel using RINs acquired on the open RIN market, the EMTS
data on the number of RINs separated from biodiesel as shown in the
table above is likely to underestimate the actual number of RINs
retired for exports. We also note that almost all biodiesel that is
produced in the U.S. qualifies for RIN generation, unlike the situation
for ethanol where RINs may be generated for denatured ethanol, but not
for undenatured ethanol. Finally, since October of 2014 renewable fuel
exporters have been required to retire RINs for all exported renewable
fuel within 30 days of the exportation. As a result, we were able to
compare RINs retired for exports that occurred in 2015 (not merely RINs
separated from exported renewable fuel) to renewable fuel exports as
reported by the International Trade Commission (ITC).\64\ We determined
that exports as recorded in EMTS are nearly identical to exports as
recorded by ITC.\65\ In sum, we conclude that it is reasonable to
assume that RINs were generated and then retired for essentially all of
the exported biodiesel, and that it continues to be appropriate to use
unmodified export volume data from EIA in estimating RIN supply in
2014.
---------------------------------------------------------------------------

    \63\ Because exporters of renewable fuel can separate RINs
immediately from fuels that are exported, this estimate is unlikely
to change by the time that they submit their compliance
demonstrations for 2014.
    \64\ EIA uses the data collected by Census on exports.
    \65\ ``Comparison of export data between EMTS and ITC for
2015,'' docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Finally, some parties argued that their operations for 2014 vis-a-
vis acquisition of RINs were based on the standards that were proposed
in the November 29, 2013 NPRM, and that it would be inappropriate for
EPA to set applicable percentage standards for advanced biofuel and
total renewable fuel for 2014 that are more stringent than those
proposed in November 2013. We disagree. First, the statutory table of
applicable volumes has long provided notice to obligated parties that
EPA could establish requirements at least that high, and many
commenters on the November 2013 NPRM urged EPA to set standards that
would require use of those volumes. In addition, it is well understood
that requirements in a final rule can differ significantly from those
that are proposed. Also, the November 2013 NPRM explicitly provided
both a range of possible volume requirements for advanced biofuel and
total renewable fuel as well as an indication that the final volume
requirements could include a modification of those ranges. For example:

``However, we request comment on whether it would be more
appropriate to utilize either the mode or median (50th percentile),
or some other value in the appropriate range shown in Table IV.B.4-3
that best reflects renewable fuel volumes that could reasonably be
supplied under this program.'' (78 FR 71770)
``However, we request comment on whether one of the alternative
values shown in Table IV.C.2.c-2, or some other approach, would be
more appropriate as the basis for the required volume of advanced
biofuel in the final rule.'' (78 FR 71777)
``With regard to the mean, we request comment on whether it is the
most appropriate way to determine the volume within each of the
ranges that we would require in the final rule, or whether instead
one of the alternatives shown in Tables IV.B.4-3 or IV.C.2.c-2, or
some other approach, would be more appropriate.'' (78 FR 71777)

While we proposed volumes representing the mean within the ranges, we
also took comment on alternative approaches to selecting final values
from within those ranges. More importantly, we are setting the
applicable volume requirements for 2014 at levels consistent with the
number of RINs generated in 2014 that are available for compliance.
While it is true that the 2014 RINs available for compliance may not
currently be distributed among obligated parties according to their
individual compliance obligations, they are nevertheless available for
compliance, and obligated parties can buy and sell RINs in order to
ensure compliance. This process is exactly how the RIN

system was designed to operate when originally established in 2007.
Obligated parties have had since at least the time of publication of
the June 10, 2015 NPRM to understand with greater certainty their
likely obligations under today's final rule, and this period should
have been sufficient for obligated parties to ready themselves for
compliance. To the extent individual obligated parties may still have
difficulty acquiring sufficient RINs for compliance, they can avail
themselves of the deficit carry-forward provision in the
regulations.\66\ In addition, we note that the availability of
carryover RINs should help to render the RIN market fluid. Finally, we
note that we have extended the compliance demonstration deadline for
obligated parties for the 2013 standards by one month, and the
compliance demonstration deadline for the 2014 standards by two months,
as compared to the proposed dates. These extensions will allow
obligated parties additional time to engage in needed RIN transactions
to come into compliance with 2014 requirements.
---------------------------------------------------------------------------

