Proposed Rule: Air Programs: Fuel and Fuel Additives&#8212 Renewable Fuel Standard Program

Friday,
September 22, 2006
Part II
Environmental
Protection Agency
40 CFR Part 80
Regulation of Fuels and Fuel Additives:
Renewable Fuel Standard Program;
Proposed Rule
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55552 Federal Register / Vol. 71, No. 184 / Friday, September 22, 2006 / Proposed Rules
ENVIRONMENTAL PROTECTION 2006 at the Sheraton Gateway Suites you submit. If EPA cannot read your
AGENCY Chicago O’Hare in Rosemont, IL. To comment due to technical difficulties
request to speak at a public hearing, and cannot contact you for clarification,
40 CFR Part 80 send a request to the contact in FOR EPA may not be able to consider your
[EPA–OAR–2005–0161; FRL–8218–8] FURTHER INFORMATION CONTACT by comment. Electronic files should avoid
October 4, 2006. the use of special characters, any form
RIN 2060–AN76 of encryption, and be free of any defects
ADDRESSES: Comments: Submit your
comments, identified by Docket ID No. or viruses.
Regulation of Fuels and Fuel Docket: All documents in the docket
Additives: Renewable Fuel Standard EPA–OAR–2005–0161, by one of the
following methods: are listed in the www.regulations.gov
Program index. Although listed in the index,
• http://www.regulations.gov: Follow
AGENCY: Environmental Protection the on-line instructions for submitting some information is not publicly
Agency (EPA). comments. available, e.g., CBI or other information
ACTION: Notice of proposed rulemaking. • E-mail: ASDinfo@epa.gov. whose disclosure is restricted by statute.
• Mail: U.S. Environmental Certain other material, such as
SUMMARY: Under the Clean Air Act, as Protection Agency, EPA West (Air copyrighted material, will be publicly
amended by Section 1501 of the Energy Docket), 1200 Pennsylvania Ave., NW., available only in hard copy. Publicly
Policy Act of 2005, the Environmental Room B108, Mail Code 6102T, available docket materials are available
Protection Agency is required to Washington, DC 20460, Attention either electronically in
promulgate regulations implementing a Docket ID No. OAR–2005–0161. Please www.regulations.gov or in hard copy at
renewable fuel program. The statute include a total of 2 copies. In addition, the EPA Docket Center, EPA/DC, EPA
specifies the total volume of renewable please mail a copy of your comments on West, Room B102, 1301 Constitution
fuel that needs to be used in each year, the information collection provisions to Ave., NW., Washington, DC. This
with the total volume increasing over the Office of Information and Regulatory Docket Facility is open from 8:30 a.m.
time. In this context, it is expected to Affairs, Office of Management and to 4:30 p.m., Monday through Friday,
simultaneously reduce dependence on Budget (OMB), Attn: Desk Officer for excluding legal holidays. The Docket
foreign sources of petroleum, increase EPA, 725 17th St., NW., Washington, DC telephone number is (202) 566–1742.
domestic sources of energy, and help us 20503. The telephone number for the Public
make progress in moving beyond a • Hand Delivery: EPA Docket Center, Reading Room is (202) 566–1744.
petroleum-based economy. The EPA/DC, EPA West, Room B102, 1301 Note: The EPA Docket Center suffered
increased use of renewable fuels such as Constitution Ave., NW., Washington damage due to flooding during the last week
ethanol and biodiesel is also expected to DC. Such deliveries are only accepted of June 2006. The Docket Center is
have the added benefit of providing an during the Docket’s normal hours of continuing to operate. However, during the
expanded market for agricultural operation, and special arrangements cleanup, there will be temporary changes to
products such as corn and soybeans, should be made for deliveries of boxed Docket Center telephone numbers, addresses,
expanding economic benefits for our information. and hours of operation for people who wish
nation’s agricultural sector. Based on to make hand deliveries or visit the Public
Instructions: Direct your comments to
our analysis, there is also reason to Reading Room to view documents. Consult
Docket ID No. EPA–OAR–2005–0161. EPA’s Federal Register notice at 71 FR 38147
believe that the expanded use of EPA’s policy is that all comments (July 5, 2006) or the EPA Web site at
renewable fuels will provide reductions received will be included in the public http://www.epa.gov/epahome/dockets.htm
in carbon dioxide emissions and some docket without change and may be for current information on docket operations,
air toxics emissions, such as benzene, made available online at locations and telephone numbers. The
from the transportation sector, while www.regulations.gov, including any Docket Center’s mailing address for U.S. mail
other emissions may increase. personal information provided, unless and the procedure for submitting comments
This action proposes regulations the comment includes information to www.regulations.gov are not affected by
designed to ensure that refiners, the flooding and will remain the same.
claimed to be Confidential Business
blenders, and importers of gasoline will Information (CBI) or other information Hearing: The hearing will be held at
use enough renewable fuel each year so whose disclosure is restricted by statute. 10 a.m. (Central) on October 13, 2006 at
that this total volume requirement is Do not submit information that you the Sheraton Gateway Suites Chicago
met. Our proposal describes the consider to be CBI or otherwise O’Hare, 6501 North Mannheim Road,
standard that will apply to these parties protected through www.regulations.gov Rosemont, Illinois 60018. To request to
and the renewable fuels that qualify for or e-mail. The www.regulations.gov Web speak at a public hearing, send a request
compliance. The regulations would also site is an ‘‘anonymous access’’ system, to the contact in FOR FURTHER
establish a trading program that would which means EPA will not know your INFORMATION CONTACT.
be a critical aspect of the overall identity or contact information unless FOR FURTHER INFORMATION CONTACT: Julia
program, allowing renewable fuels to be you provide it in the body of your
used where they are most economical MacAllister, U.S. EPA, National Vehicle
comment. If you send an e-mail and Fuel Emissions Laboratory, 2000
while providing a flexible means for comment directly to EPA without going
obligated parties to comply with the Traverwood, Ann Arbor, MI 48105;
through www.regulations.gov your e- Telephone (734) 214–4131, FAX (734)
standard. mail address will be automatically 214–4816, E-mail
DATES: Comments: Comments must be captured and included as part of the macallister.julia@epa.gov.
received on or before November 12, comment that is placed in the public
SUPPLEMENTARY INFORMATION:
2006. Under the Paperwork Reduction docket and made available on the
Act, comments on the information Internet. If you submit an electronic I. General Information
collection provisions must be received comment, EPA recommends that you
by OMB on or before October 30, 2006. include your name and other contact A. Does This Action Apply to Me?
Hearing: A public hearing will be information in the body of your Entities potentially affected by this
held at 10 a.m. (Central) on October 13, comment and with any disk or CD–ROM proposed action include those involved
Federal Register / Vol. 71, No. 184 / Friday, September 22, 2006 / Proposed Rules 55553
with the production, distribution and Regulated categories and entities could
sale of gasoline motor fuel or renewable include:
fuels such as ethanol and biodiesel.
NAICS1 SIC 2
Category codes codes Examples of potentially regulated entities
Industry ................................................. 324110 2911 Petroleum Refineries.

Industry ................................................. 325193 2869 Ethyl alcohol manufacturing.
Industry ................................................. 325199 2869 Other basic organic chemical manufacturing.
Industry ................................................. 424690 5169 Chemical and allied products merchant wholesalers.
Industry ................................................. 424710 5171 Petroleum bulk stations and terminals.
Industry ................................................. 424720 5172 Petroleum and petroleum products merchant wholesalers.
Industry ................................................. 454319 5989 Other fuel dealers.
1 North American Industry Classification System (NAICS).
2 Standard Industrial Classification (SIC) system code.
This table is not intended to be Code of Federal Regulations (CFR) part A. What Is the Standard That Must Be Met?
exhaustive, but provides a guide for or section number. 1. How Is the Percentage Standard
readers regarding entities likely to be • Explain why you agree or disagree; Calculated?
regulated by this action. This table lists suggest alternatives and substitute 2. What are the Applicable Standards?
language for your requested changes. 3. Compliance in 2007
the types of entities that EPA is now
• Describe any assumptions and 4. Renewable Volume Obligations
aware could potentially be affected by B. What Counts as a Renewable Fuel in the
this proposed action. Other types of provide any technical information and/ RFS Program?
entities not listed in the table could also or data that you used. 1. What Is a Renewable Fuel That Can Be
be affected. To decide whether your • If you estimate potential costs or Used for Compliance?
organization might be affected if this burdens, explain how you arrived at a. Ethanol Made From a Cellulosic
proposed action is finalized, you should your estimate in sufficient detail to Feedstock
carefully examine today’s notice and the allow for it to be reproduced. b. Ethanol Made From Any Feedstock in
existing regulations in 40 CFR part 80. • Provide specific examples to Facilities Run Mostly With Biomass-
illustrate your concerns, and suggest Based Fuel
If you have any questions regarding the
alternatives. c. Ethanol That Is Made From the Non-
applicability of this action to a
particular entity, consult the persons • Explain your views as clearly as Cellulosic Portions of Animal, Other
possible, avoiding the use of profanity Waste, and Municipal Waste
listed in the preceding FOR FURTHER 2. What Is Biodiesel?
INFORMATION CONTACT section.
or personal threats.
a. Biodiesel (Mono-Alkyl Esters)
• Make sure to submit your b. Non-Ester Renewable Diesel
B. What Should I Consider as I Prepare comments by the comment period 3. Is Motor Fuel That is Made From a
my Comments for EPA? deadline identified. Renewable Feedstock a Renewable Fuel?
3. Docket Copying Costs. A reasonable 4. What Are ‘‘Equivalence Values’’ for
1. Submitting CBI. Do not submit this fee may be charged by EPA for copying Renewable Fuel?
information to EPA through docket materials, as provided in 40 CFR a. Authority Under the Act To Establish
www.regulations.gov or e-mail. Clearly part 2. Equivalence Values
mark the part or all of the information b. Energy Content and Renewable Content
that you claim to be CBI. For CBI Table of Contents as the Basis for Equivalence Values
information in a disk or CD ROM that I. Background c. Lifecycle Analyses as the Basis for
you mail to EPA, mark the outside of the A. The Role of Renewable Fuels in the Equivalence Values
disk or CD ROM as CBI and then Transportation Sector C. What Gasoline Is Used To Calculate the
identify electronically within the disk or B. Requirements in the Energy Policy Act Renewable Fuel Obligation and Who Is
CD ROM the specific information that is C. Default Standard Applicable to 2006 Required To Meet the Obligation?
D. Development of the Proposal 1. What Gasoline Is Used To Calculate the
claimed as CBI. In addition to one II. Overview of the Proposal Volume of Renewable Fuel Required To
complete version of the comment that A. Impacts of Increased Reliance on Meet a Party’s Obligation?
includes information claimed as CBI, a Renewable Fuels 2. Who Is Required to Meet the Renewable
copy of the comment that does not 1. Renewable Fuel Volumes Scenarios Fuels Obligation?
contain the information claimed as CBI Analyzed 3. What Exemptions Are Available Under
must be submitted for inclusion in the 2. Emissions the RFS Program?
public docket. Information so marked 3. Economic Impacts a. Small Refinery and Small Refiner
will not be disclosed except in 4. Greenhouse Gases and Fossil Fuel Exemption
accordance with procedures set forth in Consumption b. General Hardship Exemption
5. Potential Water Quality Impacts c. Temporary Exemption Based on
40 CFR part 2. B. Program Structure Unforeseen Circumstances
2. Tips for Preparing Your Comments. 1. What is the RFS Program Standard? 4. What Are the Opt-in and State Waiver
When submitting comments, remember 2. Who Must Meet the Standard? Provisions Under the RFS Program?
to: 3. What Qualifies as a Renewable Fuel? a. Opt-in Provisions for Noncontiguous
• Identify the rulemaking by docket 4. Equivalence Values of Different States and Territories
Renewable Fuels b. State Waiver Provisions
number and other identifying

information (subject heading, Federal 5. How Will Compliance Be Determined? D. How Do Obligated Parties Comply With
6. How Would the Trading Program Work? the Standard?
Register date and page number). 7. How Would the Program Be Enforced? 1. Why Use Renewable Identification
• Follow directions—The agency may C. Voluntary Labeling Program Numbers?
ask you to respond to specific questions III. Complying With the Renewable Fuel a. RINs Serve the Purpose of a Credit
or organize comments by referencing a Standard Trading Program
b. Alternative Approach to Tracking 3. Renewable Fuel Distribution System X. Agricultural Sector Economic Impacts
Batches Capability XI. Public Participation
2. Generating RINs and Assigning Them to VII. Impacts on Cost of Renewable Fuels and XII. Administrative Requirements
Batches Gasoline A. Executive Order 12866: Regulatory
a. Form of Renewable Identification A. Renewable Fuel Production and Planning and Review
Numbers Blending Costs B. Paperwork Reduction Act
b. Generating Extra-Value RINs 1. Ethanol Production Costs C. Regulatory Flexibility Act
c. Cases in Which RINs Are Not Generated a. Corn Ethanol 1. Overview
3. Calculating and Reporting Compliance b. Cellulosic Ethanol 2. Background—Small Refiners Versus
a. Using RINs To Meet the Standard c. Ethanol’s Blending Cost Small Refineries
b. Valid Life of RINs 2. Biodiesel Production Costs 3. Summary of Potentially Affected Small
c. Cap on RIN Use To Address Rollover 3. Diesel Fuel Costs Entities
d. Deficit Carryovers B. Distribution Costs 4. Impact of the Regulations on Small
4. Provisions for Exporters of Renewable 1. Ethanol Distribution Costs Entities
Fuel a. Capital Costs To Upgrade Distribution 5. Small Refiner Outreach
5. How Would the Agency Verify System for Increased Ethanol Volume 6. Conclusions
Compliance? b. Ethanol Freight Costs D. Unfunded Mandates Reform Act
E. How Are RINs Distributed and Traded? 2. Biodiesel Distribution Costs E. Executive Order 13132: Federalism
1. Distribution of RINs With Batches of C. Estimated Costs to Gasoline F. Executive Order 13175: Consultation
Renewable Fuel 1. RVP Cost for Blending Ethanol Into and Coordination With Indian Tribal
a. Responsibilities of Renewable Fuel Summertime RFG Governments
Producers and Importers 2. Cost Savings for Phasing Out Methyl G. Executive Order 13045: Protection of
b. Responsibilities of Parties That Buy, Tertiary Butyl Ether (MTBE) Children From Environmental Health
Sell, or Handle Renewable Fuels 3. Production of Alkylate From MTBE and Safety Risks
i. Batch Splits Feedstocks H. Executive Order 13211: Actions
ii. Batch Mergers 4. Changes in Refinery Produced Gasoline Concerning Regulations That
2. Separation of RINs From Batches Volume and Its Costs Significantly Affect Energy Supply,
3. Distribution of Separated RINs 5. Overall Impact on Fuel Cost Distribution, or Use
4. Alternative Approaches to RIN a. Cost Without Ethanol Subsidies I. National Technology Transfer
Distribution b. Gasoline Costs Including Ethanol Advancement Act
a. Producer With Direct Transfer of RINs Consumption Tax Subsidies XIII. Statutory Authority
b. Producer With Open RIN Market c. Cost Sensitivity Case Assuming $70 per
c. First Purchaser Barrel Crude Oil I. Background
d. Owner at Time of Blending VIII. What Are the Impacts of Increased
e. Blender at Time of Blending Ethanol Use on Emissions and Air
This section describes the required
IV. Registration, Recordkeeping, and Quality? elements of the renewable fuel program,
Reporting Requirements A. Effect of Renewable Fuel Use on also known as the Renewable Fuel
A. Introduction Emissions Standard (RFS) program, as stipulated
B. Requirements for Obligated Parties and 1. Emissions From Gasoline Fueled Motor in Section 211(o) of the Clean Air Act
Exporters of Renewable Fuels Vehicles and Equipment (CAA) as amended by the Energy Policy
1. Registration a. Gasoline Fuel Quality Act of 2005 (the Energy Act or the Act).
2. Reporting b. Emissions From Motor Vehicles
3. Recordkeeping c. Nonroad Equipment A. The Role of Renewable Fuels in the
C. Requirements for Producers and 2. Diesel Fuel Quality: Biodiesel Transportation Sector
Importers of Renewable Fuel 3. Renewable Fuel Production and
1. Registration Distribution
Renewable fuels have been an
2. Reporting B. Impact on Emission Inventories important part of our nation’s
3. Recordkeeping 1. Primary Analysis transportation fuel supply for many
D. Requirements for Other Parties Who 2. Sensitivity Analysis years. Following the CAA amendments
Own RINs 3. Local and Regional VOC and NOX of 1990, the use of renewables fuels,
1. Registration Emission Impacts in July particularly ethanol, increased
2. Reporting C. Impact on Air Quality dramatically. Several key clean fuel
3. Recordkeeping 1. Impact of 7.2 Billion Gallon Ethanol Use programs required by the CAA
V. What Acts Are Prohibited and Who Is on Ozone
Liable for Violations? 2. Particulate Matter
established new market opportunities
VI. Current and Projected Renewable Fuel IX. Impacts on Fossil Fuel Consumption and for ethanol. A very successful mobile
Production and Use Related Implications source control strategy, the reformulated
A. Overview of U.S. Ethanol Industry and A. Lifecycle Modeling gasoline (RFG) program, was
Future Production/Consumption 1. Modifications to GREET Assumptions implemented in 1995. This program set
1. Current Ethanol Production a. Wet-Mill Versus Dry Mill Ethanol Plants stringent new controls on the emissions
2. Expected Growth in Ethanol Production b. Coal Versus Natural Gas in Ethanol performance of gasoline, which were
3. Current Ethanol and MTBE Plants designed to significantly reduce
Consumption c. Ethanol Production Yield
4. Expected Growth in Ethanol 2. Controversy Concerning the Ethanol
summertime ozone precursors and year
Consumption Energy Balance round air toxics emissions. The RFG
B. Overview of Biodiesel Industry and B. Overview of Methodology program also required that RFG meet an
Future Production/Consumption 1. Amount of Conventional Fuel Replaced oxygen content standard. Several areas
1. Characterization of U.S. Biodiesel By Renewable Fuel (R) of the country began blending ethanol
Production/Consumption 2. Lifecycle Impacts of Conventional Fuel into gasoline to help meet this new
2. Expected Growth in U.S. Biodiesel Use (LC) standard, such as Chicago and St. Louis.
Production/Consumption 3. Displacement Indexes (DI)
Another successful clean fuel strategy

C. Feasibility of the RFS Program Volume C. Impacts of Increased Renewable Fuel
Obligations Use
required certain areas exceeding the
1. Production Capacity of Ethanol and 1. Fossil Fuels and Petroleum national ambient air quality standard for
Biodiesel 2. Greenhouse Gases and Carbon Dioxide carbon monoxide to also meet an
2. Production Capacity of Cellulosic D. Implications of Reduced Imports of oxygen content standard during the
Ethanol Petroleum Products winter time to reduce harmful carbon
monoxide emissions. Many of these allowing greater flexibility in how oxygen content mandate for RFG,
areas also blended ethanol during the renewable fuels were blended into the refiners elected to remove essentially all
winter months to help meet this new nation’s fuel supply. The renewable fuel MTBE from the gasoline supply in the
standard, such as Denver and Phoenix. standard additionally created a specific U.S. during the spring of 2006. In order
As a result of these programs, and other annual level for minimum renewable to accomplish this transition quickly,
factors, currently all areas requiring RFG fuel use which increases over time, while still maintaining gasoline volume,
or winter oxygenated fuels are blending ensuring overall growth in the demand octane, and gasoline air toxics
ethanol at some level to support meeting and opportunity for renewable fuels. performance standards, refiners elected
the clean fuel requirements. Because renewable fuels such as to blend ethanol into virtually all
Today, the role and importance of ethanol and biodiesel are not new to the reformulated gasoline nationwide. This
renewable fuels in the transportation U.S. transportation sector, the caused a second dramatic increase in
sector continues to expand. In the past expansion of their use is expected to demand for ethanol, which in the near
several years as crude oil prices have follow distribution and blending term has been met by temporarily
soared above the lower levels of the practices already in place. For instance, shifting large volumes of ethanol out of
1990’s, the relative economics of the market already has the necessary conventional gasoline and into the RFG
renewable fuel use has improved production and distribution areas. Perhaps the largest impact on
dramatically. In addition, since the vast mechanisms in place in many areas, and renewable fuel demand, however, has
majority of crude oil produced in or the ability to expand these mechanisms been the dramatic increase in the cost of
imported into the U.S. is consumed as into new markets. Recent spikes in crude oil. In the last few years, both
gasoline or diesel fuel in the U.S., ethanol use resulting first from the state crude oil prices and crude oil price
concerns about our dependence on MTBE bans, and now the virtual forecasts have increased dramatically.
foreign sources of crude oil has renewed elimination of MTBE from the This has resulted in a large economic
interest in renewable transportation marketplace, have tested the limits of incentive for the use of ethanol and
fuels. The passage of the Energy Policy the ethanol distribution system. biodiesel. The Energy Information
Act of 2005 demonstrated a strong However, future growth is expected to Administration (EIA) and others are
commitment on the part of U.S. move in a more orderly fashion since currently projecting renewable fuel
policymakers to consider additional the use of renewable fuels will not be demand to exceed the minimum
means of supporting renewable fuels as geographically constrained and, given volumes required under the RFS
a supplement to petroleum-based fuels EIA volume projections, investment program by a substantial margin. In this
in the transportation sector. The RFS decisions can follow market forces context, the statutory goal of the RFS
program is such a program. rather than regulatory mandates. In program is to provide an important
The RFS program was debated by the addition, the increased production foundation for ongoing investment in
U.S. Congress over several years before volumes of ethanol and the expanded renewable fuel production. However,
finally being enacted through passage of penetration of ethanol in new markets market demand for renewable fuels is
the Energy Policy Act of 2005. The RFS may create new opportunities for expected to exceed the statutory
program is first and foremost designed blending of E85, a blend of 85 percent minimums. We believe we are
to increase the use of renewable fuels in ethanol and 15 percent gasoline, in the proposing a program structure that
motor vehicle fuels consumed in the long run. The increased availability of could continue to operate effectively
U.S. In this context, it is expected to E85 will mean that more flexible fueled regardless of the level of renewable fuel
simultaneously reduce dependence on vehicles (FFV) can use this fuel. Of the
use or market conditions in the energy
foreign sources of petroleum, increase approximately 5 million FFVs currently
sector.
domestic sources of energy, and in use in the U.S, most are currently
diversify our energy portfolio to help in fueled with conventional gasoline rather B. Requirements in the Energy Policy
moving beyond a petroleum-based than E85, in part due to the limited Act
economy. availability of E85. Section 1501 of the Energy Policy Act
The increased use of renewable fuels Given the ever-increasing demand for provides the statutory basis for the RFS
such as ethanol and biodiesel is also petroleum-based products in the program. This provision was added to
expected to have the added benefit of transportation sector, the RFS program the CAA as Section 211(o). It requires
providing an expanded market for is an important first step in U.S. efforts
EPA to establish a program to ensure
agricultural products such as corn and to move toward energy independence.
that the pool of gasoline sold in the
soybeans. Based on our analysis, there The RFS standard provides the certainty
is also an expectation that the expanded contiguous 48 states contains specific
that at least a minimum amount of
use of renewable fuels will provide volumes of renewable fuel for each
renewable fuel will be used in the U.S.,
reductions in carbon dioxide emissions calendar year starting with 2006. The
which in turn provides investment
and air toxics emissions such as required overall volumes for 2006
certainty for the growth in production
benzene from the transportation sector, through 2012 are shown in Table I.B–1
capacity of renewable fuels. However,
while other emissions such as below.
the RFS program is not the only thing
hydrocarbons and oxides of nitrogen impacting demand for ethanol and other
may increase. renewable fuels. As Congress was TABLE I.B–1.—APPLICABLE VOLUMES
The level of the renewable fuels developing the RFS program in the OF RENEWABLE FUEL UNDER THE
standard set forth by Congress works in Energy Act, several large states were RFS PROGRAM
conjunction with other provisions that adopting and implementing bans on the
were enacted as part of the Energy Act. use of MTBE in gasoline. As a result, Calendar year Billion gallons
In particular, the level of the renewable refiners were forced to switch to ethanol 2006 ...................................... 4.0
fuel standard more than offset the to satisfy the oxygen content mandate 2007 ...................................... 4.7
possible loss in demand for renewable for their reformulated gasoline in the 2008 ...................................... 5.4
fuels occasioned by the Act’s repeal of U.S., causing a large, quick increase in 2009 ...................................... 6.1
the oxygen content mandate in the demand for ethanol. Even more 2010 ...................................... 6.8
reformulated gasoline program while importantly, with the removal of the 2011 ...................................... 7.4
TABLE I.B–1.—APPLICABLE VOLUMES addition, other states can request a adequate specificity on how to
OF RENEWABLE FUEL UNDER THE waiver of the RFS program under implement the default standard. For
RFS PROGRAM—Continued certain conditions, which would affect instance, the Act’s default standard
the national quantity of renewable fuel provision does not specify the liable
Calendar year required under the program.
Billion gallons parties and the specific nature of their
The Act requires the Agency to obligation. It also does not discuss
2012 ...................................... 7.5 promulgate a credit trading program for compliance mechanisms, reporting
the RFS program whereby an obligated requirements, or credit generation and
In order to ensure the use of the total party may generate credits for over use. The resulting uncertainty
renewable fuel volume specified for complying with their annual obligation. associated with the default standard
each year, the Agency must set a The obligated party can then use these would have created confusion and
standard for each year representing the credits or trade them for use by another risked a problematic initial
amount of renewable fuel that a refiner, obligated party. Thus the credit trading implementation of the RFS program.
blender, or importer must use, program allows obligated parties to As a result, the Agency published a
expressed as a percentage of gasoline comply in the most cost-effective rule on December 30, 2005 that
sold or introduced into commerce. This manner by permitting them to generate, interpreted and implemented the
yearly percentage standard is to be set transfer, and use credits. The trading default provision, to provide certainty to
at a level that will ensure that the total program also permits renewable fuels parties involved in the production and
renewable fuel volumes shown in Table that are not blended into gasoline, such distribution of gasoline and renewable
I.B–1 will be used based on gasoline as biodiesel, to participate in the RFS fuels.2 In that action, the Agency
volume projections provided by the program. clarified the default standard for 2006
Energy Information Administration The Agency must also determine who with regulations identifying the liable
(EIA). The standard for each year must can generate credits and under what parties as refiners, importers, and
be published in the Federal Register by conditions, how credits may be blenders. The default standard was
November 30 of the previous year. transferred from one party to another, interpreted as establishing a collective
Starting with 2013, EPA is required to and in certain cases the appropriate obligation, rather than an individual
establish the applicable national value of credits for different types of obligation. Under this interpretation,
volume, based on the criteria contained renewable fuel. If a party is not able to refiners, blenders, and importers are
in the statute, which must require at generate or purchase sufficient credits to responsible as a group for meeting the
least the same overall percentage of meet their annual obligation, they are default 2.78 percent standard, and
renewable fuel use as was required in allowed to carry over the deficit to the compliance with this standard is
2012. next annual compliance period, but calculated over the pool of all gasoline
Renewable fuels are defined in the must achieve full compliance in that sold to consumers. An individual
Act primarily on the basis of the following year. refiner, blender, or importer is not
feedstock. In general, renewable fuels responsible for meeting the 2.78 percent
must be a motor vehicle fuel that is C. Default Standard Applicable to 2006 standard for the specific gasoline it
produced from plant or animal products The Energy Act was enacted in produces. The regulations implementing
or wastes, as opposed to fossil fuel August of 2005 and included provisions the default standard for 2006 did not
sources. The Act specifically identifies for a renewable fuel program that was to include any provisions for credit
several types of motor vehicle fuels as begin in January of 2006. We recognized generation or trading, given the
renewable fuels, including cellulosic that a rulemaking implementing the full collective nature of the obligation.
biomass ethanol, waste-derived ethanol, RFS program, including both program However, any shortfall in renewable
biogas, biodiesel, and blending design and the various analyses fuel production in 2006 would be added
components derived from renewable necessary, would require a substantial as a deficit carryover to the standard for
fuel. effort involving many stakeholders. This 2007. Based on information available to
The standard set annually by EPA is process was expected to take longer date, this does not appear to be
to be a single percentage applicable to than one year, and as a result we knew necessary. Total ethanol production in
refiners, blenders, and importers, as it would not be completed in time to be the U.S. exceeded 4.0 billion gallons in
appropriate. The percentage standard is implemented by January of 2006. 2005 by a small margin, and several
used by obligated parties to determine a The Energy Act anticipated this hundred million gallons of additional
volume of renewable fuel that they are possibility and specified a default ethanol production capacity has come
responsible for ensuring is introduced standard applicable for just 2006. The online in 2006. Thus it is anticipated
into the domestic gasoline pool for the default standard specified that the that the total ethanol production volume
given year. The percentage standard percentage of renewable fuel in gasoline and ultimate use in 2006 will be more
must be adjusted such that it does not sold or dispensed to consumers in the than sufficient to meet the default
apply to multiple parties for the same U.S. in calendar year 2006 must be 2.78 standard of 2.78 percent.
volume of gasoline. The standard must volume percent.1 The default standard Today’s proposal outlines the full RFS
also take into account the fact that small would be applicable if the Agency did program, covering all of the provisions
refineries are exempted from the not promulgate regulations to required in the Act. It applies in
program until 2011, but must take into implement the full RFS program for calendar year 2007 and beyond, since
account the use of renewable fuel by 2006. Since the full program could not the direct final rule described above
those small refineries. be promulgated during 2006, the default addresses RFS compliance for 2006
Under the Act, the required volumes standard of 2.78 percent applies to only.
in Table I.B–1 apply to the contiguous calendar year 2006.

48 states. However, Alaska and Hawaii D. Development of the Proposal
However, the provision for the default
can opt into the program, in which case standard in the Act does not provide The RFS program was prescribed in
the pool of gasoline used to calculate section 1501 of the Act, including the
the standard, and the number of 1 The default standard of 2.78 percent represented
regulated parties, would change. In approximately 4.0 billion gallons of renewable fuel. 2 70 FR 77325 (December 30, 2005).
required total volumes, the timing of the renewable fuels. This section provides renewable fuel will reduce CO2
obligation, the parties who are obligated an overview of our proposal and equivalent greenhouse gas emissions by
to comply, the definition of renewable renewable fuel impacts assessment. 9 to 14 million tons, about 0.4 to 0.6
fuel, and the general framework for a Sections III through V provide the percent of the anticipated greenhouse
credit program. As with many details of the proposed structure of the gas emissions from the transportation
legislative actions, various aspects of the program, while Sections VI through X sector in the United States in 2012. On
program require additional development describe our preliminary assessment of average, we estimate the cost of this
by the Agency beyond the specifications the impacts on emissions, air quality, increase in renewable fuel to range from
in the Act. The credit trading program fossil fuel use, and cost resulting from 0.3 cents per gallon to 1 cent per gallon
and related compliance mechanisms are expanded renewable fuel use.
of gasoline for the nation as a whole. We
a central aspect of the program, and the
A. Impacts of Increased Reliance on anticipate additional impacts that we
Agency is responsible for developing
Renewable Fuels intend to evaluate as part of the final
regulations to ensure the successful
implementation of the RFS program, In a typical major rulemaking, EPA rulemaking, including changes in
based on the framework spelled out in would conduct a full assessment of the renewable fuel feedstock market prices,
the statute. economic and environmental impacts of decreased imports of petroleum, and
Under the RFS program the credit the program. However, as discussed in effects on energy security.
trading provisions will comprise a Section I.A., the replacement of MTBE To carry out our analyses, we elected
critical element of compliance. Many with ethanol and the extremely to use 2004 as the baseline from which
obligated parties do not have easy favorable economics for renewable fuels to compare the impacts of expanded
access to renewable fuels or the ability brought on by the rise in crude oil renewable use. We chose 2004 as a
to blend them, and so will rely on the prices are causing renewable fuel use to
baseline primarily due to the fact that
use of credits to comply. The RFS credit far exceed the RFS requirements. This
all the necessary refinery production
program is also unique in that the makes an assessment of the program of
limited if any utility, given that it is not data, renewable production data, and
parties liable for meeting the standard
currently driving real world impacts fuel quality data was already in hand at
(refiners, importers, and blenders of
gasoline) are not generally the parties and future projections by the Energy the time we needed to begin the
who make the renewable fuels or blend Information Administration indicate analysis. We did not use 2005 as a
them into gasoline. This creates the that this favorable condition will baseline year because 2005 may not be
need for trading mechanisms that continue. Consequently, it is of greater an appropriate year for comparison due
ensure that the means to demonstrate relevance and interest to assess the to the extraordinary impacts of
compliance will be readily available for impacts of this larger increase in hurricanes Katrina and Rita on gasoline
use by obligated parties. renewable use and the related changes production and use. To assess the
Given these considerations, the first occurring to gasoline. For this reason we impacts of anticipated increases in
step we took in developing the proposed have carried out an assessment of the renewable fuels, we elected to look at
program was to seek input and economic and environmental impacts of what they would be in 2012, the year
recommendations from the affected the broader changes in fuel quality the statutorily-mandated renewable fuel
stakeholders. There were initially a resulting from our nation’s transition to volumes will be fully phased in. By
wide range of thoughts and views on greater utilization of renewable fuels, as conducting the analysis in this manner,
how to design the program. However, opposed to an assessment of the RFS the impacts include not just the impact
there was broad consensus that in the program itself. of expanded renewable fuel use by
end the program should satisfy a In summary, depending on the
itself, but also the corresponding
number of guiding principles, including volume of renewable fuel assumed to be
used in 2012 (7.5 to 9.9 billion gallons), decrease in the use of MTBE, and the
for example that the compliance and
we estimate that this transition to potential for oxygenates to be removed
trading program should provide
certainty to the marketplace and renewable fuels will reduce petroleum from RFG due to the absence of the RFG
minimize cost to the consumers; that the consumption by 2.3 to 3.9 billion oxygenate mandate. Since these three
program should preserve existing gallons or approximately 1.0 to 1.6 changes are all inextricably linked and
business practices for the production, percent of the petroleum that would are occurring simultaneously in the
distribution, and use of both otherwise be used by the transportation marketplace, evaluating the impacts in
conventional and renewable fuels; that sector. Carbon monoxide emissions this manner is appropriate.
the program should be designed to from gasoline powered vehicles and We evaluated the impacts of
accommodate all qualifying renewable equipment will be reduced by 1.3 to 3.6 expanded renewable use and the
fuels; that all renewable volumes percent while emissions of benzene (a corresponding changes to the fuel
produced are made available to mobile source air toxic) will be reduced supply on fuel costs, consumption of
obligated parties for compliance; and by 1.7 to 6.2 percent. At the same time, fossil fuels, and some of the economic
finally that the Agency should have the other emissions may increase.
impacts on the agricultural sector. We
ability to easily verify compliance to Nationwide, we estimate between a
also evaluated the impacts on
ensure that the volume obligations are 28,000 and 97,000 ton increase in VOC
+ NOX emissions. However, the effects emissions, including greenhouse gas
in fact met. Over the course of several emissions, and the corresponding
months, these guiding principles helped will vary significantly by region with
some major areas like New York City, impacts on nationwide and regional air
to move us toward today’s proposal.
Chicago and Los Angeles experiencing quality. Our preliminary analyses are
II. Overview of the Proposal summarized in this section. There are a
no increase while other areas may see

Today’s action describes our proposed an increase in VOC emissions from 3 to number of uncertainties associated with
requirements for the RFS program, as 5 percent and an increase in NOX this preliminary assessment. The
well as a preliminary assessment of the emissions from 4 to 6 percent from analyses described here will be updated
environmental and economic impacts of gasoline powered vehicles and for the final rule including additional
the nation’s transition to greater use of equipment. Furthermore, the use of investigation into these uncertainties.
1. Renewable Fuel Volumes Scenarios levels projected by EIA. Although the scenarios that we evaluated for 2012, we
Analyzed actual renewable fuel volumes produced assumed these same production
As shown in Table I.B–1, the Act in 2012 may differ from both the volumes for cellulosic biomass ethanol
stipulates that the nationwide volumes required and projected volumes, we and biodiesel.
of renewable fuel required under the believe that these two volume scenarios As discussed above, we chose 2004 as
RFS program must be at least 4.0 billion together represent a reasonable range for our baseline. However, a direct
gallons in 2006 and increase to 7.5 analysis purposes. comparison of the fuel quality impacts
billion gallons in 2012. However, we The Act also stipulates that at least on emissions and air quality required
expect that the volume of renewable 250 million gallons out of the total that changes in overall fuel volume,
fuel will actually exceed the required volume required in 2013 and beyond fleet characterization, and other factors
volumes by a significant margin. Based must be cellulosic biomass ethanol. be constant. Therefore, we developed a
on economic modeling, EIA projects Because we anticipate a ramp-up in reference case which represents the fuel
renewable demand in 2012 of 9.6 billion production of cellulosic biomass volume, fleet characterization, and other
gallons for ethanol, and 300 million ethanol products in the coming years, factors expected in 2012. Fuel quality
gallons for biodiesel using crude oil we have assumed that 250 million was maintained by simply growing
prices forecast at $47 per barrel. gallons of ethanol in 2012 will come ethanol use in equal proportion to
Therefore, in assessing the impacts of from a cellulosic biomass source. Also, growth in gasoline demand through
expanded use of renewable fuels, we EIA has projected in their economic 2012.
evaluated two comparative scenarios, modeling a biodiesel demand in 2012 of A summary of the assumed renewable
one representing the statutorily required 300 million gallons. Thus for both the fuel volumes for the scenarios we
minimum, and one reflecting the higher required and projected volume compared is shown in Table II.A.1–1.
TABLE II.A.1.–1—RENEWABLE FUEL VOLUME SCENARIOS

[billion gallons]
2012
2004 Base RFS
case Reference Projected vol-
required
case ume
volume
Corn-ethanol ............................................................................................................ 3.5 3.9 6.95 9.35

Cellulosic ethanol ..................................................................................................... 0 0 0.25 0.25
Biodiesel .................................................................................................................. 0.025 0.028 0.3 0.3
Total volume ..................................................................................................... 3.025 3.928 7.5 9.9
2. Emissions diesel vehicles and equipment were must be highlighted that most of the fuel
We evaluated the impacts of increased estimated to decrease when the use of effect estimates are based on very
use of ethanol and biodiesel on renewable fuels increased. Reductions limited or old data which may no longer
emissions and air quality in the U.S. in emissions of CO varied from as low be reliable in estimating the emission
relative to the 2012 reference case. For as 1.3 percent to as high as 3.6 percent impacts on vehicles in the 2012 fleet
the nation as a whole, we estimated that for the nation as a whole, depending on with advanced emission controls. 3 As
summertime VOC and NOX emissions both the renewable fuel volume scenario such, these emission estimates should
from gasoline and diesel vehicles and and assumptions regarding the amount be viewed as preliminary. EPA hopes to
equipment would each increase by of ethanol used in reformulated versus conduct significant new testing in order
about 0.5 percent for the 7.5 billion conventional gasoline. Benzene to better estimate the impact of fuel
gallon scenario, and by about 1.0 emissions from gasoline vehicles and changes on emissions from both
percent for the 9.9 billion gallon equipment were estimated to be reduced highway vehicles and nonroad
scenario. This would be equivalent to from 1.7 to 6.2 percent. equipment, including those fuel changes
between 28,000 and 97,000 tons of VOC We do not have sufficient data to brought about by the use of renewable
+ NOX nationwide. However, the effects predict the effect of ethanol use on fuels. We hope to be able to incorporate
will vary by region. For instance, for levels of either directly emitted the data from such additional testing
areas in which 10 percent ethanol particulate matter (PM) or secondarily into the analyses for other studies
blends already predominated in 2004, formed PM, but do expect a net required by the Energy Act in 2008 and
such as New York City, Chicago, and reduction in ambient PM levels to result 2009, and into a subsequent rule to set
Los Angeles, if they continue to use due to the secondary PM impacts as the RFS program standard for 2013 and
ethanol at the same levels there will be discussed in section VIII.C. However, later.
no impact. However, for conventional data on direct PM emission impacts is We used the Ozone Response Surface
gasoline areas in which no ethanol was available for biodiesel. We estimate that Model (RSM) to estimate the impacts of
used in 2004 but which are projected to reductions in emissions of direct PM increased use of ethanol on ozone levels
transition to full use of ethanol in 2012, from the projected increase in the use of for the 7.5 billion gallon use scenario
representing the required volumes
we estimated that VOC and NOX biodiesel to be about 100 tons

emissions from gasoline vehicles and nationwide, equivalent to less than 0.5
equipment would increase by 3–5 percent of the diesel PM inventory. 3 Advanced emission controls include close-
coupled, high density catalysts and their associated

percent and 4–6 percent, respectively. The emission impact estimates electronic control systems for light-duty vehicles,
Unlike VOC and NOX, emissions of described above are based on the best and NOX adsorbers and PM traps for heavy-duty
CO and benzene from gasoline and available data and models. However, it engines.
under the RFS program. We did not content of gasoline, which should from an estimate of 0.3 cent to 1 cent
evaluate other renewable fuel volumes reduce aromatic VOC emissions and per gallon of gasoline.
scenarios due to the limited amount of therefore potentially also impact This fuel cost impact does not
time available for completing this atmospheric PM levels. All of these consider other societal benefits. For
NPRM. The ozone RSM approximates issues will be the subject of further example, the petroleum-based fuel
the effect of VOC and NOX emissions in study and analysis in the future. displaced by renewable fuel, largely
a 37-state eastern area of the U.S. Using produced in the United States, should
3. Economic Impacts
this model, we projected that the reduce our use of imported oil and fuel.
changes in VOC and NOX emissions As discussed in more detail in Section We estimate that 95 percent of the
could produce a very small increase in X, for the final rule we also plan to lifecycle petroleum reductions resulting
ambient ozone levels. On average, ozone assess a range of economic impacts that from the use of renewable fuel will be
levels increased by 0.06 ppb, which could result from the expanded use of met through reductions in net
represents less than 0.1 percent of the renewable fuels. Due to the time petroleum imports. In Section IX of this
standard. Even for areas expected to required to complete these analyses, we preamble we estimate the value of the
experience a significant increase in only have preliminary data for some of decrease in imported petroleum at about
ethanol use, ozone levels increased by these impacts available for this $3.5 billion in 2012 for the 7.5 billion
only 0.1–0.2 ppb, less than 0.2 percent proposal. gallon case and $5.8 billion for the 9.6
of the standard. These ozone impacts do In Section VII of this preamble, we billion gallon case, in comparison to our
not consider the reductions in CO estimate the cost of producing the extra 2012 reference case. Total petroleum
emissions mentioned above, or the volumes of renewable fuel anticipated import expenditures in 2012 are
change in the types of compounds through 2012. For corn ethanol, we projected to be about $698 billion.
comprising VOC emissions. estimate the per gallon cost of ethanol The above numbers only assess those
Directionally, both of these effects may to range from $1.20 per gallon in 2012 impacts of increased production and use
mitigate these already small ozone (2004 dollars) in the case of the 7.2 of renewable fuel that we can quantify
increases. The ozone impacts also do billion gallons per year case and $1.26 at this time. The RFS program attempts
not consider the impact of increased per gallon in the case of the 9.6 billion to spur the increased use of renewable
emissions from ethanol and biodiesel gallon case. These costs take into transportation fuels made principally
production facilities or any account the cost of the feedstock (corn), from agricultural crops produced in the
corresponding decrease in emissions plant equipment and operation and the U.S. As a result, it is important to
from refineries. value of any co-products (distiller’s analyze the consequences of the
We investigated several other issues dried grain and solubles, for example). transition to greater renewable fuel use
related to emissions and air quality that For biodiesel, we estimate the per gallon in the U.S. agricultural sector. To
could affect our estimates of the impacts cost to be between $1.89 and $2.11 per analyze the impacts on the U.S.
of increased use of renewable fuels. gallon if produced using soy bean oil, agricultural sector, EPA has selected the
These are discussed in section VIII and and less if using yellow grease or other Forest and Agricultural Sector
in greater detail in the draft Regulatory relatively low cost or no-cost feedstocks. Optimization Model (FASOM)
Impact Analysis (DRIA). For instance, All of these fuel production costs are developed by Professor Bruce McCarl,
our current models assume that recent without accounting for tax subsidies for Texas A&M University and others over
model year vehicles are insensitive to these renewable fuels.4 We also note the past thirty years. FASOM is a
many fuel changes. However, a limited that these costs represent the production dynamic, nonlinear programming model
amount of new test data suggests that cost of the fuel and not the market price. of the agriculture and forestry sectors of
newer vehicles may be just as sensitive In recent years, the prices of ethanol and the U.S. (For this analysis, we will be
as older model year vehicles. Our biodiesel have tended to track the prices focusing upon the agriculture portion of
sensitivity analysis suggests that if this of gasoline and diesel, in some cases the model.) The strength of this model
is the case VOC emissions could even exceeding those prices. is its consideration of the full direct and
decrease slightly while NOX would still These renewable feedstocks are then indirect impacts of a shift in production
increase. We also evaluated the used as blend fuels in gasoline and of an agricultural commodity. For
emissions from the production of both diesel. While biodiesel is typically just example, increased ethanol use will
ethanol and biodiesel fuel and blended with petroleum diesel, increase the demand for corn. The
determined that they will also increase additional efforts are sometimes model assesses not only the impacts of
with increased use of these fuels. necessary and/or economically increased demand for corn on acres
Nationwide, emissions related to the advantageous at the refiner level when devoted to corn production but also
production and distribution of ethanol adding ethanol to gasoline. For example, where the incremental corn will be
and biodiesel fuel are expected to be of ethanol’s high octane reduces the need produced, what other crops will be
the same order of magnitude as the for other octane enhancements by the displaced and how corn is allocated
emission impacts related to the use of refiner, whereas offsetting the volatility among competing uses. Shifts in corn
these fuels in vehicles. Finally, a lack of increase caused by ethanol may require production will likely impact the price
emission data and atmospheric removal of other highly volatile of corn and other crop prices. The
modeling tools prevented us from components. Section VII examines these model can also estimate the impacts of
making specific projections of the fuel cost impacts and concludes that the increased renewable fuel use on animal
impact of renewable fuels on ambient net cost to society in 2012 in feed costs, animal production, costs to
PM levels. However, ethanol use may comparison to the reference case of the consumers and U.S. agricultural
have an affect on ambient PM levels. increased use of renewable fuels and exports. Similarly, FASOM can estimate
Emerging science indicates that their replacement of MTBE, will range effects on U.S. farm employment and
aromatic VOC emissions react in the income (broken down by region, and
atmosphere to form PM. Increased 4 Tax subsidies were subtracted out of the cost farm sector such as corn farmers versus
ethanol use is expected to cause a estimates, but consumer behavior in the absence of soybean producers versus the livestock
corresponding reduction in the aromatic these tax subsidies was not modeled. industry, for example).
One of the effects of increased use of fossil fuels. Based on a comparison to salinity of farmland resulting from
renewable fuel is that it diversifies the the 2004 base fuel, we estimated that the increased irrigation. The increased
energy sources used in making increased use of renewable fuels will runoff of nutrients in turn can cause
transportation fuel. To the extent that reduce petroleum consumption by about eutrophication of small water bodies as
diverse sources of fuel energy reduce 1.0 to 1.6 percent in the transportation a result of localized runoff or large water
the dependence on any one source, the sector in 2012. This is equivalent to 2.3– bodies as a result of increased regional
risks, both financial as well as strategic, 3.9 billion gallons of petroleum in 2012. runoff such as currently occurs in the
of potential disruption in supply or We also estimated that greenhouse gases creation of the hypoxic zone in the Gulf
spike in cost of a particular energy from the transportation sector will be of Mexico, or eutrophication in the
source is reduced. As part of the RFS reduced by about 0.4–0.6 percent, Chesapeake Bay. Some lands have been
rulemaking, EPA is estimating the equivalent to about 9–14 million tons. retired (e.g., under the Farm Bill’s
energy security effects of reduced oil These reductions are projected to Conservation Reserve Program, or
use due to the expanded use of continue to increase in the future as simply at the land-owner’s initiative)
renewable fuel. However, these analyses crude oil prices are expected to because those lands are highly erosive,
will not be available until the final rule. continue to provide the stimulus for steep, or adjacent to water bodies.
4. Greenhouse Gases and Fossil Fuel greater use of renewable fuels beyond Therefore, farming these lands without
Consumption 2012. These greenhouse gas emission appropriate mitigation measures would
reductions are also dominated by the pose a particularly great risk to water
There has been considerable interest forecast that the majority of the future quality and threaten to erase some of the
in the impacts of fuel programs on ethanol use will be produced from corn. gains of the last 20 years of Farm Bill
greenhouse gases and fossil fuel If advances in cellulosic technology and Clean Water Act implementation.
consumption. Therefore, in this allow its use to exceed the levels Note that there may be similar
proposed rulemaking we have assumed in our analysis, then even environmental implications in other
undertaken an analysis of the greater greenhouse gas reductions countries depending on the extent that
greenhouse gas and fossil fuel would result.5 either imports of renewable fuels or
consumption impacts of a transition to exports of agricultural commodities
greater renewable fuel use. This is the 5. Potential Water Quality Impacts
such as corn are affected.
first analysis of its kind in a major rule, Expansion in the use of renewable
and as such it may guide future work in We have not conducted an analysis
fuels will also have other important for this proposal of the impacts on water
this area. impacts which should be the focus of
As a result of the transition to greater quality that might result from the
further study and evaluation. In increased use of renewable fuels.
renewable fuel use, some petroleum- particular, renewable fuels such as
based gasoline and diesel will be However, this impact could present
ethanol and biodiesel produced from important public policy issues as
directly replaced by renewable fuels. agricultural feedstocks raise important
Therefore, consumption of petroleum- renewable use expands, with
issues with respect to the water quality examination required of both the
based fuels will be lower than it would impacts resulting from the increased
be if no renewable fuels were used in possible benefits and detriments.
production of corn and soybeans. Due to
transportation vehicles. However, a true competing demand, which includes B. Program Structure
measure of the impact of greater use of livestock producers, sweetener
renewable fuels on petroleum use, and The RFS program proposed today
manufacturers, and foreign buyers
indeed on the use of all fossil fuels, requires refiners, importers, and
among others, it is extremely unlikely
accounts not only for the direct use and blenders (other than oxygenate
that the current corn crop would be
combustion of the finished fuel in a blenders) to show that a required
devoted to ethanol production. USDA’s
vehicle or engine, but also includes the volume of renewable fuel is used. The
Economic Research Service predicts that
petroleum use associated with required volume is determined by
current demand for feed and exports are
production and transportation of that multiplying their annual gasoline
expected to stay constant or perhaps
fuel. For instance, fossil fuels are used production by a percentage standard
rise.6 Additional corn-based ethanol
in producing and transporting specified by EPA. Compliance is
production would have to come from
renewable feedstocks such as plants or demonstrated through the acquisition of
increased corn yields, increased acreage,
animal byproducts, in converting the unique Renewable Identification
and switching acreage to corn
renewable feedstocks into renewable Numbers (RINs) assigned by the
production from other crops like
fuel, and in transporting and blending producer to every batch of renewable
soybeans and cotton.7
the renewable fuels for consumption as fuel produced. The RIN shows that a
Changes in agriculture as a result of
motor vehicle fuel. Likewise, fossil fuels certain volume of renewable fuel was
increased use of renewable fuels can
are used in the production and produced. Each year, the refiners,
have significant adverse effects upon
transportation of petroleum and its blenders and importers obligated to
water quality, either locally or on a
finished products. In order to estimate meet the renewable volume requirement
more broad basis. This has the potential
the true impacts of increases in (referred to as ‘‘obligated parties’’) must
to lead to increased runoff and delivery
renewable fuel use on fossil fuel use, we acquire sufficient RINs to demonstrate
to water bodies of nutrients, pesticides
must take these steps into account. Such compliance with their volume
and sediments, as well as increased
analyses are termed lifecycle analyses. obligation. RINs can be traded in the
We compared the lifecycle impacts of 5 Cellulosic ethanol is estimated to provide a same manner as the credits envisioned
renewable fuels to the petroleum-based comparable petroleum displacement as corn in the Act. A system of recordkeeping
gasoline and diesel fuels that they derived ethanol on a per gallon basis, though the and electronic reporting for all parties
replace. This analysis allowed us to impacts on total energy and greenhouse gas that have RINs ensures the integrity of
emissions differ.
estimate not only the overall impacts of 6 ‘‘USDA Agricultural Baseline Projections To
the RIN pool. This RIN-based system
renewable fuel use on petroleum use, 2015,’’ February 2006, Economic Research Service. would both meet the requirements of
but also on emissions of greenhouse 7 For more discussion of agricultural sector the Act and provide several other
gases such as carbon dioxide from all effects, see Section IX. important advantages:
• Renewable fuel production volumes a year by November of the preceding opposed to fossil fuel sources. Valid
can be easily verified. year. renewable fuels would include ethanol
• RIN trading can occur in real time For 2007, we are proposing that the made from starch seeds, sugar, or
as soon as the renewable fuel is renewable fuel volume obligation be cellulosic materials, biodiesel (mono-
produced rather than waiting to the end etermined by multiplying the alkyl esters), non-ester renewable diesel,
of the year when an obligated party percentage standard by the volume of and a variety of other products. Both
would determine if it had exceeded the gasoline produced or imported renewable fuels blended into
standard. prospectively from the effective date of conventional gasoline or diesel and
• Renewable fuel can continue to be the final rule until December 31, 2007. those used in their neat (unblended)
produced, distributed, and blended in As discussed in Section III.A.3, we form as motor vehicle fuel would
those markets where it is most considered and are seeking comment on qualify. Section III.B provides more
economical to do so. several other approaches for compliance details on the renewable fuels that
• Instances of double-counting of in 2007, but believe this approach is would be allowed to be used for
renewable fuel claimed for compliance most appropriate given the compliance with the standard under our
purposes can be identified based on circumstances. We are also confident proposal.
electronically reported data. that the total volume of renewable fuel
used in 2007 will still exceed the 4. Equivalence Values of Different
Our proposed RIN-based trading Renewable Fuels
volume specified in the Act.
program will be an essential component In determining their annual gasoline One question that EPA faced in
of the RFS program, ensuring that every production volume, obligated parties developing the program was what value
obligated party can comply with the would include all of the finished to place on different renewable fuels
standard while providing the flexibility gasoline which they produced or and on what basis should that value be
for each obligated party to use imported for use in the contiguous 48 determined. The Act specifies that each
renewable fuel in the most economical states, and would also include gallon of cellulosic ethanol be treated as
ways possible. renewable blendstock for oxygenate if it were 2.5 gallons of renewable fuel,
1. What Is the RFS Program Standard? blending (RBOB), and conventional but does not specify the values for other
blendstock for oxygenate blending renewable fuels. As discussed in
EPA is required to convert the (CBOB). Blenders would count as their Section III.B.4., we considered and are
aggregate national volumes of renewable gasoline production only the volumes of seeking comment on a range of options
fuel specified in the Act into blendstocks added to finished or including straight volume, energy
corresponding renewable fuel standards unfinished gasoline. Renewable fuels content, and life cycle energy or
expressed as a percent of gasoline blended into gasoline by any party greenhouse gas emissions. However, we
production. The renewable volume would not be counted as gasoline for the are proposing that the ‘‘Equivalence
obligation that would apply to an purposes of calculating the annual Values’’ for the different renewable fuels
obligated party would then be gasoline production volume. be based on their energy content in
determined based on this percentage Small refiners and small refineries comparison to the energy content of
and the total gasoline production or would be exempt from meeting the ethanol, and adjusted as necessary for
import volume in a calendar year, renewable fuel requirements through their renewable content. The result is an
January 1 through December 31. EPA 2010. All gasoline producers located in Equivalence Value for corn ethanol of
will publish the percentage standard in Alaska, Hawaii, and noncontiguous U.S. 1.0, for biobutanol of 1.3, for biodiesel
the Federal Register each November for territories would be exempt indefinitely. (mono alkyl ester) of 1.5, for non-ester
the following year based on the most However, if Alaska, Hawaii or a renewable diesel of 1.7, and for
recent EIA gasoline demand projections. noncontiguous territory opted into the cellulosic ethanol of 2.5. The proposed
However, since this rulemaking will not RFS program, all of the refiners (except methodology can be used to determine
be finalized prior to November, 2006, for small refiners and refineries), the appropriate Equivalence Value for
we are proposing in this notice that the importers, and blenders located in the any other potential renewable fuel as
standard for 2007 be 3.71 percent. state would be subject to the renewable well.
Section III.A describes the calculation of fuel standard.
the standard. 5. How Will Compliance Be
Section III.A provides more details on
Determined?
2. Who Must Meet the Standard? the standard that must be met, while
Section III.C describes the parties that Under our proposed program, every
Under our proposal, any party that are obligated to meet the standard. gallon of renewable fuel produced or
produces gasoline for consumption in imported into the U.S. would be
the U.S., including refiners, importers, 3. What Qualifies as a Renewable Fuel? assigned a unique renewable
and blenders (other than oxygenate We have designed the proposal identification number (RIN). A block of
blenders), would be subject to a flexibly to cover the range of renewable RINs could be assigned to any batch of
renewable volume obligation that is fuels produced today as well as any that renewable fuel that is valid for
based on the renewable fuel standard. might be produced in the future, so long compliance purposes under the RFS
These obligated parties would as they meet the Act’s definition of program. These RINs would be placed
determine the level of their obligation renewable fuel and have been registered on product transfer documents (PTD) as
by multiplying the percentage standard and approved for use in motor vehicles. a batch of renewable fuel is transferred
by their annual gasoline production In this manner, we believe that the through the distribution system. Once
volume. The result would be the proposed program will provide the the renewable fuel is obtained by an
renewable fuel volume which each greatest possible encouragement for the obligated party or actually blended into
party must ensure is blended into development, production, and use of a motor vehicle fuel, the RIN could be
gasoline consumed in the U.S., with renewable fuels to reduce our separated from the batch of renewable
credit for certain other renewable fuels dependence on petroleum. In general, fuel to which it had been assigned, and
that are not blended into gasoline. EPA renewable fuels must be produced from then either used for compliance
will publish the percentage standard for plant or animal products or wastes, as purposes or traded. For excess RINs
resulting from the production of there is no ability for excess renewable however, is the unique RIN number
renewable fuels with Equivalence fuel use in successive years to cause an itself coupled with an electronic
Values greater than 1.0, the producer of accumulation of RINs from excess reporting system where RIN generation,
the renewable fuel could retain them for compliance in prior years to RIN use, and RIN transactions would be
marketing separately (they need not be significantly depress renewable fuel reported and verified. Thus, EPA, as
assigned to a batch of renewable fuel demand in any future year. In keeping well as industry could have confidence
and placed on PTDs). with the Act, excess RINs not used that invalid RINs are not generated and
RINs would represent proof of would expire. that there is no double counting.
production which is then taken as proof Section III.D provides more details on
of consumption as well, since all how obligated parties would use RINs C. Voluntary Labeling Program
renewable fuel produced or imported for compliance purposes. EPA is considering whether voluntary
will be either consumed as fuel or program options to encourage adoption
6. How Would the Trading Program
exported. For instance, ethanol and use of practices that minimize
Work?
produced for use as motor vehicle fuel environmental concerns which may
is denatured specifically so that it can Renewable fuel producers and arise with the production of renewable
only be used as fuel. Similarly, biodiesel importers would be required to generate fuels are appropriate. Renewable fuels
is produced only for use as fuel and has RINs when they produce or import a present a number of environmental
no other potential uses. An obligated batch of renewable fuel. They would advantages as explained elsewhere in
party would demonstrate compliance then be required to transfer those RINs the rulemaking package. However, to
with the renewable fuel standard by along with the renewable fuel batches assure maximum advantage we also
accumulating sufficient RINs to cover that they represent whenever they need to acknowledge the potential
their individual renewable fuel volume transfer the batch to another person. adverse environmental impacts that
obligation. It would not matter whether Likewise any other party that takes could arise from the production of
the obligated party used the renewable ownership or custody of the batch renewable fuel and invite consideration
fuel themselves. A party’s obligation would be required to transfer the RIN of ways of offsetting these potential
would be to ensure that a certain with the batch. The RIN could be adverse impacts.
amount of renewable fuel was used, separated from the batch only by
While in other areas of this document
whether by themselves or by someone obligated parties (at the point when they
we focus on general impacts on air
else, and the RIN would be evidence take ownership of the batch) or a party
emissions, we also recognize that
that this occurred for a certain volume that converts the renewable fuel into
individual farming and fuel production
of renewable fuel. Exporters of motor vehicle fuel (such as through
operations can contribute to air and
renewable fuel would also be required blending with conventional gasoline or
water pollution if appropriate practices
to retire RINs in sufficient quantities to diesel).
Once a RIN is separated from the and/or controls are not adopted.
cover the volume of renewable fuel
batch of renewable fuel that it Increased production of renewable fuel
exported. RINs claimed for compliance
represents, it can be used for may result in more intensive use of crop
purposes would thus represent
compliance purposes, banked, or traded lands and perhaps the addition of crop
renewable fuel actually consumed as
to another party. Separated RINs could land acres to meet the expanding need
motor vehicle fuel in the U.S.
RINs would be valid for compliance be transferred to any party any number for renewable feed stocks. Such trends
purposes for the calendar year in which of times. Recordkeeping and reporting could have an adverse impact on, for
they were generated, or the following requirements would apply to any party example, local water quality. Similarly
calendar year. This approach to RIN life that holds RINs, whether through the in the case of fuel production facilities,
would be consistent with the Act’s ownership or custody of a batch of a range of design and operation options
prescription that credits be valid for renewable fuel or through the transfer of could result in varying levels of energy
compliance purposes for 12 months as separated RINs. use and air and water pollution.
of the date of generation. An obligated Thus obligated parties could acquire EPA is considering what voluntary
party could either use RINs to RINs directly through the purchase of program(s) can be put into place that
demonstrate compliance, or could renewable fuel with assigned RINs, or would encourage farming and fuel
transfer RINs to any other party. If an through the open market for RINs that production practices to minimize
obligated party was not able to would be allowed under this proposal. concerns that expanded production of
accumulate sufficient RINs for Section III.E provides more details on renewable fuel in the United States is
compliance in a given year, it could how our proposed RIN trading program likely to result in adverse environmental
carry a deficit over to the next year so would work. impacts such as those identified above.
long as the full deficit and obligation One option could be a voluntary
were covered in the next year. 7. How Would the Program be Enforced? labeling program which would make
In order to ensure that previous year As in all EPA fuel regulations, there use of the RIN program proposed in this
RINs are not used preferentially for would be a system of registration, rulemaking. Under this concept, fuel
compliance purposes in a manner that recordkeeping, and reporting producers which use best practices
would effectively circumvent the requirements for obligated parties, would have the option of adding a ‘‘G’’
limitation that RINs be valid for only 12 renewable producers (RIN generators), (for ‘‘green’’) to the end of the RIN of a
months after the year generated, we are as well as any parties that procure or fuel to indicate that a gallon of
proposing to place a cap on the use of trade RINs either as part of their renewable fuel was produced with the
RINs generated the previous year when renewable purchases or separately. In combination of best farming practices,
demonstrating compliance with the most cases, the recordkeeping and environmentally friendly
renewable volume obligation for the requirements are not expected to be production methods and facilities. The
current year. The cap would mean that significantly different from what these details of such a concept, including the
no more than 20% of the current year parties might be doing already as a part points noted below, would need to be
obligation could be satisfied using RINs of normal business practices. The lynch developed before it could be fully
from the previous year. In this manner pin to the compliance program, considered for adoption.
At this time, we are requesting A. What Is the Standard That Must Be 5a (U.S. Petroleum Supply and Demand:
comments on voluntary programs that Met? Base Case) of the October issue of the
would recognize the efforts of farmers monthly EIA publication Short-Term
1. How Is the Percentage Standard
and renewable fuel producers that Energy Outlook which publishes
Calculated?
undertake the most environmentally quarterly energy projections. Since the
sound practices and encourage others to Table I.B–1 shows the required total October 2006 document is not currently
volume of renewable fuel specified in available for the purpose of proposing
adopt similar practices. In particular we
the Act for 2007 through 2012. The the 2007 standard and projecting the
are interested in comments on options
renewable fuel standard is based 2008 and later standards, we have used
for designs of potential voluntary primarily on (1) the 48-state gasoline
programs including what criteria should the gasoline volume projections in EIA’s
consumption volumes projected by EIA 2006 Annual Energy Outlook (AEO),
be used to establish environmentally as the Act exempts Hawaii and Alaska, Table A2 ‘‘Energy Consumption by
sound practices, how to verify that these subject to their right to opt-in, as Sector and Source.’’ We intend to use
environmental practices are indeed used discussed in Section III.C.4, and (2) the the October 2006 Short-Term Energy
in the production of renewable fuel, volume of renewable fuels required by Outlook values for the final rule.
how this information could be used to the Act for the coming year. The However, these gasoline volumes
promote expanded use of good renewable fuel standard will be include renewable fuel use, which in
practices, how the program could be expressed as a volume percentage of the coming years is expected to be
most efficiently and effectively gasoline sold or introduced into mostly ethanol. As discussed below in
administered whether by EPA, some commerce in the U.S., and would be Section III.C.1, the renewable fuel
other Federal agencies, or perhaps a used by each refiner, blender or obligation will not apply to renewable
third-party, and finally how to assess importer to determine their renewable blenders. Thus, the gasoline volume
effectiveness of such a voluntary volume obligation. The applicable used to determine the standard must be
program. percentage is set so that if each the non-renewable portion of the
regulated party meets the renewable gasoline pool, in order to achieve the
III. Complying With the Renewable volume obligation based on this volumes of renewables specified in the
Fuel Standard percentage then the total amount of Act. In order to get a total non-
renewable fuel used is expected to meet renewable gasoline volume, the
According to the Energy Act, the RFS the total renewable fuel volume
program places obligations on renewable fuel volume must be
specified in Table I.B–1. subtracted from the total gasoline
individual parties such that the In determining the applicable volume. EIA has indicated that the best
renewable fuel volumes shown in Table percentage for a calendar year, the Act estimation of the coming year’s
I.B–1 are actually used as motor vehicle requires EPA to adjust the standard to renewable fuel consumption is found in
fuel in the U.S. each year. To prevent the imposition of redundant Table 11 (U.S. Renewable Energy Use by
accomplish this, the Agency must obligations on any person and to Sector: Base Case) of the October issue
calculate and publish a standard by account for the use of renewable fuel of the monthly EIA publication Short-
November 30 of each year which is during the previous calendar year by Term Energy Outlook. For the purpose
applicable to every obligated party. On exempt small refineries, defined as of proposing the 2007 standard and
the basis of this standard each obligated refineries that process less than 75,000 projecting the 2008 and later standards,
party determines the volume of bpd of crude oil. As a result, in order
we have used the renewable (ethanol)
renewable fuel that it must ensure is to be assured that the percentage
volume projections in EIA’s 2006
consumed as motor vehicle fuel. In standard will in fact result in the
Annual Energy Outlook (AEO), Table 17
addition to setting the standard, we volumes shown in Table I.B–1, several
‘‘Renewable Energy Consumption by
adjustments to what is otherwise a
must clarify who the obligated parties Sector and Source.’’ As for the gasoline
simple calculation must be made.
are and what volumes of gasoline are As stated, the renewable fuel standard projections discussed above, we intend
subject to the standard. Obligated for a given year is basically the ratio of to use the October 2006 renewable fuel
parties must also know which the amount of renewable fuel specified values for the final rule.
renewable fuels are valid for RFS The Act exempts small refineries 8
in the Act for that year to the projected
compliance purposes, and how much from the RFS requirements until the
48-state non-renewable gasoline volume
credit each type of renewable fuel will 2011 compliance period. As discussed
for that year. While the required amount
receive. This section discusses how the in Section III.C.3.a, EPA is proposing to
of total renewable fuel for a given year
annual standard is determined and also exempt small refiners 9 from the
is provided by the Act, EPA is required
which parties and volumes of gasoline RFS requirements until 2011, and to
to use an EIA estimate of the amount of
treat small refiner gasoline volumes the
would be subject to the proposed gasoline that will be sold or introduced
same as small refinery gasoline
requirements. into commerce for that year. The level
volumes. Since small refineries and
Because renewable fuels are not of the percentage standard would be
small refiners would be exempt from the
produced or distributed evenly around further reduced if Alaska, Hawaii, or a
program until 2011, EPA is proposing
U.S. territory chose to participate in the
the country, some obligated parties will that their gasoline volumes be excluded
RFS program, as gasoline produced in or
have easier access to renewable fuels from the overall non-renewable gasoline
imported into those states or territories
than others. As a result, compliance
would then be subject to the standard.
with the RFS program requirements will Should any of these states or territories
8 Under the Act, small refineries are those with
depend heavily on a credit trading 75,000 bbls/day or less average aggregate daily
choose to opt into the RFS program, the crude oil throughput.
program. This section also describes all projected gasoline volume would 9 Small refiners are those entities who produced
the elements of our proposed credit increase above that consumed in the 48 gasoline from crude oil in 2004, and who meet the
trading program. crude processing capability (no more than 155,000
contiguous states. EIA has indicated that barrels per calendar day, bpcd) and employee (no
the best estimation of the coming year’s more than 1500 people) criteria as specified in
gasoline consumption is found in Table previus EPA fuel regulations.
volume used to determine the percentage to be 13.5%.10 EPA requests the contiguous 48 states unless Alaska,
applicable percentage. EPA believes this comments on this method of estimating Hawaii, or a U.S. territory opt-in.
is appropriate because the percentage small refinery and small refiner gasoline Additionally, renewable fuel produced
standard should be based only on the volumes. in Alaska, Hawaii, and U.S. territories is
gasoline subject to the renewable The Act requires that the small unlikely to be transported to the
volume obligation. This would only refinery adjustment also account for contiguous 48 states, and vice versa.
occur though the 2010 compliance renewable fuels used during the prior Thus, including their renewable fuel
period when the exemption ends. year by small refineries that are exempt volumes in the calculation of the
Calculation of the standard for calendar and do not participate in the RFS standard would not serve the purpose
year 2011 and beyond would include program. Accounting for this volume of intended by the Act of ensuring that the
small refinery and small refiner renewable fuel would reduce the total statutorily required renewable fuel
volumes. volume of renewable fuel use required, volumes are consumed in the 48
As discussed above, calculation of the and thus directionally would reduce the contiguous States.
standard requires projections of gasoline percentage standard. However, there A final issue that could affect the
use for the upcoming compliance would be no available data on which to calculated value of the standard is any
period. EIA does not project small base such an adjustment. Furthermore,
deficit carryover from 2006. Any deficit
refinery or small refiner gasoline EPA believes that the amount of
carryover from 2006 would increase the
volumes, so other methods of estimating renewable fuel that would qualify (i.e.,
standard only for 2007. Since renewable
these values are necessary. EPA receives that was used by exempt small
fuel use in 2006 is expected to exceed
gasoline production data as a part of its refineries and small refiners but not
the 2.78 percent default standard, we
fuel programs’ reporting requirements used as part of the RFS program) would
are proposing that no deficit be carried
that could be used for this purpose. be very small. In light of the total
over to 2007. Beginning with the 2007
However, since we do not receive the volume of renewable fuel required and
compliance period, when annual
data until late February, the most recent the precision in which the statute
individual party compliance replaces
complete annual data set available specifies this total volume, the very
collective compliance, any deficit is
would be from two years earlier. Given small volume at issue here would not
calculated for an individual party and is
this, the fact that this adjustment is only change the resulting percentage. Under
included in the party’s Renewable
needed for 4 years, and because the total the proposal, small refineries and small
Volume Obligation (RVO)
small refinery and small refiner gasoline refiners are merely treated as any other
determination, as discussed in Section
production volume is expected to be renewable blender until 2011.
III.A.4.
fairly constant compared to total U.S. Consequently, whatever renewables
gasoline production during this period, they blend will be reflected as RINs In summary, in order to get the total
we are proposing to estimate small available in the market, and thus should projected non-renewable gasoline
refinery and small refiner gasoline not be accounted for in the equation volumes from which to calculate the
volumes using a constant percentage of used to determine the standard. standard, EPA is proposing to use EIA
national consumption. This percentage Therefore, EPA is proposing to assume projections of nationwide and state
would be based on the most recent this value to be zero. gasoline consumption, and small
small refinery and small refiner gasoline We are proposing that the amount of refinery and small refiner volumes
data available in time for the final rule. renewable fuel used in Alaska, Hawaii, estimated as a constant percentage of
Using information from gasoline batch or U.S. territories would not affect the national gasoline volumes.
reports submitted to EPA, EIA data and amount of renewable fuel required Based on the discussion above, the
input from the California Air Resources nationwide. We believe this approach is formula which we are proposing to be
Board regarding California small appropriate because the Act requires used for calculating the percentage
refiners, we have estimated this that the renewable fuel be consumed in standard is shown below:
RFVi − Celli
RFStd i = 100 ×
( G i − R i ) + ( GSi − RSi ) − GEi
Where: territory in year i if the state or territory As described in III.B.4.b, we are not
RFStdi = Renewable Fuel standard in year i, opts-in, in gallons proposing regulations that would
in percent RSi = Amount of renewable fuel blended into specify the criteria under which a state
RFVi = Nationwide annual volume of gasoline that is projected to be consumed could petition the EPA for a waiver of
renewable fuels required by section in Alaska, Hawaii, or a U.S. territory in the RFS requirements, nor the
211(o)(2)(B) of the Act for year i, in year i if the state or territory opts-in, in ramifications of Agency approval of
gallons gallons such a waiver in terms of the level or
Gi = Amount of gasoline projected to be used GEi = Amount of gasoline projected to be applicability of the standard. As a
in the 48 contiguous states, in year i, in produced by exempt small refineries and result, the proposed formula for the
gallons small refiners in year i, in gallons standard shown above does not include
Ri = Amount of renewable fuel blended into (through 2010 only)
gasoline that is projected to be consumed any components to account for Agency
Celli = Beginning in 2013, the amount of approval of a state petition for a waiver
in the 48 contiguous states, in year i, in
renewable fuel that is required to come of the RFS requirements.

gallons
from cellulosic sources, in year i, in
GSi = Amount of gasoline projected to be EPA is proposing the following
gallons (250,000,000 gallons minimum)
used in Alaska, Hawaii, or a U.S. formula for calculating the cellulosic
10 ‘‘Calculation of the Small Refiner/Small memo to the docket from Christine Brunner, ASD,
EP22SE06.000</MATH>
Refinery Fraction for the Renewable Fuel Program,’’ OTAQ, EPA, September 2006.
standard that is required beginning in standard in the Federal Register by 1. The values of the variable RFV are the
2013: November 30 of the preceding year. We required renewable fuel volumes
are proposing the standard for 2007 and specified in the Act (and shown in
Celli estimating the standard for later years Table I.B–1). The projected gasoline and
RFCelli = 100 ×
( i i ) + ( GSi − RSi )
G − R based on current information using the
formulas discussed above. The
renewable fuels volumes were
determined from EIA’s energy
Where, except for RFCelli, the variable standards would be used to determine projections. Variables related to state or
descriptions are as discussed above. The the renewable volume obligation based territory opt-ins were set to zero since
definition of RFCelli is proposed as: on an obligated party’s total gasoline we do not have any information related
RFCelli = Renewable Fuel Cellulosic production or import volume in a to their participation at this time. Small
Standard in year i, in percent calendar year, January 1 through refinery and small refiner gasoline
EPA requests comments on the December 31. The percentage standards volumes were calculated based on our
components of both of the proposed do not apply on a per gallon basis. An proposed method of assuming a
formulas, and on how the values for the obligated party will calculate its constant percentage relative to projected
components should be obtained. Renewable Volume Obligation nationwide gasoline. As mentioned
(discussed in Section III.A.4) using the earlier, we estimate the small refinery
2. What Are the Applicable Standards? annual standard. and small refiner fraction to be 13.5%.
EPA will set the percentage standard For illustrative purposes, we have The exemption for small refineries and
for each upcoming year based on the estimated the standards for 2007 and small refiners ends at the end of the
most recent EIA projections, and using later based on current information using 2010 compliance period. The deficit for
the other sources of information as the formulas discussed above.11 These 2006 (applicable to the 2007 standard)
noted above. EPA will publish the values are listed below in Table III.A.2– was assumed to be zero.
TABLE III.A.2–1.—PROJECTED STANDARDS

Year Standard Cellulosic standard
2007 ................................................................... 3.71% ............................................................... Not applicable.

2008 ................................................................... 4.22% ............................................................... Not applicable.
2009 ................................................................... 4.72% ............................................................... Not applicable.
2010 ................................................................... 5.21% ............................................................... Not applicable.
2011 ................................................................... 4.82% ............................................................... Not applicable.
2012 ................................................................... 4.85% ............................................................... Not applicable.
2013+ ................................................................. 4.70% min. (non-cellulosic) .............................. 0.16% min.
For calendar year 2013 and thereafter, this rule would continue to apply after the RFS program, and if EPA did not
the applicable volumes are to be 2012. issue such regulations then a default
determined in accordance with separate Prior to 2013, the Act specifies that standard for renewable fuel use would
statutory provisions that include EPA cellulosic biomass ethanol or waste apply in 2006. As described in Section
coordination with the Departments of derived ethanol will be considered I.C, we promulgated a direct final rule
Agriculture and Energy, and a review of equivalent to 2.5 gallons of renewable to interpret and implement the
the program during calendar years 2006 fuel when determining compliance with application of the statutory default
through 2012. The Act specifies that this the renewable volume obligation. As standard of 2.78 percent in calendar
review consider the impact of the use of discussed in Section III.D below, a year 2006. However, the Act provides
renewable fuels on the environment, air batch’s RIN would indicate whether it no default standard for any other year.
quality, energy security, job creation, was cellulosic or non-cellulosic ethanol. Instead, the regulations we promulgate
and rural economic development, and Beginning in 2013, the 2.5 to 1 ratio no are required to address renewable fuel
longer applies for cellulosic biomass usage, including calendar year 2007.
the expected annual rate of future
ethanol. In its place, the Act requires The program we are proposing today
production of renewable fuels,
that the applicable volume of required will therefore apply in 2007. While we
including cellulosic ethanol. We intend
renewable fuel specified in Table I.B–1 plan to promulgate the final rule as soon
to conduct another rulemaking as we
include a minimum of 250 million after today’s proposal as possible, it will
approach the 2013 timeframe that gallons that are derived from cellulosic
would include our review of these likely not be effective by January 1,
biomass. As shown in Table III.A.2–1 2007. Therefore, our proposal must
factors. This rulemaking would present above, we have estimated this value
our conclusions regarding the address how, and for what time periods,
(250 million gallons) as a percent of an the applicable standard and other
appropriate applicable volume of obligated party’s production for 2013.
renewable fuel for use in calculating the program requirements will apply to
Thus, an obligated party would be regulated parties for gasoline produced
renewable fuel standard for 2013 and subject to two standards in 2013 and
beyond. However, at a minimum we during 2007.
beyond, a non-cellulosic standard and a
expect that the sum of the cellulosic and cellulosic standard. We have identified several options for
non-cellulosic standards for 2013 will 2007 compliance. One option would be
be no lower than the 2012 standard. 3. Compliance in 2007 to extend the collective compliance
Until such time as we conduct that The Energy Act requires that EPA approach used for 2006 to 2007.
rulemaking, the program proposed by promulgate regulations to implement Although the Act contains no default
EP22SE06.001</MATH>
11 ‘‘Calculation of the Renewable Fuel Standard,’’
memo to the docket from Christine Brunner, ASD,

OTAQ, EPA, September 2006.
standard applicable to 2007, under this determined based on a whole calendar will exceed the national volume
approach we would apply the year’s production of gasoline, and the required for 2007. This is the approach
renewable fuel standard that we compliance determination would not be we are proposing today.
calculate for 2007 to obligated parties on required until calendar year 2007 was This ‘‘prospective’’ approach would
a collective basis rather than on an over, after the final rule was published. not formally apply the standard to all of
individual basis. Under this approach, Obligated parties would know the the gasoline produced in the 2007
no individual facility or company proposed standard based on today’s calendar year. As a result, it would not
would be liable for meeting the action, and all regulated parties would formally ensure that the total volume of
applicable standard. At the end of 2007 likewise know the proposed provisions renewable fuel required to be used in
we would determine if the industry as for recordkeeping, RIN generation and 2007 would actually be used. However,
a whole had met the standard on assignment, etc. On this basis they given the present circumstances, we
average, and any deficit would be could begin the process of generating believe this is an appropriate way to
carried over into 2008. This approach RINs and tracking batches of renewable implement the Act’s provisions. We are
would be essentially equivalent to fuel prior to the publication of the final confident that the combined effect of the
deferring the start of the program to rule. However, it might not be proposed regulatory requirements for
2008, but with the addition of an appropriate to apply the standard to all 2007 and the expected market demand
industry-wide deficit carryover gasoline produced in 2007 unless the for renewable fuels will lead to greater
provision. Current projections from the regulatory provisions in today’s renewable fuel use in 2007 than is
Energy Information Administration proposal are very similar to those in the called for under the Act. Furthermore,
(EIA) on the volume of renewable fuel final rule. Otherwise, obligated parties refiners and importers are not required
expected to be produced in 2007 and renewable fuel producers would not to meet any requirements under the Act
indicate that an industry-wide deficit have adequate lead-time. until EPA adopts the regulations, and
carryover would most likely be For this approach to be effective, EPA is authorized to consider
unnecessary under this collective renewable producers would have to appropriate lead time in establishing the
compliance approach. begin placing RINs on their PTDs at the regulatory requirements.12 Under this
However, given the requirements of start of the year 2007 even though the option we believe there would be
the Act, we do not believe that a regulations are not yet final. If they do reasonable lead-time for regulated
collective compliance approach is not, then there could be a shortage of parties to meet their 2007 compliance
appropriate for 2007. The Energy Act RINs available for obligated parties to obligations.
requires us to promulgate regulations use for compliance by the end of the While we are proposing to apply the
that provide for the generation of credits year. Since there is no guarantee that renewable fuel standard for 2007
by any person who overcomplies with renewable fuel producers would prospectively only from the effective
their obligation. It also stipulates that a generate RINs appropriate prior to date of the final rule, we nevertheless
person who generates credits must be adoption of the regulations, another request comment on all these options
permitted to use them for compliance option would be for the Agency to for addressing compliance in calendar
purposes, or to transfer them to another finalize just those RIN-related year 2007.
party. These credit provisions have provisions prior to the end of 2006 that
meaning only in the context of an are critical to measuring and tracking 4. Renewable Volume Obligations
individual obligation to meet the batches of renewable fuel and the In order for an obligated party to
applicable standard. Delaying a credit assignment of RINs to those batches. demonstrate compliance, the percentage
program until 2008 would mean the However, in practice this approach standards described in Section III.A.2
credit provisions have no meaning at all would be little different than finalizing which are applicable to all obligated
for 2007. the full rulemaking. As a result we do parties must be converted into the
A variation of the collective not believe that this would be a viable volume of renewable fuel each obligated
compliance approach would add a option given the time available. party is required to satisfy. This volume
credit carryover provision in which any Finally, given the challenges and
of renewable fuel is the volume for
excess renewable fuel produced on an shortcomings inherent in the other
which the obligated party is responsible
industry-wide basis in 2007 would be options, we could simply apply the
under the RFS program, and is referred
subtracted from the required volume in renewable fuel standard to only those
to here as its Renewable Volume
the calculation of the applicable 2008 volumes of gasoline produced after the
Obligation (RVO).
standard. However, under a collective effective date of the final rule.
The calculation of the RVO requires
compliance approach, such a credit Essentially the renewable volume
carryover provision would not meet the obligation for 2007 would be based on that the standard shown in Table
statutory requirement since no only those volumes of gasoline III.A.2–1 for a particular compliance
individual companies could generate, produced or imported by an obligated year be multiplied by the gasoline
bank, or trade credits. Therefore we do party prospectively from the effective volume produced by an obligated party
not believe that a collective compliance date of the rulemaking forward, and in that year. To the degree that an
approach is appropriate. renewable producers would not have to obligated party did not demonstrate full
Another option for 2007 compliance begin generating RINs and maintaining compliance with its RVO for the
would be for obligated parties to the necessary records until this same previous year, the shortfall is included
calculate their renewable fuel obligation date. As a result, such an approach as a deficit carryover in the calculation.
based on all gasoline volumes produced would be relatively straightforward to The equation used to calculate the RVO
at any time during the calendar year, implement, provide the industry with for a particular year is shown below:
regardless of when in 2007 the final rule the certainty they need to comply, and RVOi = Stdi x GVi + Di¥1
is published or becomes effective (i.e., give them time to put in place their
12 The statutory default standard for 2006 is the
the calculation of the renewable volume compliance plans and actions. It also
one exception to this, since it directly establishes
obligation looks back retroactively to the would be unlikely to have any negative a renewable fuel obligation applicable to refiners
beginning of the year for gasoline impacts on renewable fuel use given the and importers in the event that EPA does
production). Compliance would be expectations that total volumes in 2007 promulgate regulations.
Where biodiesel, as defined in the Energy or renewable diesel. Methane, made

RVOi = The Renewable Volume Obligation Act.13 It also includes all motor vehicle from landfill gas (biogas) can be used to
for the obligated party for year i, in fuels that are produced from biomass make methanol. Also, some vegetable
gallons. material such as grain, starch, oilseeds, oils or animal fats can be processed in
Stdi = The RFS program standard for year i, animal, or fish materials including fats, distillation columns in refineries to
in percent. greases and oils, sugarcane, sugar beets, make gasoline; as such, the renewable
GVi = The non-renewable gasoline volume
tobacco, potatoes or other biomass. In feedstock serves as a ‘‘biocrude,’’ and
produced by an obligated party in year
i, in gallons. addition, it includes motor vehicle fuels the resulting gasoline or diesel product
Di–1 = Renewable fuel deficit carryover from made using a feedstock of natural gas if would be a renewable fuel. This last
the previous year, in gallons. produced from a biogas source such as example is discussed in further detail in
a landfill, sewage waste treatment plant, Section III.B.3 below.
The Energy Act only permits a deficit feedlot, or other place where decaying As this discussion shows, the
carryover from one year to the next if organic material is found. definition of renewable fuel in the Act
the obligated party achieves full According to the Act, the motor is broad in scope, and covers a wide
compliance with its RVO including the vehicle fuels must be used ‘‘to replace range of fuels. While ethanol is used
deficit carryover in the second year. or reduce the quantity of fossil fuel primarily in combination with gasoline,
Thus deficit carryovers could not occur present in a fuel mixture used to operate other fuels that meet the definition of
two years in succession. They could, a motor vehicle.’’ Some motor vehicle renewable fuel include biodiesel and
however, occur as frequently as every fuels can be used in both motor vehicles various alternative fuels that can be
other year for a given obligated party. or nonroad engines or equipment. For used in their neat form, such as ethanol,
The calculation of an obligated party’s example, highway gasoline and diesel methanol or natural gas, without
RVO is necessarily retrospective, since fuel are often used in both highway and blending into gasoline and without
the total gasoline volume that it off-highway applications. Compressed being used to produce a gasoline
produces in a calendar year will not be natural gas can likewise be used in blending component (such as ETBE).
known until the year has ended. either highway or nonroad applications. The definition of renewable fuel in the
However, the obligated party will have For purposes of the renewable fuel Act is not limited to fuels that can be
an incentive to project gasoline program, EPA intends to consider a fuel blended with gasoline. At the same
volumes, and thus the RVO, throughout to be a ‘‘motor vehicle fuel’’ and to be time, the RFS regulatory program is to
the year so that it can spread its efforts a ‘‘fuel mixture used to operate a motor ‘‘ensure that gasoline sold or introduced
to comply across the entire year. Most vehicle,’’ based on its potential for use into commerce * * * contains the
refiners and importers will be able to in highway vehicles, without regard to applicable volume of renewable fuel.’’
project their annual gasoline production whether it in fact is used in a highway This applicable volume is specified as a
volumes with a minimum of uncertainty or nonroad vehicle. If it is a fuel that total volume of renewable fuel, in the
based on their historical operations, could be used in highway vehicles, it billions of gallons on an aggregate basis.
capacity, plans for facility downtimes, will satisfy these parts of the definition Congress also clearly specified that one
knowledge of gasoline markets, etc. of renewable fuel, whether it is later renewable fuel, biodiesel, could be
Even if unforeseen circumstances (e.g., used in highway or nonroad counted towards compliance even
hurricane, unit failure, etc) significantly applications. This will allow a motor though it is not a gasoline component,
reduced the production volumes in vehicle fuel that otherwise meets the and does not directly displace or replace
comparison to their projections, their definition to be counted towards an gasoline. The Act is unclear on whether
RVO would likewise be reduced RVO without the need to track it to other fuels that meet the definition of
proportionally and their ability to determine its actual application in a renewable fuel, but are not used in
comply with the RFS requirements highway vehicle. This is also consistent gasoline, could also be used to
would be only minimally affected. Each with the requirement that EPA base the demonstrate compliance towards the
obligated party’s projected RVO for a renewable fuel obligation on estimates aggregate national use of renewable
given year becomes more accurate as of the entire volume of gasoline fuels.
that year progresses, but the obligated consumed, without regard to whether it EPA interprets the Act as allowing
party should nevertheless have a is used in highway or nonroad regulated parties to demonstrate
sufficiently accurate estimate of its RVO applications. Fuels that otherwise meet compliance based on any fuel that meets
at the beginning of the year to allow it this definition but are designated by the the statutory definition for renewable
to begin its efforts to comply. producer for use in boilers, or heaters, fuel, whether it is directly blended with
or any use other than highway or gasoline or not. This would include neat
B. What Counts as a Renewable Fuel in alternative fuels such as ethanol,
the RFS Program? nonroad use, would not meet the
definition of renewable fuel. methanol, and natural gas that meet the
Section 211(o) of the Clean Air Act Renewable fuel, as defined, may be definition of renewable fuel. This is
defines ‘‘renewable fuel’’ and specifies made from a number of different types appropriate for several reasons. First, it
many of the details of the renewable of feedstocks. For example, the Fisher- promotes the use of all renewable fuels,
fuel program. The following section Tropsch process can use methane gas which will further the achievement of
provides EPA’s views and from landfills as a feedstock, to produce the purposes behind this provision.
interpretations on issues related to what diesel or gasoline. Vegetable oil made Congress did not intend to limit the
fuels may be counted towards from oilseeds such as rapeseed or program to only gasoline components,
compliance with the RVO, and how soybeans can be used to make biodiesel as evidenced by the provision for bio-
they are counted. diesel, and the broad definition of
13 As discussed below, for purposes of this renewable fuel evidences an intention to

1. What Is a Renewable Fuel That Can rulemaking, the regulations separate ‘‘biodiesel’’ as address more renewable fuels than those
Be Used for Compliance? defined in the Energy Act, into biodiesel (diesels used with gasoline. Second, in practice
that meet the Energy Act’s definition and are a
The statutory definition of renewable mono aklyl ester) and renewable diesel (other
EPA expects that the overwhelming
fuel includes cellulosic ethanol and diesels that meet the Energy Act’s definition but are volume of renewable fuel used to
waste derived ethanol. It includes not mono akly esters. demonstrate compliance with the
renewable fuel obligation would still be intermediate conversion step. While the defined as cellulosic if at such facility
ethanol blended with gasoline. Whether cost and difficulty are a disadvantage, ‘‘animal wastes or other waste materials
one counts or does not count these the cellulosic process offers the are digested or otherwise used to
additional renewable fuels would not in advantage that more feedstocks can be displace 90 percent or more of the fossil
practice change whether the total used and more volume of ethanol can be fuel normally used in the production of
national goal for renewable fuel use was produced. ethanol.’’ The statutory language
met, given the size of the goal specified The Act provides the definition of suggests that there are two methods
in the Act and the form in which the cellulosic biomass ethanol, which through which ‘‘animal and other waste
total is expressed. Finally, as discussed states: materials’’ may be considered for
later, EPA’s compliance program is ‘‘The term ‘cellulosic biomass displacing fossil fuel. The first method
based on assigning volumes at the point ethanol’ means ethanol derived from is the digestion of animal wastes or
of production, and not at the point of any lignocellulosic or hemicellulosic other waste materials. EPA proposes to
blending into motor vehicle fuel. This matter that is available on a renewable interpret the term ‘‘digestion’’ to mean
interpretation would avoid the need to or recurring basis, including: the conversion of animal or other wastes
track renewable fuels downstream to (i) Dedicated energy crops and trees; into methane, which can then be
ensure they are blended with gasoline (ii) Wood and wood residues; combusted as fuel. We base our
and not used in their neat form; the (iii) Plants; interpretation on the practice in
gasoline that is used in motor vehicles (iv) Grasses; industry of using anaerobic digesters to
is reduced by the presence of renewable (v) Agricultural residues;
(vi) Animal wastes and other waste break down waste products such as
fuels in the gasoline pool whether they manure into methane. Anaerobic
are blended with gasoline or not EPA materials, and
(viii) Municipal solid waste’’ digestion refers to the breakdown of
believes its proposal is consistent with organic matter by bacteria in the
Examples of cellulosic biomass source
the intent of Congress and is a absence of oxygen, and is used to treat
material include rice straw, switch
reasonable interpretation of the Act. waste to produce renewable fuels. We
We are therefore proposing that in grass, and wood chips. Ethanol made
from these materials would qualify note also that the digestion of animal
addition to any renewable fuels that are wastes or other waste materials to
actually blended into gasoline and are under the definition as cellulosic
ethanol. In addition to the above sources produce the fuel used at the ethanol
designated for use in a highway vehicle, plant does not have to occur at the plant
we would also count any renewable of feedstocks for cellulosic biomass
ethanol, the Act’s definition also itself. Methane made from animal or
fuels falling into the following other wastes offsite and then purchased
categories as being valid for RFS includes animal waste, municipal solid
wastes, and other waste materials While and used at the ethanol plant would
compliance purposes: also qualify.
1. Any renewable fuels used in these materials may or may not contain
cellulosic material, their inclusion in The second method is suggested by
nonroad applications; the term ‘‘otherwise used’’ which we
2. Any renewable fuels used in their the definition requires that ethanol
made from such sources be treated as propose to interpret as meaning (1) the
neat (unblended) form in onroad and
cellulosic biomass ethanol under the direct combustion of the waste materials
nonroad applications; and
3. Any renewable fuel used in a motor regulations. ‘‘Other waste materials’’ as fuel at an ethanol plant, or (2) the use
vehicle that does not normally run on generally includes waste material such of thermal energy that itself is a waste
gasoline. For instance, biogas used in a as sewage sludge, waste candy, and product; e.g., waste heat that is obtained
CNG vehicle, or biogenic methanol used waste starches from food production, from an off-site combustion process
in a dedicated methanol vehicle. but for purposes of the definition of such as a neighboring plant that has a
The Agency solicits comment on this cellulosic ethanol discussed in III.B.1.b furnace or boiler from which the waste
approach. below, it can also mean waste heat heat is captured. With respect to the
Under the Act, renewable fuel obtained from an off-site combustion first meaning, waste materials from tree
includes ‘‘cellulosic biomass ethanol’’ process. farms (tops, branches, limbs, etc), or
and ‘‘waste derived ethanol’’, each of Although the definitions of waste materials from saw mills
which is defined separately. Ethanol can ‘‘cellulosic biomass ethanol’’ and (sawdust, shavings and bark) as well as
be cellulosic biomass ethanol in one of ‘‘waste derived ethanol’’ both include other vegetative waste materials such as
two ways, as described below. animal wastes and municipal solid corn stover, or sugar cane bagasse, could
a. Ethanol Made From a Cellulosic waste in their respective lists of covered be used as fuel for gasifier/boiler units
Feedstock. The simplest process of feedstocks, there remains a distinction at ethanol plants, since they are waste
producing ethanol is by fermenting between these types of ethanol. If the materials and would not be used as a
sugar in sugar cane, but can also be animal wastes or municipal solid wastes feedstock to carbohydrate-based ethanol
produced from carbohydrates in corn contain cellulose or hemicellulose, the plants. Although such waste materials
and other feedstocks. This process is resulting ethanol can be termed conceivably could be feedstocks to a
accomplished by first converting the ‘‘cellulosic biomass ethanol.’’ If the cellulosic ethanol plant, its use as a fuel
carbohydrates to sugar. Ethanol can also animal wastes or municipal solid wastes at a carbohydrate based ethanol plant
be produced from complex do not contain cellulose or does not subvert the intent of the
carbohydrates, such as the cellulosic hemicellulose, then the resulting definition.14
portion of plants or plant products. The ethanol is labeled ‘‘waste derived
14 On the other hand, wood from plants or trees
cellulose is first converted to sugars (by ethanol.’’
that are grown as an energy crop may not qualify
hydrolysis); then the same fermentation b. Ethanol Made From Any Feedstock as a waste-derived fuel in an ethanol facility
process is used as for carbohydrates to in Facilities Run Mostly With Biomass- because such wood would not qualify as waste
make ethanol. Cellulosic feedstocks Based Fuel. The definition of cellulosic materials under this portion of the definition.
(composed of cellulose and biomass ethanol in the Act also provides Under the definition of renewable fuels and
cellulosic biomass ethanol, however, such wood
hemicellulose) are currently more that ethanol made at any facility— material could serve as a feedstock in a cellulosic
difficult and costly to convert to sugar regardless of whether cellulosic ethanol plant, since these definitions do not restrict
than are carbohydrates because of this feedstock is used or not—may be such feedstock to waste materials only.
Today’s regulations will require and harvest the feedstock. Therefore the required to obtain additional RINs to
owners of ethanol plants to keep records diesel fuel that trucks consume in make up whatever deficit exists for
of fuel use to ensure compliance with hauling wood waste from sawmills to those RINs sold or traded with a value
and enforcement of this provision of the the ethanol facility would not be of 2.5. Assuming this is made up, then
definition of cellulosic ethanol. Due to counted in determining whether the holders of the RINs associated with the
potential enforcement-related problems 90% displacement criteria has been met. ethanol the plant produced in the
associated with application of this We are interpreting it in this way previous year would not be affected. We
component of the definition of because we believe the accounting of solicit comment on this proposed
cellulosic ethanol to foreign facilities, fuel use associated with transportation approach.
we intend for the final rule to develop and other life cycle activities would be c. Ethanol that is made from the non-
compliance and enforcement related extremely difficult and in many cases cellulosic portions of animal, other
safeguards similar to those set forth in impossible.15 The Agency solicits waste, and municipal waste. ‘‘Waste
proposed 80.1165(f), (g), (h) and (j), and comments on this aspect of our derived ethanol’’ is defined in the Act
with additional inspection, audit, approach in accounting for fossil fuel as ethanol derived from ‘‘animal wastes,
recordkeeping and reporting safeguards displacement. including poultry fats and poultry
to verify compliance with the Based on the operation of ethanol wastes, and other waste materials;
requirements on fuel use at foreign plants, we are viewing this definition to * * * or municipal solid waste.’’ Both
facilities. We seek comment on the most apply to waste materials used to animal wastes and municipal solid
effective means of doing this. Because of produce thermal energy rather than waste are also listed as allowable
the difficulty of implementing these electrical energy. Electrical usage at feedstocks for the production of
safeguards, however, we also solicit ethanol plants is used for lights and ‘‘cellulosic biomass ethanol.’’ The
comment on a provision that would equipment not related to the production determination of the appropriate
limit the application of this definition of of ethanol. Also, the calculation of fossil category of ethanol is based on whether
cellulosic ethanol only to ethanol plants fuel used to generate such electrical the feedstocks on question contain
in the U.S. usage would be difficult because it is cellulose or hemicellulose that is used
Regarding the use of waste heat as a not always possible to track the source to make the ethanol. Thus, if the ethanol
source of thermal energy, we note that of electricity that is purchased off-site. is made from the non-cellulosic portions
there may be situations in which an off- We are therefore proposing that the of animal, other waste, or municipal
site furnace, boiler or heater creates displacement of 90 percent of fossil waste, it is labeled ‘‘waste derived
excess or waste heat that is not used in fuels at the ethanol plant means those ethanol.’’
the process for which the thermal fuels consumed on-site and that are
energy is employed. For example, a used to generate thermal energy used to 2. What Is Biodiesel?
glass furnace generates a significant produce ethanol. The term ‘‘fossil fuel The definition of renewable fuel in
amount of waste heat that often goes normally used in the production of the Act includes corn-based and
unused. We are proposing to include ethanol’’ in today’s proposal means cellulosic biomass ethanol, waste
waste heat in the definition of ‘‘other fossil fuel that is combusted at the derived ethanol, and the renewable fuel
waste materials’’, and also that waste facility itself to produce thermal energy. portion of blending components derived
heat captured and used as a source of Owners are required to keep records of from renewable fuel. Biodiesel is also
thermal energy in an ethanol plant fuel (waste-derived and fossil fuel) used specifically named as being included in
would satisfy the requirement of other for thermal energy for verification of the Act’s definition of renewable fuel.
waste materials being ‘‘otherwise used’’ their claims. They will also be required The Act states that ‘‘The term
to make ethanol. Although the source of to track the fossil fuel equivalent of the ‘renewable fuel’ includes * * *
the waste heat is ultimately a fossil fuel waste heat captured and used in the biodiesel (as defined in section 312(f) of
in most cases, we recognize that without ethanol process. Since such waste heat the Energy Policy Act of 1992.’’ This
the capture of the heat and subsequent would typically be purchased through definition, as modified by Section 1515
use in the ethanol plant, that energy agreement with the off-site owner, we of the Energy Act states:
would be unused, and the ethanol plant do not feel it burdensome for owners to The term ‘‘biodiesel’’ means a diesel
would consume the equivalent amount track such information. Owners would fuel substitute produced from
of fossil fuel. Thus, for the same amount therefore calculate the amount of energy nonpetroleum renewable resources that
of fossil fuel consumption at the off-site in Btu’s associated with waste-derived meets the registration requirements for
plant, heat energy capture would result fuels (including the fossil fuel fuels and fuel additives established by
in displacement of fossil fuel use at the equivalent waste heat), and divided by the Environmental Protection Agency
ethanol plant. Because of potential the total energy in Btus used to produce under section 7545 of this title, and
confusion identifying thermal energy ethanol in a given year. Holders of RINs includes biodiesel derived from animal
that is waste heat from fossil fuel associated with the sale or trade of such wastes, including poultry fats and
combustion sources on site (i.e., at the cellulosic ethanol would get the benefit poultry wastes, and other waste
ethanol plant itself), we are limiting this of the 2.5 credit (through 2012 when materials, or municipal solid waste and
proposal to waste heat captured at off- such credit is valid). sludges and oils derived from
site plants. The Agency solicits In the event that the requirements of
comment on our proposal to consider wastewater and the treatment of
90 percent displacement of fossil fuel wastewater.
waste heat in the definition of ‘‘other are not met, the owner of a facility
waste materials’’. This definition of biodiesel would
producing such ethanol would be include both mono-alkyl esters which
We propose to interpret the term
meet ASTM specification D–6751 16 (the
‘‘fossil fuel normally used in the 15 In Section IX of today’s preamble we discuss
production of ethanol’’ to mean fossil our analysis of the lifecycle fuel impacts of the RFS most common meaning of the term
fuel used at the facility in the ethanol rule, with respect to greenhouse gas (GHG)
emissions. While we do account for fuel used in 16 In the event that the ASTM specification D–
production process itself, rather than hauling materials to ethanol plant in our analysis, 6751 is succeeded with a different number in the
other phases such as trucks transporting we are using average nationwide values, rather than future, EPA may revise the regulations accordingly
product, and fossil fuel used to grow data collected for individual plants. at such time.
‘‘biodiesel’’) that have been registered Neste process, or diesel fuel produced section.18 This approach should balance
with EPA, and any non-esters that are by processing fats and oils through a out the likelihood that some of the
intended for use in engines that are refinery hydrotreating process. biocrude-based renewable fuel is not a
designed to run on conventional, motor vehicle fuel.
3. Is Motor Fuel That Is Made From a
petroleum-derived diesel fuel, have
Renewable Feedstock a Renewable 4. What Are ‘‘Equivalence Values’’ for
been registered with the EPA, and are
Fuel? Renewable Fuel?
made from any of the feedstocks listed
above. We interpret the statutory definition One question that EPA must address
To implement the above definition of of renewable fuels to include all is how to count volumes of renewable
biodiesel in the context of the RFS gasoline or diesel that is made from a fuel in determining compliance with the
rulemaking while still recognizing the class of feedstocks called ‘‘biocrudes’’, renewable volume obligation. For
unique history and role of mono-alkyl which are defined as biologically instance, the Act stipulates that every
esters meeting ASTM D–6751, we derived feedstocks (such as fats and gallon of cellulosic ethanol should
propose to divide the Act’s definition of greases). We are providing a definition count as if it were 2.5 gallons for RFS
biodiesel into two separate parts: of ‘‘biocrude-based renewable fuels’’ to compliance purposes. The Act does not
biodiesel (mono-alkyl esters) and non- mean gasoline or diesel products stipulate similar values for other
ester renewable diesel. The combination resulting from the processing of renewable fuels, but as described below
of ‘‘biodiesel (mono-alkyl esters)’’ and biocrudes in production units within we believe it is appropriate to do so.
‘‘non-ester renewable diesel’’ in the We are proposing that the
refineries that process crude oil and
regulations would fulfill the Act’s ‘‘Equivalence Values’’ for different
other petroleum based feedstocks and
definition of biodiesel. The Agency renewable fuels be based on their energy
which make gasoline and diesel fuel.17
solicits comment on this approach and content in comparison to the energy
A particular batch of biocrude used as content of ethanol, and adjusted as
specifically asks whether the ‘‘non-ester feedstock to a production unit would
renewable diesel’’ definition be necessary for their renewable content.
replace crude oil or other petroleum The result is an Equivalence Value for
referenced explicitly to ASTM D–975. based feedstocks which ordinarily
a. Biodiesel (Mono-Alkyl Esters). corn ethanol of 1.0, for biobutanol of
would be the feedstock in that process 1.3, for biodiesel (mono alkyl ester) of
Under this part, the term ‘‘biodiesel
unit. The non-ester renewable diesel 1.5, and for cellulosic ethanol of 2.5.
(mono-alkyl esters)’’ means a motor
defined in Section III.B.2.b above could However, the methodology can be used
vehicle fuel which: (1) Meets the
be one such type. to determine the appropriate
registration requirements for fuels and
fuel additives established by the We are assuming that all of the equivalence value for any other
Environmental Protection Agency under biocrude used as a feedstock in a potential renewable fuel as well.
section 7545 of this title (Clean Air Act refinery unit will end up as a biocrude- This section describes why we believe
Section 211); (2) is a mono-alkyl ester; based renewable fuel. Rather than that the use of relative energy content is
(3) meets ASTM specification D–6751– requiring the refiner to document what appropriate under the Act, and our
02a; (4) is intended for use in engines portion of the biocrude-based renewable investigation of the alternative use of
that are designed to run on fuel is other than diesel or gasoline (e.g., lifecycle analyses as the basis of
conventional, petroleum-derived diesel jet fuel), we are proposing to have the Equivalence Values.
fuel, and (5) is derived from volume of the biocrude itself count as a. Authority Under The Act To
nonpetroleum renewable resources the volume of renewable fuel produced Establish Equivalence Values. We are
including, but not limited to, animal for the purposes of determining the proposing that Equivalence Values be
wastes, including poultry fats and volume block codes that are in the RIN assigned to every renewable fuel to
poultry wastes, and other waste (discussed in further detail in Section provide an indication of the number of
materials, or municipal solid waste and III.D). While this approach may result in gallons that can be claimed for
sludges and oils derived from some products such as jet fuel being compliance purposes for every physical
wastewater and the treatment of counted as renewable fuel, we believe gallon of renewable fuel. An
wastewater. the majority of the products produced Equivalence Value of 1.0 would mean
b. Non-Ester Renewable Diesel. The will be motor vehicle fuel because we that every physical gallon of renewable
term ‘‘non-ester renewable diesel’’ assume refiners who elect to use fuel would count as one gallon for RFS
means a motor vehicle fuel which: (1) biocrudes would do so to help meet the compliance purposes. An Equivalence
Meets the registration requirements for requirements of this rule. Furthermore, Value greater than 1.0 would mean that
fuels and fuel additives established by both diesel and gasoline presently make every physical gallon of renewable fuel
the Environmental Protection Agency up about 85 percent of the product slate would count as more than one gallon for
under section 7545 of this title (Clean of refineries on average. This amount RFS compliance purposes, while a value
Air Act Section 211); (2) is not a mono- that has been steadily increasing for less than 1.0 would count as less than
alkyl ester; (3) is intended for use in over time, and we expect that the one gallon.
engines that are designed to run on percentage will continue to increase as We are interpreting the Act as
conventional, petroleum-derived diesel demand for gasoline and diesel allowing EPA to develop Equivalence
fuel, and (4) is derived from increases. Values according to the methodology
nonpetroleum renewable resources We are also proposing that the discussed below. We believe that the
including, but not limited to, animal Equivalence Value assigned to biocrude- use of Equivalence Values is consistent
wastes, including poultry fats and based renewable fuels be designated as with the intent of Congress to treat
poultry wastes, and other waste 1.0, despite the fact that they might different renewable fuels differently in
materials, or municipal solid waste and warrant a higher value based on their different circumstances, and to provide
sludges and oils derived from energy content as described in the next 18 With respect to biodiesel, however, since such
wastewater and the treatment of
fuel is typically not made in a traditional
wastewater. Current examples of a non- 17 Biocrude-based renewable fuels will need to be petroleum-based refinery, it would not be a
ester renewable diesel include: registered under the provisions contained in 40 CFR biocrude-based renewable fuel and would thus not
‘‘renewable diesel’’ produced by the 79 Part 4 before they can be sold commercially. be limited to the 1.0 Equivalence Value.
incentives for use of renewable fuels in represented by its relative energy the renewable content of a renewable
certain circumstances, as evidenced by content. To appropriately account for fuel and its energy content in
those specific circumstances addressed the different energy contents of different comparison to ethanol. To accomplish
by Congress. The Act has several renewable fuels as well as the fact that this, we propose the following formula:
provisions that provide for mechanisms some renewable fuels actually contain EV = (RRF / REth) × (ECRF / ECEth)
other than straight volume measurement some non-renewable content, we
to determine the value of a renewable propose to calculate Equivalence Values Where:
fuel in terms of RFS compliance. For using both the renewable content of a EV = Equivalence Value for the renewable
example, 1 gallon of cellulosic biomass renewable fuel and its energy content. fuel.
or waste derived ethanol is to be treated This section describes our proposal for RRF = Renewable content of the renewable
fuel, in percent.
as 2.5 gallons of renewable fuel. EPA is calculating the Equivalence Values.
REth = Renewable content of ethanol, in
also required to establish an In order to take the energy content of
percent.
‘‘appropriate amount of credits’’ for a renewable fuel into account when ECRF = Energy content of the renewable fuel,
biodiesel, and to provide for ‘‘an calculating the Equivalence Values, we in Btu per gallon (LHV).
appropriate amount of credit’’ for using must identify an appropriate point of ECEth = Energy content of ethanol, in Btu per
more renewable fuels than are required reference. Ethanol would be a gallon (LHV).
to meet your obligation. EPA is also to reasonable point of reference as it is
determine the ‘‘renewable fuel portion’’ currently the most prominent renewable R is a measure of that portion of a
of a blending component derived from fuel in the transportation sector, and it single renewable fuel molecule which
a renewable fuel. All of these statutory is likely that the authors of the Act saw can be considered to have come from a
provisions provide evidence that ethanol as the primary means through renewable source. Since R is being
Congress did not limit this program which the required volumes would be combined with relative energy content
solely to a straight volume measurement met in at least the first years of the RFS in the formula above, the value of R
of gallons in the context of the RFS program. By comparing every renewable cannot be based on the weight fraction
program for certain specified fuel to ethanol on an equivalent energy of the renewable atoms in the molecule,
circumstances. content basis, each renewable fuel could but rather must be based on the energy
The Act is unclear as to whether a be assigned an Equivalence Value that content of those atoms. As a result the
straight gallon measurement is required precisely accounts for the amount of calculation of R for any particular
in circumstances other than those petroleum in motor vehicle fuel that is renewable fuel requires an analysis of
specified by Congress. We believe the reduced or replaced by that renewable the chemical process through which it
Act can and should be interpreted to fuel in comparison to ethanol. To the was produced. A detailed explanation of
allow the use of Equivalence Values in degree that corn-based ethanol calculations for R and several examples
those circumstances. First, this is continues to dominate the pool of are given in a technical memorandum in
consistent with the way Congress renewable fuel, this approach would the docket 19.
treated the various specific allow actual volumes of renewable fuel In the case of ethanol, denaturants are
circumstances noted above, and thus is to be consistent with the volumes added to preclude its use as food.
basically a continuation of that process. required by the Act while still allowing Denaturants are generally a fossil-fuel
Second, EPA does not believe that some renewable fuels to be attributed a based, gasoline-like hydrocarbon in
providing such an Equivalence Value higher value in terms of RFS concentrations of 2–5 volume percent,
for this small volume of renewable fuel compliance to the extent that they have with 5 percent being the most common
will interfere in any way with meeting a higher energy content than ethanol. historical level. In general this would
the total national volume goals for usage Equivalence Values should also mean that the Equivalence Value of
of renewable fuel. We are proposing to account for the renewable content of ethanol would be 0.95. However, we
use an Equivalence Value of 1.0 for renewable fuels, since the presence of believe that the Equivalence Value for
ethanol other than cellulosic biomass or any non-renewable content impairs the ethanol should be specified as 1.0
waste derived ethanol, and we expect ability of the renewable fuel to replace despite the presence of a denaturant.
that there will only be very limited or reduce the quantity of fossil fuel First, as stated above, ethanol is
additional situations where an present in a fuel mixture used to operate expected to dominate the renewable fuel
Equivalence Value other than 1.0 is a motor vehicle. The Act specifically pool for at least the next several years,
used. As a result, this approach is a states that only the renewable fuel and it is likely that the authors of the
reasonable way for the RFS program to portion of a blending component should Act recognized this fact. Thus it seems
ensure that the total volume of be considered part of the applicable likely that it was the intent of the
renewable fuels will be used as required volume under the RFS program. We authors of the Act that each physical
under the Act. have interpreted this to mean that every gallon of denatured ethanol be counted
b. Energy Content and Renewable renewable fuel should be evaluated at as one gallon for RFS compliance
Content as the Basis for Equivalence the molecular level to distinguish purposes. Second, the accounting of
Values. We believe it is appropriate to between those components that were ethanol has historically ignored the
base the Equivalence Value assigned to derived from a renewable feedstock, presence of the denaturant. For
a particular renewable fuel on the versus those components that were instance, under Internal Revenue
degree to which the renewable fuel derived from a fossil fuel feedstock. Service (IRS) regulations the denaturant
supplants the petroleum content of fuel Along with energy content in can be counted as ethanol by parties
used in a motor vehicle. This is comparison to ethanol, the relative filing claims to the IRS for the Federal
consistent with the Act’s definition of amount of renewable versus non- excise tax credit. Also, EIA reporting
renewable fuel, which refers to the renewable content can then be used requirements for ethanol producers
degree to which it is directly used to directly as the basis for the Equivalence
replace or reduce the quantity of fossil Value. 19 ‘‘Calculation of equivalence values for
fuel present in a fuel mixture used to We propose that the calculation of renewable fuels under the RFS program’’, memo
operate a motor vehicle. The degree to Equivalence Values should from David Korotney to EPA Air Docket OAR–
which the fossil fuel is replaced is best simultaneously take into account both 2005–0161.
allow them to include the denaturant in TABLE III.B.4–1.—PROPOSED EQUIVA- may have merit, but it would also raise
their reported volumes. LENCE VALUES FOR SOME RENEW- a number of challenges. Consequently,
Since we are proposing that ABLE FUELS—Continued we are inviting comment here not only
denatured ethanol be assigned an on the merit and basis for setting
Equivalence Value of 1.0, this must be equivalence values on a lifecycle basis,
Equivalence
reflected in the values of REth and ECEth. but also the appropriate means of doing
Value (EV)
We have calculated these values to be so.
93.1 percent and 77,550 Btu/gal, ETBE from corn ethanol ....... 0.4 Lifecycle analyses involve an
respectively. Details of these examination of fossil fuel used, and
calculations can be found in the Since there are a wide variety of
emissions generated, at all stages of a
aforementioned technical memorandum possible renewable fuels that could
renewable fuel’s life. A typical lifecycle
to the docket. qualify under the RFS program, there
analysis examines production of the
The calculation of the Equivalence may be cases in which a party produces
feedstock, its transport to a conversion
Value for a particular renewable fuel a renewable fuel not shown in Table
facility, the conversion of the feedstock
can lead to values that deviate only III.B.4–1. In such cases we propose to
into renewable motor vehicle fuel, and
slightly from 1.0, and/or can have allow the producer to submit a petition
to the Agency describing the renewable the transport of the renewable fuel to
varying degrees of precision depending the consumer. At each stage, every
on the uncertainty in the value of R or fuel, its feedstock and production
process, and the calculation of its activity that consumes fossil fuels or
ECRF. We are therefore proposing three results in emissions is quantified, and
simplifications to streamline the Equivalence Value. The Agency would
review the petition and assign an these energy consumption and emission
application of Equivalence Values in the estimates are then summed over all
context of the RFS program. First, appropriate Equivalence Value to the
renewable fuel based on the proposed stages. By accounting for every activity
consistent with our approach to the R associated with renewable fuels over
value for ethanol, we are proposing that rounding protocols described above.
Regarding publication of the newly their entire life, we can assess
all Equivalence Values calculated to be renewable fuels in terms of not just their
in the range of 0.9–1.2 be treated as if assigned Equivalence Value, we could
publish it in the Federal Register at the impact within the transportation sector,
they were exactly 1.0. This approach
same time as the annual standard is but across all sectors, and thus for the
would eliminate many of the
published each November. We request nation as a whole. In this way they
complexities described in Section III.D.2
comment on whether publishing new provide a more complete picture of the
that are associated with using renewable
Equivalence Values in this manner is potential impacts of different fuels or
fuels for RFS compliance purposes that
appropriate. different fuel sources.
have an Equivalence Value other than
1.0. Second, we propose that several Regarding biodiesel (mono alkyl Advocates for using lifecycle analyses
bins be created for renewable fuels with esters), we also considered an additional for setting the Equivalence Values for
Equivalence Values above 1.0. These approach in setting the Equivalence different renewable fuels indicate that
bins would replace the calculated Value. Since ethanol derived from waste there could be several advantages to this
Equivalence Values with standardized products such as animal wastes and approach. First, doing so could create an
ones to account for uncertainty in the municipal solid waste will be assigned incentive for obligated parties to choose
calculations as well as to simplify their an Equivalence Value of 2.5 based on a renewable fuels having a greater ability
application. We propose that the bins be requirement in the Act, it might be to reduce fossil fuel use or resulting
1.0, 1.3, 1.5, and 1.7. Each renewable appropriate to create a parallel emissions, since such renewable fuels
fuel would be assigned to the bin that provision for biodiesel made from would have higher Equivalence Values
is closest to its calculated Equivalence wastes. Under this approach, biodiesel and thus greater value in terms of
Value. Finally, we propose that all made from waste products would be compliance with the RFS requirements.
Equivalence Values, if any, which are assigned an Equivalence Value of 2.5 The preferential demand for renewable
calculated to be less than 0.9 be through 2012. Currently, waste products fuels having higher Equivalence Values
rounded to the first decimal place. (for example, poultry fats and poultry could in turn spur additional growth in
Using the methodology described wastes, municipal solid waste, or production of these renewable fuels.
above, we calculated the Equivalence wastewater sludge) make up less than Second, using lifecycle analyses as the
Values for a number of different 10 percent of biodiesel feedstocks. This basis for Equivalence Values could
renewable fuels expected to be in use approach would have the effect of orient the RFS program more explicitly
over the next few years, and modified incentivizing the use of waste products towards reducing fossil fuel use or
them according to our proposed and recycled biomass to make biodiesel. emissions.
rounding protocols. These are shown in Beyond the RFS program, it could also At the same time, the use of lifecycle
the table below. set a precedent to promote recycling and analyses to establish the Equivalence
waste conservation. While we are not Values for different renewable fuels also
TABLE III.B.4–1.—PROPOSED EQUIVA- proposing to set the Equivalence Value raises a number of issues. For instance,
LENCE VALUES FOR SOME RENEW- for waste-derived biodiesel at 2.5 in lifecycle analyses can be conducted
ABLE FUELS today’s action, we nevertheless believe using several different metrics,
that this approach has merit and request including total fossil fuel consumed,
Equivalence comment on it. petroleum energy consumed, criteria
Value (EV) c. Lifecycle Analyses as The Basis for pollutant emissions (e.g., VOC, NOX,
Equivalence Values. Although we are PM) carbon dioxide emissions, or
Cellulosic biomass ethanol or
proposing that Equivalence Values be greenhouse gas emissions. Each metric