    \66\ Although the deficit carry-forward provision would not be
available for parties who carried forward a deficit from 2013, such
parties have known well in advance that they would be required to
satisfy both their 2013 and 2014 obligations in 2014, so should have
planned early to acquire a sufficient volume of RINs to cover all
contingencies regarding possible 2014 requirements. Any excess 2014
RINs purchased could be banked for use in complying with 2015
requirements.
---------------------------------------------------------------------------

    The total number of RINs generated in 2014 that are available for
compliance includes those that were generated for renewable fuel
produced or imported in 2014 as recorded in the EPA-Moderated
Transaction System (EMTS), minus any RINs that have already been
retired for non-compliance reasons or would be expected to be retired
to cover exports of renewable fuels. As described in the NPRM, the
total number of RINs actually retired to cover exports of renewable
fuel in 2014 will only be recorded in EMTS after the compliance
demonstration deadline for 2014 has passed. Since the compliance
deadline for all 2014 RIN exports has not yet passed, we have based our
estimate of RIN retirements for renewable exports on renewable fuel
export information from EIA.\67\
---------------------------------------------------------------------------

    \67\ http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_m.htm.
---------------------------------------------------------------------------

    Actual supply in 2014 is shown in Table II.C-2 below. Further
details are provided in a memorandum to the docket.\68\ Since EIA does
not distinguish exports by D code, we assumed that all ethanol exports
represent D6 ethanol, and all biodiesel exports represent D4 BBD, since
the vast majority of ethanol available for export was produced from
corn and the vast majority of biodiesel available for export was
produced to meet the requirements of advanced biofuel. As a result, we
expect that any errors introduced by these assumptions will be very
small.
---------------------------------------------------------------------------

    \68\ ``2014 RIN Supply,'' docket EPA-HQ-OAR-2015-0111.

                                        Table II.C-2--2014 Actual Supply
                                                 [Million RINs]
----------------------------------------------------------------------------------------------------------------
                                  Domestic
           D code a             production c      Imports c     Adjustments b c       Exports       Net supply
----------------------------------------------------------------------------------------------------------------
3 & 7........................              33               0                  0               0              33
4............................           2,214             496                 92             126           2,492
5............................              79              64                  0               0             143
6............................          14,017             336                287             457          13,609
All advanced biofuel                    2,326             560                 92             126           2,669
 (D3+D4+D5+D7)...............
All Renewable fuel                     16,344             897                380             582          16,278
 (D3+D4+D5+D6+D7)............
----------------------------------------------------------------------------------------------------------------
\a\ D3 and D7 represent cellulosic biofuel. D4 represents biomass-based diesel. D5 represents advanced biofuel
  that is not cellulosic biofuel or biomass-based diesel. D6 represents non-advanced (conventional) renewable
  fuel.
\b\ As described earlier in this section, adjustments represent spills, enforcement obligations, etc.
\c\ Values in this table differ from those in the NPRM due to ongoing retrospective corrections that are made to
  data recorded in EMTS.

Based on these volumes, we are setting the applicable volume
requirements for advanced biofuel and total renewable fuel for 2014, as
shown in Table II.C-3 below. Additional discussion of the final
cellulosic biofuel and BBD volume requirements for 2014 can be found in
Sections IV.D and III.C, respectively.

            Table II.C-3--Final Volume Requirements for 2014
                            [Billion gallons]
------------------------------------------------------------------------

------------------------------------------------------------------------
Advanced biofuel.............................................       2.67
Total renewable fuel.........................................      16.28
------------------------------------------------------------------------