waste-derived ethanol ....... 2.5
based on energy content relative to would result in a different Equivalence
Ethanol from corn, starches,
or sugar ............................. 1.0 ethanol and renewable content, some Value for the same renewable fuel. At
Biodiesel (mono alkyl ester) 1.5 stakeholders have suggested that the present time there is no consensus
Non-ester renewable diesel .. 1.7 Equivalence Values should be based on on which metric would be most
Butanol .................................. 1.3 lifecycle analyses. Such an approach appropriate for this purpose.
There is also no consensus on the commerce in the United States (except program), nor would gasoline, RBOB or
approach to lifecycle analyses in noncontiguous states or territories)’’ CBOB exported for use outside the
themselves. Although we have chosen contains on an annual average basis, the United States.
to base our lifecycle analyses on applicable aggregate volumes of For purposes of this preamble, the
Argonne National Laboratory’s GREET renewable fuels as prescribed in the various gasoline products (as described
model for the reasons described in Act.20 To implement this provision, we above) that we are proposing to include
Section IX, there are a variety of other are proposing that the volume of in the volume of gasoline used to
lifecycle models and analyses available. gasoline used to determined the determine the renewable fuel obligation
The choice of model inputs and renewable fuel obligation include all are collectively called ‘‘gasoline.’’
assumptions all have a bearing on the finished gasoline, RFG and Generally, ethanol and other
results of lifecycle analyses, and many conventional, produced or imported for renewable fuels would typically be used
of these assumptions remain the subject use in the contiguous United States in gasoline, increasing the volume of the
of debate among researchers. Lifecycle during the annual averaging period. We entire gasoline blend. We are proposing
analyses must also contend with the fact are also proposing to include in the to exclude the volume of renewable
that the inputs and assumptions volume of gasoline used to determine fuels contained in gasoline from the
generally represent industry-wide the renewable fuel obligation all volume of gasoline used to determine
averages even though energy consumed unfinished gasoline that becomes the renewable fuels obligation. In
and emissions generated can vary finished gasoline upon the addition of implementing the Act’s renewable fuels
widely from one facility or process to oxygenate blended downstream from requirement, our primary goal is to
another. There currently exists no single the refinery or importer. This would design a program that is simple, flexible
body, governmental or otherwise, that include both unfinished reformulated and enforceable. If the program were to
has organized a comprehensive dialogue gasoline, called ‘‘reformulated gasoline include renewable fuels in the volume
among stakeholders about the blendstock for oxygenate blending,’’ or of gasoline used to determine the
appropriate tools and assumptions ‘‘RBOB,’’ and unfinished conventional renewable fuel obligation, then every
behind any lifecycle analyses with the gasoline (e.g. sub-octane conventional blender that blends ethanol downstream
goal of coming to agreement. gasoline), called ‘‘CBOB.’’ from the refinery or importer would be
Another issue to using lifecycle Under the proposed rule, the volume subject to the renewable fuel obligation
analyses as the basis for Equivalence of any other unfinished gasoline or for the volume of ethanol that they
Values pertains to the ultimate impact blendstock, such as butane, would not blend. There are currently
that the RFS program would have on be included in the volume used to approximately 1,200 such ethanol
petroleum use, fossil fuel use, criteria determine the renewable fuel obligation, blenders. Of these blenders, only those
pollutant emissions, and/or emissions of except where the blendstock is who blend ethanol into RBOB are
GHGs. With a fixed volume of combined with other blendstock or regulated parties under current fuels
renewable fuel required under the RFS finished gasoline to produce finished regulations. Designating all of these
program, any renewable fuel with an gasoline. Where a blendstock is blended ethanol blenders as obligated parties
Equivalence Value greater than 1.0 with other blendstock to produce under the RFS program would greatly
would necessarily mean that fewer finished gasoline, RBOB, or CBOB, the expand the number of regulated parties
actual gallons would be needed to meet total volume of the gasoline blend and increase the complexity of the RFS
the RFS standard. Thus, the advantage would be included in the volume used program beyond that which is necessary
per gallon may be offset with fewer to determine the renewable fuels to carry out the renewable fuels
overall gallons, resulting in no overall obligation for the blender. Where a mandate under the Act.
blendstock is added to finished The Act provides that the renewable
additional benefit unless the RFS
gasoline, only the volume of the fuel obligation shall be ‘‘applicable to
standard was simultaneously adjusted.
Finally, lifecycle analyses of different blendstock would be included, since the refiners, blenders, and importers, as
renewable fuels are likely to change finished gasoline would have been appropriate.’’ 23 For the reasons
over time as farming practices and included in the compliance discussed above, we believe it is
process technologies evolve. Significant determinations of the refiner or importer appropriate to exclude downstream
changes would necessitate of the gasoline.21 Gasoline produced or renewable fuel blenders from the group
corresponding changes in the RFS imported for use in a noncontiguous of parties subject to the renewable fuel
state or U.S. territory 22 would not be obligation, and to exclude renewable
program to adjust the Equivalence
included in the volume used to fuels from the volume of gasoline used
Values on an ongoing basis which
determine the renewable fuels to determine the renewable fuel
would add uncertainty into the long-
obligation (unless the noncontiguous obligation. This exclusion would apply
term RIN market.
We request comment on all issues state or territory has opted-in to the RFS to any renewable fuels that are blended
associated with the use of lifecycle into gasoline at a refinery, contained in
analyses in establishing the Equivalence
20 CAA Section 211(o)(2)(A)(i), as added by
imported gasoline, or added at a
Section 1501(a) of the Energy Policy Act of 2005. downstream blending facility. Thus, for
Values for different renewable fuels for 21 ‘‘Gasoline treated as blendstock,’’ or ‘‘GTAB,’’
the RFS program. would be treated as any other blendstock with

example, any ethanol added to RBOB or
regard to the RFS rule; i.e., where the GTAB is CBOB downstream from the refinery or
C. What Gasoline Is Used To Calculate blended with other blendstock to produce gasoline, importer would be excluded from the
the Renewable Fuel Obligation and Who the total volume of the gasoline blend, including volume of gasoline used to determine
the GTAB, would be included in the volume
Is Required To Meet the Obligation? gasoline used to determine the renewable fuel the obligation. Any non-renewable fuel
1. What Gasoline Is Used to Calculate obligation for the blender. Where the GTAB is added downstream, however, would be
the Volume of Renewable Fuel Required

blended with finished gasoline, only the GTAB included in the volume of gasoline used
volume would be included. to determine the obligation. This
To Meet a Party’s Obligation? 22 The noncontiguous states are Alaska and
Hawaii. The territories are the Commonwealth of

approach has no impact on the total
The Act requires EPA to promulgate Puerto Rico, the U.S. Virgin Islands, Guam,
regulations designed to ensure that American Samoa, and the Commonwealth of the 23 CAA Section 211(o)(3)(B), as added by Section
‘‘gasoline sold or introduced into Northern Marianas. 1501(a) of the Energy Policy Act of 2005.
volume of renewable fuels required, renewable fuel obligation of a refiner included in these rules to ensure that
merely on the number of obligated until January 1, 2011. Where a refiner enforcement of the regulations at the
parties. We invite comment on the complies with the renewable fuel foreign refinery would not be
proposal to exclude renewable fuels in obligation on an aggregate basis for compromised. We are proposing similar
the volume of gasoline subject to the multiple refineries, the refiner may enforcement-related requirements that
renewable fuels obligation. As discussed exclude from its compliance would apply to foreign refiners that
earlier, in a similar manner this volume calculations gasoline produced at any apply for a small refinery or small
of renewable fuel would also be refinery that qualifies as a small refinery refiner exemption. Under the existing
excluded from the calculation under the RFS program. Beginning in fuels regulations, few foreign refiners
performed each year by EPA to 2011, small refineries would be required have chosen to undertake these
determine the applicable percentage. to meet the same renewable fuel additional requirements, and almost all
obligation as all other refineries. This gasoline produced at foreign refineries
2. Who Is Required To Meet the
exemption would apply to any refinery is included in the importers’
Renewable Fuels Obligation?
that meets the definition of small compliance determinations. We invite
Under the proposed rule, persons who refinery stated above regardless of the comment on the value of extending the
meet the definition of refiner, which size of the refining company that owns small refinery and small refiner
includes blenders who produce gasoline the refinery. Based on information exemptions to foreign refiners under the
by combining blendstocks or blending currently available to us we expect 42 RFS program.
blendstocks into finished gasoline, and small refineries to qualify for this Under the proposed rule, applications
persons who meet the definition of exemption. for a small refinery exemption must be
importer under the fuels regulations In addition to small refineries as received by EPA by September 1, 2007
would be subject to the renewable fuel defined in the Act, we are proposing to for the exemption to be effective in 2007
obligation. As noted above, blenders extend this relief to refiners who meet and subsequent calendar years. The
who only blend renewable fuels the proposed criteria for small refiner application must include
downstream from the refinery or status. Under the proposal, a small documentation that the small refinery’s
importer would not be subject to the refiner is defined as any refiner who, average aggregate daily crude oil
renewable fuel obligation. Any person during 2004: (1) Produces gasoline at a throughput for calendar year 2004 did
that is required to meet the renewable refinery by processing crude oil through not exceed 75,000 barrels. As long as the
fuels obligation is called an ‘‘obligated refinery processing units; (2) employs refinery met the criteria in 2004, it
party.’’ We generally refer to all of the an average of no more than 1,500 would have the exemption through 2010
obligated parties as refiners and people, including all employees of the regardless of changes in crude
importers, as the covered blenders are small refiner, any parent company and throughput or ownership. A small
all refiners under the regulations. its subsidiary companies; and (3) has a refinery exemption would be effective
A refiner or importer located in a total crude oil processing capability for 60 days after receipt of the application
noncontiguous state or U.S. territory all of the small refiner’s refineries of by EPA unless EPA notifies the
would not be subject to the renewable 155,000 barrels per calendar year applicant that the application was not
fuel obligation and thus would not be an (bpcd). These size requirements were approved or that additional
obligated party (unless the established in prior rulemakings and documentation is required. We are
noncontiguous state or territory opts-in were the result of our analysis of small proposing to base eligibility on 2004
to the RFS program). A party located refiner impacts. We do not believe that data rather than on 2005 data, since it
within the contiguous 48 states that there are more than three gasoline was the first full year prior to passage
‘‘imports’’ into the 48 states gasoline refineries owned by small refiners that of the Energy Act. In addition, some
produced or imported by a refiner or meet these criteria and that currently refineries’ production may have been
importer located in a noncontiguous exceed the 75,000 bpcd crude oil affected by Hurricane Katrina in 2005.
state or territory would be an obligated processing capability defined by the We request comment on whether
party and must meet the renewable fuel Act. We request comment on whether a multiple-year average should be the
obligation for such gasoline. refiner who has a refinery which basis for eligibility.
exceeds the 75,000 bpcd criteria should As discussed above, refiners that do
3. What Exemptions Are Available be eligible to apply for a small refiner not qualify for a small refinery
Under The RFS Program? exemption under the RFS program. EPA exemption under the 75,000 bpcd
a. Small Refinery and Small Refiner believes it has this discretion in criteria, but nevertheless meet the
Exemption. The Act provides an determining an appropriate lead-time criteria of a small refiner may apply for
exemption from the RFS standard for for the start-up of this program, as well small refiner status under the RFS rule.
small refineries during the first five as discretion to determine the regulated The application must be received by
years of the program. The Act defines refiners, blenders and importers, ‘‘as EPA by September 1, 2007 for the
small refinery as ‘‘a refinery for which appropriate.’’ exemption to be effective in 2007 and
the average aggregate daily crude oil We are also proposing to allow foreign subsequent calendar years. Like the
throughput for a calendar year (as refiners to apply for a small refinery or exemption for small refineries, small
determined by dividing the aggregate small refiner exemption under the RFS refiner status would be determined
throughput for the calendar year by the program. This would apply to foreign based on documentation submitted in
number of days in the calendar year) refiners that apply for refineries under the application which demonstrates that
does not exceed 75,000 barrels.’’ 24 the 75,000 bpcd criteria or foreign the refiner met the criteria for small
Under the proposed rule, any gasoline refiners that apply for small refiner refiner status during the calendar year
produced at a refinery that qualifies as status. Under the anti-dumping, MSAT 2004. EPA will notify the refiner of
a small refinery under this definition is and gasoline sulfur rules, foreign approval or disapproval of small refiner
not counted in determining the refiners are allowed to comply with status by letter. Unlike the case for small
certain regulations separately from any refineries, refiners that receive approved
24 CAA Section 211(o)(a)(9), as added by Section importer. Additional requirements small refiner status and subsequently do
1501(a) of the Energy Policy Act of 2005. applicable to such foreign refiners are not meet all of the criteria for small
refiner status (i.e., cease producing that could demonstrate severe economic territory, EPA may apply the renewable
gasoline from processing crude oil, hardship in complying with the fuels requirements to gasoline produced
employ more than 1,500 people or standard. We are proposing not to in or imported into that noncontiguous
exceed the 155,000 bpcd crude oil include in the RFS program provisions state or U.S. territory at the same time
capacity limit) as a result of a merger for a general hardship exemption. as, or any time after the effective date of
with or acquisition of or by another Unlike most other fuels programs, the the RFS program.25 In granting such a
entity, are disqualified as small refiners, RFS program includes inherent petition, EPA may issue or revise the
except in the case of a merger between flexibility since compliance with the RFS regulations, establish applicable
two previously approved small refiners. renewable fuels standard is based on a volume percentages, provide for
As in other EPA programs, where such nationwide trading program, without generation of credits, and take other
disqualification occurs, the refiner must any per gallon requirements, and actions as necessary to allow for the
notify EPA in writing no later than 20 without any requirement that the refiner application of the RFS program in a
days following the disqualifying event. or importer produce the renewable fuel. noncontiguous state or territory.
The Act provides that the Secretary of By purchasing RINs, obligated parties Today’s proposed rule would
Energy must conduct a study for EPA to would be able to fulfill their renewable implement this provision of the Act by
determine whether compliance with the fuel obligation without having to make providing a process wherein the
renewable fuels requirement would capital investments that may otherwise governor of a noncontiguous state or
impose a disproportionate economic be necessary in order to blend territory may petition EPA to have the
hardship on small refineries. If the renewable fuels into gasoline. We state or territory included in the RFS
study finds that compliance with the believe that sufficient RINs would be program. However, we believe that
renewable fuels requirements would available and at reasonable prices, given approval of the petition would not
impose a disproportionate economic that EIA projects that far greater require a showing other than a request
hardship on a particular small refinery, renewable fuels will be used than to be included in the program. The
EPA is required to extend the small required. Given the flexibility provided petition must be received by EPA on or
refinery’s exemption for a period of not in the RIN trading program, including before October 31 for the noncontiguous
less than two additional years. The Act the provisions for deficit carry-over, and state or territory to be included in the
also provides that a refiner with a small the fact that the standard is proportional RFS program in the next calendar year.
refinery may at any time petition EPA to the volume of gasoline actually A noncontiguous state or territory for
for an extension of the exemption for produced, we believe that there likely which a petition is received after
the reason of disproportionate economic would be no need for a general hardship October 31 would not be included in the
hardship. In accordance with these exemption. We request comment on
RFS program in the next calendar year,
provisions of the Act, the proposed rule whether there is a need to include a
but would be included in the RFS
includes a process by which refiners general hardship exemption in the RFS
program in the following year. For
with small refineries may petition EPA program.
for an extension of the small refinery c. Temporary Exemption Based On example, if EPA receives a petition on
exemption. As provided in the Act, the Unforeseen Circumstances. In recent September 1, 2007, the noncontiguous
proposed rule would require EPA to act rulemakings, we have also included a state or territory would be included in
on the petition not later than 90 days temporary exemption based on the RFS program beginning on January
after the date of receipt of the petition. unforeseen circumstances. We are 1, 2008. If EPA receives a petition on
During the initial exemption period proposing not to include such an December 1, 2007, the noncontiguous
and any extended exemption periods, exemption in the RFS program. The state or territory would be included in
the gasoline produced by small need for such an exemption would the RFS program beginning January 1,
refineries and refineries owned by primarily be based on the inability to 2009. We believe that requiring
approved small refiners would be comply with the renewable fuels petitions to be received by October 31
subject to the renewable fuel standard. standard due to a natural disaster, such would be necessary to allow EPA time
Under the proposed rule, the as a hurricane. However, in the event of to make any adjustments in applicable
automatic five year exemption for small a natural disaster, we believe that the standard. The method for recalculating
refineries, and any extended volume of gasoline produced by an the renewable fuels standard to reflect
exemptions, may be waived upon obligated party would also drop, which the addition of a state or territory that
notification to EPA. In waiving its would result in a reduction in the has opted into the RFS program is
exemption, gasoline produced at a small renewable fuel requirement. We believe, discussed in Section III.A.
refinery would be included in the RFS therefore, that unforeseen Where a noncontiguous state or
program and would be included in the circumstances, such as a hurricane or territory opts-in to the RFS program,
gasoline used to determine a refiner’s other natural disaster, would not result producers and importers of gasoline for
renewable fuel obligation. If a refiner in a party’s inability to obtain sufficient that state or territory would be obligated
waives the exemption for their small RINs to comply with the applicable parties subject to the renewable fuel
refinery or their exemption as a small renewable fuels standard. We request requirements. All refiners, blenders and
refiner, the refiner would be able to comment on whether there would be a importers who produce or import
separate and transfer RINs like any other need to include a temporary exemption gasoline for use in a state or territory
obligated party. If a refiner does not based on unforeseen circumstances, that has opted-in to the RFS program
waive the exemption, the refiner could and, in particular, circumstances that would be required to count this volume
still separate and transfer RINs, but only may affect ethanol producers. of gasoline in determining their
for the renewable fuel that the refiner renewable fuel obligation, and would be
4. What Are the Opt-In and State Waiver
itself blends into gasoline (i.e. the able to separate RINs from batches of
refiner operates as an oxygenate Provisions Under the RFS Program? renewable fuels used in gasoline that is
blender). a. Opt-in Provisions for sold or introduced into commerce in the
b. General Hardship Exemption. In Noncontiguous States and Territories.
recent rulemakings, we have included a The Act provides that, upon the petition 25 CAA Section 211(o)(2)(A)(ii), as added by
general hardship exemption for parties of a noncontiguous state or U.S. Section 1501(a) of the Energy Policy Act of 2005.
state or territory that has opted-in to the the provision in the Energy Act. We blended into gasoline or otherwise used
RFS program. request comment on this approach. as a motor vehicle fuel. It is therefore
Once a petition to opt-in to the RFS appropriate for EPA to establish the
D. How Do Obligated Parties Comply
program is approved by EPA, the state obligation for refiners and importers as
With the Standard?
or territory would remain in the RFS an obligation to ensure that a certain
program and be treated as any of the 48 Under the Act, EPA is to establish a volume of renewable fuel has been
contiguous states. We request comment renewable fuel standard annually, produced. This will ensure that the total
on the opt-in provisions. expressed as a percentage of gasoline required volume of renewable fuels will
b. State Waiver Provisions. The sold or introduced into commerce, that be used in the U.S., and as discussed
Energy Act provides that EPA, in will ensure that overall a specified total below has many benefits as far as
consultation with the U.S. Department national volume of renewable fuels will streamlining the program and
of Agriculture (USDA) and the be used in gasoline in the U.S. The Act minimizing disruptions to the current
does not require each obligated party to marketplace for production,
Department of Energy (DOE), may waive
necessarily do the blending themselves distribution, and use of renewable fuels.
the renewable fuels requirements in
in order to comply with this obligation. Implementing a program that is based
whole or in part upon a petition by one
The Act envisions a regulatory program on ensuring production of a certain
or more states by reducing the national
that would ensure the national volume volume of renewable fuels requires a
quantity of renewable fuel required
is met as long as a refiner or importer system of volume accounting and
under the Act.26 The Act also outlines
ensured that someone used a certain tracking of renewable fuels. We propose
the basic requirements for such a
volume of renewable fuel, whether it that this system be based on the
waiver, such as a demonstration that
was themselves or another party. Under assignment of unique numbers to each
implementation of the renewable fuels
the credit trading program required by batch of renewable fuel. These numbers
requirements would severely harm the the Act, each obligated party is allowed
economy or environment of a state, a would be called Renewable
to satisfy its obligations either through Identification Numbers or RINs, and
region, or the United States, or that its own actions or through the transfer
there is an inadequate domestic supply would be assigned to each batch by the
of credits from others who have more renewable fuel producer or importer.
of renewable fuel. than satisfied their individual The use of RINs would allow the
If EPA approves a state’s petition for requirements. Agency to measure and track renewable
a waiver of the RFS program, the Act This section describes our proposed fuel volumes starting at the point of
stipulates that the national quantity of compliance program. It is based on the their production rather than at the point
renewable fuel required (Table I.B–1) use of unique renewable identification when they are blended into
may be reduced in whole or in part. numbers (RINs) assigned to batches of conventional fuels. Although an
This reduction could reduce the renewable fuel by renewable fuel alternative approach would be to
standard applicable to all obligated producers. These numbers could then measure renewable fuel volumes as they
parties. However, there is no provision be sold or traded, and ultimately used are blended into conventional gasoline
in the Act that would permit EPA to by any obligated party to demonstrate or diesel, measuring renewable fuel
reduce or eliminate any obligations compliance with the applicable volumes at the point of production
under the RFS program specifically for standard. Excess RINs would be provides more accurate measurements
parties located within the state that identical to the credits envisioned by that can be easily verified as described
petitioned for the waiver. Thus all the Act. As described below, we believe in Section III.D.1.b below. For instance,
refiners, importers, and blenders located that our approach is consistent with the ethanol producers are already required
in the state would still be obligated language and intent of the Act and to report their production volumes to
parties if they produce gasoline. In preserves the natural market forces and EIA through Monthly Oxygenate
addition, an approval of a state’s blending practices that keep renewable Reports. This data would provide an
petition for a waiver may not have any fuel costs to a minimum. independent source for verifying
impact on renewable fuel use in that
1. Why Use Renewable Identification volumes. The total number of batches
state, since it would not be a prohibition
Numbers? and parties involved is also minimized
on the sale or consumption of renewable
in this approach. The total number of
fuels in that state. In fact the Act Once renewable fuels are produced or
batches is smallest at the point of
prohibits the regulations from restricting imported, there is very high confidence
production, since batches are commonly
the geographic areas in which they will in fact be blended into
split into smaller ones as they proceed
renewable fuels may be used. gasoline or otherwise used as motor
through the distribution system to the
Renewable fuel use in the state in vehicle fuels, except for exports.
place where they are blended into
question would thus continue to be Renewable fuels are not used for food,
conventional fuel. The number of
driven by natural market forces. chemicals, or as feedstocks to other
renewable fuel producers is also far
Given that state petitions for a waiver production processes. In fact the
smaller than the number of blenders.
of the RFS program are unlikely to affect denaturant that must be added to
Currently there are approximately 100
renewable fuel use in that state, we are ethanol is designed specifically to
ethanol plants and 40 biodiesel plants
not proposing regulations providing ensure that the ethanol can be used only
in the U.S., compared with
more specificity regarding the criteria as motor vehicle fuel. In discussions
approximately 1200 blenders.27
for a waiver, or the ramifications of with stakeholders, it has become clear
The assignment of RINs to batches of
Agency approval of such a waiver in that other renewable fuels, including
renewable fuel at the point of their
terms of the level or applicability of the biodiesel and renewable fuels used in
production also allows those batches to
standard. However, states can still their neat (unblended) form, likewise
be identified according to various
submit petitions to the Agency for a are not used for anything other than
categories important for compliance
waiver of the RFS requirements under fuel. Therefore if a refiner ensures that
a certain volume of renewable fuel has 27 Those blenders who add ethanol to RBOB are
26 CAA Section 211(o)(7), as added by Section been produced, in effect they have also already regulated under our reformulated gasoline
1501 of the Energy Policy Act of 2005. ensured that this volume will be regulations.
purposes. For instance, the RIN will include provisions for a credit trading generated, and that RINs numbers were
contain a component that specifies program. A credit trading program properly assigned and documented on
whether a batch of ethanol was made would allow a refiner that overcomplied the renewable fuel PTDs as required by
from cellulosic feedstocks. This RIN with its annual RVO to generate credits the regulations.
component will be of particular representing the excess renewable fuel. b. Alternative Approach To Tracking
importance for 2013 and beyond when The Act stipulates that those credits Batches. If we did not implement a RIN-
the Act specifies a national volume could then be used within the ensuing based system for uniquely identifying,
requirement for cellulosic biomass 12 month period, or transferred to measuring, and tracking batches of
ethanol. The RIN can also identify the another refiner that had not blended renewable fuel, the RFS program would
Equivalence Value of the renewable fuel sufficient renewable fuel into its necessarily require that we measure
which will often only be known at the gasoline to satisfy its RVO. In this way renewable fuel volumes at the point in
point of its production. Finally, the RIN the credit trading program would permit the distribution system where they are
can identify the year in which the batch current blending practices to continue actually blended into conventional
was produced, a critical element of wherein some refiners purchase a gasoline or diesel or used in their neat
determining the applicable time period significant amount of renewable fuel for form as motor vehicle fuel. However,
within which RINs are valid for blending into their gasoline while others this alternative approach would create a
compliance purposes. do little or none, thus providing a number of significant problems.
Production volumes of renewable means for all refiners to comply with First, the parties obligated to meet the
fuels intended for blending into gasoline the standard. standard (refiners, importers, and
are an accurate surrogate for volumes Our proposed RIN-based program blenders of gasoline) are often not the
actually blended into gasoline. In would fulfill all the functions of a credit parties who produce renewable fuel or
addition, production volumes of trading program, and thus would meet blend renewable fuels such as ethanol
renewable fuels capture those renewable the Act’s requirements. If at the end of into gasoline. This separation would
fuels used as motor vehicle fuel in their a compliance period, a party had more require a mechanism for obligated
neat (unblended) form. Thus we believe RINs than it needed to show compliance parties to obtain credit for renewable
that this approach would allow us to with its renewable volume obligation, fuels blended by non-obligated parties.
account for all renewable fuels these excess RINs would serve the Generally, this would be done through
consumed in the U.S. because function of credits, and could be used, contract management. Unfortunately,
renewable fuels always end up being banked, or traded in the next there might be an incentive to
used as fuel in the U.S. or exported. compliance period. RINs could be exaggerate the volumes of renewable
There are also changes that can occur transferred to another party in an fuel blended and thus exaggerate the
at various times throughout the year in identical fashion to a credit. However, number of credits generated. This
the volumes of renewable fuel that are our proposed program provides alternative approach might also create
in storage. These stock changes involve additional flexibility in that it would opportunities for double-counting
the temporary storage of renewable fuel permit all RINs to be transferred batches of renewable fuel, either
during times of excess. However, these between parties before they were intentionally or unintentionally.
stock changes always have a net change deemed to be in excess of a party’s Second, as described in Section I, one
of zero over the long term since there is annual RVO at the end of the year. This of our guiding principles in designing
no economic benefit to stockpiling is because a RIN serves two functions: the RFS compliance and trading
renewable fuels. it is direct evidence of compliance, and program was to ensure that existing
Exports of renewable fuel represent after a compliance year is over excess business practices could continue to the
the only distribution pathway that could RINs serve the function of credits for degree possible. With the alternative
impair the use of production as a overcompliance. Thus the RIN approach approach described above, some refiners
surrogate for renewable fuel blending has the advantage of allowing real-time might have to significantly change their
into gasoline or other use as a motor trading without having to wait until the business or production practices to take
vehicle fuel. However, we believe that end of the year to determine excess. greater control of ethanol blending and,
our proposed approach can account for As in other motor vehicle fuels credit therefore, the mechanism for
exports through an explicit requirement programs, we are also proposing that compliance with the RFS program. For
placed upon exporters (discussed in any renewable producer that generates instance, a refiner could establish a
Section III.D.4 below). As a result, we RINs must use an independent auditor contract with an oxygenate blender,
are confident that our proposed to conduct annual reviews of the party’s securing the rights to the credits that
approach satisfies the statutory renewable production, RIN generation, oxygenate blender creates. A refiner
obligation that our regulations impose and RIN transactions. These reviews are might also decide to take on more
obligations on refiners and importers called ‘‘attest engagements,’’ because the blending responsibilities itself.
that will ensure that gasoline sold or auditor is asked to attest to the validity However, these approaches would run
introduced into commerce in the U.S. of the regulated party’s credit counter to the normal business practices
each year will contain the volumes of transactions. For example, the that keep fuel costs to a minimum, and
renewable fuel specified in the Act. By reformulated gasoline program requires would thus have a tendency to increase
tracking the amount of renewable fuel attest engagements for refiners and fuel costs.
produced or imported, and subtracting importers, and downstream oxygenate Third, tracking renewable fuel
the amount exported, we will have an blenders to verify the underlying volumes to identify the date, place, and
accurate accounting of the renewable documentation forming the basis of the volume of blending into gasoline would
fuel actually consumed as motor vehicle required reports (40 CFR part 80, maximize the number of parties
fuel in the U.S. Exports of renewable subpart F). In the case of RIN involved, overly complicating the
fuel are discussed in more detail in generation, the auditor would be compliance system. There are
Section III.D.4. required to verify that the number of approximately 1200 blenders in the U.S.
a. RINs Serve the Purpose of a Credit RINs generated matched the volume who blend ethanol into gasoline, in
Trading Program. According to the Act, renewables produced, that any extra addition to those that blend biodiesel
we must promulgate regulations that value RINs were appropriately into conventional diesel fuel. Many of
these parties are small businesses that automatically by shifting the focus of distinguish RINs representing cellulosic
have not been regulated in an EPA fuel accounting to the point of production biomass ethanol from RINs representing
program before. Enforcement efforts rather than blending. As a result we other types of renewable fuel. This
would necessarily be placed on them, believe that a blender-based alternative requirement is discussed in more detail
imposing upon them the primary approach described above is inferior to in Section III.A.
burden of accurately documenting the our proposed program. We request The K code would be used to specify
volumes of renewable fuel that are comment on a RIN-based system for whether the RIN represents actual
blended into gasoline even though they uniquely identifying, measuring, and gallons of renewable fuel, or instead
are not obligated for meeting the tracking batches of renewable fuel for represents extra-value RINs. Extra-value
standard. In contrast, under our compliance purposes. RINs arise only in cases where the
proposed program blenders would only Equivalence Value is greater than 1.0.
2. Generating RINs and Assigning Them Extra-value RINs are discussed in more
need to keep records of RINs acquired
to Batches detail in Section III.D.2.b below.
with batches. It is our expectation that
in most cases obligated parties will a. Form of Renewable Identification The RIN also contains two values that
separate the RINs from batches before Numbers. Each RIN would be generated together identify the total number of
those batches are transferred to by the producer or importer of the gallons in a batch as well as uniquely
blenders. Therefore, blenders will only renewable fuel and would uniquely identifying each gallon in that batch.29
have to keep records of RINs for a identify not only a specific batch, but When RINs are first assigned to a batch
fraction of the renewable fuel produced. also every gallon in that batch. The RIN of renewable fuel by its producer or
Fourth, a focus on the point of would consist of a 34-character code importer, the volume start block for that
blending would not address renewable having the following form: batch will in general be 1 (i.e. SSSSSS
fuels that need not be blended into RIN: YYYYCCCCFFFFFBBBBB will have a value of 000001). The
gasoline or diesel. For example, RRDKSSSSSSEEEEEE volume block end is the total volume
although biodiesel 28 is generally number of gallons in the batch (i.e. for
Where:
blended into conventional diesel before a 10,000 gallon batch, EEEEEE would
YYYY = Calendar year of production or have a value of 010000). Thus the single
being used as fuel, it can be used in its import
neat form (B100). If volumes of CCCC = Company ID
RIN assigned to the batch is in effect
renewable fuel were counted only when FFFFF = Facility ID shorthand for all the unique RINs
blending into conventional fuel BBBBB = Serial batch number assigned to every individual gallon in
occurred, then B100 could never be RR = Code identifying the Equivalence Value the batch. We propose that the number
claimed by an obligated party for RFS D = Code identifying cellulosic biomass of gallons in a batch be standardized to
compliance purposes. The same would ethanol or waste-derived ethanol 60 °F to avoid RIN assignment problems
K = Code identifying extra-value RINs associated with volume swell due to
be true of other renewable fuels which, SSSSSS = Start of volume block.
although not produced in significant temperature changes. We have assigned
EEEEEE = End of volume block.
quantities today, could play a more six digits to the volume block codes to
substantial role in the renewable fuels Some examples of RINs are given in allow batches up to a million gallons in
market in the future. Examples of these Section III.E.1.b. size. We request comment on whether a
The company and facility IDs would fewer number of digits for the SSSSSS
other unblended renewable fuels could
be assigned by the EPA as part of the and EEEEEE codes would be sufficient.
include renewable diesel made by
registration process as described in Since ‘‘RIN’’ can refer to either the
hydrotreating plant oils instead of
Section IV.B. The serial batch number number assigned to the batch or the
transesterifying them, or a renewable
would be chosen by the producer and number representing each gallon in that
gasoline made from a Fischer-Tropsch
would generally be a sequential value batch, we propose distinguishing
process applied to biogas.
Finally, a focus on the point of starting with 000001 at the beginning of between a batch-RIN and a gallon-RIN.
each year. We have chosen five digits A batch-RIN would be the multi-
blending would not permit cellulose
for the serial batch number to allow for character code written on a product
biomass ethanol to be distinguished
facilities that produce up to a hundred transfer document associated with a
from other forms of ethanol. Since the
thousand batches per year. However, we batch of renewable fuel. The batch-RIN
Act requires that 250 million gallons of
request comment on whether four digits would include SSSSSS and EEEEEE
cellulosic biomass ethanol be produced
would be sufficient. values identifying every (volume-
starting in 2013, this alternative
The RR, D, and K codes would standardized) gallon in the batch, each
approach would require tracking of
together describe the nature of the of which would be assigned its own
batches of renewable fuel at the
renewable fuel and the RINs that were gallon-RIN. A gallon-RIN would have
producer level.
In a blender-based approach, then, generated to represent it. The RR code identical SSSSSS and EEEEEE values
special exceptions would need to be would simply represent the Equivalence identifying one gallon in a batch.
Value for the renewable fuel, multiplied Our approach to RINs permits the
developed in order for these neat fuels
by 10 to eliminate the decimal place batch to be divided into smaller batches
to be available for RFS program
inherent in Equivalence Values. at any point in the distribution system
compliance purposes. For instance, a
Equivalence Values form the basis for while maintaining the assignment of
system of measuring and tracking neat
the total number of RINs that can be unique RINs. For instance, if a 1000
renewable fuel volumes at the point of
generated for a given volume of gallon batch of renewable fuel is
production would likely be necessary.
renewable fuel, and are described in divided into two 500 gallon batches, the
This would be no different from a RIN-
Section III.B.4. volume block start and block end values
based program for such fuels.
Our proposed RIN-based program The D code would identify cellulosic

would address all these concerns biomass ethanol batches as such. Since 29 RINs represent actual gallons in a batch when
the Act requires that a minimum of 250 the RIN is a standard-value RIN. Extra-value RINs
represent additional gallons in cases where the
28 Mono-alkyl esters made from plant or animal million gallons of cellulosic biomass Equivalence Value is greater than Equivalence
oils or fats, and which have been registered with the ethanol be consumed starting in 2013, Value is greater than 1.0. See further discussion in
EPA for use in highway motor vehicles. obligated parties will need to be able to Section III.D.2.b.
in the original batch-RIN would change RFS program. Also, by not requiring butyl ether (ETBE) is made from
to reflect the batch split. The batch-RIN extra-value RINs to be assigned to the combining ethanol with isobutylene.
for the first 500 gallon batch would have batches of renewable fuel that they The ethanol is generally from corn, and
an SSSSSS value of 000001 and an represent, batches of renewable fuel can the isobutylene is generally from
EEEEEE value of 000500, while the continue to have a one-to-one petroleum. Equivalence Values are
second 500 gallon batch would have an correspondence between gallon-RINs discussed in Section III.B.4. In this
SSSSSS value of 000501 and an EEEEEE assigned to the batch and the number of situation only a fraction of the gallons
value of 001000. Additional batch splits physical gallons in that batch. This of renewable fuel produced would be
would be handled similarly. More approach can greatly simplify the assigned a RIN in proportion to its
discussion of batch splits is provided in transfer of RINs with batches Equivalence Value, with the remaining
Section III.E.1.b.i. particularly when batch splits occur. gallons not being assigned a RIN.
b. Generating Extra-Value RINs. In c. Cases in Which RINs Are Not Finally, a renewable fuel whose
general, there is a one-to-one Generated. Although in general every energy content is less than that of
correspondence between gallon-RINs (temperature-standardized) gallon of ethanol might also be assigned an
and physical gallons of renewable fuel renewable fuel produced or imported Equivalence Value less than 1.0, and as
in a batch. For instance, a 10,000 gallon would be assigned a gallon-RIN, there a result fewer gallon-RINs would be
batch of renewable fuel would be are several cases in which a RIN may assigned to a batch than physical
assigned 10,000 gallon-RINs, and the not be assigned. For instance, if a gallons in that batch. For example,
batch-RIN would contain volume block renewable fuel producer also operated methanol made from biogenic methane
start and volume block end values as an exporter, any renewable fuel that (biogas) for use in a methanol vehicle
summarizing the 10,000 gallon-RINs. it produced and exported would not would have an energy content less than
However, under certain circumstances need to be assigned a RIN. Since the that for ethanol. Although methanol is
RINs may be generated in addition to gasoline that is blended with renewable currently used as a fuel in only very
those that represent the volume of fuels under the RFS program must be small quantities, if it was produced from
renewable fuel actually produced. This ‘‘sold or introduced into commerce’’ renewable feedstocks it would have an
would occur in cases where the within the U.S., renewable fuels that are Equivalence Value less than 1.0.
Equivalence Value of the renewable fuel exported cannot be claimed by an If a renewable fuel has a Equivalence
in question is greater than 1.0. obligated party for compliance Value less than 1.0, then gallon-RINs
Renewable fuel Equivalence Values are purposes, and therefore would not need could only be assigned to a portion of
discussed in Section III.B.4. to be assigned a RIN. Exports of the batch. The number of gallons within
If a renewable fuel has an Equivalence renewable fuel are discussed further in a batch that could be assigned a RIN
Value greater than 1.0, the incremental Section III.D.4. would be calculated from the following
value above 1.0 can be used to generate Another case in which a RIN may not formula:
‘‘extra-value’’ RINs. For instance, the be assigned to a batch of renewable fuel Va = EV × Vs
Equivalence Value for biodiesel shown would be if the renewable fuel was Where:
in Table III.B.4–1 is 1.5. If a biodiesel consumed within the confines of the Va = Volume of the batch that is assigned a
producer made a 1000 gallon batch of production facility where it was made. RIN, in gallons (rounded to the nearest
biodiesel, 1000 standard-value gallon- RINs under today’s proposal would be whole gallon).
RINs would be assigned to the batch and assigned to renewable fuel when it EV = Equivalence Value for the renewable
an additional 500 extra-value gallon- leaves the production facility. So long as fuel in question (<1.0).
Vs = Total volume of the batch standardized
RINs could also be generated. renewable fuel remained at the to 60 °F, in gallons.
All the RINs generated to represent a production facility, it would not need to
batch of renewable fuel would contain be assigned a RIN. In such cases, the volume block start
the same RR code representing the A third case in which some renewable and volume block end values in the
Equivalence Value of the renewable fuel would not be assigned a RIN would batch-RIN (i.e. SSSSSS and EEEEEE
fuel. However, extra-value RINs would occur for small volume producers. We codes described in Section III.D.2.b)
be treated differently from standard- are proposing that renewable fuel would not exactly correspond to the
value RINs in two ways. First, the extra- producers who produce less than 10,000 volume of the batch. Instead, they
value RINs would include a K code that gallons in a year would not be required would cover the first portion of the
identifies them as extra-value RINs, to generate RINs or assign them to batch. The remaining portion of the
distinguishing them from standard- batches. If they chose to register as a batch would not be assigned a RIN. For
value RINs that represent actual gallons renewable fuel producer under the RFS clarity in regards to batch splits, a party
of renewable fuel. Second, extra-value program, however, they would be could assign the gallon-RINs to the first-
RINs would not be required to be subject to all the regulatory provisions out gallons of the batch. Thus if a batch
transferred along with the batch of that apply to all producers, including split occurred, every gallon drawn out
renewable fuel as it moves through the the requirement to assign RINs to of the original batch to form a new,
distribution system.30 Rather, an extra- batches. We request comment on the smaller batch would be assigned a
value RINs could be transferred as an 10,000 gallon threshold. gallon-RIN, up to the point when all the
independent commodity by the A fourth case in which some available gallon-RINs were assigned to
producer. This approach would provide renewable fuel would not be assigned a the new batch. Any additional gallons
an incentive for producers to make RIN could occur when a gasoline or drawn out of the original batch, or left
renewable fuels that have a diesel blending component is only with the original batch, would have no
comparatively greater value in terms of partially derived from a renewable associated RINs. However, we are not
meeting the volume requirements of the source. In such cases the Equivalence requiring this approach but only offer it
Value associated with the renewable as one possibility. We propose that
30 As described in Section III.E below, we are
fuel would be less than 1.0, indicating parties that have ownership or custody
proposing that standard-value RINs would be that it is produced by combining a of batches of renewable fuel have the
assigned to the batch of renewable fuel they
represent and would be required to be transferred renewable fuel with a non-renewable discretion to split batches and their
with the batch. fossil fuel. For instance, ethyl tertiary associated RINs in any way, subject to
certain restrictions. Batch splits are by obligated parties. We could also sufficient valid RINs to offset the invalid
discussed in more detail in Section verify simply that any given gallon-RIN RINs. However, if that party was found
III.E.1.b.i. was not double-counted, i.e., used by to be out of business, then attention
more than one obligated party for would turn to the obligated party who
3. Calculating and Reporting
compliance purposes. In order to be able would have to obtain sufficient valid
Compliance
to identify the cause of any double- RINs to offset the invalid RINs.
Under our proposed program, RINs counting, however, additional As for RIN generators, we are
would form the basis of the volume information would be needed on RIN proposing that obligated parties be
accounting and tracking system that transactions as discussed in Section IV. required to conduct attest engagements
would allow each obligated party to If an obligated party has acquired for the volume of gasoline they produce
demonstrate that they had discharged more RINs than it needs to meet its and the number of RINs procured to
their renewable fuel obligation. This RVO, then in general it could retain the ensure compliance with their RVO. In
section describes how the compliance excess RINs for use in complying with most cases, this should amount to little
process using RINs would work. Our its RVO in the following year, or transfer more than is already required under
proposed approach to the distribution the excess RINs to another party. The existing EPA gasoline regulations. In the
and trading of RINs is covered conditions under which this would be case of renewable fuel exporters, the
separately in Section III.E below. allowed are determined by the valid life attest engagement would verify the
a. Using RINs to Meet the Standard. of a RIN, described in more detail in volume of renewable fuel exported and
Under our proposed program, each Sections III.D.3.b below. If alternatively therefore the magnitude of their RVO.
obligated party would determine its an obligated party has not acquired Attest engagement reports would be
Renewable Volume Obligation (RVO) sufficient RINs to meet its RVO, then submitted to the party that
based on the applicable percentage under certain conditions it could commissioned the engagement, and to
standard and its annual gasoline volume carryover a deficit into the next year. EPA.
as described in Section III.A.4. The RVO Deficit carryovers are discussed in more b. Valid Life of RINs. The Act requires
represents the volume of renewable fuel detail in Section III.D.3.d. that renewable fuel credits be valid to
that the obligated party must ensure is The regulations would prohibit any show compliance for 12 months as of
produced for use in the U.S. in a given party from creating or transferring the date of generation. This section
calendar year. Since the nationwide invalid RINs. Invalid RIN could not be describes our proposed interpretation of
renewable fuel volumes shown in Table used in demonstrating compliance this provision in the context of a RIN-
I.B–1 are required by the Act to be regardless of the good faith belief of a based program. We also discuss some
consumed in whole calendar years, the party that the RINs were valid. These possible alternative interpretations that
RVO for each obligated party is likewise enforcement provisions are necessary to we have considered.
an obligation that is calculated on an ensure the RFS program goals are not As described in Section III.D.1.a,
annual basis. compromised by illegal conduct in the credits represent renewable fuel
Since our proposed program uses creation and transfer of RINs. volumes in excess of what an obligated
RINs as a measure of the amount of As in other motor vehicle fuel credit party needs to meet their annual
renewable fuel used as motor vehicle programs, the regulations would address compliance obligation. Given that the
fuel that is sold or introduced into the consequences if an obligated party renewable fuel standard is an annual
commerce within the U.S., obligated was found to have used invalid RINs to standard, compliance would be
parties would meet their RVO through demonstrate compliance with its RVO. determined shortly after the end of the
the accumulation of RINs. In so doing, In this situation, the refiner or importer year, and credits would be identified at
they would effectively be causing the that used the invalid RINs would be that time. Compliance is typically
renewable fuel represented by the RINs required to deduct any invalid RINs demonstrated by submitting a
to be consumed as motor vehicle fuel. from its compliance calculations. The compliance demonstration to EPA.
Obligated parties would not be required refiner or importer would be liable for Given the 12-month life of a credit as
to physically blend the renewable fuel violating the standard if the remaining stated in the Act, we interpret this
into gasoline or diesel fuel themselves. number of valid RINs was insufficient to provision as meaning that credits would
The accumulation of RINs would be the meet its RVO, and the obligated party only be valid for compliance purposes
means through which each obligated might be subject to monetary penalties for the following compliance year.
party would show compliance with its if it used invalid RINs in its compliance Hence if a refiner or importer
RVO, and thus with the renewable fuel demonstration. In determining what overcomplied with their 2007 obligation
standard. penalty was appropriate, if any, we they would generate credits that could
For each calendar year, each obligated would consider a number of factors, be used to show compliance with the
party would be required to submit a including whether the obligated party 2008 compliance obligation, but the
report to the Agency documenting the did in fact procure sufficient valid RINs credits could not be used to show
RINs it acquired, and showing that the to cover the deficit created by the compliance for later years.
sum of all gallon-RINs acquired were invalid RINs, and whether the purchaser The Act’s limit on credit life helps
equal to or greater than its RVO. This was indeed a good faith purchaser based balance the risks between the needs of
reporting is discussed in more detail in on an investigation of the RIN transfer. renewable fuel producers and obligated
Section IV. In the context of A penalty might include both the parties. Producers are currently making
demonstrating compliance, all gallon- economic benefit of using invalid RINs investments in expanded production
RINs would have the same compliance and/or a punitive component. capacity on the expectation of a
value, i.e. there would be no distinction Although an obligated party would be statutorily guaranteed minimum market.
between standard-value RINs and extra- liable under our proposed program for Under the market conditions we are
value RINs for compliance purposes. a violation if it used invalid RINs for experiencing today that make ethanol
The Agency could then verify that the compliance purposes, we would use more economically attractive, the
RINs used for compliance purposes normally look first to the generator/ annual volume requirements in the RFS
were valid by simply comparing RINs seller of the invalid RINs both for program will not drive consumption of
reported by producers to RINs claimed payment of penalty and to procure renewable fuels. However, if the price of
crude oil dropped significantly and the obligated party needed in that year, 12-month timeframe in the Act would
use of ethanol in gasoline became less making excess RINs equivalent to be interpreted to refer to the calendar
economically attractive, obligated credits. Excess RINs would be valid for year within which a credit was
parties could use stockpiled credits to compliance purposes in the year generated. If excess RINs were deemed
comply with the program requirements. following the one in which they initially to be such on December 31, then under
As a result, demand for renewable fuel came into existence.31 RINs not used this alternative approach no RINs could
could fall well below the RFS program within their valid life would expire. be used for compliance purposes
requirements, and many producers This would satisfy the Act’s 12 month beyond the year in which they
could find themselves with a stranded duration for credits. originally came into existence.
investment. The 12 month valid life Thus we propose that every RIN be However, the Act explicitly indicates
limit for credits minimizes the potential valid for the calendar-year compliance that obligated parties may either use the
for this type of result. period in which it was generated, or the credits they have generated or transfer
For obligated parties, the 12 month following year. If a RIN was created in them. For a party to be able to use
valid life for credits provides a window one year but was not used by an credits generated, such credit use must
within which parties who do not meet obligated party to meet its RVO for that necessarily occur in a compliance year
their renewable fuel obligation through year, the RIN could be used for other than the one in which the credit
their own physical use of renewable fuel compliance purposes in the next year was generated. Thus we believe that it
can obtain credits from other parties (subject to certain provisions to address is appropriate for all RINs to be valid for
who have excess. This critical aspect of RIN rollover as discussed below). If, the year in which they were generated
the credit trading system allows the however, a RIN was created in one year and the following calendar year. In
renewable fuels market to continue and was not used for compliance comparison to a single-year valid life for
operating according to natural market purposes in that year or in the next year, RINs, our proposed approach provides
forces, avoiding the possibility that it would expire. some additional compliance flexibility
every single refiner would need to There are alternative approaches that to obligated parties as they make efforts
purchase renewable fuel for blending could be taken to establishing the valid to acquire sufficient RINs to meet their
into its own gasoline. But the 12 month life of a RIN. For instance, excess RINs RVOs each year. This flexibility will
life also provides a window within could be deemed to be generated not at have the effect of keeping fuel costs to
which banking and trading can be used the end of an annual compliance period, a minimum.
to offset the negative effects of but rather on the date that an obligated We recognize that the language of the
fluctuations in either supply of or party must submit its annual report to Act regarding credit valid life is not
demand for renewable fuels. For the Agency (February 28 as described in unequivocal. However, we believe that
instance, if crude oil prices were to drop Section IV.A.2). In this case the 12- an interpretation leading to a valid life
significantly and thus natural market month valid life could extend into the of one year after the year in which the
demand for ethanol likewise fell, the following calendar year. As described RIN was generated is most consistent
RFS program would normally bring above, the fact that compliance is with the program as a whole. The record
demand back up to the minimum determined on an annual basis means of the development of this legislation
required volumes shown in Table I.B–1. that RINs that are valid for any portion does not provide a clear indication to
But in this circumstance, the use of of a calendar year should be available the contrary. In fact, while some
ethanol in gasoline would be less for demonstrating compliance with that stakeholders have argued that the
economically attractive, since demand year’s compliance obligation. Under this Energy Act could have been written to
for ethanol would not be following price alternative approach, RINs would be explicitly allow a valid life of multiple
but rather the statutorily required valid for three full compliance periods: years if that had been Congress’ intent,
minimum volumes. As a result, the the calendar year in which the original we believe it could likewise have been
price of RINs, and thus ethanol blends, RIN came into existence, the following written to explicitly limit the valid life
could spike above the levels that would year during which it was deemed to be to the year in which the renewable fuel
exist if no minimum required volumes in excess of an obligated party’s RVO, was produced if that had been its clear
existed. The 12 month valid life creates and a third year within which the 12 intent. Therefore, the interpretation of
some flexibility in the market to help month valid life expired. We do not the valid life language in the Act must
mitigate these potential price spikes. believe that this interpretation is most be established in the context of the
The renewable fuels market could also consistent with the Act’s purposes. This statutory requirements for the full RFS
experience a significant drop in supply could allow a given year’s exceptional program and the practical implications
if, for instance, a drought were to limit overcompliance to effectively reduce of its implementation.
the production of the feedstocks needed required renewable fuel volumes for two One possible objection to our
to produce renewable fuel. Obligated years in the future. We do not believe proposed approach is that the use of
parties could use banked credits to that this would promote the best RINs generated in one compliance
comply rather than carry a deficit into balance between allowing flexibility for period to satisfy obligations in a
the next year. obligated parties while also increasing subsequent compliance period could
In the context of our proposed RIN- the use of renewable fuels annually. result in less renewable fuel used in a
based program, we are able to Another possible approach to RIN life given year than is set forth in the
accomplish the same objective as the would be to interpret the Energy Act’s statute. However, the language in the
Act’s 12 month life of credits by 12-month credit life provision as Act shows that Congress clearly
allowing RINs to be used to show applying retrospectively, not intended a credit program that provided
compliance for the year in which the prospectively. Under this approach, the a degree of implementation flexibility.
renewable fuel was produced and its For instance, the deficit carryover
associated RIN first generated, or the 31 The use of previous-year RINs for current year provision allows any obligated party to
following year. RINs not used for compliance purposes would also be limited by the fail to meet its RVO in one year if it
20 percent RIN rollover cap under today’s proposal.
compliance purposes in the year in However, as discussed in the next section, we
meets the deficit and its RVO in the next
which they were generated would by believe that this proposed cap will still provide a year. If many obligated parties took
definition be in excess of the RINs an significant amount of flexibility to obligated parties. advantage of this provision, it could
result in the nationwide total volume correcting for underestimated gasoline intended to address both the risk taken
obligation for a particular calendar year volumes. by producers expecting a guaranteed
not being met. In a similar fashion, the We request comment on the valid life demand to cover their expanded
statutory requirement that every gallon of RINs, including our proposed production capacity investments and
of cellulosic biomass ethanol be treated approach in which RINs would be valid the risk taken by obligated parties who
as 2.5 gallons for the purposes of for the year generated or the following need a guaranteed supply in order to
compliance means that the annually year, and the alternative approaches in meet their regulatory obligations under
required volumes of renewable fuel which RINs would be valid for more or this program.
could be met in part by virtual, rather less time than under our proposal.
than actual, volumes. Finally, the c. Cap on RIN Use to Address However, the use of previous year
calculation of the renewable fuel Rollover. As described in Section RINs to meet current year compliance
standard is based on projected III.D.3.b above, we are proposing that obligations does create an opportunity
nationwide gasoline volumes provided RINs be valid for compliance purposes for effectively circumventing the valid
by EIA (see Section III.A). If the for the calendar year in which they were life limit for RINs. This can occur in
projected gasoline volume falls short of generated or the following year. We situations wherein the total number of
the actual gasoline volume in a given believe that this approach is most RINs generated each year for a number
year, the standard will fail to create the consistent with the Act’s prescription of years in a row exceeds the number of
demand for the full renewable fuel that credits be valid for compliance RINs required under the RFS program
volume required by the Act for that purposes for 12 months as of the date of for those years. The example below
year. The Act contains no provision for generation. Our proposed approach is illustrates the issue.
TABLE III.D.3.c–1.—Example of RIN Rollover Issue

[Billion RINs]
Available RINs Compliance Determination

Additional New excess
Required RINs gen- Excess Previous RINs need- RINs gen-
under RFS a erated b year RINs ed erated
2007 ................................................................................. 4.7 5.2 0.5 0.0 4.7 0.5

2008 ................................................................................. 5.4 6.0 0.6 0.5 4.9 1.1
2009 ................................................................................. 6.1 6.9 0.8 1.1 5.0 1.9
a Equivalent to the required volumes shown in Table I.B–1.
b One possible production volume scenario based on EIA projections in their Annual Energy Outlook 2006.
In this example, there are 0.5 billion 2009, a year after they should have of actually demanding ethanol in some
more RINs available for compliance year expired. Thus excess RINs have ‘‘rolled subsequent year.
2007 than are needed to comply with over’’ multiple years. Some stakeholders do not perceive a
the RFS program requirements. Since The rollover issue essentially could problem with the RIN rollover issue.
these RINs are not used in the year in They point to the need for maximum
make the applicable valid life for RINs
which they are generated (2007), they flexibility in responding to fluctuations
virtually meaningless in practice. Even
can be used for compliance purposes in in the market, and they are primarily
though individual RINs technically
the following year (2008). If they are not concerned about potential supply
could only be used for compliance
used in 2008, they will expire. problems. For instance, if a drought
purposes for the year generated and the
In 2008, 0.6 billion more RINs come were to reduce the availability of corn
into existence than are needed to meet following year, in practice obligated for ethanol production, there may
the 2008 requirements. This should parties could use previous-year RINs to simply not be sufficient RINs available
mean that there are 0.6 billion more generate new excess current-year RINs for compliance purposes. A drought
RINs available than are needed to which could then be carried into the situation actually occurred in 1996, and
comply with the RFS program following year. This could continue for as a result 1996 ethanol production was
requirements for 2008, and thus 0.6 every year in which the volume of 21% less than it had been in 1995. In
billion RINs should be carried into renewable fuel produced in a given year 1997, production had not even returned
2009. However, since there are also 0.5 exceeds the RFS requirements for that to the 1995 levels. Although the Agency
billion RINs available from the previous year, up to limit of 100 percent of the has the authority to waive the required
year which can be used for compliance standard for that year. The net result is renewable fuel volumes in whole or in
purposes in 2008, this permits the that the RFS program could operate as part in the event of inadequate domestic
generation of 0.5 new excess RINs in if there was virtually no valid life limit supply, this can occur only on petition
2008 if all the 2007 RINs are used to for RINs at all. by one or more states, and then only
demonstrate compliance in 2008. Thus RIN rollover also undermines the after consultation with both the
there are in fact 1.1 billion excess RINs ability of a limit on credit life to Department of Agriculture and the
generated in 2008 rather than only 0.6 guarantee a market for renewable fuels. Department of Energy. Obligated parties
billion, and they can all be used for As described in Section III.D.3.b, if the have expressed concern that such a
compliance purposes in 2009. In natural market demand for ethanol was waiver would not occur in a timely
summary, the excess RINs from 2007 higher than the volumes required under fashion. The availability of excess
were used to generate new excess RINs the RFS program for several years in a previous-year RINs would thus provide
in 2008, and in effect (though not by row, as may occur in practice, obligated compliance certainty in the event that
record) the excess RINs from 2007 can parties could amass RINs that, in the the supply of current-year RINs falls
be used for compliance purposes in extreme, could be used entirely in lieu below the RFS program requirements
and the Agency does not waive any with stakeholders, we decided that the shortfalls that could limit the
portion of the program requirements. best approach would be to place a availability of RINs, and on the other
We believe that the rollover issue can percentage cap on the amount of an hand ensuring an annual demand for
and should be addressed. The Act’s obligated party’s Renewable Volume renewable fuels as envisioned by the
provision regarding the valid life of Obligation (RVO) that can be met using Act. We believe this approach also
credits is clearly intended to obtain the previous-year RINs. We are proposing provides the certainty all parties desire
benefits associated with a limited credit that this cap be set at 20 percent. Thus in implementing the program. The same
life. Any program structure in which each obligated party would be required cap would apply equally to all obligated
some RINs have a de facto infinite life, to use current-year RINs to meet at least parties, and the cap would be the same
regardless of the technical life of 80 percent of its RVO, with a maximum for all years, providing certainty on
individual RINs, does not appropriately of 20 percent being derived from exactly how obligated parties must
achieve the benefits expected from the previous-year RINs. The cap would not comply with their RVO going out into
Act’s provision regarding the 12-month be effective until compliance year 2009, the future. A 20 percent cap would be
life of credits. The authority to establish since no rollover is possible in years readily enforceable with minimal
a credit program and to implement a 2007 or 2008. additional program complexity, as each
limited life for credits includes the Any previous-year RINs that an obligated party’s annual report would
authority to limit actions that have the obligated party may have that are in
simply provide separate listings of
practical effect of circumventing this excess of the 20 percent cap could be
previous-year and current-year RINs to
limited credit life. traded to other obligated parties that
To be consistent with the Act, we establish that the cap had not been
need them. If the previous-year RINs in
believe that the rollover issue should be exceeded. A 20 percent cap would have
excess of the 20 percent cap were not
addressed in our regulations. However, no impact on who would own RINs,
used by any obligated party for
we also believe that the limits to their valid life, or any other regulatory
compliance, they would expire. The net
preclude such unhindered rollovers provision regarding compliance.
result would be that, for the market as
should not preclude all previous-year a whole, no more than 20 percent of a Rather than employing a fixed 20
RINs from being used for current-year given year’s renewable fuel standard percent cap, we also considered an
compliance. To accomplish this, we could be met with RINs from the approach whereby we would set the cap
must restrict the number of previous- previous year. annually based on the actual excess
year RINs that can be used for current Furthermore, we believe that the 20 renewable fuel production. Table
year compliance. We considered a percent cap provides the appropriate III.D.3.c–2 provides an example of how
number of possible approaches for balance between, on the one hand, the caps would be calculated if the EIA
accomplishing this, some of which are allowing legitimate RIN carryovers and projections for ethanol production prove
discussed below. After consultation protecting against potential supply accurate.
TABLE III.D.3.C–2.—REQUIRED AND PROJECTED RENEWABLE FUEL VOLUMES

[Billion gallons]
Previous
Year excess
ethanol as a
Required Ethanol pro- Excess d fraction of
under RFS a duced b current year
compliance
(percent)
2008 ................................................................................................................................. 5.4 6.0 0.6 ....................

2009 ................................................................................................................................. 6.1 6.9 0.8 9.8
2010 ................................................................................................................................. 6.8 7.9 1.1 11.8
2011 ................................................................................................................................. 7.4 8.8 1.4 14.9
2012 ................................................................................................................................. 7.5 9.6 2.1 18.7
2013 ................................................................................................................................. c 7.6 10.1 2.5 27.6
2014 ................................................................................................................................. c 7.8 10.3 2.5 32.1
2015 ................................................................................................................................. c 7.9 10.5 2.6 31.6
a Equivalent to the required volumes shown in Table I.B–1
b Projected ethanol production volumes from EIA, Annual Energy Outlook 2006.
c Example of possible increases in the required volumes. The Energy Act requires at minimum a constant percentage of renewable fuel in gas-
oline after 2012.
d Does not include other renewable fuels such as biodiesel which would increase the excess even further.
In 2009, for instance, the cap would production would not generally be addition, such a variable cap may not
be 9.8 percent, and by 2012 it would be known until spring of 2009. Therefore, ensure a smoothly functioning RIN
18.7 percent. Under such an approach, obligated parties would not know until market under all possible market
the value of the cap might more mid-year at the earliest what the exact conditions. Market flexibility is needed
precisely reflect the actual excess RINs cap would be for that year. The Agency most when the RIN market is the
and preclude their rollover. However, could publish an estimate of the cap by tightest (i.e. when renewable fuel
the annual calculation of the cap would the end of the previous year, but it production volumes are closest to the
require that the total renewable fuel would not provide obligated parties volumes required under the RFS
volumes from the previous year be with the certainty they may need for program). Yet under this alternative
known. For compliance year 2009, establishing contracts and business approach, the cap would be the smallest
information on 2008 renewable fuels relationships for RIN trading. In when supply was closest to demand for
RINs. The cap would approach zero as volumes of renewable can be produced Deficit carryovers are measured in
supply approached the volumes to meet the RFS program requirements gallons of renewable fuel, just as for
required under the RFS program, and in a given year. Prior to the end of a RINs and RVOs. If an obligated party
thus an obligated party that had even a compliance period, if the Agency has not acquired sufficient RINs to meet
small number of excess RINs from the determined that a supply shortfall was its RVO in a given year, the deficit is
prior year could not use them, but rather imminent, it could raise the cap to calculated by subtracting the total
would be forced to trade them to permit a greater number of previous- number of RINs an obligated party has
someone else. Conversely, when supply year RINs to be used for current-year acquired from its RVO. There are no
significantly exceeds demand and compliance. Although this approach volume penalties, discounts, or other
market flexibility is needed least, the would not change the required volumes, factors included when calculating a
cap would be the highest. Fixing the cap it could create some additional deficit carryover. As described in
at 20 percent both provides certainty to temporary flexibility. Section III.D.1, the deficit is then added
the RIN market, and ensures that some In addition to our proposed 20 to the RVO for the next year. The
minimum level of flexibility exists for percent cap, we also evaluated an calculation of the RVO as described in
individual obligated parties even in a alternative approach for addressing the Section III.A.4 shows how a deficit
market without excess RINs. RIN rollover issue. Under this would be carried over into the next year:
The level of 20 percent is also alternative, we would not employ a RVOi = Stdi × GVi + Di¥1
consistent with both past ethanol uniform cap at all, but rather would Where:
market fluctuations and future require current-year RINs to be applied RVOi = The Renewable Volume Obligation
projections of excess ethanol. As towards an obligated party’s RVO before for the obligated party for year i, in
described above, the largest single-year any previous-year RINs were gallons
drop in ethanol supply occurred in 1996 considered. This ‘‘last-in, first-out’’ Stdi = The RFS program standard for year i,
and resulted in 21% less ethanol being (LIFO) approach would eliminate the in percent
produced than in 1995. While future possibility that previous-year RINs GVi = The non-renewable gasoline volume
supply shortfalls may be larger or produced by an obligated party in year
could be used to generate new excess i, in gallons
smaller, the circumstances of 1996 current-year RINs, forcing them to
provide one example of their potential Di¥1 = Renewable fuel deficit carryover from
expire. Although it would focus the RIN the previous year, in gallons.
magnitude. Furthermore, as illustrated rollover correction on obligated parties
in Table III.D.3.c–2, EIA projections If an obligated party does acquire
and would tailor it to the specific
indicate that previous year volumes will sufficient RINs to meet its RVO in year
circumstances of each party, this
exceed current-year requirements by i-1, the obligated party must procure
alternative approach would also create
roughly 10 to 30 percent between 2009 sufficient RINs to cover the full RVO for
the need for an additional regulatory
and 2015. Our proposed 20 percent cap year i including the deficit. There are no
prohibition. Under this approach, RINs
lies in the midrange of these values. provisions allowing for another year of
held by non-obligated parties would not carryover. If the obligated party does not
As a result, we believe that a cap of
20 percent appears to be a reasonable automatically expire. As a result, non- acquire sufficient RINs to meet its RVO
way to limit RIN rollover and provide obligated parties could in essence serve for that year plus the deficit carryover
some assurances to renewable fuel as a bank of previous-year RINs, thus from the previous year, it would be in
producers regarding demand for permitting the rollover to continue noncompliance.
renewable fuel. A cap of 20 percent despite the imposition of a LIFO The Act indicates that deficit
would also ensure that many previous- protocol. To prevent this, the LIFO carryovers are to occur due to
year RINs can still be used for current approach would have to include a ‘‘inability’’ to generate or purchase
year compliance, providing some requirement that non-obligated parties sufficient credits. We believe that
flexibility in the event of market be prohibited from owning previous- obligated parties will make a
disruptions. year RINs. If a non-obligated party were determined effort to satisfy their RVO
Despite the flexibility it would to own a current-year RIN on December on an annual basis, and that a deficit
provide, a cap of 20 percent would not 31 and hold it until January 1, that RIN will demonstrate that they were unable
be guaranteed to be sufficient to address would automatically expire. In order to to do so. Thus, we are not proposing
every potential future supply shortfall enforce this provision, the Agency that any particular demonstration of
or fluctuation in the renewable fuels would also need to keep track of and ‘‘inability’’ be a prerequisite to the
market. Thus we request comment on receive reports on all RIN transactions ability of obligated parties to carry
whether a higher cap, such as 30 for non-obligated parties by their deficits forward. However, we request
percent, would be more appropriate. On transaction date. comment on this issue.
the other hand, since EIA is projecting Given the additional uncertainty and
that a cap of 20 percent will be more complexity caused by this alternative 4. Provisions for Exporters of Renewable
than what is necessary in the first few approach, we believe that our proposed Fuel
years of the program to address rollover, 20 percent cap provides the greatest As described in Section III.D.2.a, we
we also request comment on whether a degree of simplicity and flexibility believe that U.S. consumption of
smaller cap, such as 10 percent, would while still addressing the RIN rollover renewable fuel as motor vehicle fuel can
be appropriate. issue. However, we request comment on be measured with considerable accuracy
We also request comment on whether any alternative approaches to through the tracking of renewable fuel
the Agency should adopt a provision addressing the RIN rollover issue. production and importing records. This
allowing the cap to be raised in the d. Deficit Carryovers. The Energy Act is the basis for our proposed RIN-based
event that supply shortfalls also contains a provision allowing an system of compliance. However, exports
overwhelmed the 20 percent cap. Under obligated party to carry a deficit forward of renewable fuel must be accounted for
this conditional provision, the Agency from one year into the next if it cannot under this approach. For instance, if a
would monitor standard indicators of generate or purchase sufficient credits to gallon of ethanol is produced in the U.S.
agricultural production and renewable meet its RVO. However, deficits cannot but consumed outside of the U.S., the
fuel supply to determine if sufficient be carried over two years in a row. RIN associated with that gallon should
not be valid for RFS compliance no need to generate RINs for the required for compliance and
purposes since the RFS program is exported product. Likewise if a enforcement, including the
intended to require a specific volume of renewable fuel producer specifically demonstration of compliance with the
renewable fuel to be consumed in the and explicitly earmarked a batch of previous calendar year’s RVO, a list all
U.S. Exports of renewable fuel currently renewable fuel for export, there would transactions involving RINs, and the
represent about 5 percent of U.S. be no need for a RIN to be generated. tabulation of the total number of RINs
production. However, in both of these cases the owned, used for compliance,
To ensure that renewable fuels producer would need to report the transferred, retired and expired.
exported from the U.S. cannot be used volumes that were not assigned a RIN to Reporting requirements for obligated
by an obligated party for RFS the EPA in its annual RFS report, along and non-obligated parties are covered in
compliance purposes, the RINs with the connection to exports, in order detail in Section IV.
associated with that exported renewable to demonstrate that RINs were In its annual reports, an obligated
fuel must be removed from circulation. legitimately not assigned to these party would be required to include a list
Ideally the producer of the exported batches. We request comment on these of all RINs held as of the reporting date,
renewable fuel would simply not create special-case approaches to exported divided into a number of categories. For
RINs for those batches. However, in the renewable fuels. instance, a distinction would be made
fungible distribution system it is As described in Section III.D.2, there between current-year RINs and
common for exportation of fuel to occur are cases in which there is not a one-to- previous-year RINs as follows:
without the knowledge of the producer. one correspondence between gallons in Current-year RINs: RINs that came
As a result, we cannot rely on the a batch of renewable fuel and the RINs into existence during the calendar year
producers to know which batches will generated for that batch. For instance, for which the report is demonstrating
be exported and to not generate RINs for extra-value RINs can be generated in compliance.
those batches. Another approach would cases where the Equivalence Value is Previous-year RINs: RINs that came
be to increase the obligation placed on greater than 1.0. If the RVO assigned to into existence in the calendar year
refiners, importers, and blenders of the exporter were based strictly on the preceding the year for which the report
gasoline based on the volume of actual volume of the exported product, is demonstrating compliance.
renewable fuel exported. Obligated it would not capture the extra-value The report would also indicate which
parties would thus acquire RINs to meet RINs which generally are not assigned RINs were used for compliance with the
the standard described in Section III.A, to batches. Thus we propose that the RVO including any potential deficit,
and would also be required to acquire RVO assigned to an exporter be based which current-year RINs were not used
RINs to cover the volume of renewable not on the actual volume of renewable for compliance and would therefore be
fuel exported. However, this approach fuel exported, but rather on a volume valid for compliance the next year, and
would not only require an estimate of adjusted by the Equivalence Value which previous-year RINs were not used
the volume of renewable fuel exported assigned to each batch. The Equivalence for compliance and therefore expired.
in the next year, but would also mean Value is represented by the RR code The report would also include a
that every obligated party would share within the RIN as described in Section demonstration that the 20 percent cap to
in accumulating RINs to cover the III.D.2.a. Thus the exporter would address RIN rollover had been met, as
exports. multiply the actual volume of a batch by described in Section III.D.3.c.
Given these drawbacks, we believe that batch’s Equivalence Value to obtain In order to verify compliance for each
that these two approaches would be the volume used to calculate the RVO. obligated party, the primary Agency
unworkable. As a result, we believe that In cases wherein an exporter obtains activity would involve the validation of
it should be the exporter’s responsibility a batch of renewable fuel whose RIN has RINs. There are four basic elements of
to account for exported renewable fuel. already been separated by an obligated RIN validation:
The most straightforward mechanism to party or blender, the exporter may not (1) RINs used by an obligated party to
accomplish this would be to assign an know the Equivalence Value. We comply with its RVO would be checked
RVO to each exporter that is equal to the propose that for such cases the exporter to ensure that they are within their two-
annual volume of renewable fuel it simply use the actual volume of the year valid life. The RIN itself will
exported. Just as for obligated parties, batch to calculate its RVO. This will contain the year of generation, so this
then, the exporter would be required to introduce some small error into the check involves only an examination of
acquire sufficient gallon-RINs to meet calculation of the RVO for cases in the listed RINs.
its RVO. If the exporter purchased which the renewable fuel had in fact (2) All RINs owned by an obligated
renewable fuel directly from a producer, been assigned an Equivalence Value party would be cross-checked with
that renewable fuel would come with greater than 1.0. However, we believe annual reports from renewable fuel
associated gallon-RINs which could that the potential impact of this error producers to verify that each RIN had in
then be applied to its RVO under our would be exceedingly small. We request fact been generated.
proposed program. In this circumstance, comment on our proposed approach to (3) All RINs used by an obligated
the exporter would not need to acquire exporters of renewable fuel and any party for compliance purposes would be
RINs from any other source. If, however, alternative approaches that could ensure cross-checked with annual reports from
the exporter received renewable fuel that production volumes of renewable other obligated parties to ensure that no
without the associated RINs, it would fuel can be used as an accurate surrogate two parties used the same RIN to
need to acquire RINs from some other for consumed volumes. comply.
source in order to meet its RVO. (4) Previous-year RINs used for
As discussed in Section III.D.2.c, it 5. How Would the Agency Verify compliance purposes would be checked
Compliance?
may be possible to eliminate the need to ensure that they do not exceed 20
for RINs altogether in specific The primary means through which percent of the obligated party’s RVO.
circumstances involving exports of the Agency would verify an obligated In cases where a RIN was highlighted
renewable fuels. For instance, if the party’s compliance with its RVO would under suspicion of being invalid, the
exporter was wholly owned by a be the annual reports. These reports Agency would then need to take
renewable fuel producer, there would be would include a variety of information additional steps to resolve the issue. In
general this would involve a review of and distribution of ethanol, and would RINs could be generated by the
RIN transfer records submitted to the avoid requiring refiners to develop and renewable fuel producer in cases where
Agency by all parties in the distribution use wholly new market mechanisms. the renewable fuel in question has an
system that held the RINs. RIN transfers While the development of new market Equivalence Value greater than 1.0 (see
would be recorded through EPA’s mechanisms to distribute RINs is not Section III.D.2.c for further discussion).
Central Data Exchange as described in precluded under our proposed program, However, the extra-value RINs would
Section IV. These RIN transfer records it is also not required. not need to be assigned to the batch.
would permit the Agency to identify all The Agency has also evaluated several Instead, they could be transferred to
transaction(s) involving the RINs in other options for distributing RINs. We another party independent of the batch.
question. Liable parties could then be are not proposing these alternatives This requirement would in general
contacted and appropriate steps taken to because they tend to require the result in a one-to-one correspondence
formally invalidate a RIN improperly development of new market between gallons in a batch and the
claimed by a particular party. mechanisms, as compared to relying on volume block numbers in the batch-RIN
Additional details of the liabilities and the current market structure for assigned to that batch. As a result, the
prohibitions attributed to parties in the distribution of ethanol, and they are less process of dividing and combining RINs
distribution system are discussed in focused on facilitating compliance for during batch splits and mergers would
Section V. the obligated parties. At the same time, be simplified, and the fungibility of
we recognize that all of the alternatives RINs in the distribution system would
E. How Are RINs Distributed and described below, as well as our be maintained. For example, a marketer
Traded? proposal, have differing positive and who took custody of ethanol batches
Under our proposed program negative aspects, and we invite from several different producers,
structure, a Renewable Identification comment on them, especially comments including a producer of cellulosic
Number (RIN) would be generated for comparing and contrasting them with biomass ethanol, and combined them all
every gallon of renewable fuel produced our proposed program. Our proposal is in a single tank could then withdraw
or imported into the U.S., and would be described in subsections 1 through 3 batches of any size from the tank, and
acquired by obligated parties for use in below, and alternative approaches in assign a number of gallon-RINs to each
demonstrating compliance with the RFS subsection 4. batch that is equivalent to the number
requirements. However, there are a of actual gallons in that batch. This
variety of ways in which RINs could be 1. Distribution of RINs With Batches of
Renewable Fuel approach would also provide an
transferred from the point of generation incentive for producers to produce
by renewable fuel producers to the We are proposing that standard-value renewable fuels with higher
obligated parties that need them. RINs be transferred with actual batches Equivalence Values, since they could
EPA’s proposal was developed in of renewable fuel as they move through transfer the extra-value RINs to any
light of the somewhat unique aspects of the distribution system, until ownership party.
the RFS program. As discussed earlier, of the batch is assumed by an obligated However, we are also proposing that
under this program the refiners and party or by a party that converts the producers have the option of assigning
importers are the parties obligated to renewable fuel into motor vehicle fuel. even extra-value RINs to batches if they
comply with the renewable fuel After such time, the RINs could be chose to do so. Under these
requirements. At the same time, refiners separated from the batch and freely circumstances, the extra-value RINs
and importers do not generally produce traded. This approach would place would be treated just like standard-
or blend renewable fuels at their certain requirements on anyone who value RINs, and thus would be subject
facilities, and so are dependent on the takes ownership of renewable fuels, to the same limitations on who can
actions of others for compliance. Unlike including renewable fuel producers, separate the RIN from the batch. The
EPA’s other fuel programs, the actions importers, marketers, distributors, assignment of extra-value RINs to
needed for compliance largely center on blenders, and terminal operators. batches would also mean that the
the production, distribution, and use of a. Responsibilities of Renewable Fuel number of gallon-RINs assigned to the
a product by parties other than refiners Producers and Importers. The initial batch would be greater than the number
and importers. In this context, EPA generation of RINs and their assignment of gallons in the batch. As a result, care
believes the RIN transfer mechanism to specific batches of renewable fuel would have to be taken during batch
should focus first on facilitating would be the sole responsibility of splits and batch mergers to
compliance by refiners and importers, renewable fuel producers and renewable appropriately pass RINs assigned to a
and doing that in a way that imposes fuel importers. As described in Section parent batch on to the daughter batches.
minimum burden on other parties and III.D.1, volumes of renewable fuel can We request comment on allowing extra-
minimum disruption of current be measured most accurately and be value RINs to be assigned to batches.
mechanisms for distribution of more readily verified at these There are two other cases in which
renewable fuels. originating locations. They would the gallon-RINs assigned to a batch
Our proposal does this by relying on construct each batch-RIN based on the would not exactly correspond to the
the current market structure for ethanol particular circumstances associated number of gallons in that batch. First, if
distribution and use, and avoiding the with each batch, including the creation a renewable fuel has an Equivalence
need for creation of new mechanisms of a unique serial number for the batch Value less than 1.0, then RINs could
for RIN distribution that are separate and specifying its Equivalence Value. only be assigned to a portion of the
and apart from this current structure. The batch-RIN would also identify the batch. Such potential circumstances are
EPA’s proposal would basically have specific number of gallons in the batch, described in Section III.D.2.d. RINs may
the RIN follow with the ethanol until thereby summarizing the gallon-RINs also not correspond exactly to gallons if
the point the ethanol is purchased by assigned to every gallon in the batch. the density of the batch changes due to
the obligated party, or is blended into See Section III.D.2.a for details on our changes in temperature. For instance,
gasoline by a blender. This approach proposed format for RINs. under extreme changes in temperature,
would allow the RIN to be incorporated Only standard-value RINs would have the volume of a batch of ethanol can
into the current market structure for sale to be assigned to batches. Extra-value change by 5 percent or more. For this
reason we are proposing that all batch associated with or used to identify title is being transferred. Batch splits and
volumes be corrected to represent a to the batch. The batch documentation batch mergers represent special cases of
standard condition of 60 °F prior to the must be of the sort that uniquely RIN transfers, and are described in more
assignment of a RIN. For ethanol,32 we identifies the batch and is generally detail below. As described in Section
propose that the correction be done as transferred from one party to another, in III.E.2, the only exception to the
follows:33 electronic or paper form, when requirement that RINs be transferred
Vs,e = Va,e × (¥0.0006301 × T + ownership of the batch is transferred. In with batches would be parties who are
1.0378) many cases a bill-of-lading could serve obligated to meet the renewable fuel
Where: this purpose. The RIN must be standard, and parties who convert the
Vs,e = Standard volume of ethanol at 60 °F, displayed prominently on the document renewable fuel into motor vehicle fuel.
in gallons. when the batch leaves the originating Since our proposed program is designed
Va,e = Actual volume of ethanol, in gallons. facility, so that parties taking ownership to allow RIN transfer and
T = Actual temperature of the batch, in °F. of the batch could make a record of this documentation to occur as part of
Since batches of ethanol are generally fact with specific reference to the RIN. normal business practices in the context
sold using standard volumes rather than The RIN must be included on a PTD of renewable fuel distribution, the
actual volumes, this approach to whenever ownership or custody of the incremental costs of transferring RINs
assigning RINs to batches would be batch is transferred, until such time as with batches should be minimal.
consistent with current practices and the RIN may be separated from the batch Marketers and distributors would
would maintain the one-to-one as described in Section III.E.2. As in simply be adding the batch-RIN to
correspondence between the volume other fuels programs, we believe the transfer documents such as bills-of-
block in the batch-RIN and the PTD requirement can be met by lading, and recording the batch-RINs in
standardized volume of the batch. We including the required information their records of batch purchases and
propose a similar approach to biodiesel, generated and transferred in the normal sales.
where the volume correction can be course of business. Under most other credit trading
RINs would be transferable in the
calculated using the following programs, parties obligated to meet a
context of the RFS program, and except
equation:34 standard are also the parties that
as discussed above, must be transferred
Vs,b = Va,b × (¥0.0008008 × T + generate credits for trade. Under these
along with ownership or custody of the
1.0480) systems, non-obligated parties can
batch. The approach that a producer or
Where: importer takes to the transfer or sale of participate only to the degree that
obligated parties explicitly include
Vs,b = Standard volume of biodiesel at 60 °F, RINs and batches would be at their
in gallons. discretion, under the condition that the them. In the case of the RFS program,
Va,b = Actual volume of biodiesel, in gallons. two be transferred or sold however, the production of renewable
T = Actual temperature of the batch, in °F. simultaneously and to the same party. fuels and their conversion into motor
b. Responsibilities of Parties That vehicle fuel through blending is largely
The RIN would have to be assigned to
Buy, Sell, or Handle Renewable Fuels. done by persons other than obligated
a batch no later than the point in time
Batches of renewable fuel can be parties. To the degree that our proposed
when the batch physically leaves the
transferred between many different program allowed the disparity between
production or importing facility.
types of parties as they make their way RFS obligations and the means of
Although ownership of the batch may
from the production or import facilities compliance to continue, stakeholders
be retained by the producer or importer,
where they originated to the places have expressed concerns about a variety
the RIN would nevertheless be required
where they are blended into of problems that could arise, such as
to be transferred along with the batch as
conventional gasoline or diesel. Some of market power by RIN sellers in the
it leaves the originating facility. This
these parties take custody but not market where RINs are exchanged.
requirement would ensure that RINs
ownership of these batches, storing and Market power on the part of non-
could be verified against production or
transmitting them on behalf of those obligated parties could result in higher
importing facility records and against
who retain ownership. Other parties prices for RINs than prices that would
mandated reports to the Energy
take ownership but not custody, such as arise in a competitive, well-functioning
Information Administration (EIA). It
a refiner who purchases ethanol and has market setting. For instance, if a
would also centralize the process of
it delivered directly to a blending renewable fuel producer or marketer
assigning RINs to batches.
facility. Thus prior to blending, each could separate the batch-RIN from the
The means through which RINs
batch of renewable fuel can be owned or batch, he could in theory withhold the
would be transferred with batches
held by any number of parties including RIN from the marketplace temporarily.
would in some respects be left to the
marketers, distributors, terminal By the end of an annual compliance
discretion of the renewable fuel
operators, and refiners. Under our period, a scarcity of RINs could increase
producer or importer. The primary
proposed program, when any party their price, at which point the
requirement would be that the RIN be
takes ownership of a batch of renewable renewable fuel producers or marketers
included on a product transfer
fuel prior to ownership of the batch of could begin to sell the RINs at an
document (PTD). The PTD can be
fuel by an obligated party or blender, inflated price. In the extreme such
included in any form of standard
the RINs associated with that batch parties could potentially withhold a
documentation that is already
must be transferred as well. The RINs large number of RINs from the market,
32 An appropriate temperature correction for would be included on PTDs that the creating a scarcity of RINs that could
other renewable fuels should likewise be used. party procures when taking ownership compel obligated parties to purchase
33 Derived from ‘‘Fuel Ethanol Technical of a batch. additional volumes of renewable fuel
Information,’’ Archer Daniels Midland Company, We propose that in general all parties with associated RINs. These scenarios
v1.2, 2003. that assume ownership of any batch of are of particular concern given that we
34 Derived from R.E. Tate et al, ‘‘The densities of
three biodiesel fuels at temperatures up to 300 °C’’,

renewable fuel be required to transfer all expect there will be a relatively small
Fuel 85 (2006) 1004–1009, Table 1 for soy methyl RINs assigned to that batch to another number of renewable fuel producers and
ester. party to whom ownership of the batch marketers selling RINs in the
marketplace. For instance, although Thus in most cases there will be a one- to that batch. And some producers may
there currently exist about 100 ethanol to-one correspondence between gallons choose to assign extra-value RINs to
production facilities in the U.S., nearly in a batch and the volume block codes batches in cases wherein the
half of the production volumes come for the batch-RIN assigned to that batch. Equivalence Value is greater than 1.0.
from only seven companies. Likewise, If a batch of renewable fuel is split into To address such cases, we propose to
only five companies manage the two or more new batches, the gallon- allow parties in the distribution system
majority of ethanol marketing. RINs assigned to the original batch can the discretion to split batches and their
We believe that the general be split coincidentally with batch assigned RINs following any protocol
prohibition against the separation of volumes. The following example shows they choose, as long as that protocol
RINs from batches in the distribution how this would be done (volume blocks preserves the requirement that gallon-
system will place only a small separated for clarity): RINs that have been assigned to a batch
additional burden on marketers and Parent batch: by the producer are subsequently
distributors of renewable fuel. 1000 gallons, assigned to a batch after splitting has
According to several stakeholders, a batch-RIN: 2007123412345000011021– occurred. Thus regardless of the
large amount of ethanol is already 000001–001000. splitting protocol used, no gallon-RINs
purchased from renewable fuel Daughter batch #1: assigned to a batch could be retained by
producers directly by refiners. In these a party after every gallon in that batch
600 gallons,
cases, the RIN would be transferred has been transferred to another party.
batch-RIN: 2007123412345000011021–
directly from the renewable fuel There are a variety of batch splitting
000001–000600.
producer to an obligated party. For the protocols that a party could choose from
remaining batches of ethanol that do Daughter batch #2: for situations where there is not a one-
experience multiple transfers before 100 gallons, to-one correspondence between the
being blended into gasoline, the RIN batch-RIN: 2007123412345000011021– number of gallon-RINs assigned to a
itself would represent a small 000601–000700. batch and the number of standardized
incremental item of information that Daughter batch #3: gallons in that batch. However, we have
must be recorded and transferred along 300 gallons, identified two acceptable protocols that
with batches and could be included in batch-RIN: 2007123412345000011021– we expect most parties to use. These are
normal business records. 000701–001000. described in Table III.E.1.b.i–1 below.
In addition to the recordkeeping In this example, the gallon-RINs Examples of batch splits using both
responsibilities described in more detail remain both unique and paired on a types of splitting protocols are given in
in Section IV, parties that would be one-to-one basis with actual gallons Tables III.E.1.b.i–2 and III.E.1.b.i–3. We
required to transfer RINs with batches even after the parent batch is divided propose that the Proportional Protocol
under our proposed program would also into smaller daughter batches. be required for cases in which the
have the primary responsibility of However, there will be some cases in Equivalence Value of a renewable fuel is
maintaining the integrity of RIN-batch which there is not a one-to-one less than 1.0. For cases in which the
pairing when batches are split or correspondence between a RIN assigned Equivalence Value is equal to or greater
merged. Our proposed approach to these to a batch and the actual gallons in that than 1.0, we propose to allow parties the
situations is described below. batch, and such cases could complicate flexibility to follow a batch splitting
the process of splitting batches. For protocol of their own choosing so long
i. Batch splits
instance, changes in temperature could as there is at least one gallon-RIN for
As described in Section III.D.2, batch- cause batch volumes to swell or shrink. every physical gallon in each of the
RINs assigned to batches of renewable Renewable fuels with Equivalence daughter batches. We request comment
fuel would be formatted such that the Values less than 1.0, although currently on these batch splitting protocols, any
volume block codes (SSSSSS and unlikely to arise in appreciable alternative protocols, and the need to
EEEEEE) would identify every gallon in volumes, will have more actual gallons codify a protocol in the regulations for
a batch, and thus every gallon-RIN. in the original batch than RINs assigned specific situations.
TABLE III.E.1.B.I–1.—TWO BATCH SPLITTING PROTOCOLS

Proportional One-to-one alignment
Description .......................................................... The gallon-RINs assigned to a parent batch The gallon-RINs assigned to a parent batch
are split proportionally with the volumes in are split to ensure that some daughter
the daughter batches. batches have a one-to-one correspondence
between physical gallons and gallon-RINs.
Remaining gallon-RINs are assigned to re-
maining gallons.
Impacts for EV a < 1.0 ........................................ Ratio of actual gallons to gallon-RINs in the Some daughter batches may have no as-
parent batch is preserved in all daughter signed RIN.
batches.
Impacts for EV > 1.0 .......................................... Ratio of actual gallons to gallon-RINs in the Ratio of actual gallons to gallon-RINs in some
parent batch is preserved in all daughter daughter batches will be different than the
batches. ratio for the parent batch.
a Equivalence Value.
TABLE III.E.1.B.I–2.—EXAMPLE OF PROPORTIONAL BATCH SPLITTING

EV < 1.0 EV > 1.0
Parent batch:
Actual volume (gal) ........................................................................................................................................................... 1 1000 1 1000
Batch-RIN SSSSSS code ................................................................................................................................................. 000001 000001

Batch-RIN EEEEEE code ................................................................................................................................................. 000800 002500
Number of gallon-RINs ..................................................................................................................................................... 800 2500
Daughter batch #1:

Daughter batch #2:
RIN volume block start (SSSSSS) ................................................................................................................................... 000481 001501

RIN volume block end (EEEEEE) .................................................................................................................................... 000800 002500
1gal.
TABLE III.E.1.B.I–3—EXAMPLE OF BATCH SPLITTING WITH ONE-TO-ONE ALIGNMENT

EV < 1.0 EV > 1.0
Parent batch:

Daughter batch #1:

Daughter batch #2:

1gal.
ii. Batch mergers. for such cases, beyond the general whether instead it should be a
requirement that RINs that have been regulatory requirement.
In general batch mergers will begin assigned to parent batches remain
with at least two parent batches having 2. Separation of RINs From Batches
assigned to a daughter batch after
different RINs. After the merger of the Separation of a RIN from a batch
splitting has occurred. However, it may
two parent batches, the RINs from the means that the RIN would no longer be
be helpful for RINs to be ordered on
two parents would simply need to be included on the PTD, and could be
listed separately on any product transfer PTDs in the order in which the batches
were combined, and then assigned to traded independently from the batch to
documents such as bills-of-lading, since which it had originally been assigned.
they differ not just in the volume block daughter batches on a first-in, first-out
basis. Thus as individual parent batches We believe that the regulatory
codes but also in other aspects of the program should be structured around
RIN. We are not proposing any are added to, for instance, a tank already
facilitating compliance by obligated
mechanism for simplifying the RIN in containing renewable fuel, the RINs
parties with their renewable fuel
the case of a batch merger, such as associated with the newly added batch obligation. This means that obligated
combining two different RINs into a could be added below the existing RINs parties should have the right to market
single RIN or replacing a collection of on the documentation. As product was the renewable fuel separately from the
different RINs with a new single RIN. drawn back out of the tank, the RINs RIN originally assigned to it. We are
We believe that such approaches would assigned to the removed product would therefore proposing that a refiner or
be likely to create significant difficulties be those at the top of the list of RINs on importer would have the right to
in tracking RINs and verifying their the tank documentation. This FIFO separate the RIN from the batch as soon
validity. approach would ensure that RINs as he assumes ownership of that batch.
Parties that have two or more batches assigned to parent batches continue to In the case of ethanol blended into
of renewable fuel that have been merged move through the distribution system, gasoline at low concentrations (≤ 10
into a single batch will be free to and batch splits could occur volume percent), stakeholders have
determine how the RINs will be straightforwardly even in cases that informed us that a large volume of the
subsequently split and assigned to new begin with merged batches. We request ethanol is purchased by refiners directly
daughter batches during a batch split. comment on whether this FIFO from ethanol producers, and is then
We are not proposing a specific protocol approach should remain guidance or passed to blenders who carry out the
blending with gasoline. Therefore, in would capture any renewable fuel for concentrations of 20 volume percent or
many cases RINs assigned to batches which ownership is assumed by an less. This approach is taken for a variety
will pass directly from the producers obligated party or a party that blends the of reasons, including the following:
who generated them to the obligated renewable fuel into gasoline or diesel. • To reduce impacts on fuel
parties who need them. However, renewable fuels which are economy.
However, significant volumes of used in their neat (unblended) form as • To mitigate cold temperature
ethanol are also blended into gasoline motor vehicle fuel may not be captured. operability issues.
without first being purchased by a This would include such renewable • To market biodiesel as an additive
refiner. In some cases, the blender itself fuels as neat biodiesel (B100), methanol rather than an alternative fuel.
purchases the ethanol. In other cases, a for use in a dedicated methanol vehicle, • To address concerns of some engine
downstream customer purchases the biogas for use in a CNG vehicle, or owners or manufacturers regarding the
ethanol and contracts with the blender renewable diesel used in its neat form. impacts of biodiesel on engine
to carry out the blending. Regardless, As for ethanol and biodiesel, neat durability or drivability.
the ethanol may never be held or owned renewable fuels would be assigned a • To reduce the cost of the resulting
by an obligated party before it is RIN by the producer. However, in cases fuel.
blended into gasoline. Thus we believe where the neat renewable fuel is never Biodiesel is also used in low
that a blender should also have the right owned by an obligated party or blended concentrations as a lubricity additive
to separate the RIN from the batch if he into gasoline or diesel before being used and as a means for complying with the
actually blends the ethanol into as a motor vehicle fuel, no party would ultra-low sulfur requirements for
gasoline. This would only apply to have the right to separate the RIN from highway diesel fuel. Biodiesel is
batches where the RIN had not already the batch. The RIN would therefore occasionally used in its neat form.
been separated by an obligated party. never become available to an obligated However, this approach is the exception
Since blenders would in general not be party for RFS compliance purposes. rather than the rule. Consequently, we
obligated parties under our proposed Although the current use of these neat propose that the RIN assigned to a batch
program, blenders who separate RINs renewable fuels is minor in comparison of biodiesel could only be separated
from batches would have no need to to the volumes of ethanol and lower from that batch if and when the
hold onto those RINs and thus could blend levels of biodiesel, we biodiesel is blended with conventional
transfer them to an obligated party for nevertheless believe that they should be diesel. To avoid claims that very high
compliance purposes, or to any other allowed to help meet the volume concentrations of biodiesel count as a
party. requirements of the RFS program. blended product, we also propose that
There may be occasions in which a To address this issue, we propose to biodiesel must be blended into
downstream customer actually owns the more broadly define the right to separate conventional diesel at a concentration of
batch of ethanol when it is blended into a RIN from a batch. In addition to 80 volume percent or less before the RIN
gasoline. In such cases the blender will obligated parties and blenders, we can be separated from the batch.
have custody but not ownership of the believe that any party holding a batch of Our proposed approach to biodiesel
batch. We propose that the RIN can be renewable fuel for which the RIN has would mean that biodiesel used in its
separated from the batch of ethanol not been separated could separate the neat form would not be valid for
when the batch is blended into gasoline, RIN from the batch if the party compliance purposes under the RFS
but the RIN could only be separated by designates it for use only as a motor program. To address this issue, we
the party that owns that batch of vehicle fuel in its neat form and it is in request comment on additionally
renewable fuel at the time of blending. fact only used as such. Given the lack allowing a biodiesel producer to
Once a RIN is separated from a batch of any significant use of ethanol in its separate the RIN from the batch if it
of renewable fuel, the PTDs associated neat (but denatured) form as a motor could establish that it produced the
with that batch could no longer list the vehicle fuel, RINs for neat ethanol could batch of biodiesel specifically for use as
RIN. Parties who subsequently take only be separated by an obligated party motor vehicle fuel in its neat form, and
ownership of the batch may not know or a party that blends it with gasoline. that the biodiesel was in fact used in its
if the RIN had been separated, or if a This would include a party that blended neat form.
RIN had never been assigned to the ethanol with a small amount of gasoline
batch in the first place, contrary to to form E85, since there are millions of 3. Distribution of Separated RINs
regulatory requirements. To avoid vehicles in the fleet that can operate on Once a RIN is separated from a batch
concerns about whether RINs assigned E85. In this case, E85 would be treated of renewable fuel, it would become
to batches have not been appropriately like any other ethanol/gasoline blend. freely transferable. Each RIN could be
transferred with the batch, we request Under our proposed approach, held by any party, and transferred
comment on whether PTDs should therefore, any party that holds a batch between parties any number of times.
include some notation indicating that of renewable fuel that is typically used This approach would apply to extra-
the assigned RIN has been removed. in its neat form and was designated by value RINs (RINs generated based on
As described in Section III.B, many the producer for use in its neat form as Equivalence Values greater than 1.0) as
different types of renewable fuel can be a motor vehicle fuel would be given the well as standard-value RINs.
used to meet the RFS volume right to separate the RIN from the batch. We are not proposing to limit the
obligations placed upon refineries and This approach would recognize that the number of times that a RIN could be
importers. Currently, ethanol is the most neat form of the renewable fuel is valid transferred, nor the types of parties that
prominent renewable fuel, and is most for compliance purposes under the RFS could receive or transfer RINs. However,
commonly used as a low level blend in program, as described in Section III.B. this approach would be unique among
gasoline at concentrations of 10 volume Biodiesel (mono alkyl esters) is one EPA’s fuel regulations. For all previous
percent or less. However, some type of renewable fuel that can under motor vehicle fuel credit trading
renewable fuels can be used in neat certain conditions be used in its neat programs we have allowed only refiners
form (i.e. not blended with conventional form. However, in the vast majority of and importers to transfer credits, and
gasoline or diesel). The two RIN cases it is blended with conventional have limited the number of times credits
separation situations described above diesel fuel before use, typically in could be transferred to one or two
transfers. This includes, for example, parties and allowing multiple trades. efficiency of the market while
the credit trading programs for The RIN number, along with the minimizing the transaction costs for
reformulated gasoline and gasoline associated electronic reporting transfers of RINs.
sulfur. These limitations were included mechanism, should allow us the ability
4. Alternative Approaches to RIN
to make the credit trading programs to verify the validity of RINs and the
Distribution
enforceable by making the transfer of source of any invalid RINs. Since all
credits, from the credit generator to the RINs generated, traded, and used for During the development of our
credit user, shorter, and populated only compliance would be recorded proposed RFS trading and compliance
by the refiners and importers who were electronically in an Agency database, program, stakeholders offered a variety
obligated to meet those standards. These these types of investigations would be of alternative program design
approaches also helped to ensure the straightforward. The number of RIN approaches. Most of these alternatives
validity of credits by limiting the trades, and the parties between whom recognize the value of a RIN-based
sources of credits to companies that the the RINs are being traded, would only system of compliance, but they differ in
obligated parties know to be reliable have the effect of increasing the size of terms of which parties would be
business partners. A recent report the database. allowed to separate a RIN from a batch
provided to the Agency by the American As with other credit-trading programs, and the means through which the RINs
Petroleum institute also provides the business details of RIN transactions, should be transferred to obligated
support for limiting RIN trading to such as the conditions of a sale or any parties. We invite comment on all of
obligated parties.35 Therefore, we are other transfer, RIN price, role of these options.
seeking comment on limiting the mediators, etc. would be at the Our primary concern with the
number of trades and limiting the trades discretion of the parties involved. The alternative approaches is that we believe
Agency would be concerned only with they would be less effective than our
to only occur between obligated parties
information such as who holds a given proposed program at ensuring that RINs
even though we are not proposing to do
RIN at any given moment, when would get to the obligated parties who
so here.
For the RFS program, we believe that transfers of RINs occur, who the party need them in a timely fashion. As
there is a need to provide for this more to the transfers are, and ultimately described above, stakeholders have
open trading, and that it can occur which obligated party relies on a given expressed serious concerns about any
without unduly sacrificing the RIN for compliance purposes. This type program structure that could allow non-
enforceability of the program or of information would therefore be the obligated parties to exercise market
subject of various recordkeeping and power in the RIN market, and the
increasing its oversight burden. As
reporting requirements as described in program we are proposing today is
described earlier, the RFS program is
Section IV, and these requirements designed to minimize these concerns.
unique in that obligated parties are
would generally apply regardless of The alternative approaches described
typically not the ones producing the
whether RIN has been separated from a below, in contrast, could potentially
renewable fuels and generating the
batch. allow some non-obligated parties who
RINs, so there is a need for trades to
The means through which RIN trades acquire RINs to either refuse to transfer
occur between obligated parties and
would occur would also be at the them, make them difficult for obligated
non-obligated parties. By prohibiting
discretion of the parties involved. For parties to obtain, or drive their price up
anyone except obligated parties from
instance, parties with RINs could create by exercising market power. We believe
holding RINs after they have been that these stakeholder concerns about
open auctions, contract directly with
separated from a batch, we might be alternative program options are
those obligated parties who seek RINs,
making it more difficult for those RINs legitimate, given that nearly half of the
use brokers to identify potential
to eventually be transferred to the production volumes of ethanol come
transferees and negotiate terms, or just
obligated parties that need them. This is from only seven companies and only
transfer the RINs to any other willing
especially important in the case of the five companies manage the majority of
party. Brokers involved in RIN transfer
RFS program, because the program must ethanol marketing. Our proposal also
could either operate in the role of
work efficiently not only for a limited best addresses other related issues, such
arbitrator without holding the RINs, or
number of obligated parties, but a as limiting the number of obligated
alternatively could receive the RINs
number of non-obligated parties as well. parties, providing for the most open RIN
from one party and transfer them to
A potentially large number of oxygenate another. If they are the transferee of any market, and providing an effective
blenders, many of which will be small RINs, they would also be subject to the means at ensuring RIN certainty.
businesses, will be looking for ways to registration, recordkeeping, and a. Producer With Direct Transfer of
market their RINs. Furthermore, in some reporting requirements. We do not RINs. One alternative to our proposed
cases renewable fuel producers will also believe that it would be appropriate or program would allow producers and
have RINs (in particular, extra-value useful for the EPA to become directly importers of renewable fuels to transfer
RINs) that can be marketed. Allowing involved in RIN transfers, other than in RINs separately from the renewable fuel
other parties, including brokers, to the role of providing a database within that they represent. The producer or
receive and transfer RINs may create a which transfers can be recorded. Thus importer would still generate the RIN,
more fluid and free market that would EPA would not plan on establishing a but would not necessarily need to assign
increase the venues for RINs to be clearinghouse or centralized brokerage it to a specific batch of renewable fuel.
acquired by the obligated parties that for the management of RIN transfers, nor The producer or importer would be
need them. contract with a private firm through required to transfer the RIN, but only to
We believe we can ensure the whom all RIN buyers and sellers would an obligated party.
enforceability of the program despite
arrange transfers. Our experience with Under this approach non-obligated

opening up trading to non-obligated other credit trading programs suggests parties other than producers and
35 Montgomery, David W., ‘‘Recommendations for
that, left to themselves, natural free- importers would have no RIN
a Trading Program Which Will Comply with the
market mechanisms will arise to handle ownership opportunities and would
Renewable Fuel Standard,’’ CRA International, Inc. RIN transfers, and that these therefore not bear any burden associated
May 25, 2006. mechanisms will maximize the with transferring RINs with batches.
This would eliminate most of the clearinghouse. Any RINs not provided should include details for RIN auctions
recordkeeping and reporting directly to an obligated party would or transactions that they believe should
requirements applicable to them under then need to be made available through be addressed in implementing
our proposed program. There would a regularly scheduled public auction to regulations.
also be no need for any regulatory the highest bidder. This could be Our proposed program is designed to
requirements to ensure proper through an existing internet auction ensure that the existing market
accounting of RINs as they move Web site, or through another auction mechanisms for the distribution of
through the distribution system, such as mechanism implemented by a generator renewable fuel can be used for the
requirements necessary to address so long as the mechanism is equally distribution of RINs as well. The need
volume changes due to temperature, open and available to all obligated for independent RIN markets is
batch splits and mergers, use of parties. Only obligated parties would be minimized, and likewise the regulatory
renewable fuels in their neat form, and permitted to bid on the RINs in such an oversight of such markets is minimized.
the recordkeeping and reporting auction. Under the direct transfer alternative
associated with these requirements. To ensure the effectiveness of such an described above, however, not only does
The challenges associated with this approach, however, there are a number an independent RIN market become a
approach, however, pertain to the of additional aspects of the program that central feature of the RFS program, but
disconnect between RINs and batches of would need to be specified. Since a the regulations might need to specify
renewable fuel. For instance, the renewable producer could essentially the many various aspects of RIN
disconnect would produce the withhold RINs from the market by transfers as described above, and doing
possibility for the creation of market setting the selling price too high, such so would represent an intervention into
power with the renewable fuel producer an approach would hinge upon any the market that the Agency has not
that generates the RINs. As discussed such auctions occurring without any exercised before. It may be necessary to
above, there is the possibility that minimum price for the RINs. Producers design the regulatory provisions in this
renewable producers might not place all would be required to transfer RINs to way in order to have an enforceable
RINs on the market for procurement by the highest bidder regardless of the bid program under this alternative, but we
the obligated parties, thereby driving up price, even if there was only a single would have to be convinced that such
their price and/or increasing further the bidder. The renewable producer would an approach could be properly
demand for renewables. It is very be required to send the successful structured and that it was superior to
unlikely that they would withhold bidder a written confirmation of the RIN other alternatives.
renewable fuel itself from the market in transfer, including the RIN Under this option, non-obligated
order to drive up the price for it. Not identification numbers. If there were no parties such as marketers or brokers
only is storage capacity limited, but bids, the renewable producer would be would not be allowed to own RINs. It
there is no evidence that ethanol required to roll them over to subsequent could be possible to add in this
producers or marketers have ever auction cycles until such time as the flexibility, but in effect this option
exercised this type of market control. RINs were no longer valid for would then operate similarly to our
This is also true under our proposed compliance purposes and they would proposed approach, but with additional
program. simply be retired. Finally, in order to complications and transaction costs due
In addition, although a refiner could ensure that RINs were actually being to the fact RINs would not follow
purchase renewable fuel directly from a made available, such sales, trades, or batches through the distribution system.
producer and acquire RINs at the same auctions would be required to occur at Therefore, we do not believe it is
time, there would be many other cases least quarterly, but we seek comment on appropriate to provide this flexibility as
in which a refiner would purchase whether a shorter cycle would be more part of the direct-transfer option.
renewable fuel without RINs (such as appropriate. b. Producer With Open RIN Market.
from a marketer). Although the market Various other aspects of the RIN Another approach would allow
would likely develop in such a way that auctions or transactions would also producers and importers of renewable
renewable fuel without RINs would be have to be specified. For example, the fuels to transfer RINs separately from
priced differently than renewable fuels location, time, and other details of any the renewable fuel to any party. If a
with RINs, the purchase of the auction would have to be made widely renewable fuel producer did choose to
renewable fuel would still have no known to obligated parties in sufficient transfer the RIN with the batch, any
bearing on the refiner’s RFS compliance time for them to participate. To this end, downstream party would have the right
demonstration, contrary to the intent of the rule could specify that there must be to separate that RIN from the batch.
the Act. The refiner would have to advance public notice of the intent to Although we believe that the
procure RINs separately. If the refiner conduct an auction and the auction recordkeeping burden placed upon
purchased more renewable fuel than it procedures, and that this notice must be marketers and distributors under our
needed for compliance purposes in this advertised through nationwide media or proposed program would be minimal,
way, it would not have any excess RINs a public Internet posting. The minimum this alternative approach would
to transfer to another party. The Act amount of advance notice could be, for essentially eliminate that burden
stipulates that allowances must be made example, one week or four weeks. The altogether. Marketers and distributors
for credits to be generated for excess regulations could require that the RINs would not have to ensure that RINs
renewable fuel. be transferred in large enough blocks, were transferred with batches and keep
To address the concern regarding such as 5,000 RINs, in order to prevent a record of those transfers, and would
producers withholding RINs from the undue transaction costs. The regulations not be responsible for ensuring that
market, under this alternative the could also specify the time period RINs remain assigned to batches during
renewable producer would be required during which any public auction must batch splits and mergers. Any marketer
to make the RINs available for transfer remain open; seven days could be or distributor that did receive a batch
to an obligated party. As under the specified, for example. Other criteria for with an assigned RIN could separate the
proposed option, this RIN transfer could how the auction is conducted could be RIN from the batch and transfer it,
be done in one of several ways, such as included in order to ensure its maximizing the choices available to
through direct contract or a restricted legitimacy. Interested commenters them.
However, this alternative approach option of allowing obligated parties to blenders represent an additional safety
would increase the burdens for separate RINs as soon as they gain valve in the RIN market, providing
obligated parties to comply with their ownership would prohibit all parties additional assurances that no one
renewable fuel obligation since all RINs from separating a RIN from a batch of refiner could exercise market power in
would be controlled by producers and renewable fuel until the batch had the RIN market, thereby demanding an
marketers at the point of generation. The actually been blended into gasoline or unreasonably high price for them.
concerns described above regarding the diesel. The obligated party could retain For these reasons, we do not believe
exercising of market power in the RIN the RIN as soon as it gained ownership that requiring renewable fuel to be
market by a small number of non- of the batch, but could not transfer the
blended into gasoline or diesel before a
obligated parties would apply to this RIN or use it for compliance purposes
RIN could be separated from the batch
alternative. Although these concerns until the renewable fuel that it
would provide any significant
may be less significant under EIA’s represented was actually blended into
advantages over our proposed program.
current projections that renewable fuel gasoline or diesel. Thus, a RIN could be
production volumes will exceed the separated from the batch of renewable However, we request comment on this
RFS program requirements, we believe fuel to which it has been assigned only alternative approach.
that we should design the RFS program at the time of blending, and whomever e. Blender at Time of Blending.
to function smoothly under any future owns the batch at the time of blending Although we have concluded that
market scenario. Since it is possible that would also have the right to separate the production volumes are an accurate
the market conditions leading to EIA’s RIN and use or transfer it. surrogate for consumption, thus
projections could change, we believe Although we based our proposed eliminating the need to measure
that the concern about producers and program design on the expectation that renewable fuel volumes at the point of
marketers exercising market power in all renewable fuels will eventually be blending into gasoline or diesel, an
the RIN market is important. As a result, consumed as fuel, primarily through alternative approach would do just that.
we do not believe that this alternative blending with conventional gasoline or In this alternative program approach,
approach is most appropriate. diesel, this alternative approach would
RINs would not be generated by the
c. First Purchaser. As under our provide direct verification of blending.
producer of the renewable fuel and
proposed approach, in this alternative However, we do not believe that this is
assigned to batches. Instead, blenders
the renewable fuel producer would be necessary in order to provide an
would keep detailed records of the
required to assign a RIN to every batch enforceable program, and in fact it
of renewable fuel and to transfer that would create an additional and volumes of renewable fuel that they
RIN with the batch. However, the first unnecessary burden for blenders. blended into gasoline or diesel, and
party in the distribution system to take As discussed in Section III.D, it is not would generate credits for those
ownership of the batch would have the necessary to track renewable fuels all volumes. Blenders would be considered
right to separate the RIN from the batch. the way to the point of blending because obligated parties, but their obligation
This means that any non-obligated party we can confidently treat production would be considered as zero percent to
that purchased the renewable fuel from volumes as an accurate surrogate for avoid redundant obligations (i.e., to
its producer would be able to separate consumption. This fact provides the avoid the blender being responsible for
the RIN and to transfer it independently basis for our proposed program, and blending renewable fuel into gasoline
from the batch. could also be used in support of the for which a refiner or importer also has
The advantage of this alternative alternatives described previously. If an RFS program responsibility). Thus
approach, as compared to our proposal, verification of blending were required they would generate credits which
is that it would remove control of the before a RIN could be separated from a could then be sold to a refiner or
sale of RINs from the producers. batch, both obligated parties and importer who needs it for compliance
However, the concern raised by refiners blenders would be subject to additional purposes.
about the exercise of market power in recordkeeping and paperwork burdens. The blender approach would differ
the RIN market remains because only The Agency would be compelled to from our proposed program and all the
five companies today manage the enforce activities at the blender level, other alternative approaches in that it
majority of ethanol marketing in the adding about 1200 parties to the list of would be based on actual blending
U.S. With such a small number of those subject to enforcement under our activity, as compared to ownership of
companies, any one could exert a proposed program. the renewable fuel. Under this
controlling influence on the RIN market. By requiring refiners to wait until alternative approach, the blender would
In addition, many large producers renewable fuel is blended before they not use records of batch ownership to
operate as marketers for other smaller can separate the RIN, this alternative establish generation of credits, but
producers, allowing some producers to approach could limit the potential for rather would be required to demonstrate
be the first purchaser. As discussed for one refiner to purchase large volumes of that it had actually blended the
the previous alternative, we believe that renewable fuel with the intent of renewable fuel into gasoline or diesel.
we should design the RFS program to separating the RINs and exercising Since the blender was responsible for
function smoothly under any future market power in the RIN market.
blending, the blender would generate
market scenario, including ones However, we do not believe that this
the credits from that blending and
different from those forming the basis of represents an advantage to this
would have the right to transfer them to
the current EIA projections. Thus we alternative since it could not occur
another party.
believe that the concern about marketers under our proposed program either.
exercising market power in the RIN There are no geographic limitations to Although blenders could use IRS fuel
market is still important, and as a result RIN transfers within the 48 contiguous credit forms to verify the volumes of
we do not believe that the first states, so obligated parties that need ethanol blended into gasoline under this
purchaser approach offers significant RINs can purchase them from any alternative, the IRS forms would not
advantages over our proposed program. refiner who has an excess. In addition, provide useful information related to
d. Owner at Time of Blending. An RINs that have been separated from biodiesel or other renewable fuels that
alternative approach to our proposed their assigned batches by oxygenate are blended into conventional gasoline
or diesel.36 Alternative approaches to burdens placed upon blenders. As a reports generated in virtually all
verifying that these other renewable result the advantages of this alternative commercially available spreadsheet
fuels were actually blended would approach over our proposed program programs and to permit parties to
therefore need to be designed under this would disappear. submit reports in comma delimited text,
alternative, and these verifications Due to the additional and unnecessary which can be generated with a variety
would necessarily involve additional recordkeeping and reporting burdens of basic software packages. In order to
recordkeeping and reporting that would be placed upon blenders permit maximum flexibility in meeting
requirements. under this alternative, the dissociation the RFS program requirements, we must
This approach would also tend to of credits from renewable fuels acquired track activities involving the creation
increase the burdens on refiners to gain by obligated partiers, and the likelihood and use of RINs, as well as any
access to credits and thus demonstrate that many blending events may go transactions such as purchase or sale of
compliance. A refiner who took unchecked, we do not believe that the RINs. Reports will be included in a
ownership of a batch of renewable fuel alternative blender approach should be compliance database managed by EPA’s
could not use that batch to meet its RVO adopted. Office of Transportation and Air Quality
unless he blended it into gasoline or and will be reviewed for completeness
diesel himself. Such circumstances IV. Registration, Recordkeeping, and
and for potential violations. Potential
would create additional complexity for Reporting Requirements
violations will be referred to
the obligated parties that are avoided by A. Introduction enforcement personnel.
the more streamlined approach we are Records related to RIN transactions
proposing. Registration, recordkeeping and
reporting are necessary to track may be kept in any format and the
A blender approach would also be period of record retention by reporting
difficult to implement. To begin with, compliance with the renewable fuels
standard and transactions involving parties is five (5) years, which is the
many blenders are small businesses, and time frame for retention under similar
none have been substantially regulated RINs. We are proposing to utilize the
same basic forms for registration that we 40 CFR part 80 fuels compliance
in an EPA fuel program before. We reporting programs. Records retained
would be imposing upon these parties use under the reformulated gasoline
(RFG) and anti-dumping program.37 would include copies of all compliance
the primary enforcement burden reports submitted to EPA and copies of
associated with the RFS program even These forms are well known in the
regulated community and are simple to product transfer documents (PTDs).
though they are not obligated for Records would have to be provided to
meeting the renewable fuel standard. fill out. Information requested includes
company and facility names and the Administrator or the Administrator’s
Also, this approach would not be able representative upon request and they
to distinguish between cellulosic addresses and the identification of a
contact person with phone number and may have to be converted to a readable,
biomass ethanol and ethanol made from usable format.
other feedstocks, which creates e-mail address. Registrations do not
significant difficulties in meeting expire and upon receipt of a completed B. Requirements for Obligated Parties
program requirements. registration form, EPA will issue unique and Exporters of Renewable Fuels
Under a blender approach, even company and facility identification
numbers that will appear in compliance 1. Registration
accurate records of blending would be
difficult to verify. There are more than reports and, in the case of renewable We are proposing that ‘‘obligated
1200 blenders in the U.S. who blend fuels producers, will be incorporated in parties’’ including refiners, importers,
ethanol into gasoline, in addition to the unique RINs they generate for each and blenders of gasoline, as well as
those that blend biodiesel into batch of renewable fuel. We intend to exporters of renewable fuel, must
conventional diesel fuel. Thus the use the same simplified registration register with EPA by [90 DAYS AFTER
blender approach would maximize the method we use for existing fuels FINAL PUBLICATION OF THE FINAL
number of parties involved, overly programs under 40 CFR part 80, and RULE]. Most refiners and importers are
complicating the compliance system. parties who have already registered with already registered with us under various
The enforcement burden on the Agency EPA under an existing fuels program regulations related to reformulated
would be significant, and ultimately it will not be required to re-register and (RFG) and conventional gasoline or
would be likely that many claims of will be able to use their existing EPA- diesel fuel. We propose that these
blending would go unchecked. issued company and facility registration existing registrations be applicable
Some of the concerns raised above numbers. under the renewable fuel standard as
could be addressed by re-introducing We plan to use a simplified method well. Exporters of renewable fuels may
the RIN concept into a blender of reporting via the Agency’s Central not have registered with EPA and we
approach. For instance, the existence of Data Exchange (CDX). CDX will permit anticipate perhaps 25 new registrations
RINs could help identify cellulosic us to accept reports that are and 25 updated registrations because of
biomass ethanol as such. However, if a electronically signed and certified by this program. If a party becomes subject
RIN-based system were implemented, the submitter in a secure and robustly to this proposed regulation after the
this alternative approach would become encrypted fashion. Guidance for effective date, then we propose that they
very similar to our proposed program, reporting will be issued prior to must register with us and receive their
but with additional enforcement implementation and will contain EPA-issued company and facility
specific instructions and formats registration numbers prior to engaging
36 There is some evidence that biodiesel
consistent with provisions in the final in any transaction involving RINs.
producers are operating as blenders in order to Any party who is not currently
claim the right to the Federal excise tax credit for
rule. We intend to accept electronic
biodiesel. However, in these cases they often blend registered with us would have to submit
only very small amounts of conventional diesel into 37 Please refer to http://www.epa.gov/otaq/regs/ a simple registration form. We will issue
biodiesel, such as 0.1 volume percent. The mixture, fuels/rfgforms.htm. The relevant registration forms a 4-digit company identification number
identified as B99.9, is then transported to another for our existing fuels programs are 3520–20A, 3520–
blender who often adds significant additional 20B, and 3520–20B1. Interested parties may wish to
and, for each facility registered, a 5-digit
quantities of conventional diesel to make blends view these forms, as they may be useful in facility identification number. Currently
such as B2 or B20. preparing comments on this proposed rule. registered parties will only be
responsible for updating company and number of RINs owned, used for renewable fuel that is being transferred,
facility records as the need to update compliance, transferred and expired. the location of the renewable fuel at the
routine information arises, for example, This report would not include details of time of transfer, and the unique RIN
if corporate points of contact or every RIN owned or used, since this associated with the volume of fuel being
addresses change. Currently registered information would be included in the transferred, if any. PTDs are used by all
refiners and importers would continue compliance and transactional reports. parties in the distribution chain down to
to use their existing 4-digit company Instead, this third report would simply the retail outlet or wholesale purchaser-
and 5-digit facility identification summarize the total number of RINs consumer facility that dispenses it into
numbers. falling into different categories. motor vehicles.
All reports submitted to us would Except for transfers to truck carriers,
2. Reporting have to be signed and certified as true retailers or wholesale purchaser-
There are three types of reports that and correct by a responsible corporate consumers, product codes describing
would be required of obligated parties officer. This can be done electronically. various attributes of the fuel may be
and exporters of renewable fuel. Reports As discussed above, we plan to utilize used to convey the information required
would be required to be submitted on an a highly simplified electronic method of for PTDs, as long as the codes are clearly
annual basis by the February 28 reporting via the Agency’s Central Data understood by each transferee.
following a given January through Exchange that is secure, provides Therefore, refiners and importers and
December annual compliance period. encryption and reliable electronic exporters of renewable fuel may use
The first type of report would provide signatures, and that permits us to accept codes. The RIN would always have to
the compliance demonstration. It would reports in the submitter’s choice of appear on each PTD in its entirety
require obligated parties to provide simple comma delimited text or before it is separated from a batch, since
information about their annual volume commercially available spreadsheet it is a unique identification number and
of gasoline produced or imported, and packages. cannot be summarized by a shorter
would require exporters to provide We are proposing annual reporting code.
information about their annual volume only. However, we encourage comments Obligated parties and exporters of
of renewable fuel exported. The report related to the frequency of reporting. We renewable fuel would have to keep
would also describe the calculation of are particularly interested in comments copies of PTDs and of all compliance
their corresponding renewable volume related to the frequency of transactional reports submitted to EPA for a period of
obligation (RVO), a listing of the RINs reports related to RINs and whether not less than five (5) years. The five year
applied towards the RVO, any deficit these reports should be submitted period is common to all our 40 CFR part
carried over from the previous year, and quarterly rather than annually. We also 80 programs and is a reasonable period
any deficit carried into the next year. request comment on our proposed to retain records in the event a potential
The second type of report would requirement that three distinct types of violation is reported and must be
provide detailed transactional reports be submitted for each calendar investigated and pursued by
information regarding RINs. It would be year, specifically whether these reports enforcement personnel. They would
akin to credit trading reports submitted could be simplified or whether a smaller also have to keep information related to
by refiners and importers under other number of reports could provide the the sale, purchase, brokering and
fuels programs in 40 CFR part 80, such same information. trading of RINs that support the
as the gasoline sulfur program. The
purpose of this report would be to 3. Recordkeeping information they report to EPA. Refiners
document the ownership, transfer and The proposed recordkeeping and importers would be responsible for
use of RINs and to track expired RINs. requirements for obligated parties and providing records to the Administrator
As such, and noted below, these reports exporters of renewable fuel support the or the Administrator’s authorized
would be required of any party that enforcement of the use of RINs for representative in a usable format upon
owns RINs during the compliance compliance purposes. Product transfer request.
period covered by the report. The documents (PTDs) are central to C. Requirements for Producers and
transactional report is necessary because tracking individual RINs through the Importers of Renewable Fuel
compliance with the RVO is primarily fungible distribution system when those
demonstrated through self-reporting of RINs are assigned to batches of 1. Registration
RIN trades and therefore it is necessary renewable fuel. PTDs are customarily We propose that any producer or
for Agency personnel to be able to link issued in the course of business (i.e., importer of renewable fuel must register
transactions involving each unique RIN issuing them is a ‘‘customary business by [90 DAYS AFTER THE DATE OF
in order to verify compliance. We will practice’’) and are familiar to parties FINAL PUBLICATION OF THE FINAL
be able to import reports into our who transfer or receive fuel. As with RULE]. The registration requirements
compliance database and match RINs to other fuels programs, PTDs may take are the same as those for refiners and
transactions across their entire journey many forms, including bills of lading, as importers of gasoline, as described
from generation to use. As with our long as they travel with the volume of above. Renewable fuel producers were
other 40 CFR part 80 compliance-on- renewable fuel being transferred. not previously required to register with
average and credit trading programs, Specifically, we propose that on each EPA and we anticipate around 280 new
many potential violations are expected occasion any person transfers registrants as a result of this proposed
to be self-reported. Because the use of ownership of renewable fuels subject to registration requirement. Although
RINs permits great flexibility in meeting this proposed regulation that they renewable fuels producers are not
the RVO, we believe that obligated provide the transferee documents ‘‘obligated parties,’’ they are the parties
parties and others who create and identifying the renewable fuel and who generate RINs. As mentioned above
handle RINs (including brokers) will containing identifying information in IV.B.1, the EPA-issued registration
benefit from self-reporting. including the name and address of the numbers will be part of the unique RIN
The third type of report will transferor and transferee, the EPA- generated by the producer or importer of
summarize RIN activities for the issued company and facility IDs of the renewable fuel. In order to support
previous year and will include the total transferor and transferee, the volume of effective recordkeeping and reporting
for compliance purposes, we believe it who are not obligated parties, exporters, facility that dispenses it into motor
is necessary for them and any party who or producers of renewable fuels. vehicles.
generates or owns RINs to register with Finally, each producer or importer of Except for transfers to truck carriers,
the Agency. renewable fuel would be required to retailers or wholesale purchaser-
Registration is a simple process and submit a third annual report consumers, product codes may be used
there is no expiration date associated summarizing RIN activities for the to convey the information required for
with a registration. However, previous year. This report would PTDs, as long as the codes are clearly
registration information may be updated include the total number of RINs understood by each transferee.
by the registrant as needed, for example, generated, owned, transferred, and Therefore, renewable fuels producers
if a mailing address changes. The expired. may use codes. The RIN would always
information collected includes company All reports would have to be signed have to appear on each PTD in its
name and address; facility name(s) and and certified as true and correct by a entirety before it was separated from the
address(es); and a contact person’s responsible corporate officer. This can batch, since it is a unique identification
name, phone number and e-mail be done electronically. As discussed number and cannot be summarized by
address. Any party who is not currently above, we plan to utilize a highly a shorter code.
registered with us would have to submit simplified electronic method of Renewable fuels producers would
registration forms. We will issue a 4- reporting via the Agency’s Central Data have to keep copies of PTDs and of all
digit company identification number Exchange that is secure, provides compliance reports submitted to EPA
and, for each facility registered, a 5-digit encryption and reliable electronic for a period of not less than five (5)
facility identification number. If a party signatures, and that permits generation years. They would also have to keep
becomes subject to this proposed of reports in the submitter’s choice of information related to the sale,
regulation after the effective date, then simple comma delimited text or purchase, brokering and trading of RINs.
we propose that they must register with commercially available spreadsheet Upon request, renewable fuels
us and receive their EPA-issued packages. producers or importers would be
company and facility identification We request comment on our proposed responsible for providing
numbers prior to generating or holding requirement that three distinct types of documentation of PTDs to the
any RINs. reports be submitted for each calendar Administrator or the Administrator’s
We also propose that small volume year, specifically whether these reports authorized representative in a usable
domestic producers of renewable fuels, could be simplified or whether a smaller format.
those who produce less than 10,000 number of reports could provide the
gallons per year, be allowed to remain same information. D. Requirements for Other Parties Who
unregistered. This proposed provision Own RINs
3. Recordkeeping
would free them from recordkeeping 1. Registration
and reporting requirements, but it The proposed recordkeeping
would also preclude them from requirements for renewable fuels We propose that other parties who
generating RINs. producers support the enforcement of intend to own RINs, and who are not
the use of RINs for compliance obligated parties, exporters of renewable
2. Reporting purposes. Product transfer documents fuels, or renewable fuels producers or
Renewable fuel producers and (PTDs) are central to tracking individual importers, must also register before
importers would be required to submit RINs through the fungible distribution ownership of any RINs is assumed. The
three different annual reports by system when those RINs are assigned to registration requirements are the same
February 28, reflecting activity during batches of renewable fuel. PTDs are as those for other parties discussed
the previous calendar year. The first customarily generated and issued in the previously in Sections IV.B.1 and IV.C.1
report would be an annual report that course of business (i.e. issuing them is above, and require the registrant to
reflects the generation of RINs. This a ‘‘customary business practice’’) and provide very basic information about
report would identify each batch of are familiar to parties who transfer or the company, its facility or facilities,
renewable fuel produced or imported receive fuel. As with other fuels and a contact person. The registration is
during the previous year and the RINs programs, PTDs may take many forms, on very simple forms provided by EPA.
generated for each batch. This annual including bills of lading, as long as they A variety of parties may own RINs
report would provide information about travel with the volume of renewable fuel including (but certainly not limited to)
the production date, renewable fuel type being transferred. Specifically, we marketers, blenders, terminal operators,
and volume of renewable fuel produced propose that on each occasion any and jobbers. (As is mentioned in the
or imported. For specific information person transfers ownership of renewable previous two sections, obligated parties
about how RINs are actually generated, fuels subject to this proposed regulation and renewable producers may also own
please refer to the discussion in Section that they provide the transferee RINs but have other reporting
III.D.2 of this preamble. documents identifying the renewable responsibilities, as well.)
Like any of the parties who can own fuel and containing identifying It is possible to own RINs separately
RINs, a renewable fuel producer would information including the name and from batches of renewable fuel. For
also have to submit a second type of address of the transferor and transferee, example, a broker might be expected to
report detailing transactional the EPA-issued company and facility own RINs in this fashion. Any party
information regarding RINs. This report IDs of the transferor and transferee, the who is not currently registered with us
would list the RINs which they own at volume of renewable fuel that is being and who intends to own RINs would
the end of the reporting period as well transferred, the location of the have to submit a simple registration
as any RINs they have acquired from renewable fuel at the time of transfer, form, as described above. We anticipate
other parties or have transferred to other and the unique RIN associated with the about 1,500 new registrants as a result
parties, identifying which parties took volume of fuel being transferred, if any. of this proposed registration
part in the transfer. This report would PTDs are used by all parties in the requirement, although an exact
be similar to the transaction report distribution chain down to the retail estimation of the number of parties that
described below required of RIN owners outlet or wholesale purchaser-consumer will constitute this group is difficult to
make. As with the other parties ‘‘customary business practice’’) and are In addition, any person who is subject
described in this Section, we will issue familiar to parties who transfer or to an affirmative requirement under the
a 4-digit company identification number receive fuel. As with other fuels RFS program would be liable for a
and, for each facility registered, a 5-digit programs, PTDs may take many forms, failure to comply with the requirement.
facility identification number. If a party including bills of lading, as long as they For example, an obligated party would
becomes subject to this proposed travel with the volume of renewable fuel be liable for a failure to comply with the
regulation after the effective date, then being transferred. Specifically, we annual compliance reporting
we propose that they must register with propose that on each occasion any requirements. A renewable fuel
us and receive their EPA-issued person transfers ownership of RINs producer or importer would be liable for
company and facility identification (whether assigned to batches of a failure to comply with the applicable
numbers prior to owning any RINs. renewable fuel or not) that they provide batch reporting requirements. Any party
the transferee documents identifying the subject to recordkeeping or product
2. Reporting
RIN and containing identifying transfer document requirements would
Parties who own RINs would be information including the name and be liable for a failure to comply with
required to submit two types of annual address of the transferor and transferee, these requirements. Like other EPA
reports by February 28, representing the EPA-issued company and facility fuels programs, the proposed rule
activity in the previous calendar year. IDs of the transferor and transferee, and provides that a party who causes
The first report would document RIN the unique RINs that are being another party to violate a prohibition or
transactions. This report is akin to the transferred. Typically, parties who own fail to comply with a requirement may
credit trading reports submitted by RINs connected with batches of fuel be found liable for the violation.
refiners and importers under other fuels would handle PTDs; however, parties The Energy Act amended the penalty
programs in 40 CFR part 80 and is the who own RINs separate from batches and injunction provisions in section
same as the second report described for may not. A party who owns RINs in 211(d) of the Clean Air Act to apply to
obligated parties in some detail in connection with fuel and who received violations of the renewable fuels
Section IV.B.2 above. a PTD would be responsible for meeting requirements in section 211(o).38
The second type of report would requirements related to PTDs. Accordingly, under the proposed rule,
summarize RIN activities for the Parties who own RINs but who are not any person who violates any prohibition
previous year, including the total obligated parties, exporters of renewable or requirement of the RFS program may
number of RINs owned, transferred, and fuel, or renewable fuel producers or be subject to civil penalties for every
expired. This report would not include importers would have to keep copies of day of each such violation and the
details of every RIN owned or used, PTDs associated with RIN transfers and amount of economic benefit or savings
since this information would be of all compliance reports submitted to resulting from the violation. Under the
included in the transactional report. EPA for a period of not less than five (5) proposed rule, a failure to acquire
Instead, this report would simply years. They would also have to keep sufficient RINs to meet a party’s
summarize the total number of RINs information related to the sale, renewable fuels obligation would
falling into different categories. purchase, brokering and trading of RINs. constitute a separate day of violation for
All reports would have to be signed Upon request, owners of RINs would be each day the violation occurred during
and certified as true and correct by a responsible for providing records to the the annual averaging period.
responsible corporate officer. This can Administrator or the Administrator’s As discussed above and in Section
be done electronically. As discussed authorized representative in a usable III.D, the regulations would prohibit any
above, we plan to utilize a highly format. party from creating or transferring
simplified electronic method of invalid RINs. These invalid RIN
V. What Acts Are Prohibited and Who provisions would apply regardless of
reporting via the Agency’s Central Data. Is Liable for Violations?
As discussed above, we are seeking the good faith belief of a party that the
comments on the frequency of reporting, The prohibition and liability RINs were valid. These enforcement
especially with regard to RIN provisions applicable to this proposed provisions are necessary to ensure the
transactions. We are proposing annual RFS program would be similar to those RFS program goals are not compromised
reporting, but are seeking comments on of other gasoline programs. The by illegal conduct in the creation and
whether reporting should be quarterly. proposed rule identifies certain transfer of RINs.
We also request comment on our prohibited acts, such as a failure to As in other motor vehicle fuel credit
proposed requirement that two distinct acquire sufficient RINs to meet a party’s programs, the regulations would address
types of reports be submitted for each renewable fuel obligation (RVO), the consequences if an obligated party
calendar year, specifically whether producing or importing a renewable fuel was found to have used invalid RINs to
these reports could be simplified or that is not assigned a proper RIN, demonstrate compliance with its RVO.
whether a smaller number of reports creating or transferring invalid RINs, or In this situation, the refiner or importer
could provide the same information. transferring RINs that are not identified that used the invalid RINs would be
by proper RIN numbers. Any person required to deduct any invalid RINs
3. Recordkeeping subject to a prohibition would be held from its compliance calculations. The
The proposed recordkeeping liable for violating that prohibition. refiner or importer would be liable for
requirements for parties who own RINs Thus, for example, an obligated party violating the standard if the remaining
support the enforcement of the use of would be liable if the party failed to number of valid RINs was insufficient to
RINs for compliance purposes. Product acquire sufficient RINs to meet its RVO. meet its RVO, and the obligated party
transfer documents (PTDs) are central to A party who produces or imports might be subject to monetary penalties
tracking individual RINs through the renewable fuels would be liable for a if it used invalid RINs in its compliance
fungible distribution system when those failure to assign proper RINs to batches demonstration. In determining what
RINs are assigned to batches of of renewable fuel produced or imported. penalty is appropriate, if any, we would
renewable fuel. PTDs are customarily Any party, including an obligated party, consider a number of factors, including
generated and issued in the course of would be liable for transferring a RIN
business (i.e., issuing them is a that was not properly identified. 38 Sec. 1501(b) of the Energy Policy Act of 2005.
whether the obligated party did in fact scheme in which parties upstream from biodiesel industries today and how they
procure sufficient valid RINs to cover the facility where the violation is found are projected to grow into the future.
the deficit created by the invalid RINs, are presumed liable for the violation,
and whether the purchaser was indeed A. Overview of U.S. Ethanol Industry
would not be applicable under the RFS
a good faith purchaser based on an and Future Production/Consumption
program. We request comment on
investigation of the RIN transfer. A whether a presumptive liability scheme 1. Current Ethanol Production
penalty might include both the may have application under the RFS
economic benefit of using invalid RINs rule. We also request comment on the As of June 2006, there were 102
and/or a gravity component. need for additional prohibition and ethanol production facilities operating
Although an obligated party would be liability provisions specific to the in the United States with a combined
liable under our proposed program for proposed RFS program. production capacity of approximately
a violation if it used invalid RINs for 4.9 billion gallons per year.39 All of the
compliance purposes, we would VI. Current and Projected Renewable ethanol currently produced comes from
normally look first to the generator or Fuel Production and Use grain or starch-based feedstocks that can
seller of the invalid RINs both for While the definition of renewable fuel easily be broken down into ethanol via
payment of penalty and to procure does not limit compliance with the traditional fermentation processes. The
sufficient valid RINs to offset the invalid standard to any one particular type of majority of ethanol (almost 93 percent
RINs. However, if, for example, that renewable fuel, ethanol is currently the by volume) is produced exclusively
party was out of business, then attention most prevalent renewable fuel blended from corn. Another 7 percent comes
would turn to the obligated party who into gasoline today. Biodiesel represents from a blend of corn and/or similarly
would have to obtain sufficient valid another renewable fuel, which while not processed grains (milo, wheat, or barley)
RINs to offset the invalid RINs. as widespread as ethanol use (in terms and less than 1 percent is produced
Because there are no standards under of volume), has been increasing in from waste beverages, cheese whey, and
the RFS rule that may be measured production capacity and use over the sugars/starches combined. A summary
downstream, we believe that a last several years. This section provides of ethanol production by feedstock is
presumptive liability scheme, i.e., a a brief overview of the ethanol and presented in Table VI.A.1–1.
TABLE VI.A.1–1.—2006 U.S. ETHANOL PRODUCTION BY FEEDSTOCK