D. 2015 Advanced Biofuel and Total Renewable Fuel Volume Requirements

    In the NPRM, we said that we expected that the market could achieve
some growth in 2015 in comparison to 2014 volumes despite the fact that
the proposal was being released well into 2015. Our proposed volumes
for 2015 represented moderate growth in supplies of both advanced
biofuel and total renewable fuel deemed possible based on annual growth
in previous years, but tempered by the fact that the market would not
have the lead-time envisioned by the statute. Although the proposed
volumes could not be construed as requirements, we believed that they
would provide signals to the market concerning the levels that EPA
believed were achievable, and that the market would respond to these
signals. In fact this appears to have been the case, as monthly supply
in the months following release of the NPRM was higher than monthly
supply prior to the NPRM.
    This final rule is being released after 11 months of the year has
passed. As was the case for 2014, the final standards that we set for
2015 cannot affect supply that occurred over the previous 11 months,
and there is insufficient lead time available to impact renewable fuel
use in the remaining one month. Thus we believe that the basic approach
we have taken in this final rule to establishing 2014 requirements
should also be applied to 2015, with differences only to account for
there being an incomplete data set for 2015. The more general issues
(e.g., consideration of carryover RINs, determination of export
volumes, etc.) that were raised by stakeholders for the determination
of the 2014 volume requirements, and our assessment of those issues,
also apply to 2015. As for 2014, the final volume requirements for 2015
for advanced biofuel and total renewable fuel effectively represent
what the market actually achieved (for months for which data are
available) and a projection of supply based on historical information
for the remaining

months where data were not yet available.
    While this final rule is being released after 11 months of the year
has passed, the data for determining actual supply was only available
for the first 8 to 9 months of the year. EMTS data on RIN generation
and various adjustments for RINs that cannot be used for obligated
party compliance was available through September, while data on
renewable fuel exports from the Census Bureau was available through
August.\69\ In order to determine total supply for 2015, it was
necessary to estimate supply for the remaining months of the year using
the data on actual supply that is available for 2015 and supply trends
from 2013 and 2014. These supply trends were used to identify seasonal
variations in supply that allowed us to project supply in those months
in 2015 for which actual supply data are not available. Details of this
assessment are provided in the docket, and are summarized below.\70\
---------------------------------------------------------------------------

    \69\ We determined that using records from EMTS on 2015 RINs
retired for exports would provide an inaccurate estimate of actual
2015 RINs retired for export in specific months. Exporters can
record their RIN retirements at any time within the 30 days
following an export of renewable fuel. As a result, exports that
occurred in August 2015 may be recorded in EMTS in August or
September, and exports that occurred in September 2015 may be
recorded in EMTS in September or October. Given this, we believe
that the Census Bureau data on exports provided a more accurate
estimate of exports in specific months.
    \70\ ``Projection of annual renewable fuel supply in 2015,''
memorandum from David Korotney to docket EPA-HQ-OAR-2015-0111.

                                     Table II.D-1--Projected Supply for 2015
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                       RINs
                                                     generated      Adjustments       Exports       Net supply
----------------------------------------------------------------------------------------------------------------
Advanced biofuel................................           3,121              92             145           2,884
Total renewable fuel............................          17,815             379             504          16,931
----------------------------------------------------------------------------------------------------------------

    In the NPRM we requested comment on whether the volume requirements
that we were proposing for 2015 appropriately reflected challenges
associated with the marketplace increasing renewable fuel supply in
response to the rulemaking in the time available. Parties that believed
we should set the applicable volume requirements for 2014 at the
statutory targets typically said the same for the 2015 volume
requirements, arguing that carryover RINs could meet any shortfall in
the supply of renewable fuel. Others agreed that the proposed 2015
volume requirements were reasonable and pointed to the fact that the
situation for 2015 was essentially the same as for 2014 in that the
standards would be set after most of the year had passed and beyond a
date where the final rule could influence renewable fuel use.
    In general, it is our assessment that comments provided by
stakeholders did not include any compelling arguments or information
that would lead us to believe that the final volume requirements for
2015 should be set higher than actual supply (including a projection of
actual supply for months where data are not available). While some
stakeholders expressed a belief that higher standards can influence
market dynamics in 2015, we do not believe that this is the case given
that this final rule is being released after 11 months of the year has
passed. The only possible basis for setting the final volume
requirements higher than actual supply would be the availability of
carryover RINs, which as described in Section II.H we believe should
not be intentionally drawn down in the context of standard-setting at
this time.
    Some obligated parties argued that the final percentage standards
for 2015 should be set at the proposed levels since they were using the
proposed percentage standards to guide their acquisition of RINs in the
second half of the year. These parties made a similar argument
regarding the 2014 percentage standards. However, all regulated parties
were aware that the final standards could differ from those we proposed
based on comments we received, new information that became available,
and new or different EPA analysis. Moreover, the statutory volume
targets (which a number of commenters argued should be the basis for
the final 2014 standards) provided notice of the maximum volumes that
EPA could require in finalizing the rule. As with 2014, we are using
the cellulosic waiver authority as the basis for reductions in advanced
biofuel, and for an equal reduction in the total renewable fuel volume
requirement. For total renewable fuel, we are also using the general
waiver authority, based on a determination of inadequate domestic
supply, to provide an additional increment of volume reduction to
result in a volume requirement equal to our assessment of RINs
generated in 2015 that will be available for compliance.

            Table II.D.2--Final Volume Requirements for 2015
                            [Billion gallons]
------------------------------------------------------------------------

------------------------------------------------------------------------
Advanced biofuel.............................................       2.88
Renewable fuel...............................................      16.93
------------------------------------------------------------------------

E. Total Renewable Fuel Volume Requirement for 2016

    The proposed 2016 volume requirement of 17.40 billion gallons was
intended to represent the total supply of renewable fuel for use in
transportation fuel in the United States, including both domestic
production and imports of renewable fuel, in light of a policy that is
intended to induce significant change. In determining the proposed 2016
volume requirements, we targeted substantial growth compared to 2014
and 2015, consistent with the fact that they are being set
prospectively, on the schedule contemplated by Congress, and therefore
can be expected to influence the increased production and use of
renewable fuels in 2016.
    Responses to the proposed 2016 volume requirement for total
renewable fuel were mixed. Some stakeholders, such as The American
Council on Renewable Energy and Trestle Energy, indicated that the
proposed volumes appeared to be reasonable given the challenges
associated with increasing supply. Stakeholders who were obligated
parties, petroleum marketers and retailers, livestock owners, or engine
owners typically said that the proposed volumes were too high. These
stakeholders typically pointed to expected high costs, adverse impacts
on vehicles or engines, or a general inability of the market to supply
the proposed volumes. Many treated the constraints associated with the
E10 blendwall as representing a firm barrier that could not or should
not be crossed. In contrast, renewable fuel producers and farmers
generally believed the

proposed volumes to be too low. These stakeholders typically pointed to
production capacity and available feedstocks to support their views,
and often argued that the power of the market to respond to the
standards EPA sets is essentially unlimited in its ability to overcome
any potential constraints on supply.
    In general, we did not find arguments for reducing the volume
requirements below the proposed levels compelling. Our response to
comments associated with the E10 blendwall, demand for E0, and the use
of higher ethanol blends such as E15 and E85 are discussed in more
detail in Section II.E.2 below. In short, stakeholders provided no
compelling evidence that a nationwide average ethanol concentration in
gasoline cannot exceed 10.0% in 2016. Moreover, the RFS program will
not force consumers to use E15 in engines where compatibility may be a
concern, such as nonroad engines or vehicles manufactured before 2001,
as some commenters suggested. The flexibility inherent in the program
will also continue to permit the use of E0 if there is demand for it,
addressing concerns about misfueling with higher ethanol blends.
Further discussion of these issues can be found in the Response to
Comments document.
    While we do not believe that the total renewable fuel volume
requirement for 2016 should be reduced below the proposed level, we
continue to believe that challenges associated with growth in the
supply of renewable fuels precludes attainment of the statutory volumes
in 2016. Constraints including but not limited to the E10 blendwall,
are real and can only be partially overcome by a responsive market in
the near term. We acknowledged in the NPRM that the market would need
to respond by increasing domestic production and/or imports of those
biofuels that have fewer marketplace constraints, by expanding the
infrastructure for distributing and consuming renewable fuel, and by
improving the relative pricing of renewable fuels and conventional
transportation fuels at the retail level to ensure that they are
attractive to consumers. However, we also stated our belief in the NPRM
that the market is not unlimited in its ability to respond to the
standards we set, particularly over the relevant timeframe. Thus while
there can be significant growth in renewable fuel supply from 2015
levels in 2016, we continue to believe that the statutory target for
total renewable fuel cannot be reached in 2016.
    In making a determination to exercise our authority to waive
volumes, our objective is to exercise the general waiver authority only
to the extent necessary to address the inadequacy in
supply.71 72 As explained in the NPRM, we are seeking to
determine the ``maximum'' volumes of renewable fuel that are reasonably
achievable in light of supply constraints. To clarify, we are not
aiming to identify the absolute maximum domestic supply that could be
available in an ideal or unrealistic situation, or a level that might
be anticipated under conditions that are possible, but unlikely to
occur. Rather, we are attempting to identify what we think is the most
likely maximum volume that can be made available under real world
conditions, taking into account the ability of the standards we set to
cause a market response and result in increases in the supply of
renewable fuels. This is a very challenging task not only in light of
the myriad complexities of the fuels market and how individual aspects
of the industry might change in the future, but also because we cannot
precisely predict how the market will respond to the volume-driving
provisions of the RFS program. Thus the determination is one that we
believe is not given to precise measurement and necessarily involves
considerable exercise of judgment. To this end, we are setting
achievable volumes of total renewable fuel in this package that reflect
our best judgment as to the domestic supply of renewable fuels in 2016.
There are a number of indications, described below, that the volumes we
are finalizing today represent a reasonable estimate of this level.
---------------------------------------------------------------------------