Capacity Percent of Number of Percent of
Plant feedstock MMGal/yr capacity plants plants
Corn a ............................................................................................................................... 4,516 92.7 85 83.3

Corn/Milo .......................................................................................................................... 162 3.3 5 4.9
Corn/Wheat ...................................................................................................................... 90 1.8 2 2.0
Corn/Barley ...................................................................................................................... 40 0.8 1 1.0
Milo/Wheat ....................................................................................................................... 40 0.8 1 1.0
Waste Beverage b ............................................................................................................ 16 0.3 5 4.9
Cheese Whey .................................................................................................................. 8 0.2 2 2.0
Sugars & Starches ........................................................................................................... 2 0.0 1 1.0
Total .......................................................................................................................... 4,872 100.0 102 100.0

a Includes seed corn.
b Includes brewery waste.
There are a total of 94 plants addition to DGS. Wet mill plants are process involves converting cellulosic
processing corn and/or other similarly generally more costly to build but are feedstocks such as bagasse, wood, straw,
processed grains. Of these facilities, 84 larger in size on average. As such, switchgrass, and other biomass into
utilize dry milling technologies and the approximately 23 percent of the current ethanol. Cellulose consists of tightly-
remaining 10 plants rely on wet-milling ethanol production comes from the 10 linked polymers of starch, and
processes. Dry mill ethanol plants grind previously-mentioned wet mill production of ethanol from it requires
the entire kernel and produce only one facilities. additional steps to convert these
primary co-product: distillers’ grains The remaining 8 plants which process polymers into fermentable sugars.
with solubles (DGS). The co-product is waste beverages, cheese whey, or Scientists are actively pursuing acid and
sold wet (WDGS) or dried (DDGS) to the sugars/starches, operate differently than enzyme hydrolysis to achieve this goal,
agricultural market as animal feed. their grain-based counterparts. These but the technologies are still not fully
Carbon dioxide is also produced in the facilities do not require milling and developed for large-scale commercial
process and may be recovered as a instead operate a more simplistic production. As of June 2006, there were
saleable product. In contrast to dry mill enzymatic fermentation process. no U.S ethanol plants processing
plants, wet mill facilities separate the In addition to grain and starch-to- cellulosic feedstocks. Currently, the
kernel prior to processing and in turn ethanol production, another method only known cellulose-to-ethanol plant
produce other co-products (usually exists for producing ethanol from a in North America is Iogen in Canada,
gluten feed, gluten meal, and oil) in more diverse feedstock base. This which produces approximately one
39 The June 2006 ethanol production baseline was International Fuel Quality Center (IFQC), Special market. Where applicable, current ethanol plant
generated from a variety of data sources including Biofuels Report #75 (April 11, 2006) as well as production levels were used to represent plant
Renewable Fuels Association (RFA), Ethanol ethanol producer websites. The production baseline capacity, as nameplate capacities are often
Biorefinery Locations (Updated June 19, 2006); includes small-scale ethanol production facilities as underestimated.
Ethanol Producer Magazine (EPM), U.S. & Canada well as former food-grade ethanol plants that have
Fuel Ethanol Plant Map (Spring 2006); and since transitioned into the fuel-grade ethanol
million gallons of ethanol per year from The ethanol production process is natural gas, 2 burn coal, 1 burns coal
wood chips. For a more detailed relatively resource-intensive and and biomass, and 1 burns syrup from
discussion on cellulosic ethanol requires the use of water, electricity and the process to produce steam. A
production/technologies, refer to steam. Steam needed to heat the process summary of ethanol production by plant
Section 7.1.2 of the Draft Regulatory is generally produced onsite or by other energy source is found below in Table
Impact Analysis (DRIA). dedicated boilers. Of today’s 102 VI.A.1–2.
ethanol production facilities, 98 burn
TABLE VI.A.1–2.—2006 U.S. ETHANOL PRODUCTION BY ENERGY SOURCE
Energy source MMGal/yr capacity plants plants
Natural Gas a ................................................................................................................... 4,671 95.9 98 96.1

Coal .................................................................................................................................. 102 2.1 2 2.0
Coal & Biomass ............................................................................................................... 50 1.0 1 1.0
Syrup ................................................................................................................................ 49 1.0 1 1.0
Total .......................................................................................................................... 4,872 100.0 102 100.0

a Includes a natural gas facility which is considering transitioning to coal.
Currently, 7 of the 102 ethanol plants wasted exhaust gases to help heat their production facilities, 93 are located in
utilize co-generation or combined heat process, reducing the overall demand Midwest. The PADD 2 facilities account
and power (CHP) technology. CHP is a for boiler fuel. for about 97 percent (or 4.7 billion
mechanism for improving overall plant The majority of ethanol is produced gallons per year) of the total domestic
efficiency. CHP facilities produce their in the Midwest within PADD 2—not ethanol production, as shown in Table
own electricity (or coordinate with the surprisingly, where most of the corn is VI.A.1–3.
local municipality) and use otherwise- grown. Of the 102 U.S. ethanol
TABLE VI.A.1–3.—2006 U.S. ETHANOL PRODUCTION BY PADD

PADD MMgal/yr capacity plants plants
PADD 1 ............................................................................................................................ 0.4 0.0 1 1.0

PADD 2 ............................................................................................................................ 4,710 96.7 93 91.2
PADD 3 ............................................................................................................................ 30 0.6 1 1.0
PADD 4 ............................................................................................................................ 98 2.0 4 3.0
PADD 5 ............................................................................................................................ 34 0.7 3 2.9
Total .......................................................................................................................... 4,872 100.0 102 100.0
Leading the Midwest in ethanol ops). More than half (55) of today’s increased due to technological
production are Iowa, Illinois, Nebraska, plants are owned by corporations and, advances, environmental regulation
Minnesota, and South Dakota with a on average, these plants are larger in (e.g., oxygenate requirements in ozone
combined capacity of 3.9 billion gallons size than farmer-owned co-ops. and carbon monoxide non-attainment
per year. Together, these five states’ 69 Accordingly, company-owned plants areas), and the rising cost of crude oil.
ethanol plants account for 80 percent of account for nearly 65 percent of the total More recently, ethanol production has
the total domestic product. Although U.S. ethanol production capacity. soared due to state MTBE bans, steep
the majority of ethanol production Additionally, 45 percent of the total increases in crude oil prices, and
comes from the Midwest, there is a capacity comes from 22 plants owned producer tax incentives. As shown
sprinkling of plants situated outside the by just 8 different companies. below in Figure VI.A.2–1, over the past
corn belt ranging from California to
2. Expected Growth in Ethanol three years, domestic ethanol
Tennessee all the way down to Georgia.
The U.S. ethanol industry is currently Production production has nearly doubled from 2.1
comprised of a mixture of corporations Over the past 25 years, domestic fuel billion gallons in 2002 to 4.0 billion
and farmer-owned cooperatives (co- ethanol production has steadily gallons in 2005.
EPA forecasts ethanol production to drive up demand for ethanol. As a gallons of ethanol production capacity
continue to grow into the future. In result, the nation is on track to exceed currently under construction.40 A
addition to the past impacts of Federal the renewable fuel volume requirements summary of the new construction and
and state tax incentives, as well as the contained in the Act. Today’s ethanol expansion projects currently underway
more recent impacts of state ethanol production capacity (4.9 billion gallons) (as of June 2006) is found in Table
mandates and the removal of MTBE is already exceeding the 2006 renewable VI.A.2–1.
from all U.S. gasoline, record-high crude fuel requirement (4.0 billion gallons). In
oil prices are expected to continue to addition, there is another 2.5 billion
TABLE VI.A.2–1.—UNDER CONSTRUCTION U.S. ETHANOL PLANT CAPACITY

2006 ETOH baseline New construction Plant expansions 2006 baseline +
UC a
MMGal/yr Plants MMGal/yr Plants MMGal/yr Plants MMGal/yr Plants
PADD 1 ............................................................ 0.4 1 0 0 0 0 0.4 1

PADD 2 ............................................................ 4,710 93 2,048 35 252 8 7,010 128
PADD 3 ............................................................ 30 1 30 1 0 0 60 2
PADD 4 ............................................................ 98 4 50 1 7 1 155 5
PADD 5 ............................................................ 34 3 90 2 0 0 124 5
40 Under construction plant locations, capacities, Renewable Fuels Association (RFA), Ethanol International Fuel Quality Center (IFQC), Special
feedstocks, and energy sources as well as planned/ Biorefinery Locations (Updated June 19, 2006); Biofuels Report #75 (April 11, 2006) as well as
proposed plant locations and capacities were Ethanol Producer Magazine (EPM), U.S. & Canada ethanol producer Web sites.
EP22SE06.002</GPH>
derived from a variety of data sources including Fuel Ethanol Plant Map (Spring 2006); and
TABLE VI.A.2–1.—UNDER CONSTRUCTION U.S. ETHANOL PLANT CAPACITY—Continued

2006 ETOH baseline New construction Plant expansions 2006 baseline +
UC a
Total .......................................................... 4,872 102 2,218 39 259 9 7,349 141

a Under Construction.
A select group of builders, technology construction projects described in Table approximately 18 months, resulting in
providers, and construction contractors VI.A.2–1. As such, the completion dates the gradual phase-in of ethanol
are completing the majority of the of these projects are staggered over production shown in Figure VI.A.2–2.
As shown in Table VI.A.2–1 and satisfy the 2012 renewable fuel permits, applying for financing/
Figure VI.A.2–2, once all the requirement (7.5 billion gallons) fundraising, or obtaining contractor
construction projects currently contained in the Act. However, ethanol agreements. Other projects have been
underway are complete (estimated by production is not expected to stop here. proposed or announced, but have not
December 2007), the resulting U.S. There are more and more ethanol entered the formal planning process. If
ethanol production capacity would be projects being announced each day. all these plants were to come to fruition,
over 7.3 billion gallons. Together with Many of these potential projects are at the combined domestic ethanol
estimated biodiesel production (300 various stages of planning, such as production could exceed 20 billion
million gallons by 2012), this would be conducting feasibility studies, gaining gallons as shown in Table VI.A.2–2.
more than enough renewable fuel to city/county approval, applying for
EP22SE06.003</GPH>
TABLE VI.A.2–2.—POTENTIAL U.S. ETHANOL PRODUCTION PROJECTS

2006 baseline + UC a Planned Proposed Total ETOH potential
PADD 1 .......................................................... 0.4 1 250 3 1,005 21 1,255 25

PADD 2 .......................................................... 7,010 128 1,940 15 7,508 90 16,458 233
PADD 3 .......................................................... 60 2 108 1 599 9 767 12
PADD 4 .......................................................... 155 5 0 0 815 14 970 19
PADD 5 .......................................................... 124 5 128 2 676 18 928 25
Total ........................................................ 7,349 141 2,426 21 10,603 152 20,378 314

a Under Construction.
However, although there is clearly a defines cellulosic biomass ethanol as much fossil fuel is displaced by these
great potential for growth in ethanol ethanol derived from any lignocellulosic renewable feedstocks (on a plant-by-
production, it is unlikely that all the or hemicellulosic matter that is plant basis), a portion or all of the
announced projects would actually available on a renewable or recurring aforementioned ethanol production (up
reach completion in a reasonable basis including dedicated energy crops to 461 MMgal/yr) could potentially
amount of time. There is no precise way and trees, wood and wood residues, qualify as ‘‘cellulosic biomass ethanol’’
to know exactly which plants would plants, grasses, agricultural residues, under the Act. Combined with the 108
come to fruition in the future; however, fibers, animal wastes and other waste MMgal/yr plant planning to process
we’ve chosen to focus our further materials, and municipal solid waste. renewable feedstocks, the total
discussions on only those plants which The term also includes any ethanol cellulosic potential could be as high as
are under construction or in the final produced in facilities where animal or 569 MMgal/yr in 2013. Even if only half
planning stages (denoted as ‘‘planned’’ other waste materials are digested or of this ethanol were to end up
above in Table VI.A.2–2). The otherwise used to displace 90 percent of qualifying as cellulosic biomass ethanol,
distinction between ‘‘planned’’ versus more of the fossil fuel normally used in it would still be more than enough to
‘‘proposed’’ is that as of June 2006 the production of ethanol. satisfy the Act’s cellulosic requirement
planned projects had completed (250 million gallons).41
Of the 60 forecasted plants, only one
permitting, fundraising/financing, and
is expected to meet the definition of 3. Current Ethanol and MTBE
had builders assigned with definitive
‘‘cellulosic biomass ethanol’’ based on Consumption
construction timelines whereas
feedstocks. The planned 108 MMgal/yr
proposed projects did not. To understand the impact of the
As shown in Table VI.A.2–2, once all facility would start off processing corn
and then transition into processing increased ethanol production/use on
the under construction and planned gasoline properties and in turn overall
projects are complete (by 2012 or bagasse, rice hulls, and wood (cellulosic
feedstocks). It is unclear as to whether air quality, we first need to gain a better
sooner), the resulting U.S. ethanol understanding of where ethanol is used
production capacity would be 9.8 this facility would be processing
cellulosic material by 2013, however today and how the picture is going to
billion gallons, exceeding the 2012 EIA change in the future. As such, in
demand estimate (9.6 billion gallons). there are several other facilities that
could potentially meet the Act’s addition to the production analysis
This forecasted growth would double presented above, we have completed a
today’s production capacity and greatly definition of cellulosic ethanol based on
plant energy sources. In total, there are parallel consumption analysis
exceed the 2012 renewable fuel comparing current ethanol consumption
requirement (7.5 billion gallons). In seven ethanol plants that burn or plan
to burn renewable feedstocks to generate to future predictions.
addition, domestic ethanol production In the 2004 base case, 3.5 billion
would be supplemented by imports, steam for their processes. As shown in
Table VI.A.1–2, two existing plants burn gallons of ethanol 42 and 1.9 billion
which are also expected to increase in gallons of MTBE 43 were blended into
the future (as discussed in DRIA Section renewable feedstocks. One plant burns a
combination of coal and biomass and gasoline to supply the transportation
1.5). sector with a total of 136 billion gallons
Of the 60 forecasted new ethanol the other burns syrup from the
production process. Together these of gasoline.44 A breakdown of the 2004
plants (39 under construction and 21 gasoline and oxygenate consumption by
planned), all would (at least initially) existing plants have a combined ethanol
production capacity of 99 MMgal/yr. PADD is found below in Table VI. A.3–
rely on grain-based feedstocks. Of the 1.
plants, 56 would rely exclusively on Additionally, there are four under
corn as a feedstock. As for the remaining construction ethanol plants which plan 41 We anticipate a ramp-up in cellulosic ethanol
plants: Two would rely on both corn to burn renewable fuels. One plant production in the years to come so that capacity
and milo, one would process molasses plans to burn a combination of coal and exists to satisfy the 2013 Act’s requirement (250
and sweet sorghum, and the last would biomass, two plants plan to rely on million gallons of cellulosic biomass ethanol).
manure/syngas, and the other plans to Therefore, for subsequent analysis purposes, we
start off processing corn and then have assumed that 250 million gallons of ethanol
transition into processing bagasse, rice start up burning natural gas and then would come from cellulosic biomass sources by
hulls, and wood. transition to biomass. Together these 2012.
Under the Energy Act, the RFS under construction facilities have a 42 EIA Monthly Energy Review, June 2006 (Table
program requires that 250 million combined ethanol production capacity 10.1: Renewable Energy Consumption by Source,
Appendix A: Thermal Conversion Factors).
gallons of the renewable fuel consumed of 87 MMgal/yr. Finally, a planned 275 43 File containing historical RFG MTBE usage
in 2013 and beyond meet the definition MMgal/yr ethanol production facility obtained from EIA representative on March 9, 2006.
of cellulosic biomass ethanol. As plans to burn a combination of coal, 44 EIA 2004 Petroleum Marketing Annually (Table
discussed in Section III.B.1, the Act tires, and biomass. Depending on how 48: Prime Supplier Sales Volumes of Motor
TABLE VI.A.3–1.—2004 U.S. GASOLINE & OXYGENATE CONSUMPTION BY PADD

Ethanol MTBE a
Gasoline
PADD MMgal MMgal Percent MMgal Percent
PADD 1 .................................................................................................... 49,193 660 1.34 1,360 2.76

PADD 2 .................................................................................................... 38,789 1,616 4.17 1 0.00
PADD 3 .................................................................................................... 20,615 79 0.38 498 2.42
PADD 4 .................................................................................................... 4,542 83 1.83 0 0.00
PADD 5 b .................................................................................................. 7,918 209 2.63 19 0.23
California .................................................................................................. 14,836 853 5.75 0 0.00
Total .................................................................................................. 135,893 3,500 2.58 1,878 1.38

a MTBE blended into RFG.
b PADD 5 excluding California.
As shown above, nearly half (or about 33 percent was used in CG, and 5 past few years. From 2001 to 2004,
45 percent) of the ethanol was percent was used in winter oxy-fuel.46 ethanol consumption more than
consumed in PADD 2 gasoline, not As shown above in Table VI.A.3–1, 99 doubled (from 1.7 to 3.5 billion gallons),
surprisingly, where the majority of percent of MTBE use occurred in while MTBE use (in RFG) was virtually
ethanol was produced. The next highest PADDs 1 and 3. This reflects the high cut in half (from 3.7 to 1.9 billion
region of use was the State of California concentration of RFG areas in the gallons). A plot of oxygenate use over
which accounted for about 25 percent of northeast (PADD 1) and the local the past decade is provided below in
domestic ethanol consumption. This is production of MTBE in the gulf coast Figure VI.A.3–1.
reasonable because California alone (PADD 3). PADD 1 receives a large
portion of its gasoline from PADD 3 The nation’s transition to ethanol is
accounts for over 10 percent of the linked to states’’ responses to recent
refineries who either produce the fossil-
nation’s total gasoline consumption and environmental concerns surrounding
fuel based oxygenate or are closely
all the fuel (both Federal RFG and affiliated with MTBE-producing MTBE groundwater contamination.
California Phase 3 RFG) has been petrochemical facilities in the area. Resulting concerns over drinking water
assumed to contain ethanol (following Overall, 100 percent of MTBE in 2004 quality have prompted several states to
their recent MTBE ban) at 5.7 volume was assumed to be used in reformulated significantly restrict or completely ban
percent.45 The bulk of the remaining gasoline.47 MTBE use in gasoline. At the time of
ethanol was used in reformulated In 2004, total ethanol use exceeded this analysis, 19 states had adopted
gasoline (RFG) and winter oxy-fuel areas MTBE use. Ethanol’s lead oxygenate MTBE bans. A list of the states with
requiring oxygenated gasoline. Overall, role is relatively new, however the trend MTBE bans is provided in DRIA Table
62 percent of ethanol was used in RFG, has been a work in progress over the 2.1–4.
Gasoline by Grade, Formulation, PAD District, and 46 For the purpose of this analysis, except where 47 2004 MTBE consumption was obtained from
State). noted, the term pertains to Federal RFG plus EIA. The data received was limited to states with
45 Based on conversation with Dean Simeroth at California Phase 3 RFG (CaRFG3) and Arizona RFG programs, thus MTBE use was assumed to be
California Air Resources Board (CARB). Clean Burning Gasoline (CBG). limited to RFG areas for the purpose of this
analysis.
4. Expected Growth in Ethanol and into RFG areas. By 2012, however, impacts of expanded use of renewable
Consumption ethanol production will have grown to fuels, we have chosen to evaluate two
As mentioned above, ethanol demand accommodate the removal of MTBE different future ethanol consumption
is expected to increase well beyond the without the need for such a shift from levels, one reflecting the statutory
levels contained in the renewable fuels conventional gasoline. More important required minimum, and one reflecting
standard (RFS) under the Act. With the than the removal of MTBE over the long the higher levels projected by EIA. For
removal of the oxygenate mandate for term, however, is the impact that the the statutory consumption scenario we
reformulated gasoline (RFG),49 all U.S. dramatic rise in the price of crude oil is assumed 7.2 billion gallons of ethanol
refiners are expected to eliminate the having on demand for renewable fuels, (0.25 of which was assumed to be
use of MTBE in gasoline as soon as both ethanol and biodiesel. This has cellulosic) and 0.3 billion gallons of
possible. In order to accomplish this dramatically improved the economics biodiesel. For the higher projected
transition quickly (by 2006 or 2007 at for renewable fuel use, leading to a renewable fuel consumption scenario,
the latest) while maintaining gasoline surge in demand that is expected to we assumed 9.6 billion gallons of
volume, octane, and mobile source air continue. In the Annual Energy Outlook ethanol (0.25 of which is once again
toxics emission performance standards, (AEO) 2006, EIA forecasted that by assumed to be cellulosic) and 0.3 billion
refiners are electing to blend ethanol 2012, total ethanol use (corn, cellulosic, gallons of biodiesel. Although the actual
into virtually all of their RFG.50 This has and imports) would be about 9.6 billion renewable fuel volumes consumed in
caused a dramatic increase in demand gallons 51 and biodiesel use would be 2012 may differ from both the required
for ethanol which, in 2006 is being met about 0.3 billion gallons at a crude oil and projected volumes, we believe that
by temporarily shifting large volumes of price forecast of $47 per barrel. This these two scenarios provide a
ethanol projection was not based on reasonable range for analysis
ethanol out of conventional gasoline
what amount the market would demand purposes.52
48 Total ethanol use based on EIA Monthly Energy (which could be higher), but rather on In addition to modeling two different
Review, June 2006 (Table 10.1: Renewable Energy the amount that could be produced by future 2012 ethanol consumption levels,
Consumption by Source, Appendix A: Thermal 2012. Others are making similar two scenarios were considered based on
Conversion Factors). MTBE use in RFG also predictions, and as discussed above in how refineries could potentially
provided by EIA (file received from EIA respond to the recent removal of the
representative on March 9, 2006). Reported 2004 VI.A.2, production capacity would be
MTBE use has been adjusted from 2.0 to 1.9 Bgal sufficient. Therefore, in assessing the RFG oxygenate mandate. In both cases,
based on assumption of timely implementation of the impacted RFG areas did not change
CA, CT, and NY MTBE bans on 1/1/04 (EIA 51 AEO 2006 Table 17 Renewable Energy
reported a slight delay and thus showed small Consumption by Sector and Source shows 0.80 52 As a comparison point for cost and emissions
amounts of MTBE use in these states in 2004). quadrillion BTUs of energy coming from ethanol in analyses, a 2012 reference case of 3.9 billion gallons
49 Energy Act Section 1504, promulgated on May
2012. A parallel spreadsheet provided to EPA of ethanol was also considered. The reference case
8, 2006 at 71 FR 26691. shows 2012 total ethanol use as 628.7 thousand is described in Section II.A.1 (above) and a
50 Based on discussions with the refining bbls/day (which works out to be 9.64 billion complete derivation is contained in DRIA Section
EP22SE06.004</GPH>
industry. gallons/yr). 2.1.3.
from the 2004 base case.53 In the zero) ethanol in RFG based on the 3. 9.6 billion gallons of ethanol,
maximum scenario (‘‘max-RFG’’), minimum amount needed to meet maximum amount used in RFG areas;
refineries would continue to add volume, octane, and/or total toxics and
oxygenate (ethanol) into all batches of performance requirements. Applying 4. 9.6 billion gallons of ethanol,
reformulated gasoline. In this case, the max-RFG and min-RFG criteria minimum amount used in RFG areas.
refineries currently blending MTBE (at resulted in a total of four different 2012 The seasonal RFG assumptions
11 volume percent) would be expected ethanol consumption control cases: applied in 2012 (in terms of percent
to replace it with ethanol (at 10 volume 1. 7.2 billion gallons of ethanol, ethanol marketshare) are summarized
percent). In the minimum scenario maximum amount used in RFG areas; below in Table VI.A.4–1. The rationale
(‘‘min-RFG’’), we predict some refineries 2. 7.2 billion gallons of ethanol, behind these selected values are
would respond by using less (or even minimum amount used in RFG areas; explained in DRIA Section 2.1.4.2.
TABLE VI.A.4–1.—2012 RFG AREA ASSUMPTIONS

ETOH-blended gasoline (% market share) a
RFG areas Max-RFG scenario

Min-RFG
scenario Summer Winter Summer
(percent) (percent) (percent)
PADD 1 ............................................................................................................................................ 0 100 100 100

PADD 2 ............................................................................................................................................ 50 100 100 100
PADD 3 ............................................................................................................................................ 0 25 100 100
California b ........................................................................................................................................ 25 100 100 100
Arizona c ........................................................................................................................................... 0 100 100 100
a Percent marketshare of E10, with the exception of California (E5.7 year-round) and Arizona (E5.7 summer only).
b Pertains to both Federal RFG and California Phase 3. RFG.
c Pertains to Arizona Clean Burning Gasoline (CBG).
Once we determined how much implemented to maintain CO attainment price minus ethanol delivered price
ethanol was likely to be used in RFG status.54 By 2012, 4 areas are expected adjusted by miscellaneous subsidies/
areas (by PADD), we systematically to be redesignated to CO attainment penalties). The methodology is
allocated the remaining ethanol into status and discontinue oxy-fuel use and described in DRIA Section 2.1.4.3.
conventional gasoline. First it was 2 areas are predicted to discontinue
The main difference in the four
apportioned to winter oxy-fuel areas. In using oxy-fuel as a maintenance
resulting ethanol consumption scenarios
the 2004 base case, there were 14 state- strategy. Accordingly, a reduced amount
implemented winter oxy-fuel programs of ethanol was allocated to oxy-fuel was how far the ethanol penetrated the
in 11 states. Of these programs, 9 were areas in 2012. The remaining ethanol conventional gasoline pool. A summary
required in response to non-attainment was distributed to conventional gasoline of the forecasted 2012 ethanol
with the CO National Ambient Air (CG) in different states based on a consumption (by control case, fuel type
Quality Standards (NAAQS) and 4 were computed ethanol margin (rack gasoline and season) is found in Table VI.A.4–2.
TABLE VI.A.4–2.—2012 FORECASTED U.S. ETHANOL CONSUMPTION BY SEASON

Ethanol consumption (MMgal)
2012 Control case CG OXY a RFG b Total
Summer Winter Winter Summer Winter Summer Winter
7.2 Bgal/Max-RFG ............................................................... 1,269 1,537 72 1,932 2,389 3,201 3,999

7.2 Bgal/Min-RFG ................................................................ 2,144 2,571 72 244 2,168 2,388 4,812
9.6 Bgal/Max-RFG ............................................................... 2,356 2,830 73 1,941 2,400 4,297 5,303
9.6 Bgal/Min-RFG ................................................................ 3,223 3,881 73 246 2,178 3,468 6,132
a Winter oxy-fuel programs.
b Federal RFG plus Ca Phase 3 RFG and Arizona CBG.
As expected, the least amount of resulting 2012 control cases, refer to production in the U.S. The cost to
ethanol was consumed in conventional DRIA Section 2.1.4.6. produce biodiesel was high compared to
gasoline in the 7.2 billion gallon control B. Overview of Biodiesel Industry and the price of petroleum derived diesel
case when a maximum amount was Future Production/Consumption fuel, even with consideration of the
allocated to RFG. Similarly, the most benefits of subsidies and credits
ethanol was consumed in CG in the 9.6 1. Characterization of U.S. Biodiesel provided by Federal and state programs.
billion gallon control case when a Production/Consumption Much of the demand occurred as a
minimum amount was allocated to RFG. Historically, the cost to make result of mandates from states and local
For more information on the four biodiesel was an inhibiting factor to municipalities, which required the use
53 For a list of the Federal RFG areas, refer to 54 Refer to DRIA Table 2.1–2.
DRIA Table 2.2–1.
of biodiesel. However, over the past TABLE VI.B.1–1.—ESTIMATED corresponding rapid expansion in
couple years biodiesel production has BIODIESEL PRODUCTION biodiesel production capacity.
been increasing rapidly. The Presently, there are 65 biodiesel plants
combination of higher crude oil prices Million in operation with an annual production
and greater Federal tax subsidies has Year gallons capacity of 395 million gallons per
created a favorable economic situation. per year
year.55 The majority of the current
The Biodiesel Blenders Tax Credit
2001 .......................................... 5 production capacity was built in 2005,
programs and the Commodity Credit 2002 .......................................... 15 and was first available to produce fuel
Commission Bio-energy Program, both 2003 .......................................... 20 in the last quarter of 2005. Though
subsidize producers and offset 2004 .......................................... 25 capacity has grown, historically the
production costs. The Energy Policy Act 2005 .......................................... 91 biodiesel production capacity has far
extended the Biodiesel Blenders Tax 2006 .......................................... 150
Credit program to 2008. This credit 2007 .......................................... 414 exceeded actual production with only
provides about one dollar per gallon in 2012 .......................................... 303 10–30 percent of this being utilized to
the form of a Federal excise tax credit make biodiesel, see Table VI.B.1–2.56
Source: Historical data from 2001–2004 ob-
to biodiesel blenders from virgin tained from estimates from John Baize ‘‘ The
vegetable oil feedstocks and 50 cents per Outlook and Impact of Biodiesel on the Oil-
gallon to biodiesel produced from seeds Sector’’ USDA Outlook Conference 06.
Year 2005 data from USDA Bioenergy Pro-
recycled grease and animal fats. The gram http://www.fsa.usda.gov/daco/bioenergy/
program was started in 2004 under the 2005/FY2005ProductPayments, Year 2006
American Jobs Act, spurring the data from verbal quote based on projection by
expansion of biodiesel production and NBB in June of 2006. Production data for
demand. Historical estimates and future years 2007 and higher are from EIA’s AEO
2006.
forecasts of biodiesel production in the
U.S. are presented in Table VI.B.1–1 With the increase in biodiesel
below. production, there has also been a
TABLE VI.B.1–2.—U.S. PRODUCTION CAPACITY HISTORYa

2001 2002 2003 2004 2005 2006
Plants ................................................................................................................................... 9 11 16 22 45 53
Capacity (million gal/yr) ....................................................................................................... 50 54 85 157 290 354
a Capacity Data based on surveys conducted around the month of September for most years, though the 2006 information is based on survey
conducted in January 2006.
2. Expected Growth in U.S. Biodiesel phase, which when completed would equity, permitting, conceptual design,
Production/Consumption increase total biodiesel production buying equipment) with a capacity of
capacity to over one billion gallons per 755 million gallons/year. As shown in
In addition to the 53 biodiesel plants year. Most of these plants should be Table VI.B.2–1, if all of this capacity
already in production, as of early 2006, completed by early 2007. There were came to fruition, U.S. biodiesel capacity
there were an additional 50 plants and also 36 more plants in various stages of would exceed 1.8 billion gallons.
8 plant expansions in the construction the preconstruction phase (i.e. raising
TABLE VI.B.2–1.—PROJECTED BIODIESEL PRODUCTION CAPACITY
Construction Pre-construction
Existing plants phase phase
Number of plants ....................................................................................................................... 53 58 36

Total Plant Capacity, MM Gallon/year ....................................................................................... 354 714 754.7
For cost and emission analysis consisted of approximately 28 million assumption that the blender’s tax credit
purposes, three biodiesel usage cases gallons of biodiesel. Finally, for the is not renewed beyond 2008. If the tax
were considered: A 2004 base case, a 2012 control case, forecasted biodiesel credit is renewed, the projection for
2012 reference case, and a 2012 control use was assumed to be 300 million biodiesel demand would increase.
case. The 2004 base case was formed gallons based on EIA’s AEO 2006 report C. Feasibility of the RFS Program
based on historical biodiesel usage (25 (rounded value from Table VI.B.1.1). Volume Obligations
million gallons as summarized in Table Unlike forecasted ethanol use, biodiesel
VI.B.1.1). The reference case was use was assumed to be constant at 300 This section examines whether there
computed by taking the 2004 base case million gallons under both the statutory are any feasibility issues associated with
and growing it out to 2012 in a manner and higher projected renewable fuel the meeting the minimum renewable
consistent with the growth of gasoline.57 consumption scenarios described in fuel requirements of the Energy Act.
The resulting 2012 reference case VI.A.4. EIA’s projection is based on the Issues are examined with respect to
55 NBB Survey April 28, 2006 ‘‘Commercial 56 From Presentation ‘‘Biodiesel Production 57 EIA Annual Energy Outlook 2006, Table 1.
Biodiesel Production Plants.’’ Capacity,’’ by Leland Tong, National Biodiesel
Conference and Expo, February 7, 2006.
renewable production capacity, efficient and effective enzyme where they are blended into petroleum-
cellulosic ethanol production capacity, hydrolysis of the cellulose/ based fuel as it is loaded into tank
and distribution system capability. Land hemicellulose to glucose and xylose. trucks for delivery to retail and fleet
resource requirements are discussed in The central problem is that the a-linked operators. In cases where ethanol and
Chapter 7 of the RIA. saccharide polymers in the cellulose/ biodiesel are produced within 200 miles
hemicellulose structure prevent the of a terminal, trucking is often the
1. Production Capacity of Ethanol and
microbial fermentation reaction. By preferred means of distribution. For
Biodiesel
comparison, when corn kernels are used longer shipping distances, the preferred
As shown in sections VI.A. and VI.B., as feedstock, fermentation of the starch method of bringing renewable fuels to
increases in renewable fuel production produced from the corn kernels which terminals is by rail and barge.
capacity are already proceeding at a have a-linked saccharide polymers takes Modifications to the rail, barge, tank
pace significantly faster than required to place much more readily. An acid truck, and terminal distribution systems
meet the 2012 mandate in the Act of 7.5 hydrolysis process was developed to will be needed to support the transport
billion gallons. The combination of pretreat cellulosic feedstocks (through of the anticipated increased volumes of
ethanol and biodiesel plants in hydrolysis which breaks up the b-links), renewable fuels. These modifications
existence and planned or under but it continues to be prohibitively include the addition of terminal
construction is expected to provide a expensive for producing ethanol. blending systems for ethanol and
total renewable fuel production capacity Some technologies that are being biodiesel, additional storage tanks at
of over 9.6 billion gallons by the end of developed may solve some of the terminals, additional rail delivery
2012. Production capacity is expected to problems associated with production of systems at terminals for ethanol and
continue to increase in response to ethanol from cellulosic sources. biodiesel, and additional rail cars,
strong demand. We estimate that this Specifically, one problem with barges, and tank trucks to distribute
will require a maximum of 2,100 cellulosic feedstocks is that the ethanol and biodiesel to terminals.
construction workers and 90 engineers hydrolysis reactions produce both Terminal storage tanks for 100 percent
on a monthly basis through 2012. glucose, a six-carbon sugar, and xylose, biodiesel will also need to be heated
2. Production Capacity of Cellulosic a five-carbon sugar (pentose sugar, during cold months to prevent gelling.
Ethanol C5H10O5; sometimes called ‘‘wood In the past the refining industry has
sugar’’). Early conversion technology raised concerns regarding whether the
Beginning in 2013, a minimum of 250 required different microbes to ferment distribution infrastructure can expand
million gallons per year of cellulosic each sugar. Recent research has rapidly enough to accommodate the
ethanol must be used in gasoline. The developed better cellulose hydrolysis increased demand for ethanol. The most
Act’s definition of cellulosic, however, enzymes and ethanol-fermenting comprehensive study of the
includes corn based ethanol as long as organisms. Now, glucose and xylose can infrastructure requirements for an
greater than 90% of the process energy be co-fermented—hence, the present- expanded fuel ethanol industry was
was derived from animal wastes or other day terminology: Weak-acid enzymatic conducted for the Department of Energy
waste materials. As discussed in section hydrolysis and co-fermentation. In (DOE) in 2002.58 The conclusions
VI.A. above, we believe that of the addition, several research groups, using reached in that study indicate that the
ethanol plants currently in existence, recently developed genome modifying changes needed to handle the
under construction, or in the final stages technology, have been able to produce anticipated increased volume of ethanol
of planning there is likely to be more a variety of new or modified enzymes by 2012 will not represent a major
than 250 million gallons per year of and microbes that show promise for use obstacle to industry. While some
ethanol produced from plants which in a process known as weak-acid, changes have taken place since this
meet these alternative definitions for enzymatic-prehydrolysis. report was issued, including an
cellulosic ethanol. Cellulosic biomass can come from a increased reliance on rail over marine
However, this is not to say that variety of sources. Because the transport, we continue to believe that
ethanol produced from cellulose will conversion of cellulosic biomass to the rail and marine transportation
not be part of the renewable supply by ethanol has not yet been commercially industries can manage the increased
2012. As far as we know there is demonstrated, we cannot say at this growth in demand in an orderly fashion.
currently only one demonstration-level time which feedstocks are superior to This belief is supported by the
cellulosic ethanol plant in operation in others. In particular, there is only one demonstrated ability for the industry to
North America; it produces 1 million cellulosic ethanol plant in North handle the rapid increases and
gallons of ethanol per year (Iogen a America (Iogen, Ottawa, Ontario, redistribution of ethanol use across the
privately held company, based in Canada). To the best of our knowledge, country over the last several years as
Ottawa, Ontario, Canada). However, the the technology that Iogen employs is not MTBE was removed. The necessary
technology used to produce ethanol yet fully developed or optimized. facility changes at terminals and at retail
from cellulosic feedstocks continues to Generally, the industry seems to be stations to dispense ethanol containing
improve. With the grants made available moving toward a process that uses fuels have been occurring at a record
through the Energy Act, we expect dilute acid enzymatic prehydrolysis pace. Given that future growth is
several cellulosic process plants will be with simultaneous saccharification expected to progress at a steadier pace
constructed and an ever increasing (enzymatic) and co-fermentation. and with greater advance warning in
effort will naturally be made to find response to economic drivers, we
better, more efficient ways to produce 3. Renewable Fuel Distribution System
Capability anticipate that the distribution system
cellulosic ethanol. will be able to respond appropriately. A
To produce ethanol from cellulosic Ethanol and biodiesel blended fuels discussion of the costs associated
feedstocks, pretreatment is necessary to are not shipped by petroleum product making the changes discussed above is
hydrolyze cellulosic and hemicellulosic pipeline due to operational issues and
polymers and break down the lignin additional cost factors. Hence, a 58 ‘‘Infrastructure Requirements for an Expanded
sheath. In so doing, the structure of the separate distribution system is needed Fuel Ethanol Industry,’’ Downstream Alternatives
cellulosic feedstock is opened to allow for ethanol and biodiesel up to the point Inc., January 15, 2002.
contained in section VII.B. of this growth in renewable fuel use in the and the increased cost due to the
preamble. context of corresponding changes to the production of alkylate.
makeup of gasoline. These fuel impacts As discussed in section II., we chose
VII. Impacts on Cost of Renewable
include the elimination of the to analyze a range of renewable fuels
Fuels and Gasoline
reformulated gasoline (RFG) oxygen
use. In the case of ethanol’s use in
This section examines the impact on standard which has resulted in the
fuel costs resulting from the growth in gasoline, the lower end of this range is
refiners ceasing to use the gasoline
renewable fuel use between a base year blendstock methyl tertiary butyl ether based on the minimum renewable fuel
of 2004 and 2012. We note that based (MTBE) and replacing it with ethanol. volume requirements in the Act, and the
on analyses conducted by the Energy We also expect that by ending the use higher end is based on AEO 2006. At
Information Administration (EIA), of MTBE that the former MTBE both ends of this range, we assume that
renewable fuels will be used in gasoline feedstock, isobutylene, will be reused to biodiesel consumption will be the level
and diesel fuel in excess and produce increased volumes of alkylate, estimated in AEO 2006. We analyzed
independent of the RFS requirements. a moderate to high octane gasoline the projected fuel consumption scenario
As such, the changes in the use of blendstock. Thus, in this analysis, we and associated program costs in 2012,
renewable fuels and their related cost are assessing the impact on the cost of the year that the RFS is fully phased-in.
impacts are not directly attributable to gasoline and diesel fuel of increased use The volumes of renewable fuels
the RFS rule. Rather, our analysis of renewable fuels, the cost savings consumed in 2012 at the two ends of the
assesses the broader fuels impacts of the resulting from the phase out of MTBE range are summarized in Table VII–1.
TABLE VII–1.—RENEWABLE FUELS VOLUMES USED IN COST ANALYSIS

Renewable fuels
consumption in 2012
(billion gallons)
Low High
Corn Ethanol .......................................................................................................................................................... 6.95 9.35