    \71\ Section 211(o)(7)(A) says, ``The Administrator . . . may
waive the requirements . . .'' [emphasis added].
    \72\ As discussed in Section II.B.1, EPA has considerable
discretion in exercising the cellulosic waiver authority, and is not
constrained to consider any particular factor or list of factors in
doing so.
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    In the NPRM we explained that our approach to determining the
applicable volumes of total renewable fuel included estimating the
market potential for overcoming the various constraints at play. This
approach was based on consideration of the potential future
contributions from sources of renewable fuel, including ethanol,
biodiesel and renewable diesel, and other types of renewable fuels, in
the aggregate rather than individually, and in the context of a market
that is responsive to the standards that we set. We explained that we
believed this approach to be more straightforward and more likely to
provide a correct projection of the available domestic supply of
renewable fuels in 2016 than the proposed approach we described in the
November 29, 2013 proposal for the 2014 standards.
    In response to the NPRM, many parties presented alternative
suggestions for volume requirements for total renewable fuel in 2016,
either higher or lower than the 17.40 billion gallons that we proposed,
and generally based these suggestions on an approach more akin to that
used in our November 29, 2013 proposal. That is, they made their own
estimates of the achievable levels of various types of renewable fuels
that could be produced or renewable fuel blends that could be consumed
and used these estimates as the basis for suggesting higher or lower
volume requirements. We recognize that an assessment of the
contribution that individual sources can make to the total can be
valuable in demonstrating both the achievability of the volume
requirements and the extent to which they represent the supply of
renewable fuels in 2016. In the November 2013 proposal we took a very
granular approach to assessing the potential supply of renewable fuels
by assessing the potential for growth of individual renewable fuels,
quantifying the uncertainty around each assessment, and using a Monte
Carlo simulation to assimilate the individual assessments. In our June
2015 proposal we took a much more holistic approach to assessing
renewable fuel supply, recognizing that the individual components of
the supply are interconnected and do not operate in isolation. We
received many comments suggesting that the holistic approach was too
broad, that the methodology EPA used in deriving the volume
requirements was not sufficiently clear, and that EPA should more
closely evaluate potential for growth in the use of individual fuel
types as part of its analysis. We continue to believe that because of
the complexities of the fuels market, the structure of the standards,
and the inherent difficulties associated with predicting which of the
many possible scenarios the market will choose to meet any given
standard, a very granular approach is not likely to produce an accurate
representation of the maximum volume that can reasonably be achieved.
At the same time, we recognize the value in better identifying the
information on which our technical judgements are based in making an
overall assessment of the volume of renewable fuel that can be supplied
in 2016.
    For the final rule, therefore, we are individually analyzing the
potential for growth in broad categories of renewable fuel: Ethanol,
biodiesel, and other types of renewable fuels. We believe that

these assessments have helped us to better estimate the most likely
maximum achievable volume of renewable fuel that can be supplied in
2016 and, as described below, the revised approach, together with
technical corrections, has led to a final volume for total renewable
fuel that is somewhat larger than the volume in our proposed rule. The
following sections discuss the state of the renewable fuel market in
general, our evaluation of the supply of broad categories of renewable
fuel in 2016, and our conclusions regarding the most likely maximum
achievable supply of renewable fuel in 2016.
1. Renewable Fuel Market Challenges and Opportunities
    The fuels marketplace in the United States is large, diverse, and
complex, made up of many different players with different, and often
competing, interests. Substantial growth in the renewable fuel volumes
beyond current levels in 2016 and beyond will require action by many
different parts of the fuel market, and a constraint in any one part of
the market can limit the growth in renewable fuel supply. Whether the
primary constraint is in the technology development and
commercialization stage, as has been the case with cellulosic biofuels,
or instead related to the infrastructure build out and fuel
consumption, as is recently the case with ethanol in the United States,
the end result is that these constraints limit the available supply of
renewable fuel.
    The constraints on supply to vehicles and engines range from legal
limitations on the ethanol concentration that can be used in different
types of gasoline-powered vehicles to market-based constraints
associated with production, distribution, and use of renewable fuels
and the ability for these fuels to compete with traditional petroleum-
based fuels. A list of the many factors that affect the growth of
renewable fuel supply in the United States in 2016 and beyond is shown
in Table II.E.1-1 below.

[GRAPHIC] [TIFF OMITTED] TR14DE15.000

[GRAPHIC] [TIFF OMITTED] TR14DE15.001

    None of the market components listed in Table II.E.1-1 are in and
of themselves an insurmountable barrier to growth of renewable fuels.
Rather, they are challenges that can be overcome in a responsive
marketplace given enough time and in many cases with considerable
investment. In this regard the key question is not whether renewable
fuel volumes can increase, but rather how quickly. Moreover, the speed
with which the market can engage in actions to overcome these
constraints is a function of whether and how effectively parties
involved in the many diverse aspects of the renewable fuel marketplace
respond to the incentives provided by the RFS and other programs
designed to incentivize renewable fuel use.
    To a certain degree, the RFS standards themselves can help provide
certainty and help drive the necessary investments up and down the
supply chain by creating expectation for what overall demand will be.
However, the RFS standards are still limited in this regard in that
they are issued on an annual basis immediately prior to the compliance
year (thus offering little lead-time) and provide only an indirect
signal to the various components of the marketplace. In order for
volumes of many of the renewable fuels to grow it requires a rather
complicated series of investments decisions and actions by a wide range
of independent businesses in the marketplace, often by companies that
are in direct competition with one another. This can make it difficult
for the market to increase supply quickly. The significant fluctuations
in the price of oil since 2010 further complicates the investment
decisions necessary to enable further growth in the supply of renewable
fuels.
    Fuels that are or have been more easily integrated into the
marketplace (e.g., ethanol at 10 volume percent or renewable diesel
that is fungible with diesel fuel) face fewer challenges to overcome to
increase their supply and thus have generally been more attractive to
investors than those that might require new and unique changes to the
fuel distribution infrastructure and/or vehicle fleet. The greater
market certainty associated with these more easily integrated fuels has
allowed them to increase relatively quickly. This is consistent with
our past experience under the RFS program where we saw rapid growth in
E10 ethanol blends, low level biodiesel blends, and more recently CNG/
LNG derived from biogas. However, introducing new types of biofuels and
higher biofuel concentrations into the marketplace requires new
production technology, new vehicles, new retail and distribution system
infrastructure, and/or new retail-level incentives, and thus have been
slower to expand.
    Also, the signal from the RFS standard is for the general
categories of cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuels. The standards are not specific to a
fuel type (e.g., ethanol, biodiesel, renewable diesel, biobutanol,
biogas, etc.), feedstock (e.g., corn, soy oil, wood