Cellulosic Ethanol .................................................................................................................................................. 0.25 0.25
Biodiesel ................................................................................................................................................................ 0.30 0.30
Total Biofuel Consumption ............................................................................................................................. 7.5 9.90
We have estimated an average corn to ethanol use in RFG and butane 1990s that has been continuously
ethanol production cost of $1.20 per control constraints. The 9.9 bill gal/yr updated by USDA. The most current
gallon in 2012 (2004 dollars) in the case case would result in increased total version was documented in a peer-
of 7.5 billion gallons per year (bill gal/ costs which range from 0.93 to 1.05 reviewed journal paper on cost
yr) and $1.26 per gallon in the case of cents per gallon. The actual cost at the modeling of the dry-grind corn ethanol
9.9 bill gal/yr. For cellulosic ethanol, we fuel pump, however, will be decreased process,59 and it produces results that
estimate it will cost approximately due the effect of State and Federal tax compare well with cost information
$1.65 in 2012 (2004 dollars) to produce subsidies for ethanol. Taking this into found in surveys of existing plants.60
a gallon of ethanol using corn stover as consideration results in ‘‘at the pump’’ We made some minor modifications to
a cellulosic feedstock. In this analysis, decreased costs (cost savings) ranging the USDA model to allow scaling of the
however, we assume that the cellulosic from 0.82 to 0.89 cents per gallon for the plant size, to allow consideration of
requirement will be met by corn-based 7.5 bill gal/yr case and ‘‘at the pump’’ plant energy sources other than natural
ethanol produced by energy sourced decreased costs ranging from 0.98 to gas, and to adjust for energy prices in
from biomass (animal and other waste 1.08 cents per gallon for the 9.9 bill gal/ 2012, the year of our analysis.
materials as discussed in Section III.B of yr case. We ask for comment on these
The cost of ethanol production is
this preamble) and costing the same as derived costs as well as on the analysis
most sensitive to the prices of corn and
corn based ethanol produced by methodology used to derive these costs,
the primary co-product, DDGS. Utilities,
conventional means. and refer the reader to Section 7 of the
We estimated production costs for capital, and labor expenses also have an
DRIA which contains much more detail
soy-derived biodiesel of $2.06 per gallon on the cost analysis used to develop impact, although to a lesser extent. Corn
in 2004 and $1.89 per gal in 2012. For these costs. feedstock minus DDGS sale credits
yellow grease derived biodiesel, we represents about 50% of the final per-
estimate an average production cost of A. Renewable Fuel Production and gallon cost, while utilities, capital and
$1.19 per gallon in 2004 and $1.10 in Blending Costs labor comprise about 20%, 10%, and
2012. 5%, respectively. For this work, we
1. Ethanol Production Costs
The impacts on overall gasoline costs used corn price projections from USDA
with and without fuel consumption a. Corn Ethanol. A significant amount of $2.23 per bushel in 2012 for the 7.2
subsidies resulting from the increased of work has been done in the last decade bill gal/yr case, and an adjusted value of
use of ethanol and the corresponding on surveying and modeling the costs $2.31 per bushel for the 9.6 bill gal/yr
changes to the other aspects of gasoline involved in producing ethanol from

were estimated for both of these cases. corn, to serve business and investment 59 Kwaitkowski, J.R., McAloon, A., Taylor, F.,
The 7.5 bill gal/yr case would result in purposes as well as to try to educate Johnston, D.B., Industrial Crops and Products 23
(2006) 288–296.
increased total costs which range from energy policy decisions. Corn ethanol 60 Shapouri, H., Gallagher, P., USDA’s 2002
0.33 cents to 0.41 cents per gallon costs for our work were estimated using Ethanol Cost-of-Production Survey (published July
depending on assumptions with respect a model developed by USDA in the 2005).
case.61 The adjustment at the higher corn ethanol meeting cellulosic criteria, assumed for pioneer process plants is
volume case was taken from work done we assume that the costs will not be generally unrealistic.
by FAPRIand EIA. 62 63 Prices used for significantly different from Instead, the NREL researchers
DDGS were $65 per ton in the 7.2 bill conventionally produced corn ethanol. assumed that the corn stover plant was
gal/yr case and $55 per ton in the 9.6 We believe this is reasonable because an Nth generation plant, e.g., not a
case, based on work by FAPRI and these processes will simply be corn pioneer plant or first-or-its kind, built
EIA.64 Energy prices were derived from ethanol plants with additional fuel after the industry had been sufficiently
historical data and projected to 2012 handling mechanisms that allow them established to provide verified costs.
using EIA’s AEO 2006.65 While we to combust waste materials for process The corn stover plant was normalized to
believe the use of USDA and FAPRI energy instead of natural gas. We expect the corn kernel plant, e.g., placed on a
estimates for corn and DDGS prices is them to be in locations where the very similar basis.70 It is also reasonable to
reasonable, additional modeling work is low or zero cost of the waste material or expect that the cost of cellulosic ethanol
being done for the final rulemaking biogas itself will likely offset the costs would be higher than corn ethanol
using the Forestry and Agricultural of hauling it and/or the additional because of the complexity of the
Sector Optimization Model described capital for processing and firing it, cellulose conversion process. Recently,
further in Chapter 8 of the RIA. making them cost-competitive with process improvements and
The estimated average corn ethanol conventional corn ethanol plants. advancements in corn production have
production cost of $1.20 per gallon in Furthermore, because the quantity of considerably reduced the cost of
2012 (2004 dollars) in the case of 7.2 bill ethanol produced using these processes producing corn ethanol. We also believe
gal/yr and $1.26 per gallon in the case is still expected to be a relatively small it is realistic to assume that cellulose-
of 9.6 bill gal/yr represents the full cost fraction of the total ethanol demand, the derived ethanol process improvements
to the plant operator, including sensitivity of the overall analysis to this will be made and that one can likewise
purchase of feedstocks, energy required assumption is also very small. Based on reasonably expect that as the industry
for operations, capital depreciation, these factors, we have assigned starch matures, the cost of producing ethanol
labor, overhead, and denaturant, minus ethanol made using this cellulosic from cellulose will also decrease.
revenue from sale of co-products. It does criteria the same cost as ethanol We calculated fixed and variable
not account for any subsidies on produced from corn using conventional operating costs using percentages of
production or sale of ethanol. This cost means. direct labor and total installed capital
is independent of the market price of b. Cellulosic Ethanol. In 1999, the costs. Following this methodology, we
ethanol, which has been related closely National Renewable Energy Laboratory estimate that producing a gallon of
to the wholesale price of gasoline for the (NREL) published a report outlining its ethanol using corn stover as a cellulosic
past decade.66 67 work with the USDA to design a feedstock would cost $1.65 in 2012
Under the Energy Act, starch-based computer model of a plant to produce (2004 dollars).
ethanol can be counted as cellulosic if ethanol from hardwood chips.69 c. Ethanol’s Blending Cost. Ethanol
at least 90% of the process energy is Although the model was originally has a high octane value of 115 (R+M)/
derived from renewable feedstocks, prepared for hardwood chips, it was 2 which contributes to its value as a
which include plant cellulose, meant to serve as a modifiable-platform gasoline blendstock. As the volume of
municipal solid waste, and manure for ongoing research using cellulosic ethanol blended into gasoline increases
biogas.68 It is expected that the 250 biomass as feedstock to produce from 2004 to 2012, refiners will account
ethanol. Their long-term plan was that for the octane provided by ethanol when
million gallons per year of cellulosic
various indices, costs, technologies, and they plan their gasoline production.
ethanol production required by 2013
other factors would be regularly This additional octane would allow
will be made using this provision.
updated. them to back off of their octane
While we have been unable to develop NREL and USDA used a modified
a detailed production cost estimate for production from their other gasoline
version of the model to compare the cost producing units resulting in a cost
61 USDA Agricultural Baseline Projections to
of using corn-grain with the cost of savings to the refinery. For this cost
2015, Report OCE–2006–1. using corn stover to produce ethanol. analysis, the cost savings is expressed as
62 EIA NEMS model for ethanol production, We used the corn stover model from the a cost credit to ethanol added to the
updated for AEO 2006. second NREL/USDA study for the production cost for producing ethanol.
63 Food and Agricultural Policy Research Institute
analysis for this proposed rule. Because We obtained gasoline blending costs
(FAPRI) study entitled ‘‘Implications of Increased there were no operating plants that
Ethanol Production for U.S. Agriculture’’, FAPRI– on a PADD basis for octane from a
UMC Report #10–05. could potentially provide real world consultant who conducted a cost
64 Food and Agricultural Policy Research Institute process design, construction, and analysis for a renewable fuels program
(FAPRI) U.S. and World Agricultural Outlook, operating data for processing cellulosic using an LP refinery cost model. LP
January 2006, FAPRI Staff Report 06–FSR 1. ethanol, NREL had considered modeling refinery models value the cost of octane
65 Historical data at http://tonto.eia.doe.gov/dnav/
the plant based on assumptions based on the octane producing capacity
pet/pet_pri_allmg_d_nus_PTA_cpgal_m.htm
(gasoline), http://tonto.eia.doe.gov/dnav/ng/
associated with a first-of-a-kind or for the refinery’s existing units, by
ng_pri_sum_dcu_nus_m.htm (natural gas), http:// pioneer plant. The literature indicates
www.eia.doe.gov/cneaf/electricity/page/ that such models often underestimate 70 Determining the Cost of Producing Ethanol
sales_revenue.xls (electricity), http:// actual costs since the high performance from Corn Starch and Lignocellulosic Feedstocks; A
www.eia.doe.gov/cneaf/coal/page/acr/table28.html Joint Study Sponsored by: USDA and USDOE,
(coal); EIA Annual Energy Outlook 2006, Tables 8, 69 Lignocellulosic Biomass to Ethanol Process October 2000, NREL/TP–580–28893, Andrew
12, 13, 15; EIA Web site. McAloon, Frank Taylor, Winnie Yee, USDA,
66 Whims, J., Sparks Companies, Inc. and Kansas
Design and Economics Utilizing Co-Current Dilute
Acid Prehydrolysis and Enzymatic Hydrolysis Eastern Regional Research Center Agricultural
State University, ‘‘Corn Based Ethanol Costs and Current and Futuristic Scenarios, Robert Wooley, Research Service; Kelly Ibsen, Robert Wooley,
Margins, Attachment 1’’ (Published May 2002). Mark Ruth, John Sheehan, and Kelly Ibsen, National Renewable Energy Laboratory,
67 Piel, W.J., Tier & Associates, Inc., March 9,
Biotechnology Center for Fuels and Chemicals Biotechnology Center for Fuels and Chemicals,
2006 report on costs of ethanol production and Henry Majdeski and Adrian Galvez, Delta-T 1617 Cole Boulevard, Golden, CO 80401–3393;
alternatives. Corporation; National Renewable Energy NREL is a USDOE Operated by Midwest Research
68 Energy Policy Act of 2005, Section 1501 Laboratory, Golden, CO, July 1999, NREL/TP–580– Institute Battelle Bechtel; Contract No. DE–AC36–
amending Clean Air Act Section 211(o)(1)(A). 26157. 99–GO10337.
added capital and operating costs for of established engineering relationships, Congress may later elect to extend the
new octane producing capacity, and process operating conditions and blender credit program, though,
based on purchased gasoline reagent needs. To substantiate the following the precedence used for
blendstocks. The value of octane is validity and accuracy of their model, extending the ethanol blending
expressed as a per-gallon cost per octane USDA solicited feedback from major subsidies. Additionally, the Small
value, and ranges from 0.38 cents per biodiesel producers. Based on Biodiesel Blenders Tax credit program
octane-gallon in PADD 2 where lots of responses, they then made adjustments and state tax and credit programs offer
ethanol is expected to be used, to 1.43 to their model. The NREL model is also some additional subsidies and credits,
cents per octane-gallon in California. based on process simulation software, though the benefits are modest in
Octane is more costly in California though the results are adjusted to reflect comparison to the Blender’s Tax credit.
because the Phase 3 RFG standards NREL’s modeling methods.
restriction aromatics content which also The production costs are based on an 3. Diesel Fuel Costs
reduces the use of a gasoline blendstock average biodiesel plant located in the Biodiesel fuel is blended into
named reformate—a relatively cheap Midwest using soy oil and methanol, highway and nonroad diesel fuel, which
source of octane. Also, California’s which are catalyzed into esters and increases the volume and therefore the
Phase 3 RFG distillation restrictions glycerol by use of sodium hydroxide. supply of diesel fuel and thereby
tend to limit the volume of eight carbon Because local feedstock costs, reduces the demand for refinery-
alkylate, another lower cost and distribution costs, and biodiesel plant produced diesel fuel. In this section, we
moderately high octane blendstock. type introduce some variability into cost estimate the overall cost impact,
Another blending factor for ethanol is estimates, we believe that using an considering how much refinery-based
its energy content. Ethanol contains a average plant to estimate production diesel fuel is displaced by the forecasted
lower heat content per gallon than costs provides a reasonable approach. production volume of biodiesel fuel.
gasoline. Since refiners blend up their Therefore, we simplified our analysis The cost impacts are evaluated
gasoline based on volume, they do not and used costs based on an average considering the production cost of
consider the energy content of its plant and average feedstock prices since biodiesel with and without the subsidy
gasoline, only its price. Instead, the the total biodiesel volumes forecasted from the Biodiesel Blenders Tax credit
consumer pays for a gasoline’s energy are not large and represent a small program. Additionally, the diesel cost
density based on the distance that the fraction of the total projected renewable impacts are quantified under two
consumer can achieve on a gallon of volumes. The production costs are scenarios, with refinery diesel prices as
gasoline. Since we try to capture all the based on a plant that makes 10 million forecasted by EIA’s AEO 2006 with
costs of using ethanol, we consider this gallons per year of biodiesel fuel. crude at $47 a barrel and with refinery
effect. Ethanol contains 76,000 British The model is further modified to use diesel prices based on $70 per barrel
Thermal Units (BTU) per gallon which input prices for the feedstocks, crude oil.
is significantly lower than gasoline, byproducts and energy prices to reflect We estimate the net effect that
which contains an average of 115,000 the effects of the fuels provisions in the biodiesel production has on overall cost
BTUs per gallon. This lower energy Energy Act. Based on the USDA model, for diesel fuel in year 2012 using total
density is accounted for below in the for soy oil-derived biodiesel we estimate production costs for biodiesel and diesel
discussion of the gasoline costs. a production cost of $2.06 per gallon in fuel. The costs are evaluated based on
2004 and $1.89 per gal in 2012 (in 2004 how much refinery-based diesel fuel is
2. Biodiesel Production Costs dollars) For yellow grease derived displaced by the biodiesel volumes as
We based our cost to produce biodiesel, USDA’s model estimates an forecasted by EIA, accounting for energy
biodiesel fuel on a range estimated from average production cost of $1.19 per density differences between the fuels.
the use of USDA’s and NREL’s biodiesel gallon in 2004 and $1.10 in 2012 (in The cost impact is estimated from a
computer models. Both of these models 2004 dollars). In order to capture a range 2004 year basis, by multiplying the
represent the continuous of production costs, we compared these production costs of each fuel by the
transesterification process for cost projections to those derived from respective changes in volumes for
converting vegetable soy oil to esters, the NREL biodiesel model. With the biodiesel and estimated displaced diesel
along with the ester finishing processes NREL model, we estimate biodiesel fuel. We further assume that all of the
and glycerol recovery. The models production cost of $2.11 per gallon for forecasted biodiesel volume is used as
estimate biodiesel production costs soy oil feedstocks and $1.28 per gallon transport fuel, neglecting minor uses in
using prices for soy oil, methanol, for yellow grease in 2012, which are the heating oil market.
chemicals and the byproduct glycerol. slightly higher than the USDA results. For the AEO scenario, the net effect of
The models estimate the capital, fixed With the current Biodiesel Blender biodiesel production on diesel fuel
and operating costs associated with the Tax Credit Program, producers using costs, including the biodiesel blenders’
production of soy based biodiesel fuel, virgin vegetable oil stocks receive a one subsidy, is a reduction in the cost of
considering utility, labor, land and any dollar per gallon tax subsidy while transport diesel fuel costs by $90
other process and operating yellow grease producers receive 50 million per year, which equates to a
requirements. cents per gallon, reducing the net reduction in fuel cost of about 0.15
Each model is based on a medium production cost to a range of 89 to 111 c/gal.71 Without the subsidy, the
sized biodiesel plant that was designed cents per gallon for soy derived
transport diesel fuel costs are increased
to process raw degummed virgin soy oil biodiesel and 60 to 78 cents per gallon
by $118 million per year, or an increase
as the feedstock, yielding 10 million for yellow grease biodiesel in 2012. This
of 0.20 c/gal for transport diesel fuel.
gallons per year of biodiesel fuel. USDA compares favorably to the projected
With crude at $70 per barrel, including
estimated the equipment needs and wholesale diesel fuel prices of 138 cents
the biodiesel blenders subsidy, results
operating requirements for their per gallon in 2012, signifying that the
in a cost reduction of $184 million per
biodiesel plant through the use of economics for biodiesel are positive
process simulation software. This under the effects of the blender credit 71 Based on EIA’s AEO 2006, the total volume of
software determines the biodiesel program, though, the tax credit program highway and off-road diesel fuel consumed in 2012
process requirements based on the use expires in 2008 if not extended. was estimated at 58.9 billion gallons.
year, or a reduction of 0.31 c/gal for the of the capital costs associated with gal/yr of ethanol would be used in 2010,
total transport diesel pool. Without the upgrading the distribution infrastructure and the second assumed that 10 bill gal/
subsidy, transport diesel costs are system as well as the freight costs to yr of ethanol would be used in the 2015
increased by $25 million per year, or handle the increased volume of ethanol timetable. We interpolated between
0.04 c/gal. needed to meet the requirements of the these two cases to provide an estimate
RFS in 2012. Distribution costs are of the capital costs to support the use of
B. Distribution Costs evaluated here for the case where the 7.2 bill gal/yr of ethanol in 2012.73 The
1. Ethanol Distribution Costs minimum volume of ethanol is used to 10 bill gal/yr case examined in the DOE
meet the requirements of the RFS (7.2 study was used to represent the
There are two components to the costs bill gal/yr) and for the projected case
associated with distributing the volumes projected case examined in today’s rule
where the volume of ethanol used is 9.6 of 9.6 bill gal/yr of ethanol.74 Table
of ethanol necessary to meet the bill gal/yr. The 2012 reference case
requirements of the Renewable Fuels VII.B.1.a–1 contains our estimates of the
against which we are estimating the cost
Standard (RFS): (1) the capital cost of infrastructure changes and associated
of distributing the additional volume of
making the necessary upgrades to the ethanol needed to meet the capital costs for the two ethanol use
fuel distribution infrastructure system, requirements of the RFS is 3.9 billion scenarios examined in today’s rule.
and (2) the ongoing additional freight gallons. Amortized over 15 years, the total
costs associated with shipping ethanol a. Capital Costs To Upgrade capital costs equate to approximately
to terminals. The most comprehensive Distribution System For Increased one cent per gallon. We performed a
study of the infrastructure requirements Ethanol Volume. The 2002 DOE study sensitivity analysis where we increased
for an expanded fuel ethanol industry examined two cases regarding the use of reliance on rail use at the expense of
was conducted for the Department of renewable fuels for estimating the barge use in transporting ethanol. The
Energy (DOE) in 2002.72 That study capital costs for distributing additional costs were relatively insensitive,
provided the foundation our estimates ethanol. The first assumed that 5.1 bill increasing to just 1.1 cents per gallon.
TABLE VII.B.1.A–1.—ESTIMATED ETHANOL DISTRIBUTION INFRASTRUCTURE CAPITAL COSTS ($M) RELATIVE TO A 3.9
BILLION GALLON PER YEAR REFERENCE CASE
7.2 billion 9.6 billion
gallons gallons
(per year) (per year)
Fixed Facilities:
Retail ................................................................................................................................................................. 24 44
Terminals .......................................................................................................................................................... 142 246
Mobile Facilities:
Transport Trucks .............................................................................................................................................. 38 50
Barges .............................................................................................................................................................. 30 52
Rail Cars ........................................................................................................................................................... 104 161
Total Capital Costs .................................................................................................................................... 317 542
b. Ethanol Freight Costs. The DOE between $1.30 and $1.36 per gallon of transported to terminals in insulated
study contains ethanol freight costs for ethanol, on a nationwide average basis. tank trucks and rail cars in the cold
each of the 5 PADDs. The Energy This estimate includes both the capital seasons.77 Due to the developing nature
Information Administration translated costs to upgrade the distribution system of the biodiesel industry, specific
these cost estimates to a census division and freight costs. information on biodiesel freight costs is
basis.75 We took the EIA projections and lacking. The need to protect biodiesel
2. Biodiesel Distribution Costs
translated them into State-by-State from gelling during the winter may
ethanol freight costs. In conducting this The volume of biodiesel used by 2012 marginally increase freight costs over
translation, we accounted for increases under the RFS is estimated at 300 those for ethanol. Counterbalancing this
in the cost in transportation fuels used million gallons per year. The 2012 is the likelihood that biodiesel shipping
to ship ethanol by truck, rail, and barge. baseline case against which we are distances may be somewhat shorter due
We estimate that the freight cost to estimating the cost of distributing the to the more geographically dispersed
transport ethanol to terminals would additional volume of biodiesel is 28 nature of biodiesel production facilities.
range from 5 cents per gallon in the million gallons.76 In any event, the potential difference
Midwest, to 18 cents per gallon to the For the purposes of this analysis, we between biodiesel and ethanol freight
West Coast, which averages 9.2 cents are assuming that to ensure consistent costs is likely to be small and the cost
per gallon of ethanol on a national basis. operations under cold conditions all of distributing biodiesel does not
We estimate the total cost for terminals will install heated biodiesel appreciably affect the results of our
producing and distributing ethanol to be storage tanks and biodiesel will be analysis. Therefore, we believe that
72 Infrastructure Requirements for an Expanded the ethanol distribution infrastructure capital costs 059 (2006), http://tonto.eia.doe.gov/FTPROOT/
Fuel Ethanol Industry, Downstream Alternatives under today’s rule. modeldoc/m059(2006)-2.pdf.

74 For both the 7.2 bill gal/yr and 9.6 bill gal/yr
Inc., January 15, 2002. 76 2004 baseline of 25 million gallons grown with
73 See Chapter 7.3 of the Draft Regulatory Impact cases, the baseline from which the DOE study cases diesel demand to 2012.
were projected was adjusted to reflect a 3.9 bill gal/
Analysis associated with today’s rule for additional 77 See section VI.C. in today’s preamble regarding
yr 2012 baseline.
discussion of how the results of the DAI study were 75 Petroleum Market Model of the National Energy the special handling requirements for biodiesel
adjusted to reflect current conditions in estimating Modeling System, Part 2, March 2006, DOE/EIA– under cold conditions.
estimated freight costs for ethanol of 9.2 1. RVP Cost for Blending Ethanol Into market, we only reduce the
cents per gallon adequately reflects the Summertime RFG depentanizer operating costs since the
freight costs for biodiesel for this Blending ethanol into summertime capital costs are sunk.
analysis. RFG causes about a 1 PSI (pounds per Our analysis showed that the RVP
The capital costs associated with square inch) increase in RVP. To enable blending costs for blending ethanol into
distribution of biodiesel will be this gasoline to continue to be sold into summertime RFG ranges from 1 to 1.4
somewhat higher per gallon than those the summertime RFG market, this vapor cents per gallon of RFG. If the ethanol
associated with the distribution of pressure increase must be accounted for is coming out of summertime RFG,
ethanol due to the need for storage by adjusting the RVP of the base which occurs in some of the scenarios
tanks, barges, tanker trucks and rail cars gasoline. The vapor pressure adjustment that we modeled, there would be a cost
to be insulated and in many cases is made by reducing of volume of
savings of 0.8 to 1.2 cents per gallon of
heated. We estimate that to handle the RFG.
pentanes in the gasoline boiling that
increased biodiesel volume will require In the cost of refinery gasoline section
comes from the fluid catalytic cracking below, we took into account that
a total capital cost investment of
unit (FCCU). To reduce the pentane butanes have a lower energy density
$49,813,000, which equates to about 2
content FCC naphtha, refiners would compared to the gasoline pool from
cents per gallon of new biodiesel
likely have to add a distillation column which the butanes were removed. This
volume.
We estimate the total cost for called a depentanizer, where pentanes energy content adjustment will offset
producing and distributing biodiesel to and lighter hydrocarbons are removed some of the cost for removing the
be between $2.00 and $2.22 per gallon from the hydrocarbon feed and drawn butanes. Butane’s energy density is
of biodiesel, on a nationwide average off the top of the column while the 94,000 BTUs per gallon compared to
basis. This estimate includes both the heavier C6+ hydrocarbons are removed 115,000 BTU per gallon for gasoline.
capital costs to upgrade the distribution from the bottom. While the pentanes For further details on RVP reduction
system and freight costs. would be removed from the costs, see Section 7.4.2 of the RIA.
summertime RFG pool, they are
C. Estimated Costs to Gasoline expected to be reblended into either 2. Cost Savings for Phasing Out Methyl
To estimate the cost of increased use summertime CG or wintertime CG and Tertiary Butyl Ether (MTBE)
of renewable fuels, the cost savings from RFG. To rebalance the RVP of the The Energy Act rescinded the oxygen
the phase out of MTBE and the nonsummertime RFG pool or standard for RFG and when the
production cost of alkylate, we wintertime RFG or CG pool caused by provision took effect, U.S. refiners
developed our own spreadsheet cost relocated pentanes, butanes are stopped blending MTBE into gasoline.
model. As described above in Section estimated to be removed from the When MTBE use ended, the operating
VI.A, the cost analysis is conducted by gasoline pool. When ethanol is blended costs for operating those plants also
comparing a base year before the Energy into summertime RFG, about 10 percent ceased. The total costs saved for not
Act’s fuel changes to a modeled year of the base gasoline is lost due to the operating the MTBE plants is calculated
with the fuel changes. We used 2004 as removed pentanes. We believe that by multiplying the volume of MTBE no
the base year. We grew the 2004 refiners would reblend these removed longer blended into gasoline with the
gasoline demand to 2012 to create a pentanes into summertime CG or operating costs for the plants producing
reference case assuming that the 2004 wintertime CG and RFG and rebalance that MTBE.
fuel demand scenario remained the the RVP of the gasoline pool into which We determined the operating costs
same (fuel quality remained constant). the pentanes are being reblended by saved by shutting down these plants.
The sum of fuel changes, including the removing butanes, thus reducing the The volumetric feedstock demands and
increased use of ethanol, the phase-out volume loss to one fifth of that if the the operating costs factors for each of
of MTBE and the conversion of a part pentanes were permanently removed. these MTBE plants are taken from
of the MTBE feedstocks to alkylate, is all There is an opportunity cost to literature. We estimated the MTBE
assumed to occur by 2012 and is removing butanes from gasoline. In 2004 operating costs to be $1.40 per gallon for
compared to the 2012 reference case. butanes sold into the butane market captive and ethylene cracker plants,
This analysis considers the production were valued 36 cents per gallon less $1.48 per gallon for propylene oxide
cost, distribution cost as well as the cost than gasoline, however, this opportunity plants and $1.55 per gallon for merchant
for balancing the octane and RVP cost would be much greater if pentanes operating costs. Weighted by the
caused by these fuel changes. were permanently removed from percentages for domestic MTBE
In addition to assessing the cost at 7.2 gasoline. production, the average cost savings for
and 9.6 billion gallons of total ethanol We developed cost estimates for no longer producing MTBE is estimated
use in gasoline, we considered that adding and operating a new to be $1.46 per gallon.
ethanol could be used at different levels depentanizer distillation column for the We also credited MTBE for its octane
in RFG. Instead of picking a single point removal of pentanes from FCC naphtha blending value. MTBE has a high octane
for ethanol use in RFG, we assessed a in each refinery. The feed rate for an value of 110 (R+M)/2 which increases
range (see Section VI.A above). At the average FCC unit was estimated by its value compared to gasoline. This
high end of the range, ethanol is used PADD and ranged from 7 to 35 thousand high octane value partially offsets its
in RFG in both summer and winter. At barrels per day. Once the capital and production cost. The cost of octane is
the low end of the range, ethanol is still operating costs were estimated, the total presented above in subsection
used in wintertime RFG, but to only a costs were averaged over the entire VII.(A)(1)(c) and is applied to the
very limited extent in summertime RFG. gasoline pool, which ranged from about difference in octane value between
The lower rate of ethanol use in two to three times the volume of FCC MTBE and the average of the various
summertime RFG may occur because naphtha. When ethanol is being blended gasoline grades (88 (R+M)/2).
the RVP increase associated with newly into summertime RFG, the capital Accounting for MTBE’s octane value
ethanol will cause refiners to incur a and operating costs will both apply. reduces its cost down to $1.27 to $1.38
cost to further control the volatility of However, when we model ethanol per gallon depending on the PADD.
their summertime RFG. coming out of a summertime RFG When accounting for the volume of
MTBE removed, we also adjust for its blending octane of alkylate, which Engineering, a refining industry
energy content, which is 93,500 BTU varies by 1 to 2 cents per gallon consulting firm, refineries are blending
per gallon. depending on the value of octane in their wintertime gasoline up to those
For further information on costs each PADD. Including its octane value, standards today and are limited from
savings due to MTBE phaseout, see the cost of producing alkylate varies blending more butane available to them.
Section 7.4.3 of the RIA. from $1.38 to $ 1.41 per gallon. If this is the case, for each gallon of
For further information on production summertime RFG and wintertime RFG
3. Production of Alkylate From MTBE
of alkylate from MTBE feedstocks, see and CG blended with ethanol 2 percent
Feedstocks
section 7.4.4 of the RIA. of the base gasoline volume would be
Discontinuing the blending of MTBE lost in terms of butane removed.
into U.S. gasoline is expected to result 4. Changes in Refinery Produced
However, some refineries may have
in the reuse of most of the primary Gasoline Volume and Its Costs
room to blend more butane. Also, we are
MTBE feedstocks, isobutylene, to be In the sections above, we estimated aware that some states offer 1 PSI
used to produce alkylate. Alkylate is changes in gasoline volume and the cost waivers for blending of ethanol into
formed by reacting isobutylene together associated with those volume changes wintertime gasoline, presumably to
with isobutane. Prior to the for ethanol, MTBE, alkylate and butane. accommodate splash blending of
establishment of the oxygen As these various gasoline blendstocks ethanol.78 Consequently, it may be
requirement for RFG, this isobutylene are added to or removed from the possible to accommodate the 1 PSI
was, in most cases, used to make gasoline pool, they affect the refinery vapor pressure increase without forcing
alkylate. Another option would be for production of gasoline (or oxygenate the removal of some or all of this
reacting isobutylene with itself to form blendstock). butane. For this reason we assessed the
isooctene which would likely be To estimate the changes in refinery costs as a range, on the upper end
hydrogenated to then form isooctane. gasoline production volumes, it was assuming that butane content would
However, our cost analysis found that necessary to balance the total energy have to be removed to account for new
alkylate is a more cost-effective way to production of each control case to the ethanol blended into summertime RFG
reuse the isobutylene, even after reference case. The energy content of and wintertime RFG and CG , and on
considering isooctane’s higher octane the reference case was estimated by the low end assuming only that
content. The cost for converting to multiplying the volumetric energy blending of ethanol into summertime
alkylate is estimated to be $1.42 per content of each gasoline pool RFG cause butanes to be removed.
gallon for captive (in-refinery) plants blendstock, including MTBE, ethanol For estimating the volume of butane
and ethylene cracker plants, $1.46 per and refinery produced gasoline, by the which must be removed from the
gallon for propylene oxide plants and associated gallons. gasoline because of the addition of
$1.52 per gallon for merchant MTBE The increase or decrease in ethanol ethanol, we assumed that ethanol will
plants. We believe that the cost for content in summertime RFG assumed be used at 10 volume percent except for
converting merchant MTBE plants to under the different scenarios resulted in California where it would continue to be
alkylate is too high to support its the change in the volumes of butane in used at 5.7 volume percent.
conversion, thus the conversion cost is RFG as described above. We identified Development of the estimates for winter
estimated to be $1.43 per gallon, the that the increase or decrease in ethanol vs. summer ethanol consumption for the
average of the conversion costs for in wintertime RFG and CG could cause control cases is discussed in Chapter 2.1
captive, ethylene cracker and propylene reductions or increases in the amount of of the RIA. For the reference case, we
oxide MTBE plants. This projected butanes blended into wintertime estimated that 55 percent of the ethanol
percent of MTBE plant conversion gasoline. Wintertime gasoline is limited would be used in the winter and 45
results in 0.84 gallons of alkylate in vapor pressure by the American percent in the summer. Table VII.C.4–1
produced for each gallon of MTBE no Standard for Testing Materials (ASTM) summarizes the summertime RFG and
longer produced. RVP and V/L (vapor-liquid) standards. wintertime RFG and CG volumes of
The alkylate production cost is According to a refiner with extensive ethanol and estimated change in butane
adjusted by PADD to account for the refining capacity, and also Jacobs content.
TABLE VII.C.4–1.—ESTIMATED CHANGES IN U.S. SUMMERTIME RFG ETHANOL VOLUMES AND THEIR IMPACT ON BUTANE
BLENDING INTO GASOLINE
[Million gallons in 2012]
7.2 Bil gals max 9.6 Bil gals max

Reference case 7.2 Bil gals min RFG 9.6 Bil gals min RFG
RFG RFG
Summertime RFG Ethanol 1,155 ........................ 1,932 ........................ 244 ........................... 1,932 ........................ 244
Wintertime RFG & CG 2,178 ........................ 3,999 ........................ 4,812 ........................ 5,303 ........................ 6,132
Ethanol.
Change in Butane ............. .................................. ¥140 to ¥456 ........ 164 to ¥297 ............ ¥140 to ¥690 ........ 164 to ¥535
The change in volume of ethanol, energy content as that of the reference amount of BTUs for the entire gasoline
MTBE, alkylate, and butane for each gasoline pool. The refinery gasoline pool after accounting for the BTUs of
control case is adjusted for energy production is estimated by dividing the the other blendstocks. The BTU-
content. The volume of refinery gasoline BTU content of gasoline, estimated to be balanced gasoline pool volumes for each
is then adjusted to maintain the same 115,000 BTU per gallon, into the total control case are shown in Table
78 Most people are aware of the 1 PSI RVP waiver some states offer a similar waiver to ethanol for
that ethanol is provided for the summertime, but wintertime blending as well.
VII.C.4–2. The changes are shown for gasoline to accommodate more ethanol
both assumptions with respect to the blending.
need to remove butane from winter
TABLE VII.C.4–2.—ESTIMATED 2012 VOLUMES

[Million gallons]
7.2 Bil gals, max RFG 7.2 Bil gals, min RFG 9.6 Bil gals, max RFG 9.6 Bil gals, min RFG
Total Ethanol .................................... 7,200 7,200 9,600 9,600

Increase in Ethanol .......................... 3,302 3,302 5,702 5,702
Change in MTBE ............................. ¥2091 ¥2091 ¥2091 ¥2091
New Alkylate .................................... 1,763 1,764 1,764 1,764
Butane Removed in Winter .............. Yes No Yes No Yes No Yes No
Change in Butane ............................ ¥456 ¥140 ¥297 164 ¥690 ¥140 ¥535 164
Gasoline ........................................... 143,486 143,228 143,357 142,980 142,092 141,642 141,965 141,394
Change in Gasoline ......................... ¥1,873 ¥2,131 ¥2,002 ¥2,379 ¥3,267 ¥3,716 ¥3,394 ¥3,965
Change in Gasoline (%) .................. ¥1.3 ¥1.5 ¥1.4 ¥1.6 ¥2.2 ¥2.6 ¥2.3 ¥2.7
Based on our estimated impacts on value upwards by the same ratio. The reference case, times its production,
volumes shown in table VII.C.4–2, ratio is determined by the projected distribution and octane blending costs.
refinery produced gasoline demand will increase in the wholesale gasoline price The costs of these fuels changes are
be reduced by a range of 1.3 percent to relative to the increase in crude oil expressed two different ways. First, we
2.7 percent compared to the reference price. We extrapolated this relationship express the cost of the program without
case, which would result in less to crude oil priced at $70 per barrel the ethanol consumption subsidies in
imported finished petroleum products compared to the price in 2004 which which the costs are based on the total
and/or less crude oil use. The projected was $41 per barrel, which results in accumulated cost of each of the fuels
impacts on refinery-produced gasoline about a 1.4 ratio factor. We did not changes. The second way we express
demand depend on the volume of new adjust other costs and assumptions the cost is with the ethanol
ethanol blended into gasoline, on the which are much less sensitive to the consumption subsidies included since
volume of ethanol blended into price of crude oil and therefore not the subsidized portion of the renewable
summertime RFG and on whether likely to change much (e.g., distribution fuels costs will be not be represented to
butane blending into wintertime costs, refinery utility costs, incremental the consumer in its fuels costs paid at
gasoline will be affected or not. To put octane costs, and ethanol production the pump, but instead by being paid
this reduction in refinery-produced costs). At a $70 per barrel crude oil through the state and Federal tax
gasoline volume in perspective, the price, the cost for production and revenues. For both cases we express the
yearly annual growth in gasoline distribution of gasoline to the terminal costs with and without butanes being
demand in this country is about 1.7 ranges from $2.05 in the Gulf Coast to removed due to changes in wintertime
percent. $2.43 per gallon in California. blending of ethanol. We evaluated the
The cost for changes to refinery fuel costs using ranges in different
For further information on gasoline
produced gasoline volume is assumed to assumptions to bound the many
cost see section 7.4.5 in the RIA.
be represented by the bulk price of uncertainties in the cost analysis (see
5. Overall Impact on Fuel Cost the DRIA for more discussion
gasoline in each PADD from EIA’s 2004
concerning the cost uncertainties).
Petroleum Marketing Annual. The 2004 We combined the costs and volume a. Cost without Ethanol Subsidies.
gasoline cost is adjusted to 2012 using impacts described in the previous Table VII.C.5.a–1 summarizes the costs
the ratio of the projected crude oil price sections to estimate an overall fuel cost without ethanol subsidies for each of
in 2012 of $47 per barrel to that in the impact due to the changes in gasoline the four control cases, including the cost
2004 base case of $41 per barrel. The occurring with the projected fuel for each aspect of the fuels changes, and
cost for distributing the gasoline to changes. This aggregated cost estimate the aggregated total and the per-gallon
terminals is added on, which is includes the costs for producing and costs for all the fuel changes.79 This
estimated to be 4 cents per gallon. The distributing ethanol, the blending costs estimate of costs reflects the changes in
estimated cost for producing and of ethanol in summertime RFG, ending gasoline that are occurring with the
distributing gasoline to terminals the production and distribution of expanded use of ethanol, including the
(wholesale price at the terminal rack) MTBE, and reusing the MTBE feedstock corresponding removal of MTBE. These
ranges from $1.30 per gallon in the Gulf isobutylene for producing alkylate, costs include the labor, utility and other
Coast, to $1.53 per gallon in California. reducing the content of butane in operating costs, fixed costs and the
Crude oil prices are much higher summertime RFG and wintertime capital costs for all the fuel changes
today which decreases the relative cost gasoline and for reducing the volume of expected. We excluded Federal and
of producing and blending in more refinery-produced gasoline. We also state ethanol consumption subsidies
ethanol into gasoline. For this reason, present the costs for the scenario that
we conducted a sensitivity analysis butanes would not need to be removed 79 EPA typically assesses social benefits and costs
assuming that crude oil is priced at when ethanol is blended into of a rulemaking. However, this analysis is more
around $70 per barrel. Since this is only wintertime gasoline. The costs for each limited in its scope by examining the average cost
of production of ethanol and gasoline without
a sensitivity analysis, we simply ratioed control case are estimated by accounting for the effects of farm subsidies that
the gasoline production costs, MTBE multiplying the change in volume for tend to distort the market price of agricultural
and alkylate feedstock costs and butane each gasoline blendstock, relative to the commodities.
which avoids the transfer payments caused by these subsidies that would
caused by these subsidies that would hide a portion of the program’s costs.
hide a portion of the program’s costs.
TABLE VII.C.5.A–1.—ESTIMATED COST WITHOUT ETHANOL CONSUMPTION SUBSIDIES ($47/BBL CRUDE)

[million dollars, except where noted]
Adding Ethanol ................................. 3,769 3,837 6,852 6,897

RFG RVP Cost ................................ 72 ¥74 72 ¥74
Eliminating MTBE ............................ ¥2,821 ¥2,821 ¥2,821 ¥2,821
Adding Alkylate ................................ 2,520 2,520 2,521 2,521
Changing Butane Volume ................ ¥439 ¥133 ¥275 174 ¥667 ¥133 ¥510 174
Additional Gasoline Production ........ ¥2,484 ¥2,826 ¥2,638 ¥3,141 ¥4,350 ¥4,948 ¥4,507 ¥5,270
Total Cost Excluding Subsidies ....... 619 582 548 496 1,606 1,542 1,507 1,426
Per-Gallon Cost Excluding Sub-
sidies (cents per gallon) ............... 0.41 0.38 0.38 0.33 1.05 1.01 0.99 0.93
Our analysis shows that when b. Gasoline Costs Including Ethanol cents per gallon. The cost reduction to
considering all the costs associated with Consumption Tax Subsidies. Table the fuel industry and consumers are
these fuel changes resulting from the VII.C.5.b–1 expresses the total and per- estimated by multiplying the subsidy
expanded use of subsidized ethanol that gallon gasoline costs for the four control times the volume of new ethanol
these various possible gasoline use scenarios with the Federal and state estimated to be used in the state. The
scenarios will cost the U.S. $0.5 billion ethanol subsidies included. The Federal costs are presented for the case that
to around $1.6 billion in the year 2012. tax subsidy is 51 cents per gallon for ethanol causes butanes to be withheld
Expressed as per-gallon costs, these fuel each gallon of new ethanol blended into from the wintertime gasoline pool, and
changes would cost the U.S. 0.3 to just gasoline. The state tax subsidies apply for the case that the blending of butanes
over 1 cent per gallon of gasoline. in 5 states and range from 1.6 to 29 remains unchanged.
TABLE VII.C.5.B–1.—ESTIMATED COST INCLUDING SUBSIDIES ($47/BBL CRUDE)

[million dollars, except where noted]
7.2 Bil Gals Max RFG 7.2 Bil Gals Min RFG 9.6 Bil Gals Max RFG 9.6 Bil Gals Min RFG
Total Cost without Subsidies ........... 619 582 548 496 1,606 1,542 1,507 1,426
Federal Subsidy ............................... ¥1,684 ¥1,684 ¥1,684 ¥1,684 ¥2,908 ¥2,908 ¥2,908 ¥3,908
State Subsidies ................................ ¥180 ¥180 ¥173 ¥173 ¥189 ¥189 ¥176 ¥176
Total Cost Including Subsidies ........ ¥1,245 ¥1,282 ¥1,308 ¥1,361 ¥1,491 ¥1,555 ¥1,578 ¥1,657
Per-Gallon Cost Including Subsidies
(cents/gallon) ................................ ¥0.82 ¥0.84 ¥0.86 ¥0.89 ¥0.98 ¥1.02 ¥1.03 ¥1.08
The cost including subsidies better c. Cost Sensitivity Case Assuming $70 between increasing wholesale gasoline
represents gasoline’s production cost as per Barrel Crude Oil. As described prices with increasing crude oil prices.
might be reflected to the fuel industry above, we analyzed a sensitivity We did not adjust the distribution costs,
as a whole and to consumers ‘‘at the analysis with the future price of crude any of the utility costs, octane value and
pump’’ because the Federal and state oil remained at today’s prices which is ethanol prices based on the assumption
subsidies tends to hide a portion of the around $70 per barrel. This analysis was that these would change much less and
actual costs. Our analysis suggests that conducted by applying about a 1.4 therefore we kept them the same as that
the fuel industry and consumers will multiplication factor times the 2004 used in the primary analysis. The cost
see a 0.8 to 1.1 cent per gallon decrease gasoline production costs, MTBE and results of the sensitivity analysis are
in the apparent cost of producing alkylate feedstock costs and butane provided with and without the ethanol
gasoline with these changes to gasoline. value. This factor was derived by consumption subsidies in Table
examining the historical association VII.C.5.c–1.
TABLE VII.C.5.C–1.—ESTIMATED COSTS FOR CRUDE OIL PRICED AT $70 PER BARREL
[Million dollars and cents per gallon]
TABLE VII.C.5.C–1.—ESTIMATED COSTS FOR CRUDE OIL PRICED AT $70 PER BARREL—Continued
[Million dollars and cents per gallon]
Total Cost without Subsidies

($million) ....................................... ¥171 ¥187 ¥223 ¥245 222 196 138 105
Per-Gallon Cost without Subsidies
(c/gal) ............................................ ¥0.11 ¥0.12 ¥0.15 ¥0.16 0.15 0.13 0.09 0.07
Total Cost Including Subsidies
($million) ....................................... ¥2,035 ¥2,051 ¥2,080 ¥2,102 ¥2,875 ¥2,901 ¥2,945 ¥2,978
Per-Gallon Cost Including Subsidies
(c/gal) ............................................ ¥1.34 ¥1.35 ¥1.37 ¥1.38 ¥1.88 ¥1.90 ¥1.93 ¥1.95
If crude oil stays priced at around $70 fuel use are increasing dramatically on emissions. The results of this testing
per barrel, the cost of these fuel changes relative to both today and the recent will not be available for inclusion in the
would decrease significantly. In fact, we past, with corresponding impacts on analyses supporting this rulemaking.
estimate that the 7.2 billion gallon emissions and air quality. We believe We hope that the results from these test
ethanol case would result in a cost that it is appropriate to evaluate these programs will be available for reference
savings to the U.S. even if butanes are changes here, regardless of whether they in the future evaluations of the emission
removed from the wintertime gasoline are occurring due to economic forces or and air quality impacts of U.S. fuel
pool when ethanol is added. When Energy Act requirements. programs required by the Act.80
considering the ethanol subsidies, the In the process of estimating the The remainder of this sub-section is
incentive to blend in ethanol becomes impact of increased renewable fuel use, divided into three parts. The first
much stronger at today’s crude oil we also include the impact of reduced evaluates the impact of increased
prices likely causing a rapid increase in use of MTBE in gasoline. It is the ethanol use and decreased MTBE use on
ethanol production volume. increased production and use of ethanol gasoline quality. The second evaluates
which is facilitating the removal of the impact of increased ethanol use and
VIII. What Are the Impacts of Increased MTBE while still producing the
Ethanol Use on Emissions and Air decreased MTBE use on motor vehicle
required volume of RFG which meets emissions. The third evaluates the
Quality? both commercial and EPA regulatory impact of increased ethanol use and
In this section, we evaluate the impact specifications. Because of this decreased MTBE use on nonroad
of increased production and use of connection, we found it impractical to equipment emissions.
renewable fuels on emissions and air isolate the impact of increased ethanol a. Gasoline Fuel Quality. For this
quality in the U.S., particularly ethanol use from the removal of MTBE. proposal, we estimate the impact of
and biodiesel. In performing these A. Effect of Renewable Fuel Use on ethanol use on gasoline quality using
analyses, we compare the emissions Emissions fuel survey data obtained by Alliance of
which would have occurred in the Automobile Manufacturers (AAM) from
future if fuel quality had remained 1. Emissions From Gasoline Fueled 2001–2005.81 We estimate the impact of
unchanged from pre-Act levels to those Motor Vehicles and Equipment removing MTBE from gasoline based on
which will be required under the Energy Several models of the impact of refinery modeling performed in support
Policy Act of 2005 (Energy Act or the gasoline quality on motor vehicle of the RFG rulemaking. We plan to
Act). This approach differs from that emissions have been developed since update these estimates for the FRM
traditionally taken in EPA regulatory the early 1990’s. We evaluated these using refinery modeling which is
impact analyses. Traditionally, we models and selected those which were currently underway. In general, as
would have compared future emissions based on the most comprehensive set of shown in Table VIII.A.1.a–1, adding
with and without the requirement of the emissions data and developed using the ethanol to gasoline is expected to reduce
Energy Act. However, as described in most advanced statistical tools for this levels of aromatics and olefins in
Section VI, we expect that total analysis. Still, as will be described conventional gasoline, as well as reduce
renewable fuel use in the U.S. in 2012 below, significant uncertainty still exists mid and high distillation temperatures
to exceed 7.5 billion gallons even in the as to the effect of these gasoline (e.g., T50 and T90). RVP is expected to
absence of the RFS program. Thus, a components on emissions from both increase, as most areas of the country
traditional regulatory impact analysis motor vehicle and nonroad equipment, grant ethanol blends a 1.0 RVP waiver
would have shown no impact on particularly from the latest models of the applicable RVP standards in the
emissions or air quality. equipped with the most advanced summer. With the exception of RVP, the
Strictly speaking, if the same volume emission controls. Pending adequate effect of removing MTBE results in
and types of renewable fuels are funding, we plan to conduct significant essentially the opposite impacts. Please
produced and used with and without vehicle and equipment testing over the see Chapter 2 of the DRIA for a detailed
the RFS program, the RFS program is next several years to improve our description of the methodologies used
having no impact on emissions or air estimates of the impact of these and the specific changes in projected
quality. However, levels of renewable additives and other gasoline properties fuel quality.
80 Subject
to funding. intend to supplement this empirical approach with capture all of the effects of ethanol blending on
81 Alliance
of Automobile Manufacturers North the results of refinery modeling which might better gasoline quality.
American Fuel Survey 2005. For the final rule, we
TABLE VIII.A.1.A–1.—CG FUEL QUALITY WITH AND WITHOUT OXYGENATES

Typical 9 MTBE CG Ethanol
Fuel parameter RVP CG blend CG blend
RVP (psi) ....................................................................................................................................................... 8.7 8.7 9.7

T50 ................................................................................................................................................................. 218 206 186
T90 ................................................................................................................................................................. 332 324 325
Aromatics (vol%) ............................................................................................................................................ 32 25.5 27
Olefins (vol%) ................................................................................................................................................ 7.7 7.7 6.1
Oxygen (wt%) ................................................................................................................................................ 0 2 3.5
Sulfur (ppm) ................................................................................................................................................... 30 30 30
Benzene (vol%) ............................................................................................................................................. 1.0 1.0 1.0
The effect of adding ethanol and ethanol use on PM emissions can only indicated by the EPA Predictive
removing MTBE on the quality of RFG be qualitatively discussed. Models).
is expected to very limited. RFG must In responding to California’s request We base our estimates of fuel quality
meet stringent VOC, NOX and toxics for a waiver of the RFG oxygen mandate on non-exhaust VOC and benzene
performance standards. Thus, the in 2000, we found that both very limited emissions on the EPA MOBILE6.2
natural effects of MTBE and ethanol and conflicting data were available on model. The one exception to this is the
blending on gasoline must often be the effect of fuel quality on exhaust effect of ethanol on permeation
addressed through further refining. The emissions from Tier 1 and later emissions through plastic fuel tanks and
largest differences are expected to exist vehicles.82 Thus, we assumed at the elastomers used in fuel line
in terms of the distillation temperatures, time that changes to gasoline quality connections. Recent testing has shown
due to the relatively low boiling point would not affect VOC, CO and NOX that ethanol increases permeation
of ethanol. Other fuel parameters are exhaust emissions from these vehicles. emissions, both by permeating itself and
expected to be very similar. For this Very little additional data has been increasing the permeation of other
analysis we have assumed no changes to collected since that time on which to gasoline components. This effect was
fuel parameters other than ethanol and modify this assumption. Consequently, included in EPA’s analysis of
MTBE content for RFG. for our primary analysis for today’s California’s most recent request for a
b. Emissions from Motor Vehicles. We proposal we have maintained the waiver of the RFG oxygen requirement,
use the EPA Predictive Models to assumption that changes to gasoline do but is not in MOBILE6.2.84 Therefore,
estimate the impact of gasoline fuel not affect exhaust emissions from Tier 1 we have added the effect of ethanol on
quality on exhaust VOC and NOX and later technology vehicles. permeation emissions to MOBILE6.2’s
emissions from motor vehicles. These There is one recent study by the estimate of non-exhaust VOC emissions
models were developed in 2000, in Coordinating Research Council (CRC) in assessing the impact of gasoline
support of EPA’s response to which assessed the impact of ethanol quality on these emissions.
California’s request for a waiver of the and two other fuel properties on No models are available which
RFG oxygen mandate. These models emissions from twelve 2000–2004 address the impact of gasoline quality
represent a significant update of the model year vehicles (CRC study E–67). on PM emissions. Very limited data
EPA Complex Model. However, they are The results of this program indicate that indicate that ethanol blending might
still based on emission data from Tier 0 emissions from these late model year reduce exhaust PM emissions under
vehicles (roughly equivalent to 1990 vehicles may be at least as sensitive to very cold weather conditions (e.g., –20
model year vehicles). We based our changes to these three fuel properties as F to 0 F). Very limited testing at warmer
estimates of the impact of fuel quality Tier 0 vehicles on a percentage basis.83 temperatures (e.g., 20 F to 75 F) shows
on CO emissions on the EPA However, because this study is the first no definite trend in PM emissions with
MOBILE6.2 model. We base our of its kind and not all relevant fuel oxygen content. Thus, for now, no
estimates of the impact of fuel quality properties have yet been studied, in our quantitative estimates can be made
on exhaust toxic emissions (benzene, primary analysis we continue to assume regarding the effect of ethanol use on
formaldehyde, acetaldehyde, and 1,3- that exhaust emissions from Tier 1 and direct PM emissions.
butadiene) primarily on the MOBILE6.2 later vehicles are not sensitive to fuel Table VIII.A.1.b–1 presents the
model, updated to reflect the effect of quality. Based on the indications of the average per vehicle (2012 fleet) emission
fuel quality on exhaust VOC emissions CRC E–67 study, we also conducted a impacts of three types of RFG: Non-
per the EPA Predictive Models. Very sensitivity analysis where the exhaust oxygenated, a typical MTBE RFG as has
limited data are available on the effect VOC and NOX emission impacts for all been marketed in the Gulf Coast, and a
of gasoline quality on PM emissions. vehicles were assumed to be as sensitive typical ethanol RFG which has been
Therefore, the effect of increased to fuel quality as Tier 0 vehicles (i.e., as marketed in the Midwest.
82 The one exception was the impact of sulfur on lower than those from the Tier 0 vehicles used to 84 For more information on California’s request
emissions from these later vehicles, which is not an develop the EPA Complex and Predictive Models. for a waiver of the RFG oxygen mandate and the
issue here due to the fact that renewable fuel use Thus, a similar impact of a fuel parameter in terms Decision Document for EPA’s response, see
is not expected to change sulfur levels significantly. of percentage means a much smaller impact in http://www.epa.gov/otaq/rfg_regs.htm#waiver.
83 The VOC and NO emissions from the 2000–
X terms of absolute emissions.
2004 model year vehicles are an order of magnitude
TABLE VIII.A.1.B–1.—EFFECT OF RFG ON PER MILE EMISSIONS FROM TIER 0 VEHICLES RELATIVE TO A TYPICAL 9PSI
RVP CONVENTIONAL GASOLINE a
10 Volume
Non-Oxy RFG 11 Volume
Pollutant Source percent
(percent) percent MTBE ethanol
Exhaust Emissions
VOC ................................................................ EPA Predictive Models .................................. –7.7 –11.1 –12.9

NOX ................................................................. ......................................................................... –1.7 2.4 6.3
CO ................................................................... MOBILE6.2 ..................................................... –24 –28 –32
Exhaust Benzene ............................................ EPA Predictive and Complex Models ............ –18 –30 –35
Formaldehyde ................................................. ......................................................................... 7 11 2
Acetaldehyde .................................................. ......................................................................... 7 –8 143
1,3-Butadiene .................................................. ......................................................................... 22 2 –7
Non-Exhaust Emissions
VOC ................................................................ MOBILE6.2 & CRC E–65 ............................... –30 –30 –18
Benzene .......................................................... MOBILE6.2 & Complex Models ..................... –5 –15 –7
a Average per vehicle effects for the 2012 fleet during summer conditions.
As can be seen, the oxygenated RFG same due to the fact that the RVP level toxic emissions in percentage terms is
blends are predicted to produce a of the three blends is the same. the increase in acetaldehyde with the
greater reduction in exhaust VOC and However, the increased permeation use of ethanol. Acetaldehyde emissions
CO emissions than 9 RVP conventional emissions associated with ethanol more than double. However, as will be
gasoline, but a larger increase in NOX reduces the overall effectiveness of seen below, base acetaldehyde
emissions. This comparison assumes ethanol RFG. emissions are low relative to the other
that all gasoline meets EPA’s Tier 2 An increase in ethanol use will also toxics. Thus, the absolute increase in
gasoline sulfur standard of 30 ppm. impact emissions of air toxics. We total emissions of these four air toxics
Prior to this program, RFG contained evaluated effects on four air toxics is still relatively low.
less sulfur than conventional gasoline affected by fuel parameter changes in Table VIII.A.1.b–2 presents the effect
and produced less NOX emissions. Non- the Complex Model-benzene, of blending either MTBE or ethanol into
exhaust VOC emissions with the formaldehyde, acetaldehyde and 1,3- conventional gasoline while matching
exception of permeation are roughly the butadiene. The most notable effect on octane.
TABLE VIII.A.1.B–2.—EFFECT OF MTBE AND ETHANOL IN CONVENTIONAL GASOLINE ON TIER 0 VEHICLE EMISSIONS
RELATIVE TO A TYPICAL NON-OXYGENATED CONVENTIONAL GASOLINE a
11 Volume 10 Volume
Pollutant Source percent percent
MTBE ethanol b
Exhaust VOC .................................................................. EPA Predictive Models ................................................... ¥9.2 ¥7.4

NOX ................................................................................. ......................................................................................... 2.6 7.7
CO c ................................................................................. MOBILE6.2 ..................................................................... ¥6/¥11 ¥11/¥19
Exhaust Benzene ............................................................ EPA Predictive and Complex Models ............................ ¥22 ¥27
Formaldehyde ................................................................. ......................................................................................... +10 +3
Acetaldehyde .................................................................. ......................................................................................... ¥8 +141
1,3-Butadiene .................................................................. ......................................................................................... ¥12 ¥27
Non-Exhaust VOC .......................................................... MOBILE6.2 ..................................................................... 0 +17
Non-Exhaust Benzene .................................................... MOBILE6.2 & Complex Models ..................................... ¥10 +13
a Average per vehicle effects for the 2012 fleet during summer conditions.
b Assumes a 1.0 psi RVP waiver for ethanol blends.
c The first figure shown applies to normal emitters; the second applies to high emitters.
As was the case with the RFG blends, The exhaust emission effects shown shown above are based on the
the two oxygenated blends both reduce above for VOC and NOX emissions only distribution of temperatures occurring
exhaust VOC and CO emissions, but apply to Tier 0 vehicles in our primary across the U.S. in July.
increase NOX emissions. The MTBE analysis. For example, MOBILE6.2 c. Nonroad Equipment. To estimate
blend does not increase non-exhaust estimates that 34% of exhaust VOC the effect of gasoline quality on
VOC emissions, but the ethanol blend emissions and 16% of NOX emissions emissions from nonroad equipment, we
does due to the commonly granted from gasoline vehicles in 2012 come used EPA’s NONROAD emission model.
waiver of the RVP standard. Both blends from Tier 0 vehicles. In the sensitivity We used the 2005 version of this model,
have lower exhaust benzene and 1,3- analysis, these effects are extended to all NONROAD2005, which includes the
butadiene emissions. As above, ethanol gasoline vehicles. The effect of RVP on effect of ethanol on permeation
increases non-exhaust benzene and non-exhaust VOC emissions is emissions from most nonroad
acetaldehyde emissions. temperature dependent. The figures equipment.
Only sulfur and oxygen content affect difference in exhaust emissions between 11 volume percent MTBE or 10 volume
exhaust VOC, CO and NOX emissions in conventional and reformulated gasoline percent ethanol to non-oxygenated
NONROAD. Since sulfur level is is due to oxygen content. Table gasoline on these emissions.
assumed to remain constant, the only VIII.A.1.c–1 shows the effect of adding
TABLE VIII.A.1.C–1.—EFFECT MTBE AND ETHANOL ON NONROAD EXHAUST EMISSIONS

4-Stroke engines 2-Stroke engines
Base fuel 11 Volume 10 Volume 11 Volume 10 Volume

percent percent percent percent
MTBE ethanol MTBE ethanol
Exhaust VOC ................................................................................................................... ¥9 ¥15 ¥1 ¥1

Non-Exhaust VOC 0 ........................................................................................................ 0 26 0 26
CO .................................................................................................................................... ¥13 ¥21 ¥8 ¥12
NOX .................................................................................................................................. +24 +37 +12 +18
As can be seen, higher oxygen content the NONROAD2005 hose permeation related fuel effects contained in NMIM
reduces exhaust VOC and CO emissions emission factors for small spark-ignition with those from MOBILE6.2 for onroad
significantly, but also increases NOX engines and recreational marine vehicles.85 We follow the same
emissions. However, NOX emissions watercraft to reflect the use of ethanol. methodology here. Future testing could
from these engines tend to be fairly low For nonroad toxics emissions, we base significantly alter these emission impact
to start with, given the fact that these our estimates of the impact of fuel estimates.
engines run much richer than quality on the fraction of exhaust VOC
stoichiometric. Thus, a large percentage emissions represented by each toxic on 2. Diesel Fuel Quality: Biodiesel
increase of a relative low base value can MOBILE6.2 (i.e., the same effects
be a relatively small increase in absolute predicted for onroad vehicles). The EPA assessed the impact of biodiesel
terms. National Mobile Inventory Model fuel on emissions in 2002 and published
Evaporative emissions from nonroad (NMIM) contains estimates of the a draft report summarizing the results.86
equipment are impacted by only RVP, fraction of VOC emissions represented At that time, most of the data available
and permeation by ethanol content. by the various air toxics based on was for pre-1998 model year onroad
Both the RVP increase due to blending oxygenate type (none, MTBE or diesel engines. The results are
of ethanol and its permeation effect ethanol). However, estimates for summarized in Table VIII.A.2–1. As
cause non-exhaust VOC emissions to nonroad gasoline engines running on shown, it indicated that biodiesel
increase with the use of ethanol in different fuel types are limited, making tended to reduce emissions of VOC, CO
nonroad equipment. The 26 percent it difficult to accurately model the and PM. The NOX emission effect was
effect represents the average impact impacts of changes in fuel quality. In more variable, showing a very small
across the U.S. in July for both 2-stroke the recent NPRM addressing mobile air increase on average.
and 4-stroke equipment. We updated toxic emissions, EPA replaced the toxic-
TABLE VIII.A.2–1.—EFFECT OF 20 VO% BIODIESEL BLENDS ON DIESEL EMISSIONS (%)

2002 draft Recent test results
Pollutant EPA study
(percent) Engine testing Vehicle testing
VOC ....................................................................................................... ¥21 ¥12% (¥35% to +14%) .... +10% (¥33% to +113%)
CO .......................................................................................................... ¥11 ¥14% (¥28% to +1%) ...... +4% (¥11% to +44%)
NOX ........................................................................................................ +2 +1% (¥3% to +6%) ........... +2% (¥1% to +9%)
PM .......................................................................................................... ¥10 ¥20% (¥31%+6%) ........... ¥3% (¥57% to +40%)
We collected relevant engine and DRIA Tables 3.1–15 and 3.1–16, and nonroad diesels in the 2007–2010
vehicle emission test data developed their corresponding discussion, for more timeframe, any effect on a percentage
since the time of the 2002 study. The detail on the data in the above table. basis will rapidly decrease in magnitude
results of our analysis of this data are Overall, data indicating the effect of on a mass basis as base emission
also shown in Table VIII.A.2–1. There, biodiesel on emissions is still quite inventory level decreases. As additional
we show the average change in the limited. The emission effects also testing is performed over the next
emissions of each pollutant across all appear to be dependent on the load and several years we will update this
the engines or vehicles tested, as well as speed of the engine (or driving cycle assessment.
the range of effects found for each and vehicle type in the case of vehicle 3. Renewable Fuel Production and
engine or vehicle. As can be seen, the testing). However, the data are too Distribution
variability in the emission effects is limited to determine the specific way in
quite large, but the results of the more which this occurs. Also, with the The primary impact of renewable fuel
recent testing generally corroborate the implementation of stringent NOX and production and distribution regards
findings of the 2002 study. Refer to PM emission standards to onroad and ethanol, since it is expected to be the
85 71, Federal Register, 15804, March 29, 2006. 86 ‘‘A Comprehensive Analysis of Biodiesel Report, U.S. EPA, EPA420–P–02–001, October
Impacts on Exhaust Emissions,’’ Draft Technical 2002. http://www.epa.gov/otaq/models/biodsl.htm.
predominant renewable fuel used in the future had renewable fuel use not risen. VOC and NOX emissions from the
foreseeable future. We approximate the However, to the degree that increased onroad motor vehicle inventories which
impact of increased ethanol and renewable fuel use reduces imports of are embedded in MOBILE6.2. We then
biodiesel production, including corn gasoline and diesel fuel, as opposed to applied the exhaust emission effects
and soy farming, on emissions based on the domestic production of these fuels, from the EPA Predictive Models. In our
DOE’s GREET model, version 1.6. We these reduced refinery emissions will primary analysis, we only applied these
also include emissions related to occur overseas and not in the U.S. EPA Predictive Model effects to exhaust
distributing the renewable fuels and Similarly, areas with MTBE VOC and NOX emissions from Tier 0
take credit for reduced emissions related production facilities might experience vehicles. In a sensitivity case, we
to distributing displaced gasoline and reduced emissions from these plants as applied them to exhaust VOC and NOX
diesel fuel. These emissions are they cease producing MTBE. However, emissions from all vehicles. Regarding
summarized in Table VIII.A.3–1. many of these plants may be converted the effect of fuel quality on emissions of
to produce other gasoline blendstocks, four air toxics from nonroad equipment
TABLE VIII.A.3–1.—WELL-TO-PUMP such as iso-octane or alkylate. In this (in terms of their fraction of VOC
EMISSIONS FOR PRODUCING AND case, their emissions are not likely to emissions), in all cases we replaced the
DISTRIBUTING RENEWABLE FUELS change substantially. fuel effects contained in NMIM with
[Grams per gallon ethanol or biodiesel] a B. Impact on Emission Inventories those for motor vehicles contained in
We use the NMIM to estimate MOBILE6.2. The projected emission
Pollutant Ethanol Biodiesel emissions under the various ethanol inventories for the primary analysis are
scenarios on a county by county basis. presented first, followed by those for the
VOC .................. 3.6 41.5 sensitivity analysis.
CO .................... 4.4 25.1 NMIM basically runs MOBILE6.2 and
NOX .................. 10.8 44.3 NONROAD2005 with county-specific 1. Primary Analysis
PM10 ................ 6.1 1.5 inputs pertaining to fuel quality,
SOX ................... 7.2 7.5 ambient conditions, levels of onroad The national emission inventories for
a Includes credit for reduced distribution of
vehicle VMT and nonroad equipment VOC, CO and NOX in 2012 with current
gasoline and diesel fuel. usage, etc. We ran NMIM for two fuels (i.e., ‘‘reference fuel’’) are
months, July and January. We estimate summarized in Table VIII.B.1–1. Also
At the same time, areas with refineries annual emission inventories by shown are the changes in emissions
might experience reduced emissions, summing the two monthly inventories projected for the two levels of ethanol
not necessarily relative to current and multiplying by six. use (i.e., ‘‘control cases’’) described in
emission levels, but relative to those As described above, we removed the Section VI and the two different cases
which would have occurred in the effect of gasoline fuel quality on exhaust for ethanol use in RFG.
TABLE VIII.B.1.–1.—2012 EMISSIONS NATIONWIDE FROM GASOLINE VEHICLES AND EQUIPMENT UNDER SEVERAL
ETHANOL USE SCENARIOS—PRIMARY ANALYSIS
[Tons per year]
Inventory Change in inventory in control cases
7.2 Billion gal- 9.6 Billion gallons of ethanol

Pollutant lons of ethanol
Reference
case Minimum RFG Maximum Minimum RFG Maximum
use RFG use use RFG use
VOC ..................................................................................... 5,837,000 31,000 8,000 57,000 29,000

NOX ...................................................................................... 2,576,000 19,000 20,000 40,000 39,000
CO ........................................................................................ 64,799,000 ¥843,000 ¥1,229,000 ¥1,971,000 ¥2,319,000
Benzene ............................................................................... 177,000 ¥6,000 ¥3,000 ¥11,000 ¥8,000
Formaldehyde ...................................................................... 40,200 300 0 800 500
Acetaldehyde ....................................................................... 19,800 6,200 5,000 9,600 8,500
1,3-Butadiene ....................................................................... 18,200 ¥500 ¥300 ¥800 ¥600
Both VOC and NOX emissions are CO also participates in forming ozone, and CO emissions are particularly
projected to increase with increased use much like VOCs. Generally, CO is 15– uncertain.
of ethanol. However, the increases are 50 times less reactive than typical VOC. In addition to these changes in
small, generally less than 2 percent. Still, the reduction in CO emissions is emissions due to ethanol use, biodiesel
Emissions of formaldehyde are also roughly 20–140 times the increase in use is expected to have a minor impact
projected to increase slightly, on the VOC emissions in the four scenarios. on diesel emissions. Table VIII.B.1–2
order of 1–3 percent. Emissions of 1,3- Thus, the projected reduction in CO shows the expected emission reductions
butadiene and CO are projected to emissions is important from an ozone associated with an increase in biodiesel
decrease by about 1–4 percent. Benzene perspective. However, as described fuel use from the reference case of 28
emissions are projected to decrease by above, the methodology for projecting million gallons in 2012 to
2–6 percent. The largest change is in the effect of ethanol use on CO approximately 300 million gallons per
acetaldehyde emissions, an increase of emissions is inconsistent with that for year in 2012. This represents an
25–48 percent, as acetaldehyde is a exhaust VOC and NOX emissions. Thus, increase from 0.06 to 0.6 percent of
partial combustion product of ethanol. comparisons between changes in VOC onroad diesel fuel consumption. In
terms of a 20 percent biodiesel blend
(B20), it represents an increase from 0.3 to 3.2 percent of onroad diesel fuel
consumption.
TABLE VIII.B.1–2.—ANNUAL EMISSIONS NATIONWIDE FROM ONROAD DIESELS IN 2012

[Tons per year]
Change in
Reference emissions
inventory: 28 Inventory: 300
mill gal bio- mill gal bio-
diesel per year diesel per year
VOC ......................................................................................................................................................................... 135,000 ¥800

NOX .......................................................................................................................................................................... 1,430,000 800
CO ............................................................................................................................................................................ 353,000 ¥1,100
Fine PM ................................................................................................................................................................... 27,000 ¥100
As can be seen, the emission impacts There will also be some increases in production of ethanol. These estimates
due to biodiesel use are roughly two emissions due to ethanol and biodiesel include a reduction in emissions related
orders of magnitude smaller than those production. Table VIII.B.1–3 shows to the distribution of the displaced
due to ethanol use. estimates of annual emissions expected gasoline.
to occur nationwide due to increased
TABLE VIII.B.1–3.—ANNUAL EMISSIONS NATIONWIDE FROM ETHANOL PRODUCTION AND TRANSPORTATION
[Tons per year]
Increase in emissions
Reference 7.2 Billion 9.6 Billion
inventory gallons of gallons of
ethanol ethanol
VOC ............................................................................................................................................. 15,929 12,744 22,301

NOX .............................................................................................................................................. 47,716 38,173 66,802
CO ................................................................................................................................................ 19,389 15,511 27,144
PM10 ............................................................................................................................................. 27,094 21,675 37,931
SOX .............................................................................................................................................. 31,760 25,408 44,464
As can be seen, the potential increases related to farming and ethanol nationwide due to increased production
in emissions from ethanol production production. Both farms and ethanol of biodiesel. These estimates include a
and transportation are of the same order plants are generally located in ozone reduction in emissions related to the
of magnitude as those from ethanol use, attainment areas. distribution of the displaced diesel fuel.
with the exception of CO emissions. The Table VIII.B.1–4 shows estimates of
vast majority of these emissions are annual emissions expected to occur
TABLE VIII.B.1–4.—ANNUAL EMISSIONS NATIONWIDE FROM BIODIESEL PRODUCTION AND TRANSPORTATION

[Tons per year]
Change in
Reference emissions
inventory: 28
Pollutant Inventory: 300
mill gal bio- mill gal bio-
diesel per year diesel per year
VOC ......................................................................................................................................................................... 1,300 12,700

NOX .......................................................................................................................................................................... 1,400 13,600
CO ............................................................................................................................................................................ 800 7,200
PM10 ......................................................................................................................................................................... 50 1,000
SOX .......................................................................................................................................................................... 200 1,800
The potential emission increases 2. Sensitivity Analysis just Tier 0 vehicles. Also shown are the
related to biodiesel production and The national emission inventories for changes in emissions projected for the
distribution are generally much smaller, VOC and NOX in 2012 with current two cases for future ethanol volume and
with the possible exception of VOC fuels are summarized in Table VIII.B.2– the two cases of ethanol use in RFG. CO
emissions. Again, these emissions are 1. Here, the emission effects contained emissions are the same as in the primary
generally expected to be in ozone in the EPA Predictive Models are analysis, as they are not affected by the
attainment areas. assumed to apply to all vehicles, not EPA Predictive Models.
TABLE VIII.B.2–1.—2012 EMISSIONS NATIONWIDE FROM GASOLINE VEHICLES AND EQUIPMENT UNDER SEVERAL ETHANOL
USE SCENARIOS: SENSITIVITY ANALYSIS
[Tons per year]
Inventory Change in inventory in control cases
7.2 Billion gallons of ethanol 9.6 Billion gallons of ethanol

Pollutant Reference
case Minimum RFG Maximum Minimum RFG Maximum
use RFG use use RFG use
VOC ..................................................................................... 5,775,000 4,000 ¥8,000 14,000 ¥5,000

NOX ...................................................................................... 2,610,000 49,000 45,000 95,000 89,000
CO ........................................................................................ 64,799,000 ¥843,000 ¥1,229,000 ¥1,971,000 ¥2,319,000
Benzene ............................................................................... 175,000 ¥9,000 ¥5,000 ¥14,000 ¥ 10,000
Formaldehyde ...................................................................... 39,300 0 ¥200 300 0
Acetaldehyde ....................................................................... 19,200 5,800 4,700 9,000 8,000
1,3-Butadiene ....................................................................... 17,900 ¥600 ¥400 ¥1,100 ¥800
The overall VOC and NOX emission 3. Local and Regional VOC and NOX RVP standards less than 9.0 RVP, and
impacts of the various ethanol use Emission Impacts in July (3) areas with a 9.0 RVP standard. This
scenarios change to some degree when We also estimate the percentage set of groupings helps to highlight the
all motor vehicles are assumed to be change in VOC and NOX emissions from emissions impact of increased ethanol
sensitive to fuel ethanol content. The gasoline fueled motor vehicles and use in those areas where emission
increase in VOC emissions either equipment in those areas which actually control is most important.
decreases substantially or turns into a experienced a significant change in Table VIII.B.3–1 presents our primary
net decrease due to a greater reduction ethanol use. Specifically, we focused on estimates of the percentage change in
in exhaust VOC emissions from onroad areas where the market share of ethanol VOC and NOX emission inventories for
vehicles. However, the increase in NOX blends was projected to change by 50 these three types of areas. While ethanol
emissions gets larger, as more vehicles percent or more. We also focused on use is going up in the vast majority of
are assumed to be affected by ethanol. summertime emissions, as these are the nation, ethanol use in RFG areas
Emissions of the four air toxics most relevant to ozone formation. under the ‘‘Minimum Use in RFG’’
generally decrease slightly, due to the Finally, we developed separately scenarios is actually decreasing
greater reduction in exhaust VOC estimates for: (1) RFG areas, including compared to the 2012 reference case.
emissions. the state of California and the portions This is important to note in order to
of Arizona where their CBG fuel understand the changes in emissions
programs apply, (2) low RVP areas (i.e., indicated.
TABLE VIII.B.3–1.—CHANGE IN EMISSIONS FROM GASOLINE VEHICLES AND EQUIPMENT IN COUNTIES WHERE ETHANOL
USE CHANGED SIGNIFICANTLY—PRIMARY ANALYSIS
Ethanol use 7.2 Billion gallons 9.6 Billion gallons
Ethanol use in RFG Minimum Maximum Minimum Maximum
RFG Areas
Ethanol Use ....................... Down ................................. Up ...................................... Down ................................. Up.