chips), or technology (e.g., biochemical vs thermochemical). This is a
strength of the RFS program, as it lets the market, rather than EPA,
decide which fuel hold the most promise for future growth. As a result,
however, the market is still left to determine which fuels to invest
in, requiring action by multiple parties involved in fuel supply to
ensure growth. We believe that the market can and will make these
decisions, particularly as the picture as to which fuels and
technologies hold the greatest potential for growth becomes clearer,
but it will take time.
    In addition to the market needing time to sort out its investment
decisions, it should also be emphasized that it takes time for the
market to implement investment decisions it has already made. Each
market segment has a certain degree of implementation time associated
with it. For instance, diverting relatively small amounts of feedstocks
from existing uses could potentially occur in a matter of weeks in some
cases and months in others, whereas diverting larger amounts or
bringing some new feedstocks to market (e.g., energy crops such as
switchgrass) could require years. Restarting existing biofuel
production facilities could likewise occur relatively quickly, while
developing a new renewable fuel production technology (e.g., cellulosic
ethanol) takes years, and once developed it takes years more to produce
commercial volumes of renewable fuel from them. Displacing some fuels
with others in distribution and storage can often occur in a matter of
weeks, but adding new distribution and storage capacity can take months
or years. Using compatible fuels in the existing fleet of vehicles can
occur almost seamlessly, but developing and expanding a new fleet of
purpose-built vehicles will take years. Since this final rulemaking
establishes standards for 2016 that will apply to gasoline and diesel
fuel produced just one month from the signature of this rule, we do not
believe that there is sufficient time for the 2016 standards to lead to
dramatic changes in renewable fuel supply that are not already
underway. But we do believe that the 2016 standards can drive some
growth in the near term while setting the stage for greater growth in
the longer term. As a result, the best opportunity for market growth is
likely to be for those fuels where the market is already taking action
to address any relevant constraints listed in Table II.E.1-1 above.
    Cellulosic biofuel provides an example. Growth in cellulosic
biofuel volumes and their contribution to the advanced biofuel standard
has been limited, and certainly less than Congress envisioned, since
the outset of the RFS program due to challenges related to technology
development and commercialization. Despite a number of years and
billions of dollars spent in research and development of cellulosic
biofuel technologies, and several attempts at commercializing these
technologies, deriving liquid fuels from cellulosic feedstocks has
lagged well behind not only the statutory targets, but also our annual
projections. These technologies are just now beginning to introduce
significant volumes of liquid cellulosic biofuels to the market as
described in Section IV. In contrast, more rapid growth has occurred
with CNG/LNG derived from biogas, which was recategorized as a
cellulosic biofuel in 2014. Biogas did not face the same renewable fuel
production challenges as liquid biofuels, and since it could also
utilize the existing natural gas distribution, vehicle, and refueling
infrastructure use of cellulosic CNG/LNG derived from biogas as
transportation fuel has increased rapidly since 2014. The inclusion of
cellulosic biogas in our projections has allowed total cellulosic
biofuel volumes to grow rapidly through 2015 and into 2016. However,
even this significant and short term growth will become limited as
cellulosic biogas will soon face constraints associated with sufficient
consumption capacity since the fleet of natural gas vehicles that use
CNG/LNG derived from biogas as a transportation fuel is currently
limited, and it will likely take time for it to grow.
    Even with the RFS standards in place to drive growth, the market
itself still has considerable uncertainty in terms of how it will
respond to those standards and whether and to what degree it can
overcome the various constraints within the next year. These facts make
it challenging for the Agency to project the supply of renewable fuel
in 2016, as we cannot predict with precision the progress that can be
made for every component in the market for all the different fuels, or
for the renewable fuel supply as a whole. Every existing and potential
renewable fuel is impacted by a number of factors that may limit the
renewable fuel's growth potential over the coming year. If EPA were to
establish standards that cannot be achieved it would likely result in a
significant increase in renewable fuel and RIN prices, and obligated
parties would be forced into RIN deficits or even non-compliance. This
could serve to erode the certainty and stability for renewable fuel
volume growth that the RFS standards are intended to provide. At the
same time, there are also reasons for optimism that significant
progress can be made in overcoming some of the constraints on renewable
fuel use in the coming year. We do not think it would be appropriate to
ignore either the potential for growth, or potential challenges on
growth, in making our assessment of potential volumes. Because the RFS
program allows for a variety of different paths to contribute to
overall compliance with the standards, significant growth overall is
possible in the coming year even if there is less certainty that
individual paths might be able to grow significantly.
    In the NPRM we discussed the fact that renewable fuel supply in
2013 \73\ and 2014 fell short of the statutory targets, and that we
believed that the constraints on supply that contributed to those
shortfalls were very likely to continue in 2015 and 2016. Indeed supply
in the first half of 2015 has also fallen short of what would be
required on an annualized basis to meet the statutory targets, though
it was larger than supply in 2014. In response, many stakeholders