VOC ................................... 1.6% .................................. 0.4% .................................. 1.6% .................................. 0.4%.
NOX ................................... ¥5.2% .............................. 2.4% .................................. ¥5.2% .............................. 2.4%.
Low RVP Areas
Ethanol Use ....................... Up ...................................... Up ...................................... Up ...................................... Up.

VOC ................................... 3.1% .................................. 3.2% .................................. 4.1% .................................. 3.5%.
NOX ................................... 4.1% .................................. 6.0% .................................. 4.8% .................................. 4.4%.
Other Areas

VOC ................................... 4.1% .................................. 4.1% .................................. 5.4% .................................. 4.4%.
NOX ................................... 4.6% .................................. 6.0% .................................. 5.8% .................................. 4.8%.
As expected, increased ethanol use increased ethanol use tends to increase waiver for ethanol blends. The reader is
tends to increase NOX emissions. The VOC emissions, indicating that the referred to Chapter 2 of the DRIA for
increase in low RVP and other areas is increase in non-exhaust VOC emissions discussion of how ethanol levels will
greater than in RFG areas, since the RFG exceeds the reduction in exhaust VOC change at the state-level.
in the RFG areas included in this emissions. This effect is muted with Table VIII.B.3–2 presents the
analysis all contained MTBE. Also, RFG due to the absence of an RVP percentage change in VOC and NOX
emission inventories under our emission effects of the EPA Predictive

sensitivity case (i.e., when we apply the Models to all motor vehicles).
TABLE VIII.B.3–2.—CHANGE IN EMISSIONS FROM GASOLINE VEHICLES AND EQUIPMENT IN COUNTIES WHERE ETHANOL
USE CHANGED SIGNIFICANTLY—SENSITIVITY ANALYSIS
7.2 Bgal Min 7.2 Bgal Max 9.6 Bgal Min 9.6 Bgal Max
RFG Areas
Ethanol Use ....................... Down ................................. Up ...................................... Down ................................. Up.

VOC ................................... 2.6% .................................. 0.2% .................................. 2.6% .................................. 0.2%.
NOX ................................... ¥9.0% .............................. 4.7% .................................. ¥9.0% .............................. 4.7%.
Low RVP Areas

VOC ................................... 2.1% .................................. 2.1% .................................. 3.1% .................................. 2.5%.
NOX ................................... 8.2% .................................. 10.6% ................................ 9.8% .................................. 8.9%.
Other Areas

VOC ................................... 3.4% .................................. 3.4% .................................. 4.6% .................................. 3.7%.
NOX ................................... 8.4% .................................. 10.1% ................................ 10.3% ................................ 8.8%.
Directionally, the changes in VOC and changes in emissions from gasoline simulated. As a result, we could not
NOX emissions in the various areas are vehicles and equipment for the 7.2 apply distinct changes in emissions for
consistent with those from our primary billion gallon ethanol use case. The each county. Therefore, two separate
analysis. The main difference is that the changes in diesel emissions are runs were made with different VOC and
increases in VOC emissions are smaller, negligible in comparison. We did not NOX emissions reductions. We then
due to more vehicles experiencing a include the estimated changes in selected the ozone impacts from the
reduction in exhaust VOC emissions, emissions from renewable fuel various runs which best matched the
and the increases in NOX emissions are production and distribution, because of VOC and NOX emission reductions for
larger. their more approximate nature. Their that county. This models the impact of
geographical concentration also makes it local emissions reasonably well, but
C. Impact on Air Quality more difficult to simulate with the loses some accuracy with respect to
We estimate the impact of increased Ozone RSM. ozone transport. No ozone impact was
ethanol use on the ambient The Ozone RSM was created using
multiple runs of the Comprehensive Air assumed for areas which did not
concentrations of two pollutants: ozone
and PM. Quantitative estimates are Quality Model with Extensions (CAMx). experience a significant change in
made for ozone, while only qualitative Base and proposed control CAMx ethanol use. The predicted ozone
estimates can be made currently for metamodeling was completed for the impacts of increased ethanol use for
ambient PM. These impacts are year 2015 over a modeling domain that those areas where ethanol use is
described below. includes all or part of 37 Eastern U.S. projected to change by more than a 50%
states, plus the District of Columbia. For market share are summarized in Table
1. Impact of 7.2 Billion Gallon Ethanol more information on the Ozone RSM, VIII.C.1–1. As shown in Table 5.1–2 of
Use on Ozone please see the Chapter 5 of the DRIA for the DRIA, national average impacts
We use a metamodeling tool this proposal. (based on the 37-state area modeled)
developed at EPA, the ozone response The Ozone RSM limits the number of which include those areas where no
surface metamodel (Ozone RSM), to geographically distinct changes in VOC change in ethanol use is occurring are
estimate the effects of the projected and NOX emissions which can be considerably smaller.
TABLE VIII.C.1–1.—IMPACT ON 8-HOUR DESIGN VALUE EQUIVALENT OZONE LEVELS (PPB) a

Primary Analysis Sensitivity Analysis
Min RFG Max RFG Min RFG Max RFG

Use Use Use Use
Minimum Change ............................................................................................................. ¥0.030 ¥0.025 ¥0.180 0.000

Maximum Change ............................................................................................................ 0.395 0.526 0.637 0.625
Average Change b ............................................................................................................ 0.137 0.171 0.294 0.318
Population-Weighted Change b ........................................................................................ 0.134 0.129 0.268 0.250
a In comparison to the 80 ppb 8-hour ozone standards.
b Only for those areas experiencing a change in ethanol blend market share of at least 50 percent.
As can be seen, ozone levels generally to the projected increases in both VOC primary analysis, where exhaust
increase to a small degree with and NOX emissions. Some areas do see emissions from Tier 1 and later onroad
increased ethanol use. This is likely due a small decrease in ozone levels. In our vehicles are assumed to be unaffected
by ethanol use, the population-weighted underlying emission effects themselves gaseous-PM equilibria depend on
increase in ambient ozone levels in discussed earlier. temperature, so seasonal differences can
those areas where ethanol use changed be expected.
2. Particulate Matter Recent smog chamber studies have
significantly is 0.129–0.134 ppb. Since
the 8-hour ambient ozone standard is 80 Ambient PM can come from two indicated that gaseous aromatic VOCs
ppb, this increase represents about 0.16 distinct sources. First, PM can be can form secondary PM under certain
percent of the standard, a very small directly emitted into the atmosphere. conditions. These compounds comprise
percentage. Second, PM can be formed in the a greater fraction of exhaust VOC
In our sensitivity analysis, where atmosphere from gaseous pollutants. emissions than non-exhaust VOC
exhaust emissions from Tier 1 and later Gasoline-fueled vehicles and equipment emissions, as non-exhaust VOC
onroad vehicles are assumed to respond contribute to ambient PM emissions are dominated by VOCs with
to ethanol like Tier 0 vehicles, the concentrations in both ways. relatively high vapor pressures.
population-weighted increase in As described above, we are not Aromatic VOCs tend to have lower
ambient ozone levels is roughly twice as currently able to predict the impact of vapor pressures. As increased ethanol
fuel quality on direct PM emissions use is expected to reduce exhaust VOC
high, or 0.250–0.268 ppb. This increase
from gasoline-fueled vehicles or emissions, emissions of aromatic VOCs
represents about 0.32 percent of the
equipment. Therefore, we are unable at should also decrease. In addition,
standard.
this time to project the effect that refiners are expected to reduce the
There are a number of important increased ethanol use will have on
caveats concerning these estimates. aromatic content of gasoline by 5
levels of directly emitted PM in the volume percentage points as ethanol is
First, the emission effects of adding atmosphere.
ethanol to gasoline are based on blended into gasoline. Emissions of
PM can also be formed in the aromatic VOCs should decrease with
extremely limited data for recent atmosphere (termed secondary PM here)
vehicles and equipment. Second, the lower concentrations of aromatics in
from several gaseous pollutants emitted gasoline. Thus, emissions of gaseous
Ozone RSM does not account for by gasoline-fueled vehicles and
changes in CO emissions. As shown aromatic VOCs could decrease for both
equipment. Sulfur dioxide emissions reasons.
above, ethanol use should reduce CO contribute to ambient sulfate PM. NOX Overall, we expect that the decrease
emissions significantly, directionally emissions contribute to ambient nitrate in secondary organic PM is likely to
reducing ambient ozone levels in those PM. VOC emissions contribute to exceed the increase in secondary nitrate
areas where ozone formation is VOC- ambient organic PM, particularly the PM. In 1999, NOX emissions from
limited. (Ozone levels in areas which portion of this PM comprised of organic gasoline-fueled vehicles and equipment
are NOX-limited are unlikely to be carbon. Increased ethanol use is not comprised about 20% of national NOX
affected by a change in CO emissions.) expected to change gasoline sulfur emissions from all sources. In contrast,
The Ozone RSM also does not account levels, so emissions of sulfur dioxide gasoline-fueled vehicles and equipment
for changes in VOC reactivity. With and any resultant ambient comprised over 60% of all national
additional ethanol use, the ethanol concentrations of sulfate PM are not gaseous aromatic VOC emissions. The
content of VOC should increase. Ethanol expected to change. Increased ethanol percentage increase in national NOX
is less reactive than the average VOC. use is expected to increase NOX emissions due to increased ethanol use
Therefore, this change should also emissions, as described above. Thus, the should be smaller than the percentage
reduce ambient ozone levels in a way possibility exists that ambient nitrate decrease in national emissions of
not addressed by the Ozone RSM, again PM levels could increase. Increased gaseous aromatics. Finally, in most
in those areas where ozone formation is ethanol is generally expected to increase urban areas, ambient levels of secondary
predominantly VOC-limited. VOC emissions, which could also organic PM exceed those of secondary
Moving to health effects, exposure to impact the formation of secondary nitrate PM. Thus, directionally, we
ozone has been linked to a variety of organic PM. However, some VOC expect a net reduction in ambient PM
respiratory effects including premature emissions, namely exhaust VOC levels due to increased ethanol use.
mortality, hospital admissions and emissions, are expected to decrease, However, we are unable to quantify this
illnesses resulting in school absences. while non-exhaust VOC emissions are reduction at this time.
Ozone can also adversely affect the expected to increase and the impact on EPA currently utilizes the CMAQ
agricultural and forestry sectors by PM is a function of the type of VOC model to predict ambient levels of PM
decreasing yields of crops and forests. emissions. as a function of gaseous and PM
Although the health and welfare The formation of secondary organic emissions. This model includes
impacts of changes in ambient ozone PM is very complex, due in part to the mechanisms to predict the formation of
levels are typically quantified in wide variety of VOCs emitted into the nitrate PM from NOX emissions.
regulatory impact analyses, we do not atmosphere. Whether or not a specific However, it does not currently include
evaluate them for this analysis. On gaseous VOC reacts to form PM in the any mechanisms addressing the
average, the changes in ambient ozone atmosphere depends on the types of formation of secondary organic PM. EPA
levels shown above are small and would reactions that VOC undergoes, which in is currently developing a model of
be even smaller if changes in CO turn can depend on other pollutants secondary organic PM from gaseous
emissions and VOC reactivity were present, such as ozone, NOX and other toluene emissions. We plan to
taken into account. The increase in reactive compounds. The relative mass incorporate this mechanism into the
ozone would likely lead to negligible of secondary PM formed per mass of CMAQ model in 2007. The impact of
monetized impacts. We therefore do not gaseous VOC emitted can also depend other aromatic compounds will be
estimate and monetize ozone health on the concentration of the gaseous VOC added as further research clarifies their
impacts for the changes in renewable and the organic PM in the atmosphere. role in secondary organic PM formation.
use due to the small magnitude of this Most of the secondary organic PM exists Therefore, we expect to be able to
change, and the uncertainty present in in a continually changing equilibrium quantitatively estimate the impact of
the air quality modeling conducted between the gaseous and PM phases. decreased toluene emissions and
here, as well as the uncertainty in the Both the rates of these reactions and the increased NOX emissions due to
increased ethanol use as part of future dioxide and national energy concerns fuels will reduce fossil fuel
analyses of U.S. fuel requirements such as dependence on foreign sources consumption and GHG emissions as
required by the Act. of petroleum. Because significantly shown in Table IX–1 in 2012. The
more renewable fuel is expected to be results represent the percent reduction
IX. Impacts on Fossil Fuel Consumption
consumed over the next few years than in total transportation sector emissions
and Related Implications has been consumed in the past, there is and energy use. The ranges result from
Renewable fuels have been of increased interest in the degree to which different cases evaluated of the amount
significant interest for many years due their increased use will impact of renewable fuel (7.5 billion gallons
to their ability to displace fossil fuels, greenhouse gas emissions and fossil fuel versus 9.9 billion gallons) that will
which have often been targeted as consumption. actually be produced in 2012.
primary contributors to emissions of Based on our analysis, we estimate
greenhouse gases such as carbon that increases in the use of renewable
TABLE IX–1.—LIFECYCLE IMPACTS OF INCREASED RENEWABLE FUEL USE RELATIVE TO THE 2012 REFERENCE CASE
7.5 Billion 9.9 Billion
case a case b
Percent Reduction in Transportation Sector Petroleum Energy Use ............................................................................. 1.0 1.6
Percent Reduction in Transportation Sector Fossil Fuel Energy Use ............................................................................ 0.5 0.8
Percent Reduction in Transportation Sector GHG Emissions ........................................................................................ 0.4 0.6
Percent Reduction in Transportation Sector CO2 Emissions .......................................................................................... 0.6 0.9
a 7.2 billion gallons of ethanol.
b 9.6 billion gallons of ethanol.
This section provides a summary of cycle and does not include the example reviewed source for lifecycle modeling,
our analysis of the fossil fuel impacts of used above. Differing estimates on input a consensus on all the assumptions,
the RFS rule. factors (e.g. amount of fertilizer to grow including point estimates, that are used
corn) can also affect the results of the as inputs into that model does not
A. Lifecycle Modeling
lifecycle analysis. exist.88 Also, given the short timeframe
Although the use of renewable fuels For this proposed rulemaking, we available for the development of this
in the transportation sector directly have made use of a fuel-cycle model, proposal, we have not had the
displaces some petroleum consumed as GREET,87 developed at Argonne opportunity to initiate the type of public
motor vehicle fuel, this displacement of National Laboratory (ANL) under the dialogue on lifecycle modeling that
petroleum is in fact only one aspect of sponsorship of the U.S. Department of would be necessary before such
the overall impact of renewable fuels on Energy’s Office of Energy Efficiency and
fossil fuel use. Fossil fuels are also used analyses could be incorporated into a
Renewable Energy (EERE). GREET has
in producing and transporting regulatory framework. We have
been under development for several
renewable feedstocks such as plants or therefore chosen to use lifecycle
years and has undergone extensive peer
animal byproducts, in converting the modeling only as a means to estimate
review through multiple updates. Of the
renewable feedstocks into renewable available sources of information on the impacts of the increased use of
fuel, and in transporting and blending lifecycle analyses of energy consumed renewable fuel.
the renewable fuels for consumption as and emissions generated, we believe In addition to the GREET model tool,
motor vehicle fuel. To estimate the true that GREET offers the most EPA has also developed a lifecycle
impacts of increases in renewable fuels comprehensive treatment of the modeling tool that is specific to
on fossil fuel use, modelers attempt to transportation sector. For instance, individual fuel producers. This FUEL-
take many or all these steps into GREET provides lifecycle assessments CO2 model is intended to help fuel
account. Similarly, energy is used and for ethanol made from corn and producers estimate the lifecycle
GHGs emitted in the pumping of oil, cellulosic materials, biodiesel made greenhouse gas emissions and fossil
transporting the oil to the refinery, from soybean oil, and petroleum-based energy use for all stages in the
refining the crude oil into finished gasoline and diesel fuel. Thus GREET development of their specific fuel. EPA
transportation fuel, transporting the provides a means for calculating the will evaluate whether the FUEL-CO2
refined gasoline or diesel fuel to the relative greenhouse gas (GHG) and model would be an appropriate tool for
consumer and then burning the fuel in petroleum impacts of renewable fuels fuel providers who wish to demonstrate
the vehicle. Such analyses are termed that displace conventional motor their actual reductions in greenhouse
lifecycle or well-to-wheels analyses. vehicle fuels. For this proposal, we used gas emissions and fossil energy use.
A variety of approaches are available version 1.7 of the GREET model, with a This may also be the best way for
to conduct lifecycle analysis. This few modifications to its input
variety largely reflects different ethanol producers to quantify the
assumptions as described in more detail benefits of their renewable process
assumptions about (1) the boundary below.
conditions and (2) the estimates of input energy use when qualifying corn
We do not believe that it would be ethanol as cellulosic biomass ethanol
factors. The boundary conditions appropriate at this time to base the
determine the scope of the analysis. For (an option for ethanol producers,
regulatory provisions for this rule on stipulated in the Act).
example, a lifecycle analysis could lifecycle modeling, as described in more

include energy required to make farm detail in Section III.B.4. Although the 88 See Chapter 6.1.2 of the RIA for further
equipment as part of the estimate of GREET model does provide a peer- discussion of input assumptions used for the
energy required to grow corn. The GREET modeling. Also see IX.A.2 of this preamble
agency chose a lifecycle analytic 87 Greenhouse gases, Regulated Emissions, and section for a discussion about the differing
boundary that encompasses the fuel- Energy use in Transportation. estimates.
1. Modifications to GREET Assumptions diesel under a renewable fuels mandate. economics, some new plants are using
GREET is subject to periodic updates We will use information from this coal. In addition, EPA is promoting the
by ANL, each of which results in some refinery modeling for the final rule to use of combined heat and power, or
changes to the inputs and assumptions determine if any GREET input values cogeneration, in ethanol plants to
that form the basis for the lifecycle should be changed. improve plant energy-efficiency and to
A summary of the GREET corn reduce air emissions. This technology,
estimates of emissions generated and
ethanol input values we investigated in the face of increasing natural gas
energy consumed. These updates
and modified for this proposal is given prices, may make coal a more attractive
generally focus on those input values for
below. We also examined several other energy source for new ethanol plants.
those fuels or vehicle technologies that
GREET input values, but determined GREET assumes that 20 percent of
are the focus of ANL at the time. As a that the default GREET values should plants will be powered by coal.
result there are a variety of other inputs not be changed for a variety of reasons. However, our review of plants under
related to ethanol and biodiesel that These included ethanol plant process construction and those planned for the
have not been updated in some time. In efficiency, corn and ethanol transport near future indicates that coal will only
the context of the RFS program, we distances and modes, corn farming be used for approximately 10% of the
determined that some of the GREET inputs, CO2 emissions from corn plants. This is the value we assumed in
input values that were either based on farming land use change, and byproduct GREET for our analysis. However, as
outdated information or did not allocation methods. Our investigation of new plants are constructed to meet the
appropriately reflect market conditions these other GREET input values are demands of the RFS, this percentage is
under a renewable fuels mandate should discussed more fully in Chapter 6 of the expected to go up. Future work in
be examined more closely, and updated RIA. The current GREET default factors preparation for the final rule will
if necessary. for these other inputs were included in evaluate the potential trends for
In the timeframe available for the analysis for this proposal. combined heat and power and coal as
developing this proposal, we chose to a. Wet-Mill Versus Dry Mill Ethanol process fuel.
concentrate our efforts on those GREET Plants. The two basic methods for c. Ethanol Production Yield. It is
input values for ethanol that had producing ethanol from corn are wet generally assumed that 1 bushel of corn
significant influence on the lifecycle milling and dry milling. In the wet yields 2.7 gallons of ethanol. However,
emissions or energy estimates and that milling process, the corn is soaked to the development of new enzymes
were likely to be based on outdated separate the starch, used to make continues to increase the potential
information. We reviewed the input ethanol, from the other components of ethanol yield. We used a value of 2.71
values only for ethanol made from corn, the corn kernel. In the dry milling gal/bu in our analysis. This value
since this particular renewable fuel is process, the entire corn kernel is ground represents pure ethanol production (i.e.
likely to continue to dominate the and fermented to produce ethanol. The no denaturant). This value is consistent
renewable fuel pool through at least remaining components of the corn are with the cost modeling of corn ethanol
2012. For cellulosic ethanol and then dried for animal feed (dried discussed in Section VII.
biodiesel the GREET default values were distillers grains with solubles, or
used in this proposal. However, we have 2. Controversy Concerning the Ethanol
DDGS). Wet milling is more
also initiated a contract with ANL to Energy Balance
complicated and expensive than dry
investigate a wider variety of GREET milling, but it produces more valuable Although we have made use of
input values, including those associated products (ethanol plus corn syrup, corn lifecycle impact estimates from ANL’s
with the following fuel/feedstock oil, and corn gluten meal and feeds). GREET model, there are a variety of
pathways: The majority of ethanol plants in the lifecycle impact analyses from other
• Ethanol from corn. United States are dry mill plants, which researchers that provide alternative and
• Ethanol from cellulosic materials produce ethanol more simply and sometimes significantly different
(hybrid populars, switchgrass, and corn efficiently. The GREET default is 70 estimates. The lifecycle energy balance
stover). percent dry mill, 30 percent wet mill. for corn-ethanol, in particular, has been
• Biodiesel from soybean oil. For this analysis, we expect most new the subject of numerous and sometimes
• Methanol from renewable sources. ethanol plants will be dry mill contentious debates.
• Natural gas from renewable sources. operations. That has been the trend in Several metrics are commonly used to
• Renewable diesel formulations. the last few years as the demand for describe the energy efficiency of
The contract focuses on the potential ethanol has grown, and our analysis of renewable fuels. We have chosen to use
fuel production developments and ethanol plants under construction and displacement indexes for this proposal
efficiency improvements that could planned for the near future has verified because they provide the least
occur within the time-frame of the RFS this. Therefore, it was assumed that ambiguous and most relevant
program. The GREET input value essentially all new ethanol facilities mechanism for estimating the impacts of
changes resulting from this work are would be dry mill plants. renewable fuels on GHGs and petroleum
projected to be available in the fall of b. Coal Versus Natural Gas in Ethanol consumption. However, other metrics,
2006, not in time for this proposal, but Plants. The type of fuel used within the such as the net energy balance and
they will be incorporated into revised ethanol plant for process energy, to energy efficiency, have more commonly
lifecycle assessments for the final rule. power the various components that are been used in the past. The use of these
We did not investigate the input used in ethanol production (dryers, metrics has served to complicate the
values associated with the production of grinders, heating, etc.) can vary among issue since they do not involve a direct
petroleum-based gasoline or diesel fuel ethanol plants. The type of fuel used has comparison to the gasoline that the
in the GREET model for this proposal. an impact on the energy usage, ethanol is replacing.
However, the refinery modeling efficiency, and emissions of the plant, Among researchers who have studied
discussed in Section VII will provide and is primarily determined by the lifecycle energy balance of corn-
some additional information on the economics. Most new plants built in the ethanol, the primary differences of
process energy requirements associated last few years have used natural gas. opinion appear to center on fossil
with the production of gasoline and Based on specific situations and energy associated with fertilizers, the
energy required to convert corn into the GREET model have also concluded Variations of the above equation were
ethanol, and the value of co-products. that the lifecycle amount of fossil energy also generated for impacts on all four
As a result of these differences, the net used to produce ethanol is less than the endpoints of interest (emissions of CO2,
energy balance has been estimated to be amount of energy in the ethanol itself. emissions of GHGs, fossil fuel
somewhere between ¥34 and + 31 Based on our review of all the available consumption, and petroleum
thousand Btu/gal, and the energy information, we have concluded that the consumption) as well as all three
efficiency has been estimated to be energy balance is indeed positive, and renewable fuels examined (corn-
somewhere between 0.6 and 1.4.89 A we believe that the GREET model ethanol, cellulosic ethanol, and
concern arises in cases where a provides an accurate basis for biodiesel). Each of the variables in the
researcher concludes that the net energy quantifying the lifecycle impacts. above equation are discussed in more
balance is negative, or the energy detail below. Section 6 of the DRIA
efficiency is less than 1.0. Such cases B. Overview of Methodology
provides details of the analysis.
would indicate that the fossil energy The GREET model does not provide
used in the production and estimates of energy consumed and 1. Amount of Conventional Fuel
transportation of ethanol exceeds the emissions generated in total, such as the Replaced by Renewable Fuel (R)
energy in the ethanol itself, and this is total amount of natural gas consumed in
In general, the volume fraction (R)
generally interpreted to mean that the U.S. in a given year by ethanol
represents the amount of conventional
lifecycle fossil fuel use negates the production facilities. Instead, it
fuel no longer consumed—that is,
benefits of replacing gasoline with provides estimates on a national
displaced—as a result of the use of the
ethanol. However, since the metrics average, per fuel unit basis, such as the
replacement renewable fuel. Thus R
used do not actually compare ethanol to amount of natural gas consumed for the
represents the total amount of
gasoline, such interpretations are average ethanol production facility per
renewable fuel used under each of our
unwarranted. million Btus of ethanol produced. As a
renewable fuel volume scenarios, in
The primary studies that conclude result we could not use GREET directly
units of Btu. We make the assumption
that the energy balance is negative were to estimate the nationwide impacts of
that vehicle energy efficiency will not
conducted by Dr. David Pimental of replacing some gasoline and diesel with
be affected by the presence of renewable
Cornell University and Dr. T. Patzek of renewable fuels.
fuels (i.e., efficiency of combusting one
University of California, Berkeley 90 91. Instead, we used GREET to generate
Btu of ethanol is equal to the efficiency
Many other researchers, however, have comparisons between renewable fuels
of combusting one Btu of gasoline).
criticized that work as being based on and the petroleum-based fuels that they
out-dated farming and ethanol displace. These comparisons allowed us Consistent with the emissions
production data, including data not to develop displacement indexes that modeling described in Section VII, our
normally considered in lifecycle represent the amount of lifecycle GHGs analysis of the GHG and fossil fuel
analysis for fuels, and not following the or fossil fuel reduced when a Btu of consumption impacts of renewable fuel
standard methodology for lifecycle renewable fuel replaces a Btu of use was conducted using three volume
analysis in terms of valuing co-products. gasoline or diesel. In order to estimate scenarios. The first scenario was a base
Furthermore, several recent surveys the incremental impacts of increased case representing 2004 renewable fuel
have concluded that the energy balance use of renewable fuels on GHGs and production levels, projected to 2012.
is positive, although they differ in their fossil fuels, we combined those This scenario provided the point of
numerical estimates.92 93 94 Authors of displacement indexes with our comparison for the other two scenarios.
renewable fuel volume scenarios and The other two renewable fuel scenarios
89 A net energy balance of zero, or an energy GHG emissions and fossil fuel for 2012 represented the RFS program
efficiency of 1.0, would indicate that the full consumption data for the conventional requirements and the volume projected
lifecycle fossil fuels used in the production and by EIA. In both scenarios, we assumed
transportation of ethanol are exactly equal to the
fuels replaced. For example, to estimate
energy in the ethanol itself. the impact of corn-ethanol use on GHGs, that the biodiesel production volume
90 Pimentel, David ‘‘Ethanol Fuel: Energy these factors were combined in the would be 0.3 billion gallons based on an
Balance, Economics, and Environmental Impacts following way: EIA projection, and that the cellulosic
are Negative’’, Vol. 12, No. 2, 2003 International ethanol production volume would be
Association for Mathematical Geology, Natural SGHG,corn ethanol = Rcorn ethanol × LCgasoline ×
Resources Research. DIGHG,corn ethanol 0.25 billion gallons based on the Energy
91 Pimentel, D.; Patzek, T. ‘‘Ethanol production Act’s requirement that 250 million
Where:
using corn, switchgrass, and wood; biodiesel gallons of cellulosic ethanol be
production using soybean and sunflower.’’ Nat. SGHG,corn ethanol = Lifecycle GHG emission produced starting in the next year, 2013.
Resour. Res. 2005, 14 (1), 65–76. reduction relative to the 2012 reference
92 Hammerschlag, R. ‘‘Ethanol’s Energy Return on case associated with use of corn ethanol
The remaining renewable fuel volumes
Investment: A Survey of the Literature 1990— (million tons of GHG). in each scenario would be ethanol made
Present.’’ Environ. Sci. Technol. 2006, 40, 1744– Rcorn ethanol = Amount of gasoline replaced by from corn. The total volumes for all
1750. corn ethanol on an energy basis (Btu). three scenarios are shown in Table
93 Farrell, A., Pelvin, R., Turner, B., Joenes, A.,
LCgasoline = Lifecycle emissions associated IX.B.1–1. For the purposes of
O’Hare, M., Kammen, D., ‘‘Ethanol Can Contribute with gasoline use (million tons of GHG calculating the R values, we assumed
to Energy and Environmental Goals’’, Science, 1/27/ per Btu of gasoline).
2006, Vol. 311, 506–508. the ethanol volumes are 5% denatured,
94 Hill, J., Nelson, E., Tilman, D., Polasky, S.,
DIGHG,corn ethanol = Displacement Index for and the volumes were converted to total
Tiffany, D., ‘‘Environmental, economic, and
GHGs and corn ethanol, representing the Btu using the appropriate volumetric
energetic costs and benefits of biodiesel and ethanol percent reduction in gasoline lifecycle
GHG emissions which occurs when a Btu
energy content values (76,000 Btu/gal
biofuels’’, Proceedings of the National Academy of
for ethanol, and 118,000 Btu/gal for
Sciences, 7/25/2006, Vol. 103, No. 30, 11206– of gasoline is replaced by a Btu of corn
11210. ethanol. biodiesel).
TABLE IX.B.1–1.—VOLUME SCENARIOS IN 2012

[billion gallons]
RFS Projected vol-

Reference required ume:
case volume: 9.9 B gal
7.5 B gal
Corn-ethanol ...................................................................................................................................... 3.9 6.95 9.35

Cellulosic ethanol ............................................................................................................................... 0.0 0.25 0.25
Biodiesel ............................................................................................................................................ 0.028 0.3 0.3
Total volume ............................................................................................................................... 3.928 7.5 9.9
Since the impacts of increased develop multiplicative factors for 3. Displacement Indexes (DI)
renewable fuel use were measured converting direct (vehicle-based)
relative to the 2012 reference case, the emissions of GHGs and energy use into The displacement index (DI)
value of R actually represented the full lifecycle factors. Table IX.B.2–1 represents the percent reduction in GHG
incremental amount of renewable fuel shows the total lifecycle petroleum and emissions or fossil fuel energy brought
between the reference case and each of GHG emissions associated with direct about by the use of a renewable fuel in
the two other scenarios. use of a Btu value of gasoline and diesel comparison to the conventional gasoline
fuel. or diesel that the renewable fuel
2. Lifecycle Impacts of Conventional
Fuel Use (LC) replaces. The formula for calculating the
TABLE IX.B.2–1.—LIFECYCLE displacement index depends on which
In order to determine the lifecycle EMISSIONS AND ENERGY (LC VALUES) fuel is being displaced (i.e. gasoline or
impact that increased renewable fuel diesel), and which endpoint is of
volumes may have on any particular Gasoline Diesel interest (e.g. petroleum energy, GHG).
endpoint (fossil fuel consumption or
For instance, when investigating the
emissions of GHGs), we also needed to Petroleum (Btu/
CO2 impacts of ethanol used in gasoline,
know the conventional fuel inventory Btu) ................ 1.11 1.10
on a lifecycle basis. Since available Fossil fuel (Btu/ the displacement index is calculated as
sources of GHG emissions are provided Btu) ................ 1.22 1.21 follows:
on a direct rather than a lifecycle basis, GHG (Tg-CO2-
eq/QBtu) ........ 99.4 94.5
we converted these direct emission and
CO2 (Tg-CO2/
energy estimates into their lifecycle QBtu) ............. 94.2 91.9
counterparts. We used GREET to
lifecycle CO 2 emitted for ethanol in g/Btu

DICO2 = 1 −
lifecycle CO 2 emitted for gasoline in g/Btu
The units of g/Btu ensure that the The combustion of biomass-based Using GREET, we calculated the
comparison between the renewable fuel fuels, such as ethanol from corn and lifecycle values for energy consumed
and the conventional fuel is made on a woody crops, generates CO2. However, and GHGs produced for corn-ethanol,
common basis, and that differences in in the long run the CO2 emitted from cellulosic ethanol, and soybean-based
the volumetric energy content of the biomass-based fuels combustion does biodiesel. These values were in turn
fuels is taken into account. The not increase atmospheric CO2 used to calculate the displacement
denominator includes the CO2 emitted concentrations, assuming the biogenic indexes. The results are shown in Table
through combustion of the gasoline carbon emitted is offset by the uptake of IX.B.3–1. Details of these calculations
itself in addition to all the CO2 emitted CO2 resulting from the growth of new can be found in Chapter 6 of the RIA.
during its manufacturer and biomass. As a result, CO2 emissions As noted previously, different models
distribution. The numerator, in contrast, from biomass-based fuels combustion can result in different estimates. For
includes only the CO2 emitted during are not included in their lifecycle example, whereas GREET estimates a
net GHG reduction of about 26% for
the manufacturer and distribution of emissions results and are not used in
corn ethanol compared to gasoline, the
ethanol, not the CO2 emitted during the CO2 displacement index
previously cited works by Farrell et al.
combustion of the ethanol. calculations shown above. estimates around a 13% reduction.
TABLE IX.B.3–1.—DISPLACEMENT INDEXES DERIVED FROM GREET

Cellulosic eth-
Corn ethanol Biodiesel
anol
(percent) (percent)
(percent)
DIPetroleum ...................................................................................................................................... 92.3 92.7 84.6

DIFossil Fuel ..................................................................................................................................... 40.1 96.0 47.9
DIGHG ........................................................................................................................................... 25.8 98.1 53.4
EP22SE06.005</MATH>
TABLE IX.B.3–1.—DISPLACEMENT INDEXES DERIVED FROM GREET—Continued

Cellulosic eth-
Corn ethanol Biodiesel
anol
(percent) (percent)
(percent)
DICO2 ............................................................................................................................................. 43.9 110.1 56.8
The displacement indexes in this such as wood, corn stalks, or use of renewable fuels on consumption
table represent the impact of replacing switchgrass. However, the definition of of petroleum and fossil fuels and also on
a Btu of gasoline or diesel with a Btu of cellulosic biomass ethanol given in the emissions of CO2 and GHGs. This
renewable fuel. Thus, for instance, for Energy Act also includes ethanol made section describes our results.
every Btu of gasoline which is replaced from non-cellulosic feedstocks if 90
by corn ethanol, the total lifecycle GHG percent of the process energy used to 1. Fossil Fuels and Petroleum
emissions that would have been operate the facility is derived from a We used the equation for S above to
produced from that Btu of gasoline renewable source. In the context of our
calculate the reduction associated with
would be reduced by 25.8 percent. For cost analysis, we have assumed this
every Btu of diesel which is replaced by the increased use of renewable fuels on
latter definition of cellulosic ethanol.
biodiesel, the total lifecycle petroleum lifecycle fossil fuels and petroleum.
Further discussion of this issue can be
energy that would have been consumed found in Chapter 1, Section 1.2.2 of the These values are then compared to the
as a result of burning that Btu of diesel RIA. total U.S. transportation sector
fuel would be reduced by 84.6 percent. emissions to get a percent reduction.
Note that our DI estimates for C. Impacts of Increased Renewable Fuel The results are presented in Tables
cellulosic ethanol assume that the Use IX.C.1–1 and IX.C.1–2.
ethanol in question was in fact We used the methodology described
produced from a cellulosic feedstock, above to calculate impacts of increased
TABLE IX.C.1.–1.—FOSSIL FUEL IMPACTS OF INCREASED USE OF RENEWABLE FUELS IN THE TRANSPORTATION SECTOR
IN 2012, RELATIVE TO THE 2012 REFERENCE CASE
RFS Required Projected vol-

volume: 7.5 ume: 9.9 Bgal
Bgal
Reduction (quadrillion Btu) ...................................................................................................................................... 0.2 0.3

Percent reduction ..................................................................................................................................................... 0.5 0.8
TABLE IX.C.1.–2.—PETROLEUM IMPACTS OF INCREASED USE OF RENEWABLE FUELS IN THE TRANSPORTATION SECTOR IN
2012, RELATIVE TO THE 2012 REFERENCE CASE
RFS Required Projected vol-
volume: 7.5 ume: 9.9 Bgal
Bgal
Reduction (billion gal) .............................................................................................................................................. 2.3 3.9

Percent reduction ..................................................................................................................................................... 1.0 1.6
2. Greenhouse Gases and Carbon greenhouse gases is dependant on their TABLE IX.C.2–1.—GLOBAL WARMING
Dioxide radiative forcing, atmospheric lifetime, POTENTIALS FOR GREENHOUSE GASES
and other considerations. For example,
One issue that has come to the on a mass basis, the radiative forcing of
forefront in the assessment of the Greenhouse gas GWP
CH4 is much higher than that of CO2,
environmental impacts of transportation but its effective atmospheric residence CO2 ............................................... 1
fuels relates to the effect that the use of time is much lower. The relative CH4 ............................................... 23
such fuels could have on emissions of warming impacts of various greenhouse N2O ............................................... 296
greenhouse gases (GHGs). The gases, taking into account factors such
combustion of fossil fuels has been as atmospheric lifetime and direct
identified as a major contributor to the Greenhouse gases are measured in
warming effects, are reported on a CO2- terms of CO2-equivalent emissions,
increase in concentrations of equivalent basis as global warming
atmospheric carbon dioxide (CO2) since which result from multiplying the GWP
potentials (GWPs). The GWPs used by for each of the three pollutants shown
the beginning of the industrialized era, GREET were developed by the UN
as well as the build-up of trace GHGs in the above table by the mass of
Intergovernmental Panel on Climate emission for each pollutant. The sum of
such as methane (CH4) and nitrous Change (IPCC) as listed in their Third
oxide (N2O). This lifecycle analysis Assessment Report 95, and are shown in
evaluates the impacts of renewable fuel Table IX.C.2–1.
Climate Change; J. T. Houghton, Y. Ding, D. J.
use on greenhouse gas emissions. Griggs, M. Noguer, P. J. van der Linden, X. Dai,
C. A. Johnson; and K. Maskell, eds.; Cambridge
The relative global warming 95 IPCC ‘‘Climate Change 2001: The Scientific University Press. Cambridge, U. K. 2001. http://
contribution of emissions of various Basis’’, Chapter 6; Intergovernmental Panel on www.grida.no/climate/ipcc_tar/wg1/index.htm.
impacts for CH4, N2O, and CO2, yields the increased use of renewable fuels on transportation sector emissions to get a
the total effective GHG impact. lifecycle emissions of CO2. These values percent reduction. The results are
We used the equation for S above to are then compared to the total U.S. presented in Table IX.C.2–2.
calculate the reduction associated with
TABLE IX.C.2–2.—CO2 EMISSION IMPACTS OF INCREASED USE OF RENEWABLE FUELS IN THE TRANSPORTATION SECTOR
IN 2012, RELATIVE TO THE 2012 REFERENCE CASE
RFS Required vol- Projected Volume: 9.9

ume: 7.5 Bgal Bgal
Reduction (million metric tons CO2) 12.6 19.8

Percent reduction 0.6 % 0.9 %
Carbon dioxide is a subset of GHGs, U.S. economy. Expanded production of the imports of crude oil and refined
along with CH4 and N2O as discussed renewable fuel is expected to contribute products.
above. It can be seen from Table IX.B.3– to energy diversification and the We quantified the fraction of net
1 that the displacement index of CO2 is development of domestic sources of petroleum imports that would be crude
greater than for GHGs for each energy. We consider whether the RFS
oil versus finished products.
renewable fuel. This indicates that will reduce U.S. dependence on
Comparison of same cases in the AEO
lifecycle emissions of CH4 and N2O are imported oil by calculating avoided
expenditures on petroleum imports. 2006 shows that finished products
higher for renewable fuels than for the
conventional fuels replaced. Therefore, Note that we do not calculate whether initially compose all the net import
reductions associated with the increased this reduction is socially beneficially, reductions, followed by imported crude
use of renewable fuels on lifecycle which would depend on the scarcity oil once reductions in consumption
emissions of GHGs are lower than the value of domestically produced ethanol reach beyond 1.2 Quads of petroleum
values for CO2. The results for GHGs are versus that of imported petroleum product. However, there is significant
presented in Table IX.C.2–3. products. uncertainty in quantifying how
To assess the impact of the RFS refineries will change their mix of
TABLE IX.C.2–3.—GHG EMISSION IM- program on petroleum imports, the sources with a decrease in petroleum
PACTS OF INCREASED USE OF RE- fraction of domestic consumption demand, particularly at the levels
NEWABLE FUELS IN THE TRANSPOR-
derived from foreign sources was estimated for the RFS. For example, a
estimated using results from the AEO comparison between the AEO low price
TATION SECTOR IN 2012, RELATIVE
2006. In section 6.4.1 of the DRIA we case (as opposed to low macroeconomic
TO THE 2012 REFERENCE CASE describe how fuel producers change growth case) and the reference case
their mix in response to a decrease in would yield a 50–50 split between
RFS Re- Projected fuel demand. We do not expect the
quired vol- Volume: 9.9 projected reductions in petroleum product and crude imports. We believe
ume: 7.5 that the actual refinery response could
Bgal
Bgal consumption (0.3 to 0.57 Quads) to range between these two points, so that
impact world oil prices by a measurable
Reduction (mil- finished product imports would
amount. We base this assumption on the
lion metric compose between 50 to 100% of the net
tons CO2-eq.) .. 9.0 13.5
overall size of worldwide petroleum
import reductions, with crude oil
Percent reduc- demand and analysis of the AEO 2006
imports making up the remainder. For
tion ................ 0.4% 0.6% cases. As a consequence, domestic the purposes of this rulemaking, we
crude oil production for the 7.5 or 9.9
cases would not be expected to change show values for the case where net
D. Implications of Reduced Imports of import reductions come entirely from
Petroleum Products significantly versus the RFS reference
case. Thus, petroleum reductions will imports of finished products, as shown
This section only considers the come largely from reductions in net below in Table IX.D–1. We compare
impacts on imports of oil and petroleum petroleum imports. This conclusion is these reductions in imports against the
products. Expanded production and use confirmed by comparing the AEO 2006 AEO projected levels of net petroleum
of renewable fuels could have other low macroeconomic growth case to the imports. The range of reductions in net
economic impacts such as on the AEO 2006 reference case, as discussed petroleum imports are estimated to be
exports of agricultural products like in the RIA 6.4.1. The AEO 2006 shows between 1 to 2%, as shown in Table
corn. See section X of the preamble for that for a reduction in petroleum IX.D–2.
a discussion on agricultural sector demand on the order of the reductions
impacts. estimated for the RFS, net imports will TABLE IX.D–1.—REDUCTIONS IN
In 2005, the United States imported account for approximately 95% of the
almost 60 percent of the oil it IMPORTS OF FINISHED PRODUCTS
reductions. However, if petroleum [barrels per day]
consumed. This compares to just over reductions were large enough to impact
35 percent oil imports in 1975. 96
world oil prices, the mix of domestic
Transportation accounts for 70% of the Cases 2012
crude oil, imports of finished products,
U.S. oil consumption. It is clear that oil
and imports of crude oil used by fuel 7.5 ............................................. 145,454

imports have a significant impact on the producers would change. We discuss
9.9 ............................................. 240,892
96 Davis, Stacy C.; Diegel, Susan W.,
this uncertainty in more detail in
Transportation Energy Data Book: 25th Edition, Oak
section 6.4.1 of the RIA and solicit
Ridge National Laboratory, U.S. Department of comments to the extent by which the
Energy, ORNL–6974, 2006. RFS may have a price effect and impact
TABLE IX.D–2.—PERCENT REDUC- the level of oil imports or products rather than crude oil. The
TIONS IN PETROLEUM IMPORTS COM- consumption.99 reduced expenditures in petroleum
PARED TO AEO2006 IMPORT PRO- Since the 1997 publication of this product imports were calculated by
report changes in oil market conditions, multiplying the reductions in gasoline
JECTIONS
both current and projected, suggest that and diesel imports by their
Cases 2012
the magnitude of the ‘‘oil premium’’ corresponding price. According to the
may have changed. Significant factors EIA, the price of imported finished
7.5 ..................................................... 1.1% that should be reconsidered include: Oil products is the market price minus
9.9 ..................................................... 1.7% prices, current and anticipated levels of domestic local transportation from
OPEC production, U.S. import levels, refineries and minus taxes.101 An
One of the effects of increased use of potential OPEC behavior and responses, estimate was made by using the AEO
renewable fuel is that it diversifies the and disruption likelihoods. ORNL will 2006 gasoline and distillate price
energy sources used in making apply the most recently available careful forecasts and subtracting the average
transportation fuel. To the extent that quantitative assessment of disruption Federal and state taxes based on
diverse sources of fuel energy reduce likelihoods, from the Stanford Energy
historical data.102
the dependence on any one source, the Modeling Forum’s 2005 workshop
We compare these avoided petroleum
risks, both financial as well as strategic, series, as well as other assessments .
100
ORNL will also revisit the issue of the import expenditures against the
of potential disruption in supply or projected value of total U.S. net exports
spike in cost of a particular energy macroeconomic consequences of oil
market disruptions and sustained higher of all goods and services economy-wide.
source is reduced. Net exports is a measure of the
oil prices. Using the ‘‘oil premium’’
To understand the energy security calculation methodology which difference between the value of exports
implications of the RFS, EPA will work combines short-run and long-run costs of goods and services by the U.S. and
with Oak Ridge National Laboratory and benefits, and accounting for the value of U.S. imports of goods and
(ORNL). As a first step, ORNL will uncertainty in the key driving factors, services from the rest of the world. For
update and apply the approach used in ORNL will provide an updated range of example, according to the AEO 2006,
the 1997 report Oil Imports: An estimates of the marginal energy the value of total import expenditures of
Assessment of Benefits and Costs, by security implications of displacing oil goods and services exceeds the value of
Leiby, Jones, Curlee and Lee.97 This consumption with renewable fuels. The U.S. exports of goods and services to the
paper was cited and its results utilized results of this work effort are not rest of the world by $695 billion for
in previous DOT/NHTSA rulemakings, available for this proposal but will be 2006 (for a net export level of minus
including the 2006 Final Regulatory part of the assessment of impacts of the $695 billion).103 This net exports level
Impact Analysis of CAFE Reform for RFS in the final rule. Although not is projected to diminish to minus $383
Light Trucks.98 This approach is directly applicable, financial economics billion by 2012. In Table IX.D–3, we
consistent with that used in the literature has examined risk compare the avoided expenditures in
Effectiveness and Impact of Corporate diversification. The agency is interested petroleum imports versus the total value
Average Fuel Economy (CAFE) in ways to examine changes in risks of U.S. net exports of goods and services
Standards Report conducted by the associated with diversifying energy for the whole economy for 2012.
National Research Council/National sources in general and solicits Relative to the 2012 projection, the
Academy of Sciences in 2002. Both comments as such. avoided petroleum expenditures due to
reports estimate the marginal benefits to We also calculate the decreased the RFS would represent 0.9 to 1.5% of
society, in dollars per barrel, of reducing expenditures on petroleum imports and economy-wide net exports.
either imports or consumption. This compare this with the U.S. trade
‘‘oil premium’’ approach emphasizes position measured as U.S. net exports of 101 EIA (September 1997), ‘‘Petroleum 1996:
identifying those energy-security related all goods and services economy-wide. Issues and Trends’’, Office of Oil and Gas, DOE/
costs that are not reflected in the market All reductions in petroleum imports are EIA–0615, p. 71. (http://tonto.eia.doe.gov/
price of oil, and which may change in expected to be from finished petroleum FTPROOT/petroleum/061596.pdf)
102 The average taxes per gallon of gasoline and
response to an incremental change in diesel have stayed relatively constant. For 2000–
99 For instance, the 1997 ORNL study gave a range
2006, gasoline taxes were $0.44/gallon ($2004)
for the ‘‘oil premium’’ $0 to $13 per barrel (adjusted
97 Leiby, Paul N., Donald W. Jones, T. Randall while for 2002–2006, diesel taxes were $0.49/
to $2004) based on 1994 market conditions. The
Curlee, and Russell Lee, Oil Imports: An actual value depended on assumptions about the gallon. The average was taken from available EIA
Assessment of Benefits and Costs, ORNL–6851, Oak market power of foreign exporters and the data (http://tonto.eia.doe.gov/oog/info/gdu/
Ridge National Laboratory, November 1, 1997. monopsony power of the U.S., the risk of future oil gasdiesel.asp).
(http://pzl1.ed.ornl.gov/energysecurity.html). price shocks and the employment of hedging 103 For reference, the U.S. Bureau of Economic
98 US DOT, NHTSA 2006. ‘‘Final Regulatory strategies, and the connections between oil shocks Analysis (BEA) reports that the 2005 import
Impact Analysis: Corporate Average Fuel Economy and GNP. expenditures. on energy-related petroleum products
and CAFE Reform for MY 2008–2011 Light Trucks,’’ 100 Stanford Energy Modeling Forum, Phillip C. totaled $235.5 billion (2004$) while petroleum
Office of Regulatory Analysis and Evaluation, Beccue and Hillard G. Huntington, 2005. ‘‘An exports totaled $13.6 billion—for a net of $221.9
National Center for Statistics and Analysis, March. Assessment of Oil Market Disruption Risks,’’ FINAL billion in expenditures. Net petroleum expenditures
(http://www.nhtsa.dot.gov/staticfiles/DOT/NHTSA/ REPORT, EMF SR 8, October 3. (http:// made up a significant fraction of the $591.3 billion
Rulemaking/Rules/Associated%20Files/ www.stanford.edu/group/EMF/publications/ current account deficit in goods and services for
2006_FRIAPublic.pdf). search.htm). 2005 (2004$). (http://www.bea.gov/)
TABLE IX.D–3.—AVOIDED PETROLEUM IMPORT EXPENDITURES FOR 2012

[$2004 billion]
Avoided ex- Percent

penditures versus total
AEO2006 total net exports RFS Cases in petroleum net exports
imports (Percent)
¥$383 ..................................................................................................................................................... 7.5 3.5 0.9

9.9 5.8 1.5
X. Agricultural Sector Economic various cellulose sources such as corn the Agency through any of the means
Impacts stover and switchgrass for cellulose- listed under ADDRESSES above.
based ethanol production may well We will hold a public hearing on
As described in more detail in the October 13, 2006. The public hearing
become highly demanded and also
Draft Regulatory Impact Analysis will start at 10 a.m. (Central) at the
significantly impact the agricultural
accompanying this proposal, we plan to Sheraton Gateway Suites Chicago
sector.
evaluate the economic impact on the O’Hare, 6501 North Mannheim Road,
agricultural sector. However, due to the Using the FASOM model, we will
Rosemont, Illinois 60018. If you would
timing of that analysis, it will not be estimate the direct impact on farm
like to present testimony at the public
completed until the final rule. In the income resulting from higher demand
hearing, we ask that you notify the
meantime, we briefly describe here (and for corn and soybeans, for example. contact person listed under FOR FURTHER
in more detail in the draft RIA) our Additionally, we will estimate impacts INFORMATION CONTACT above at least ten
planned analyses and the sources of on farm employment. Since we expect days beforehand. You should estimate
assumptions which could critically the higher demand for feedstock will the time you will need for your
impact those assessments. Finally, we increase both the supply and cost of presentation and identify any needed
ask for specific comment on the best feedstock, we will also consider how the audio/visual equipment. We suggest
sources of information we use in these higher renewable fuel feedstock cost that you bring copies of your statement
analyses. impacts the cost of other agricultural or other material for the EPA panel and
We will be using the Forest and products (corn and soy meal are the audience. It would also be helpful
Agricultural Sector Optimization Model important sources not only for directly if you send us a copy of your statement
(‘‘FASOM’’) developed over the past 30 making food for human consumption or other materials before the hearing.
years by Bruce McCarl, Texas A&M but also as feed for farm animals). As an We will arrange for a written
University and others. This is a estimate of the impact on corn and transcript of the hearing and keep the
constrained optimization model which soybeans prices, we are relying on the official record of the hearing open for 30
seeks to allocate resources and estimates provided by the U.S. days to allow for the public to
production to maximize producer plus Department of Agriculture 104 rather supplement the record. You may make
consumer surpluses. We have consulted than using the FASOM model to derive arrangements for copies of the transcript
with a range of experts both within EPA these price impacts. Additionally, we directly with the court reporter.
as well as at our sister agencies, the U.S. will rely on the Energy Information
Agency’s estimates for fuel mix in XII. Administrative Requirements
Departments of Agriculture and Energy
and they support the use of this model predicting the amount of ethanol and A. Executive Order 12866: Regulatory
for assessing the economic impacts on biodiesel in the fuel pool. Other than Planning and Review
the agricultural sector of various these external constraints, we expect to Under Executive Order (EO) 12866,
renewable fuel pathways evaluated in use FASOM as the basic model for (58 FR 51735, October 4, 1993) this
this rule. The objective of this modeling estimating economic impacts on farm action is a ‘‘significant regulatory
assessment is to predict the economic sector and how these might more action’’ because of the policy
impacts that will directly result from the generally impact the U.S. economy. implications of the proposed rule. Even
expanded use of farm products for Note that this FASOM analysis is a though EPA has estimated that
transportation fuel production. We partial equilibrium analysis, focusing renewable fuel use through 2012 will be
anticipate that the growing demand for almost exclusively on impacts in the sufficient to meet the levels required in
corn for ethanol production in U.S. agricultural sector. As a result, it the standard, the proposed rule reflects
particular but also soybeans and other cannot be utilized to make broader the first renewable fuel mandate at the
agricultural crops such as rapeseed and assessments of net social benefits Federal level. Accordingly, EPA
other oil seeds for biodiesel production resulting from this rulemaking, which submitted this action to the Office of
will increase the production of these for example would require evaluation of Management and Budget (OMB) for
feedstocks and impact farm income. The the transfer payments to farmers and review under EO 12866 and any
additional corn to produce ethanol may ethanol producers from consumers and changes made in response to OMB
come from several sources, including (1) refiners. recommendations have been
more intensive cultivation of existing XI. Public Participation documented in the docket for this
land that currently produces corn, (2) action.
switching production from soybean and We request comments on all aspects
B. Paperwork Reduction Act
cotton to corn, (3) additional acres of of this proposal. The comment period
land being cultivated, or (4) diversion for this proposed rule will be November The information collection
from corn exports. The implications to 12, 2006. Comments can be submitted to requirements in this proposed rule have
U.S. net exports and environment been submitted for approval to the
effects partially depend on which 104 ‘‘USDA Agricultural Baseline Projections to Office of Management and Budget
source supplies more corn. Eventually 2015.’’ (OMB) under the Paperwork Reduction
Act, 44 U.S.C. 3501 et seq. The and utilize technology and systems for the beginning of this notice for where to
Information Collection Request (ICR) the purposes of collecting, validating, submit comments to EPA. Send
document prepared by EPA has been and verifying information, processing comments to OMB at the Office of
assigned EPA ICR number 2242.01. and maintaining information, and Information and Regulatory Affairs,
The information is planned to be disclosing and providing information; Office of Management and Budget, 725
collected to ensure that the required adjust the existing ways to comply with 17th Street, NW., Washington, DC
amount of renewable fuel is used each any previously applicable instructions 20503, Attention: Desk Office for EPA.
year. The credit trading program and requirements which have Since OMB is required to make a
required by the Energy Act will be subsequently changed; train personnel decision concerning the ICR between 30
satisfied through a program utilizing to be able to respond to a collection of and 60 days after publication in the
Renewable Identification Numbers information; search data sources; Federal Register, a comment to OMB is
(RIN), which serve as a surrogate for complete and review the collection of best assured of having its full effect if
renewable fuel consumption. Our information; and transmit or otherwise OMB receives it by October 30, 2006.
proposed RIN-based program would disclose the information. The final rule will respond to any OMB
fulfill all the functions of a credit A document entitled ‘‘Information or public comments on the information
trading program, and thus would meet Collection Request (ICR); OMB–83 collection requirements contained in
the Energy Act’s requirements. For each Supporting Statement, Environmental this proposal.
calendar year, each obligated party Protection Agency, Office of Air and
Radiation,’’ has been placed in the C. Regulatory Flexibility Act
would be required to submit a report to
the Agency documenting the RINs it public docket. The supporting statement 1. Overview
acquired, and showing that the sum of provides a detailed explanation of the
all RINs acquired were equal to or Agency’s estimates by collection The Regulatory Flexibility Act (RFA)
greater than its renewable volume activity. The estimates contained in the generally requires an agency to prepare
obligation. The Agency could then docket are briefly summarized here: a regulatory flexibility analysis of any
verify that the RINs used for compliance Estimated total number of potential rule subject to notice and comment
purposes were valid by simply respondents: 4,945. rulemaking requirements under the
Estimated total number of responses: Administrative Procedure Act or any
comparing RINs reported by producers
4,970. other statute unless the agency certifies
to RINs claimed by obligated parties. Estimated total annual burden hours:
The Agency will then calculate the total that the rule will not have a significant
15,560. economic impact on a substantial
amount of renewable fuel produced Estimated total annual costs:
each year. number of small entities. Small entities
$2,911,000, including $1,806,240 in
For fuel standards, Section 208(a) of include small businesses, small
purchased services.
the Clean Air Act requires that An agency may not conduct or organizations, and small governmental
manufacturers provide information the sponsor, and a person is not required to jurisdictions.
Administrator may reasonably require to respond to a collection of information For purposes of assessing the impacts
determine compliance with the unless it displays a currently valid OMB of today’s rule on small entities, small
regulations; submission of the control number. The OMB control entity is defined as: (1) A small business
information is therefore mandatory. We numbers for EPA’s regulations in 40 as defined by the Small Business
will consider confidential all CFR are listed in 40 CFR part 9. Administration’s (SBA) regulations at 13
information meeting the requirements of To comment on the Agency’s need for CFR 121.201 (see table below); (2) a
Section 208(c) of the Clean Air Act. this information, the accuracy of the small governmental jurisdiction that is a
The annual public reporting and provided burden estimates, and any government of a city, county, town,
recordkeeping burden for this collection suggested methods for minimizing school district or special district with a
of information is estimated to be 3.1 respondent burden, including the use of population of less than 50,000; and (3)
hours per response. Burden means the automated collection techniques, EPA a small organization that is any not-for-
total time, effort, or financial resources has established a public docket for this profit enterprise which is independently
expended by persons to generate, rule, which includes this ICR, under owned and operated and is not
maintain, retain, or disclose or provide Docket ID number EPA–OAR–2005– dominant in its field. The following
information to or for a Federal agency. 0161. Submit any comments related to table provides an overview of the
This includes the time needed to review the ICR for this proposed rule to EPA primary SBA small business categories
instructions; develop, acquire, install, and OMB. See the ADDRESSES section at potentially affected by this regulation:
NAICS
Industry Defined as small entity by SBA if: codesa
Gasoline refiners ........................ ≤1,500 employees and a crude capacity of ≤125,000 bpcdb ......................................................... 324110
a North American Industrial Classification System.
b barrels of crude per day.
2. Background—Small Refiners Versus standards until calendar year 2011. The with. A small refiner is a small business
Small Refineries Act defines the term ‘‘small refinery’’ as that meets the criteria set out in SBA’s
‘‘* * * a refinery for which the average regulations at 13 CFR 121.201; whereas
Title XV (Ethanol and Motor Fuels) of

aggregate daily crude oil throughput for a small refinery, per the Energy Policy
the Energy Policy Act provides, at
a calendar year * * * does not exceed Act, is a refinery where the annual
Section 1501(a)(2) [42 U.S.C.
7545(o)(9)(A)–(D)], special provisions 75,000 barrels.’’ This term is different crude throughput is less than or equal
for ‘‘small refineries’’, such as a from a small refiner, which is what the to 75,000 barrels (i.e., a small-capacity
temporary exemption from the Regulatory Flexibility Act is concerned refinery), and could be owned by a
larger refiner that exceeds SBA’s small When the Agency certifies that a rule Following our discussions with the
entity size standards. will not have a significant economic small refiners, they provided three
Previous EPA fuel regulations have impact on a substantial number of small suggested regulatory flexibility options
afforded regulatory flexibility provisions entities, EPA’s policy is to make an that they believed could further assist
to small refiners, as we believe that assessment of the rule’s impact on any affected small entities in complying
refineries owned by small businesses small entities and to engage the with the RFS program standard: (1) That
generally face unique economic potentially regulated entities in a dialog all small refiners be afforded the Act’s
challenges, compared to larger refiners. regarding the rule, and minimize the small refinery temporary exemption, (2)
As small refiners generally lack the impact to the extent feasible. The that small refiners be allowed to
resources available to larger companies following sections discuss our outreach generate credits if they elect to comply
(including those larger companies that with the potentially affected small with the RFS program standard prior to
own small-capacity refineries) to raise entities and proposed regulatory the 2011 small refinery compliance
capital for any necessary investments flexibilities to decrease the burden on date, and (3) relieve small refiners who
for meeting regulatory requirements, these entities in compliance with the generate blending credits of the RFS
these flexibility provisions were requirements of the RFS program program compliance requirements.
provided to reduce the disproportionate We agreed with the small refiners’’
5. Small Refiner Outreach suggestion that small refiners be
burden on those refiners that qualified
as small refiners. Although we do not believe that the afforded temporary exemption that the
RFS program would have a significant Act specifies for small refineries.
3. Summary of Potentially Affected economic impact on a substantial Regarding the small refiners’ second and
Small Entities number of small entities, EPA third suggestions regarding credits, our
nonetheless has tried to reduce the proposed RIN-based program will
The refiners that are potentially
impact of this rule on small entities. We automatically provide them with credit
affected by this proposed rule are those
held meetings with small refiners to for any renewables that they blend into
that produce gasoline. For our recent
discuss the requirements of the RFS their motor fuels. Until 2011, small
proposed rule ‘‘Control of Hazardous
program and the special provisions refiners will essentially be treated as
Air Pollutants From Mobile Sources’’
offered by the Energy Policy Act for oxygenate blenders and may separate
(71 FR 15804, Wednesday, March 29,
small refineries. RINs from batches and trade or sell
2006), we performed an industry
The Energy Policy Act set out the these RINs.
characterization of potentially affected
gasoline refiners; we used that industry following provisions for small 6. Conclusions
characterization to determine which refineries: After considering the economic
refiners would also meet the SBA • A temporary exemption from the impacts of today’s proposed rule on
definition of a small refiner under this Renewable Fuels Standard requirement small entities, we certify that this action
proposal. From the industry until 2011; will not have a significant economic
characterization, we determined that • An extension of the temporary impact on a substantial number of small
there were 20 gasoline refiners that met exemption period for at least two years entities.
the definition of a small refiner. Of these for any small refinery where it is While the Energy Policy Act provided
20 refiners, 17 owned refineries that determined that the refinery would be for a temporary exemption for small
also met the Energy Policy Act’s subject to a disproportionate economic refineries from the requirements of
definition of a small refinery. hardship if required to comply; today’s proposed rule, these parties will
• Any small refinery may petition, at have to comply with the requirements
4. Impact of the Regulations on Small any time, for an exemption based on
Entities following the exemption period.
disproportionate economic hardship; However, we still believe that small
As previously stated, many aspects of and, refiners generally lack the resources
the RFS program, such as the required • A small refinery may waive its available to larger companies, and
amount of annual renewable fuel temporary exemption to participate in therefore find it necessary to extend the
volumes, were specified in the Energy the credit generation program, or it may small refinery temporary exemption to
Policy Act. As shown above in Table also ‘‘opt-in’’, by waiving its temporary all small refiners. Thus, we are
III.D.3.c–2, the annual projections of exemption, to be subject to the RFS proposing to allow the small refinery
ethanol production exceed the required requirement. temporary exemption, as set out in the
annual renewable fuel volumes. When During these meetings with the small Act, to all qualified small refiners. In
the small refinery exemption ends, it is refiners we also discussed the impacts addition, past fuels rulemakings have
anticipated that there will be over one of these provisions being offered to included a provision that, to qualify for
billion gallons in excess RINs available. small refineries only. As stated above, EPA’s small refiner flexibilities, a
We believe that this large volume of three refiners met the definition of a refiner must have no more than 1,500
excess RINs will also lower the costs of small refiner, but their refineries did not total corporate employees and have a
this program. If there were a shortage of meet the Act’s definition of a small crude capacity of no more than 155,000
RINs, or if any party were to ‘hoard’ refinery; which naturally concerned the bpcd (slightly higher than SBA’s crude
RINs, the cost of a RIN could be high; small refiners. Another concern that the capacity limit of 125,000 bpcd). To be
however with excess RINs, we believe small refiners had was that if this rule consistent with these previous rules, we
that this program will not impose a were to have a significant economic are also proposing to allow those
significant economic burden on small impact on a substantial number of small refiners that meet these criteria to be
refineries, small refiners, or any other entities a lengthy SBREFA process considered small refiners for this
obligated party. Further, we have would ensue (which would delay the rulemaking. Lastly, we are proposing
determined that this proposed rule will promulgation of the RFS rulemaking, that small refiners may separate RINs
not have a significant economic impact and thus provide less lead time for these from batches and trade or sell these
on a substantial number of small small entities prior to the RFS program RINs prior to 2011 if the small refiner
entities. start date). operates as a blender
We continue to be interested in the not subject to the requirements of to the extent they purchase and use
potential impacts of this proposed rule Sections 202 and 205 of the UMRA. regulated fuels. Thus, Executive Order
on small entities and welcome This rule contains no Federal 13175 does not apply to this rule. EPA
comments on issues related to such mandates for State, local, or tribal specifically solicits additional comment
impacts. governments as defined by the on this proposed rule from tribal
provisions of Title II of the UMRA. The officials.
D. Unfunded Mandates Reform Act rule imposes no enforceable duties on
Title II of the Unfunded Mandates any of these governmental entities. G. Executive Order 13045: Protection of
Reform Act of 1995 (UMRA), Public Nothing in the rule would significantly Children From Environmental Health
Law 104–4, establishes requirements for or uniquely affect small governments. and Safety Risks
Federal agencies to assess the effects of
their regulatory actions on State, local, E. Executive Order 13132: Federalism Executive Order 13045: ‘‘Protection of
and tribal governments and the private Executive Order 13132, entitled Children from Environmental Health
sector. Under Section 202 of the UMRA, ‘‘Federalism’’ (64 FR 43255, August 10, Risks and Safety Risks’’ (62 FR 19885,
EPA generally must prepare a written 1999), requires EPA to develop an April 23, 1997) applies to any rule that:
statement, including a cost-benefit accountable process to ensure (1) Is determined to be ‘‘economically
analysis, for proposed and final rules ‘‘meaningful and timely input by State significant’’ as defined under Executive
with ‘‘Federal mandates’’ that may and local officials in the development of Order 12866, and (2) concerns an
result in expenditures to State, local, regulatory policies that have Federalism environmental health or safety risk that
and tribal governments, in the aggregate, implications.’’ ‘‘Policies that have EPA has reason to believe may have a
or to the private sector, of $100 million Federalism implications’’ is defined in disproportionate effect on children. If
or more in any one year. Before the Executive Order to include the regulatory action meets both criteria,
promulgating an EPA rule for which a regulations that have ‘‘substantial direct the Agency must evaluate the
written statement is needed, Section 205 effects on the States, on the relationship environmental health or safety effects of
of the UMRA generally requires EPA to between the national government and the planned rule on children, and
identify and consider a reasonable the States, or on the distribution of explain why the planned regulation is
number of regulatory alternatives and power and responsibilities among the preferable to other potentially effective
adopt the least costly, most cost- various levels of government.’’ and reasonably feasible alternatives
effective or least burdensome alternative This proposed rule does not have considered by the Agency.
that achieves the objectives of the rule. Federalism implications. It will not
The provisions of Section 205 do not EPA interprets Executive Order 13045
have substantial direct effects on the
apply when they are inconsistent with States, on the relationship between the as applying only to those regulatory
applicable law. Moreover, Section 205 national government and the States, or actions that are based on health or safety
allows EPA to adopt an alternative other on the distribution of power and risks, such that the analysis required
than the least costly, most cost-effective responsibilities among the various under Section 5–501 of the Order has
or least burdensome alternative if the levels of government, as specified in the potential to influence the regulation.
Administrator publishes with the final Executive Order 13132. Thus, Executive This proposed rule is not subject to
rule an explanation why that alternative Order 13132 does not apply to this rule. Executive Order 13045 because it does
was not adopted. In the spirit of Executive Order 13132, not establish an environmental standard
Before EPA establishes any regulatory and consistent with EPA policy to intended to mitigate health or safety
requirements that may significantly or promote communications between EPA risks and because it implements specific
uniquely affect small governments, and State and local governments, EPA standards established by Congress in
including tribal governments, it must specifically solicits comment on this statutes.
have developed under Section 203 of proposed rule from State and local
the UMRA a small government agency H. Executive Order 13211: Actions
officials.
plan. The plan must provide for Concerning Regulations That
notifying potentially affected small F. Executive Order 13175: Consultation Significantly Affect Energy Supply,
governments, enabling officials of and Coordination With Indian Tribal Distribution, or Use
affected small governments to have Governments
This rule is not a ‘‘significant energy
meaningful and timely input in the Executive Order 13175, entitled action’’ as defined in Executive Order
development of EPA regulatory ‘‘Consultation and Coordination with 13211, ‘‘Actions Concerning Regulations
proposals with significant Federal Indian Tribal Governments’’ (65 FR That Significantly Affect Energy Supply,
intergovernmental mandates, and 67249, November 9, 2000), requires EPA
Distribution, or Use’’ (66 FR 28355 (May
informing, educating, and advising to develop an accountable process to
22, 2001)) because it is not likely to
small governments on compliance with ensure ‘‘meaningful and timely input by
have a significant adverse effect on the
the regulatory requirements. tribal officials in the development of
EPA has determined that this rule supply, distribution, or use of energy.
regulatory policies that have tribal
does not contain a Federal mandate that implications.’’ EPA expects the provisions to have
may result in expenditures of $100 This proposed rule does not have very little effect on the national fuel
million or more for State, local, and tribal implications, as specified in supply, since normal market forces
tribal governments, in the aggregate, or Executive Order 13175. This rule would alone are promoting greater renewable
the private sector in any one year. EPA be implemented at the Federal level and fuel use than required by the RFS
has estimated that renewable fuel use collectively apply to refiners, blenders, mandate. Nevertheless, the rule is an
through 2012 will be sufficient to meet and importers. EPA expects these important part of the nation’s efforts to
the required levels. Therefore, entities to meet the standards on a reduce dependence on foreign oil. We
individual refiners, blenders, and collective basis through 2012 even discuss our analysis of the energy and
importers are already on track to meet without imposition of any RFS supply effects of the increased use of
rule obligations through normal market- obligations on any individual party. renewable fuels in Sections VI and X of
driven incentives. Thus, today’s rule is Tribal governments will be affected only this preamble.
I. National Technology Transfer replace or reduce the quantity of fossil (c) Responsible parties. Parties
Advancement Act fuel present in a fuel mixture used to collectively responsible for attainment
Section 12(d) of the National operate a motor vehicle, and which: of the standard in paragraph (b) of this
Technology Transfer and Advancement (A) Is produced from grain, starch, oil section are refiners (including blenders)
Act of 1995 (‘‘NTTAA’’), Public Law seeds, vegetable, animal, or fish and importers of gasoline. However, a
104–113, 12(d) (15 U.S.C. 272 note) materials including fats, greases, and party that is a refiner only because he
directs EPA to use voluntary consensus oils, sugarcane, sugar beets, sugar owns or operates a small refinery is
standards in its regulatory activities components, tobacco, potatoes, or other exempt from this responsibility.
biomass; or (d) EPA determination of attainment.
unless to do so would be inconsistent
(B) Is natural gas produced from a EPA will determine after the close of
with applicable law or otherwise
biogas source, including a landfill, 2006 whether or not the requirement in
impractical. Voluntary consensus
sewage waste treatment plant, feedlot, paragraph (b) of this section has been
standards are technical standards (e.g.,
or other place where decaying organic met. EPA will base this determination
materials specifications, test methods,
material is found. on information routinely published by
sampling procedures, and business
(ii) The term ‘‘renewable fuel’’ the Energy Information Administration
practices) that are developed or adopted
includes cellulosic biomass ethanol, on the annual domestic volume of
by voluntary consensus standards
waste derived ethanol, biodiesel, and gasoline sold or dispensed to U.S.
bodies. The NTTAA directs EPA to
any blending components derived from consumers and of ethanol produced for
provide Congress, through OMB,
renewable fuel. use in such gasoline, supplemented by
explanations when the Agency decides
(2) Cellulosic biomass ethanol means readily available information
not to use available and applicable
ethanol derived from any lignocellulosic concerning the use in motor fuel of
voluntary consensus standards.
or hemicellulosic matter that is other renewable fuels such as cellulosic
This proposed rulemaking does not
available on a renewable or recurring biomass ethanol, waste derived ethanol,
involve technical standards. Therefore,
basis, including dedicated energy crops biodiesel, and other non-ethanol
EPA is not considering the use of any
and trees, wood and wood residues, renewable fuels.
voluntary consensus standards. (1) The renewable fuel volume will
plants, grasses, agricultural residues,
XIII. Statutory Authority fibers, animal wastes and other waste equal the sum of all renewable fuel
Statutory authority for the rules materials, and municipal solid waste. volumes used in motor fuel, provided
proposed today can be found in section The term also includes any ethanol that:
produced in facilities where animal (i) One gallon of cellulosic biomass
211 of the Clean Air Act, 42 U.S.C.
wastes or other waste materials are ethanol or waste derived ethanol shall
7545. Additional support for the
digested or otherwise used to displace be considered to be the equivalent of 2.5
procedural and compliance related
90 percent or more of the fossil fuel gallons of renewable fuel; and
aspects of today’s proposal, including (ii) Only the renewable fuel portion of
the proposed recordkeeping normally used in the production of
blending components derived from
requirements, come from Sections 114, ethanol.
renewable fuel shall be counted towards
208, and 301(a) of the CAA, 42 U.S.C. (3) Waste derived ethanol means
the renewable fuel volume.
7414, 7542, and 7601(a). ethanol derived from animal wastes, (2) If the nationwide average volume
including poultry fats and poultry percent of renewable fuel in gasoline in
List of Subjects in 40 CFR Part 80
wastes, and other waste materials, or 2006 is equal to or greater than the
Environmental protection, Air municipal solid waste. standard in paragraph (b) of this section,
pollution control, Fuel additives, (4) Small refinery means a refinery for the standard has been met.
Gasoline, Imports, Incorporation by which the average aggregate daily crude (e) Consequence of nonattainment in
reference, Labeling, Motor vehicle oil throughput for a calendar year (as 2006. In the event that EPA determines
pollution, Penalties, Reporting and determined by dividing the aggregate that the requirement in paragraph (b) of
recordkeeping requirements. throughput for the calendar year by the this section has not been attained in
Dated: September 7, 2006. number of days in the calendar year) 2006, a deficit carryover volume shall be
Stephen L. Johnson, does not exceed 75,000 barrels. added to the renewable fuel volume
Administrator. (5) Biodiesel means a diesel fuel obligation for 2007 for use in calculating
40 CFR part 80 is proposed to be substitute produced from nonpetroleum the standard applicable to gasoline in
amended as follows: renewable resources that meets the 2007.
registration requirements for fuels and (1) The deficit carryover volume shall
PART 80—REGULATION OF FUELS fuel additives established by the be calculated as follows:
AND FUEL ADDITIVES Environmental Protection Agency under
DC = Vgas* (Rs–Ra)
section 211 of the Clean Air Act. It
1. The authority citation for part 80 Where:
includes biodiesel derived from animal
continues to read as follows: wastes (including poultry fats and DC = Deficit carryover in gallons of
renewable fuel.
Authority: 42 U.S.C. 7414, 7542, 7545, and poultry wastes) and other waste Vgas = Volume of gasoline sold or dispensed
7601(a). materials, or biodiesel derived from to U.S. consumers in 2006, in gallons.
2. Section 80.1100 is revised to read municipal solid waste and sludges and Rs = 0.0278.
as follows: oils derived from wastewater and the Ra = Ratio of renewable fuel volume divided
treatment of wastewater. by total gasoline volume determined in
§ 80.1100 How is the statutory default (b) Renewable fuel standard for 2006. accordance with paragraph (d)(2) of this
requirement for 2006 implemented? The percentage of renewable fuel in the section.
(a) Definitions. The definitions of total volume of gasoline sold or (2) There shall be no other
§ 80.2 and the following additional dispensed to consumers in 2006 in the consequence of failure to attain the
definitions apply to this section only. United States shall be a minimum of standard in paragraph (b) of this section
(1) Renewable fuel. (i) Renewable fuel 2.78 percent on an annual average in 2006 for any of the parties in
means motor vehicle fuel that is used to volume basis. paragraph (c) of this section.
3. Section 80.1101 is added to read as (i) Grain. (3) Is intended for use in engines that
follows: (ii) Starch. are designed to run on conventional
(iii) Oilseeds. diesel fuel; and
§ 80.1101 Definitions. (iv) Vegetable, animal or fish (4) Is derived from nonpetroleum
The definitions of § 80.2 and the materials including fats, greases and renewable resources (as defined in
following additional definitions apply oils. paragraph (o) of this section).
for purposes of this subpart. (v) Sugarcane. (l) Biocrude means plant oils or
(a) Cellulosic biomass ethanol means (vi) Sugar beets. animal fats that are used as feedstocks
either of the following: (vii) Sugar components.
(1) Ethanol derived from any to any production unit in a refinery that
(viii) Tobacco. normally processes crude oil to make
lignocellulosic or hemicellulosic matter (ix) Potatoes.
that is available on a renewable or gasoline or diesel fuels.
(x) Other biomass; or is natural gas
recurring basis, which includes any of produced from a biogas source, (m) Biocrude-based renewable fuels
the following: including a landfill, sewage waste are renewable fuels that are gasoline or
(i) Dedicated energy crops and trees. treatment plant, feedlot, or other place diesel products resulting from the
(ii) Wood and wood residues. where decaying organic material is processing of biocrudes in atmospheric
(iii) Plants. found. distillation or other process units at
(iv) Grasses. (2) The term ‘‘Renewable fuel’’ refineries that normally process
(v) Agricultural residues. includes cellulosic biomass ethanol, petroleum-based feedstocks.
(vi) Animal wastes and other waste (n) Importers, for the purposes of this
waste derived ethanol, biodiesel (mono-
materials. subpart only, are those persons who:
(vii) Municipal solid waste. alkyl ester), non-ester renewable diesel,
and blending components derived from (1) Are considered importers under
(2) Ethanol made at facilities at which § 80.2(r); and
animal wastes or other waste materials renewable fuel.
(3) Small volume additives less than (2) Are persons who bring gasoline
are digested or otherwise used onsite to into the 48 contiguous states of the
displace 90 percent or more of the fossil 1.0 percent of the total volume of a
renewable fuel shall be counted as part United States from areas that have not
fuel that is combusted to produce chosen to opt in to the program
thermal energy integral to the process of of the total renewable fuel volume.
(4) A fuel produced by a renewable requirements of this subpart (per
making ethanol and which comply with § 80.1143).
the recordkeeping requirements of fuel producer that is used in boilers or
heaters is not a motor vehicle fuel, and (o) Nonpetroleum renewable
§ 80.1151(a)(4).
(b) Other waste materials means therefore is not a renewable fuel. resources include, but are not limited to,
either of the following: (g) Blending component has the same either of the following:
(1) Waste materials that are residues meaning as ‘‘Gasoline blending stock, (1) Plant oils.
rather than being produced solely for blendstock, or component’’ as defined at (2) Animal fats and animal wastes,
the purpose of being combusted to § 80.2(s), for which the portion that can including poultry fats and poultry
produce energy (e.g., residual tops, be counted as renewable fuel is wastes, and other waste materials.
branches, and limbs from a tree farm calculated as set forth in § 80.1115(a). (3) Municipal solid waste and sludges
could be waste materials while wood (h) Motor vehicle has the meaning and oils derived from wastewater and
chips used as fuel and which come from given in Section 216(2) of the Clean Air the treatment of wastewater.
plants grown solely for such purpose Act (42 U.S.C. 7550). (p) Export of renewable fuel means:
would not be waste materials). (i) Small refinery means a refinery for (1) Transfer of a batch of renewable
(2) Waste heat that is captured from which the average aggregate daily crude fuel to a location outside the United
an off-site combustion process (e.g., oil throughput for the calendar year States; and
furnace, boiler, heater, or chemical 2004 (as determined by dividing the (2) Transfer of a batch of renewable
process). aggregate throughput for the calendar fuel from the contiguous 48 states to
(c) Otherwise used means either of the year by the number of days in the Alaska, Hawaii, or a United States
following: calendar year) does not exceed 75,000 territory, unless that state or territory
(1) The direct combustion of the waste barrels. has received an approval from the
materials to make thermal energy. (j) Biodiesel (mono-alkyl ester) means
Administrator to opt-in to the renewable
(2) The use of waste heat as a source a motor vehicle fuel or fuel additive
fuel program pursuant to § 80.1143.
of thermal energy. which:
(q) Renewable Identification Number
(d) Waste derived ethanol means (1) Is registered as a motor vehicle
(RIN), is a unique number generated to
ethanol derived from either of the fuel or fuel additive under 40 CFR part
represent a volume of renewable fuel in
following: 79;
(2) Is a mono-alkyl ester; accordance with § 80.1126.
(1) Animal wastes, including poultry
fats and poultry wastes, and other waste (3) Meets ASTM D–6751–02a; (r) Standard-value is a RIN generated
materials. (4) Is intended for use in engines that to represent renewable fuel with an
(2) Municipal solid waste. are designed to run on conventional equivalence value up to and including
(e) Biogas means methane or other diesel fuel, and 1.0.
hydrocarbon gas produced from (5) Is derived from nonpetroleum (s) Extra-value RIN is a RIN generated
decaying organic material, including renewable resources (as defined in to represent renewable fuel with an
landfills, sewage waste treatment plants, paragraph (o) of this section). equivalence value greater than 1.0.
and animal feedlots. (k) Non-ester renewable diesel means (t) Batch-RIN is a RIN that represents
(f) Renewable fuel. (1) Renewable fuel a motor vehicle fuel or fuel additive a batch of renewable fuel containing
is motor vehicle fuel that is used to which: multiple gallons. A batch-RIN uniquely
replace or reduce the quantity of fossil (1) Is registered as a motor vehicle identifies all of the gallon-RINs in that
fuel present in a fuel mixture used to fuel or fuel additive under 40 CFR part batch.
operate a motor vehicle, and is 79; (u) Gallon-RIN is a RIN that represents
produced from either of the following: (2) Is not a mono-alkyl ester; an individual gallon of renewable fuel.
§§ 80.1102–80.1103 [Added and Reserved] THE FINAL RULE IN THE FEDERAL Register by November 30 of the year
4. Sections 80.1102 and 80.1103 are REGISTER. preceding the compliance period.
added and reserved. (c) EPA will base the calculation of
§ 80.1105 What is the Renewable Fuel the standard on information provided
5. Sections 80.1104 through 80.1107 Standard?
are added to read as follows: by the Energy Information
(a) The annual value of the renewable Administration regarding projected
§ 80.1104 What are the implementation fuel standard for 2007 shall be 3.71 gasoline volumes and projected volumes
dates for the Renewable Fuel Standard of renewable fuel expected to be used in
Program?
percent.
gasoline blending for the upcoming
The RFS standards and other (b) Beginning with the 2008 year.
requirements of this subpart are compliance period, EPA will calculate (d) EPA will calculate the annual
effective beginning the day after [DATE the value of the annual standard and renewable fuel standard using the
60 DAYS AFTER PUBLICATION OF publish this value in the Federal following equation:
RFVi − Celli
RFStd i = 100 ×
( G i − R i ) + ( GSi − RSi ) − GEi
Where: Ri = Amount of renewable fuel blended into required to meet the renewable volume
RFStdi = Renewable Fuel Standard in year i, gasoline that is projected to be used in obligation specified in § 80.1107(a) for
in percent. the 48 contiguous states, in year i, in that gasoline for that calendar year.
RFVi = Nationwide annual volume of gallons.
renewable fuels required by section GSi = Amount of gasoline projected to be § 80.1107 How is the Renewable Volume
211(o)(2)(B) of the Act (42 U.S.C. 7545) used in noncontiguous states or Obligation calculated?
for year i, in gallons. territories (if the state or territory opts-
in) in year i, in gallons. For the purposes of this section, all
Gi = Amount of gasoline projected to be used
RSi = Amount of renewable fuel blended into reformulated gasoline, conventional
in the 48 contiguous states, in year i, in
gallons. gasoline that is projected to be used in gasoline and blendstock, collectively
noncontiguous states or territories (if the called ‘‘gasoline’’ unless otherwise
Ri = Amount of renewable fuel blended into
state or territory opts-in) in year i, in specified, is subject to the requirements
gasoline that is projected to be used in
gallons. under this subpart, as applicable.
the 48 contiguous states, in year i, in
Celli = Amount of renewable fuel that is
gallons. (a) The Renewable Volume Obligation
required to come from cellulosic sources,
GSi = Amount of gasoline projected to be in year i, in gallons (250,000,000 gallons for an obligated party is determined
used in noncontiguous states or minimum). according to the following formula:
territories (if the state or territory opts-
in) in year i, in gallons. RVOi = RFStdi × GVi + Di¥1
RSi = Amount of renewable fuel blended into § 80.1106 To whom does the Renewable Where:
gasoline that is projected to be used in Volume Obligation apply? RVOi = The Renewable Volume Obligation
noncontiguous states or territories (if the (a)(1) An obligated party is a refiner for a refiner, blender, or importer for
state or territory opts-in) in year i, in or blender which produces gasoline calendar year i, in gallons of renewable
gallons. within the 48 contiguous states, or an fuel.
GEi = Amount of gasoline projected to be importer which imports gasoline into RFStdi = The renewable fuel standard for
produced by exempt small refineries and the 48 contiguous states. calendar year i from § 80.1105, in
small refiners in year i, in gallons (2) If the Administrator approves a percent.
(through 2010 only). petition of Alaska, Hawaii, or a United GVi = The non-renewable gasoline volume,
Celli = Beginning in 2013, the amount of determined in accordance with
States territory to opt-in to the paragraphs (b), (c), and (d) of this
renewable fuel that is required to come
from cellulosic sources, in year i, in renewable fuel program under the section, which is produced or imported,
gallons (250,000,000 gallons minimum). provisions in § 80.1143, then ‘‘obligated in year i, in gallons.
party’’ shall include any refiner or Di-1 = Renewable fuel deficit carryover from
(e) Beginning with the 2013 compliance blender which produces gasoline within the previous year, per § 80.1127(b), in
period, EPA will calculate the value that state or territory, or an importer gallons.
of the annual cellulosic standard which imports gasoline into that state or
and publish this value in the (b) The non-renewable gasoline
territory.
Federal Register by November 30 of (b)(1) For each calendar year starting volume for a refiner, blender, or
the year preceding the compliance with 2007, any obligated party is importer for a given year, GVi, specified
period. required to demonstrate, pursuant to in paragraph (a) of this section is
§ 80.1127, that they have satisfied the calculated as follows:
(f) EPA will calculate the annual
cellulosic standard using the Renewable Volume Obligation for that n n
GVi = ∑ G x − ∑ RBx
EP22SE06.008</MATH>
following equation: calendar year, as specified in

§ 80.1107(a), except as otherwise x x
Celli provided in this section. Where:
RFCelli = 100 × (2) The deficit carryover provisions in
( G i − R i ) + ( GSi − RSi ) § 80.1127(b) only apply if all of the x = Batch.
n = Total number of batches of gasoline
EP22SE06.006</MATH> EP22SE06.007</MATH>
Where: requirements specified in § 80.1127(b) produced or imported.

RFCelli = Renewable Fuel Cellulosic are fully satisfied. Gx = Total volume of gasoline produced or
Standard in year i, in percent. (c) Any blender whose sole blending imported, per paragraph (c) of this
Gi = Amount of gasoline projected to be used activity in a calendar year is to blend a section, in gallons.
in the 48 contiguous states, in year i, in renewable fuel (or fuels) into gasoline, RBx = Total volume of renewable fuel
gallons. RBOB, CBOB, or diesel fuel is not blended into gasoline, in gallons.
(c) For the purposes of this section, all assigned to every renewable fuel that is TABLE 1 OF § 80.1115.—EQUIVALENCE
of the following products that are used to determine how many gallon- VALUES FOR SOME RENEWABLE FUELS
produced or imported during a calendar RINs can be generated for a batch of
year are to be included in the volume renewable fuel according to § 80.1126. Equiva-
used to calculate a party’s renewable Equivalence Values for certain lence
Renewable fuel type
volume obligation under paragraph (a) value
renewable fuels are assigned in (EV)
of this section, except as provided in paragraph (d) of this section. For other
paragraph (d) of this section: renewable fuels, the equivalence value Cellulosic biomass ethanol and
(1) Reformulated gasoline. shall be calculated using the following waste derived ethanol produced
(2) Conventional gasoline. formula: on or before December 31,
(3) Reformulated gasoline blendstock 2012 .......................................... 2.5
for oxygenate blending (‘‘RBOB’’). EV = (R / 0.931) * (EC / 77,550) Ethanol from corn, starches, or
(4) Conventional gasoline blendstock Where: sugar ......................................... 1.0
that becomes finished conventional Biodiesel (mono-alkyl ester) ......... 1.5
EV = Equivalence Value for the renewable Non-ester renewable diesel .......... 1.7
gasoline upon the addition of oxygenate fuel. Butanol .......................................... 1.3
(‘‘CBOB’’). R = Renewable content of the renewable fuel. ETBE from corn ethanol ............... 0.4
(5) Gasoline treated as blendstock This is a measure of the portion of a
(‘‘GTAB’’). renewable fuel that came from a
(6) Blendstock that has been §§ 80.1116—80.1124 [Added and
renewable source, expressed as a Reserved]
combined with other blendstock or percent, on an energy basis, of the
finished gasoline to produce gasoline. 8. Sections 80.1116 through 80.1124
renewable fuel that comes from a
(d) The following products are not are added and reserved.
renewable feedstock.
included in the volume of gasoline EC = Energy content of the renewable fuel,
9. Sections 80.1125 through 80.1131
produced or imported used to calculate in Btu per gallon (lower heating value).
are added to read as follows:
a party’s renewable volume obligation § 80.1125 Renewable Identification
under paragraph (a) of this section: (b) Technical justification and Numbers (RINs).
(1) Any renewable fuel as defined in approval of calculation of the
Each RIN is a 34 character numerical
§ 80.1101(f). Equivalence Value.
code of the following form:
(2) Blendstock that has not been (1) Producers of renewable fuels must
combined with other blendstock or prepare a technical justification of the YYYYCCCCFFFFFBBBBBRRDKSSSSSS
finished gasoline to produce gasoline. EEEEEE
calculation of the Equivalence Value for
(3) Gasoline produced or imported for (a) YYYY is the calendar year in
the renewable fuel including a
use in Alaska, Hawaii, the which the batch of renewable fuel was
description of the renewable fuel, its
Commonwealth of Puerto Rico, the U.S. produced or imported. YYYY also
Virgin Islands, Guam, American Samoa, feedstock and production process.
represents the year in which the RIN
and the Commonwealth of the Northern (2) Producers shall submit the was originally generated.
Marianas, unless the area has opted into justification to the EPA for approval. (b) CCCC is the registration number
the RFS program under § 80.1143. (3) The Agency will review the assigned according to § 80.1150 to the
(4) Gasoline produced by a small technical justification and assign an producer or importer of the batch of
refinery that has an exemption under appropriate Equivalence Value to the renewable fuel.
§ 80.1141 or an approved small refiner renewable fuel based on the procedure (c) FFFFF is the registration number
that has an exemption under § 80.1142 in paragraph (c) of this section. assigned according to § 80.1150 to the
during the period that such exemptions facility at which the batch of renewable
are in effect. (c) The equivalence value is assigned
fuel was produced or imported.
(5) Gasoline exported for use outside as follows:
(d) BBBBB is a serial number assigned
the United States. (1) A value rounded to the nearest to the batch which:
(6) For blenders, the volume of tenth if such value is less than 0.9. (1) Is chosen by the producer or
finished gasoline, RBOB, or CBOB to importer of the batch such that no two
(2) 1.0 if the calculated equivalence
which a blender adds blendstocks. batches have the same value in a given
value is in the range of 0.9 to 1.2.
(e) Compliance period. (1) For 2007, calendar year;
the compliance period is [DATE 60 (3) 1.3, 1.5, or 1.7, for calculated
(2) Begins with the value 00001 for
DAYS AFTER PUBLICATION OF THE values over 1.2, whichever value is the first batch produced or imported by
FINAL RULE IN THE FEDERAL closest to the calculated equivalence a facility in a given calendar year; and
REGISTER] through December 31, 2007. value, based on the positive difference (3) Increases sequentially for
(2) Beginning in 2008, and every year between the calculated equivalence subsequent batches produced or
thereafter, the compliance period is value and each of these three values, imported by that facility in that calendar
January 1 through December 31. except as specified in paragraphs (c)(4) year.
§§ 80.1108–80.1114 [Added and Reserved]
and (c)(5) of this section. (e) RR is a number representing the
6. Sections 80.1108 through 80.1114 (4) 2.5 for cellulosic biomass ethanol equivalence value of the renewable fuel.
are added and reserved. that is produced on or before December (1) Equivalence values are specified in
7. Section 80.1115 is added to read as 31, 2012. § 80.1115.
follows: (2) Multiply the equivalence value by
(5) 2.5 for waste derived ethanol.
10 to produce the value for RR.

§ 80.1115 How are equivalence values (d) Equivalence values for some (f) D is a number identifying the type
assigned by renewable fuel producers? renewable fuels are as given in the of renewable fuel, as follows:
(a) Each gallon of a renewable fuel following table: (1) D has the value of 1 if the
shall be assigned an equivalence value. renewable fuel can be categorized as
The equivalence value is a number cellulosic biomass ethanol.
(2) D has the value of 2 if the (3) Standard-value RINs shall be (7) Standardization of volumes. In
renewable fuel cannot be categorized as generated separately from extra-value determining the standardized volume of
cellulosic biomass ethanol. RINs, and distinguished from one a batch of renewable fuel for purposes
(g) K is a number identifying the type another by the K component of the RIN. of generating standard-value batch-RINs
of RIN as follows: (4) When a standard-value batch-RIN or extra-value batch-RINs, pursuant to
(1) K has the value of 1 if the batch- or an extra-value batch-RIN is initially paragraphs (c)(5) and (c)(6) of this
RIN is a standard-value RIN. generated by a renewable fuel producer section, the batch volumes shall be
(2) K has the value of 2 if the batch- or importer, the value of SSSSSS in the adjusted to a standard temperature of 60
RIN is an extra-value RIN. batch-RIN shall be 000001 to represent °F.
(h) SSSSSS is a number representing the first gallon in the batch of renewable (i) For ethanol, the following formula
the first gallon associated with a batch fuel. shall be used:
of renewable fuel. (5) Generation of standard-value Vs,e = Va,e * (¥0.0006301 × T + 1.0378)
(i) EEEEEE is a number representing batch-RINs. (i) Except as provided in Where:
the last gallon associated with a batch paragraph (c)(5)(ii) of this section, a
of renewable fuel. EEEEEE will be Vs,e = Standardized volume of ethanol at 60
standard-value batch-RIN shall be °F, in gallons.
identical to SSSSSS in the case of a generated to represent the gallons in a Va,e = Actual volume of ethanol, in gallons.
gallon-RIN. Assign the value of EEEEEE batch of renewable fuel. The value of T = Actual temperature of the batch, in °F.
as described in § 80.1126. EEEEEE when a batch-RIN is initially (ii) For biodiesel (mono alkyl esters),
§ 80.1126 How are RINs assigned to generated by a renewable fuel producer the following formula shall be used:
batches of renewable fuel by renewable fuel or importer shall be determined as Vs,b = Va,b * (¥0.0008008 × T + 1.0480)
producers or importers? follows:
(A) For renewable fuels with an Where:
(a) Regional applicability. (1) Except
as provided in paragraph (b) of this equivalence value of 1.0 or greater, the Vs,b = Standardized volume of biodiesel at 60
value of EEEEEE shall be the °F, in gallons.
section, every batch of renewable fuel Va,b = Actual volume of biodiesel, in gallons.
produced by a facility located in the standardized volume of the batch in T = Actual temperature of the batch, in °F.
contiguous 48 states of the United gallons.
States, or imported into the contiguous (B) For renewable fuels with an (iii) For other renewable fuels, an
48 states, must be assigned a RIN. equivalence value of less than 1.0, the appropriate formula commonly
(2) If the Administrator approves a value of EEEEEE shall be the applicable accepted by the industry shall be used
petition of Alaska, Hawaii, or a United volume, in gallons, calculated according to standardize the actual volume to 60
States territory to opt-in to the to the following formula: °F.
renewable fuel program under the (d) Assignment of batch-RINs to
Va = EV * Vs batches. (1) The producer or importer of
provisions in § 80.1143, then the
requirements of paragraph (a)(1) of this Where: a batch of renewable fuel must assign
section shall also apply to renewable Va = Applicable volume of renewable fuel, in standard-value RINs to the batch of
fuel produced or imported into that gallons, for use in designating the value renewable fuel that those batch-RINs
state or territory beginning in the next
of EEEEEE. represent.
EV = Equivalence value for the renewable (2) The producer or importer of a
calendar year. fuel per § 80.1115.
(b) Volume threshold. Pursuant to batch of renewable fuel may assign
Vs = Standardized volume of the batch of extra-value batch-RINs to the batch of
§ 80.1154, producers with renewable renewable fuel at 60 °F, in gallons.
fuel production facilities located within renewable fuel that those batch-RINs
the United States that produce less than (ii) For biocrude-based renewable represent.
fuels, a standard-value batch-RIN shall (3) A batch-RIN is assigned to a batch
10,000 gallons of renewable fuel each
be generated to represent the gallons of when the batch-RIN is recorded in a
year, and importers that import less
biocrude rather than the gallons of prominent location on a product
than 10,000 gallons of renewable fuel
renewable fuel. The value of EEEEEE transfer document assigned to that batch
each year, are not required to generate
shall be the standardized volume of the of renewable fuel per § 80.1153.
and assign RINs to batches of renewable
fuel. Such producers and importers are biocrude in gallons. § 80.1127 How are RINs used to
also exempt from the registration, (6) Generation of extra-value batch- demonstrate compliance?
reporting, and recordkeeping RINs. (i) Extra-value batch-RINs may be (a) Renewable volume obligations. (1)
requirements of §§ 80.1150 through generated for renewable fuels having an Except as specified in paragraph (b) of
80.1152. However, for those producers equivalence value greater than 1.0. this section, each party that is obligated
and importers that voluntarily generate (ii) The value for EEEEEE in an extra- to meet the Renewable Volume
and assign RINs, all the requirements of value batch-RIN when a batch-RIN is Obligation under § 80.1107, or an
this subpart apply. initially generated by a renewable fuel exporter of renewable fuels, must
(c) Generation of RINs. (1) The producer or importer shall be the demonstrate that it has acquired
producer or importer of a batch of applicable volume of renewable fuel sufficient RINs to satisfy the following
renewable fuel must generate the RINs calculated according to the following equation:
associated with that batch. However, a formula: (SRINVOL)i + (SRINVOL)i–1 = RVOi
producer of a batch of renewable fuel for Va = (EV¥1.0) * Vs Where:
export is not required to generate a RIN
Where: (SRINVOL)i = Sum of all acquired gallon-
for that batch if that producer is also the
Va = Applicable volume of renewable fuel, in RINs that were generated in year i and
exporter and exports the renewable fuel.

gallons, for use in designating the value are being applied towards the RVOi, in
(2) A party generating a RIN shall of EEEEEE. gallons.
specify the appropriate numerical EV= Equivalence value for the renewable fuel (SRINVOL)i–1 = Sum of all acquired gallon-
values for each component of the RIN in per § 80.1115. RINs that were generated in year i–1 and
accordance with the provisions of Vs = Standardized volume of the batch of are being applied towards the RVOi, in
§ 80.1125 and this paragraph (c). renewable fuel at 60 °F, in gallons. gallons.
RVOi = The Renewable Volume Obligation (ΣRINVOL)i¥1 = Sum of all acquired gallon- RINs, each representing a smaller
for the obligated party or renewable fuel RINs that were generated in year i¥1 number of gallon-RINs if all of the
exporter for calendar year i, in gallons. and are being applied towards the RVOi, following conditions are met:
in gallons. (i) All RIN components other than
(2) For compliance for calendar years
2009 and later, the value of SSSSSS and EEEEEE are identical for
§ 80.1128 General requirements for RIN the parent and daughter RINs.
(SRINVOL)i–1 may not exceed a value distribution.
determined by the following inequality: (ii) The sum of the gallon-RINs
(a) RINs assigned to batches of associated with the two daughter batch-
(SRINVOL)i–1 ≤ 0.20 * RVOi renewable fuel. (1) Except as provided RINs is equal to the gallon-RINs
Where: in § 80.1129 and paragraph (a)(3) of this associated with the parent batch.
(SRINVOL)i–1 = Sum of all acquired gallon- section, as title to a batch of renewable
RINs that were generated in year i–1 and fuel is transferred from one party to § 80.1129 Requirements for separating
are being applied towards the RVOi, in another, a batch-RIN that has been RINs from batches.
gallons. assigned to that batch according to (a)(1) Separation of a RIN from a batch
(3) RINs may only be used to § 80.1126(d) must remain assigned to an means termination of the assignment of
demonstrate compliance with the RVO equivalent renewable fuel volume the RIN from a batch of renewable fuel.
for the calendar year in which they were having the same equivalence value. (2) A RIN that has been assigned to a
generated or the following calendar (i) A batch-RIN assigned to a batch batch of renewable fuel according to
year. RINs used to demonstrate shall be identified on product transfer § 80.1126(d) may be separated from a
compliance in one year cannot be used documents representing the batch batch only under one of the following
to demonstrate compliance in any other pursuant to § 80.1153. conditions:
year. (ii) Any documentation used to (i) A party that is an obligated party
(4) A party may acquire a RIN only if transfer custody of or title to a batch according to § 80.1106 may separate any
that RIN is obtained in accordance with from one party to another must identify RINs that have been assigned to a batch
§§ 80.1128 and 80.1129. the batch-RINs assigned to that batch. if they own the batch.
(5) Gallon-RINs that can be used for (2) If two or more batches of (ii) Except as provided in paragraph
compliance with the RVO shall be renewable fuel are combined into a (a)(2)(v) of this section, any party that
calculated from the following formula: single batch, then all the batch-RINs owns a batch of renewable fuel shall
RINVOL = EEEEEE ¥ SSSSSS + 1 assigned to all the batches involved in have the right to separate any RINs that
the merger shall be assigned to the final have been assigned to that batch once
Where:
combined batch. the batch is blended with gasoline or
RINVOL = Gallon-RINs associated with a (3) If a batch of renewable fuel is split diesel to produce a motor vehicle fuel.
batch-RIN, in gallons.
EEEEEE = Batch-RIN component identifying
into two or more smaller batches, any (iii) Any party that exports a batch of
the last gallon associated with the batch batch-RINs assigned to the parent batch renewable fuel shall have the right to
of renewable fuel that the batch-RIN must likewise be split and assigned to separate any RINs that have been
represents. the daughter batches. assigned to the exported batch.
SSSSSS = Batch-RIN component identifying (i) If the Equivalence Value for the (iv) Except as provided in paragraph
the first gallon associated with the batch renewable fuel in the parent batch is (a)(2)(v) of this section, any renewable
of renewable fuel that the batch-RIN equal to or greater than 1.0, then there fuel producer that owns a batch of
represents. shall be at least one gallon-RIN for every renewable fuel shall have the right to
(b) Deficit carryovers. (1) An obligated gallon in each of the daughter batches. separate any RINs that have been
party or an exporter of renewable fuel (ii) If the Equivalence Value for the assigned to that batch if the renewable
that fails to meet the requirements of renewable fuel in the parent batch is fuel is designated as motor vehicle fuel
paragraph (a)(1) of this section for less than 1.0, then the ratio of gallon- in its neat form and is used as motor
calendar year i is permitted to carry a RINs to gallons in the parent batch shall vehicle fuel in its neat form.
deficit into year i + 1 under the be preserved in all daughter batches. (v) RINs assigned to batches of
following conditions: (iii) For purposes of this paragraph biodiesel (mono-alkyl esters) can only
(i) The party did not carry a deficit (a)(3), the volume of each parent and be separated from those batches once
into calendar year i from calendar year daughter batch shall be standardized to the biodiesel is blended into diesel fuel
i¥1. 60 °F pursuant to § 80.1126(c)(7). at a concentration of 80 volume percent
(ii) The party subsequently meets the (b) RINs not assigned to batches of biodiesel or less.
requirements of paragraph (a)(1) of this renewable fuel. (1) Unassigned RIN (b) Upon separation from its
section for calendar year i+1. means one of the following: associated batch, a RIN shall be
(2) A deficit is calculated according to (i) It is a RIN that contains a K value removed from all documentation that:
the following formula: identifying it as an extra-value RIN and (1) Is used to identify custody or title
was not assigned to a batch of renewable to the batch; or
Di = RVOi ¥ [(ΣRINVOL)i +
fuel by the producer or importer of that (2) Is transferred with the batch.
(ΣRINVOL)i¥1]
batch; or (c) RINs that have been separated
Where: (ii) It is a RIN that was separated from from batches of renewable fuel become
Di = The deficit generated in calendar year the batch to which it was assigned in unassigned RINs subject to the
i that must be carried over to year i+1 if accordance with § 80.1129. provisions of § 80.1128(b).
allowed pursuant to paragraph (b)(1)(i) of (2) Any party that has registered
this section, in gallons. pursuant to § 80.1150 can hold title to § 80.1130 Requirements for exporters of
RVOi = The Renewable Volume Obligation
an unassigned RIN. renewable fuels.

for the obligated party or renewable fuel
exporter for calendar year i, in gallons. (3) Unassigned RINs can be (a)(1) Any party that exports any
(ΣRINVOL)1 = Sum of all acquired gallon- transferred from one party to another amount of renewable fuel shall acquire
RINs that were generated in year i and any number of times. sufficient RINs to offset a Renewable
are being applied towards the RVOi, in (4) An unassigned batch-RIN can be Volume Obligation representing the
gallons. divided by its holder into two batch- exported renewable fuel.
(2) Only exporters located in the transferee’s Renewable Volume (2) Applications must be submitted by
applicable region described in Obligation, regardless of the transferee’s September 1, 2007.
§ 80.1126(a) are subject to the good faith belief that the RINs were (c) Within 60 days of EPA’s receipt of
requirements of this section. valid. a refiner’s application for a small
(b) Renewable Volume Obligations. (2) The refiner or importer who used refinery exemption, EPA will notify the
An exporter of renewable fuel shall the invalid RINs, and any transferor of refiner if the exemption is not approved
determine its Renewable Volume the invalid RINs, must adjust their or of any deficiencies in the application.
Obligation from the volumes of the records, reports, and compliance In the absence of such notification from
batches exported. calculations as necessary to reflect the EPA, the effective date of the small
(1) A renewable fuel exporter’s total deletion of invalid RINs. refinery exemption is 60 days from
Renewable Volume Obligation shall be (3) Any valid RINs remaining after EPA’s receipt of the refiner’s
calculated according to the following deleting invalid RINs, and after an submission.
formula: obligated party applies valid RINs as (d) If EPA finds that a refiner
RVOi = Σ(VOLk * EVk) + Di¥1 needed to meet the RVO at the end of provided false or inaccurate information
the compliance year, must first be on its application for a small refinery
Where: applied to correct the invalid transfers exemption, the exemption will be void
k = Batch. before the transferor trades or banks the ab initio upon notice from EPA.
RVOi = The Renewable Volume Obligation RINs. (e) If a refiner is complying on an
for the exporter for calendar year i, in (4) In the event that the same RIN is
gallons of renewable fuel. aggregate basis for multiple refineries,
VOLk = The standardized volume of batch k
transferred to two or more parties, the any such refiner may exclude from the
of exported renewable fuel, in gallons. RIN will be deemed to be invalid, and calculation of its Renewable Volume
EVk = The equivalence value for batch k. any party to any transfer of the invalid Obligation (under § 80.1107(a)) gasoline
Di¥1 = Renewable fuel deficit carryover from RIN will be deemed liable for any from any refinery receiving the small
the previous year, in gallons. violations arising from the transfer or refinery exemption under paragraph (a)
(2)(i) For exported batches of use of the invalid RIN. of this section.
(5) A RIN will not be deemed invalid (f)(1) The exemption period in
renewable fuel that have assigned RINs,
where it can be determined that the RIN paragraph (a) of this section shall be
the equivalence value may be
was properly created and transferred. extended by the Administrator for a
determined from the RR component of
the RIN. §§ 80.1132–80.1140 [Added and Reserved] period of not less than two additional
(ii) If a batch of renewable fuel does years if a study by the Secretary of
10. Sections 80.1132 through 80.1140
not have assigned RINs but its Energy determines that compliance with
are added and reserved.
equivalence value may nevertheless be 11. Sections 80.1141 through 80.1143 the requirements of this subpart would
determined pursuant to § 80.1115(d) are added to read as follows: impose a disproportionate economic
based on its composition, then the hardship on the small refinery.
appropriate equivalence value shall be § 80.1141 Small refinery exemption. (2) A refiner may at any time petition
used in the calculation of the exporter’s (a)(1) Pursuant to § 80.1107(d), the Administrator for an extension of its
Renewable Volume Obligation. gasoline produced by a refiner at a small small refinery exemption under
(iii) If the equivalence value for a refinery is qualified for an exemption paragraph (a) of this section for the
batch of renewable fuel cannot be from the renewable fuels standards of reason of disproportionate economic
determined, the value of EVk shall be § 80.1105 if that refinery meets the hardship.
1.0. definition of a small refinery under (3) A petition for an extension of the
(3) If the exporter of a batch of § 80.1101(i) for calendar year 2004. small refinery exemption must specify
renewable fuel is also the producer of (2) This exemption shall apply the factors that demonstrate a
that batch, and no RIN was generated to through December 31, 2010, unless a disproportionate economic hardship
represent that batch, then the volume of refiner chooses to opt-in to the program and must provide a detailed discussion
that batch shall be excluded from the requirements of this subpart (per regarding the inability of the refinery to
calculation of the Renewable Volume paragraph (g) of this section) prior to produce gasoline meeting the
Obligation. this date. requirements of § 80.1105 and the date
(c) Each exporter of renewable fuel (b)(1) To apply for an exemption the refiner anticipates that compliance
must demonstrate compliance with its under this section, a refiner must submit with the requirements can be achieved
RVO using RINs it has acquired an application to EPA containing the at the small refinery.
pursuant to § 80.1127. following information: (4) The Administrator shall act on
(i) The annual average aggregate daily such a petition not later than 90 days
§ 80.1131 Treatment of invalid RINs. crude oil throughput for the period after the date of receipt of the petition.
(a) Invalid RINs. An invalid RIN is a January 1, 2004, through December 31, (g) At any time, a refiner with an
RIN that: 2004 (as determined by dividing the approved small refinery exemption
(1) Is a duplicate of a valid RIN; aggregate throughput for the calendar under paragraph (a) of this section may
(2) Was based on volumes that have year by the number 365); waive that exemption upon notification
not been standardized to 60 °F; (ii) A letter signed by the president, to EPA.
(3) Has expired; chief operating or chief executive officer (1) A refiner’s notice to EPA that it
(4) Was based on an incorrect of the company, or his/her designee, intends to waive its small refinery
equivalence value; or stating that the information contained in exemption must be received by
(5) Was otherwise improperly the application is true to the best of his/ November 1.
generated. her knowledge, and that the company (2) The waiver will be effective
(b) In the case of RINs that have been owned the refinery as of January 1, beginning on January 1 of the following
determined to be invalid, the following 2006; and calendar year, at which point the
provisions apply: (iii) Name, address, phone number, gasoline produced at that refinery will
(1) Invalid RINs cannot be used to facsimile number, and E-mail address of be subject to the renewable fuels
achieve compliance with the a corporate contact person. standard of § 80.1105.
(3) The waiver must be sent to EPA paragraph and any other relevant refineries from the compliance
at one of the addresses listed in information: calculations under § 80.1125.
paragraph (m) of this section. (1) (i) A listing of the name and (g) (1) An approved small refiner may,
(h) A refiner that acquires a refinery address of each company location where at any time, waive the exemption under
from either an approved small refiner any employee worked for the period paragraph (a) of this section upon
(under § 80.1142) or another refiner January 1, 2004 through December 31, notification to EPA.
with an approved small refinery 2004. (2) An approved small refiner’s notice
exemption under paragraph (a) of this (ii) The average number of employees to EPA that it intends to waive the
section shall notify EPA in writing no at each location based on the number of exemption under paragraph (a) of this
later than 20 days following the employees for each pay period for the section must be received by November
acquisition. period January 1, 2004 through 1 in order for the waiver to be effective
(i) Applications under paragraph (b) December 31, 2004. for the following calendar year. The
of this section, petitions for hardship (iii) The type of business activities waiver will be effective beginning on
extensions under paragraph (f) of this carried out at each location. January 1 of the following calendar year,
section, and small refinery exemption (iv) For joint ventures, the total at which point the refiner will be
waivers under paragraph (g) of this number of employees includes the subject to the renewable fuels standard
section shall be sent to one of the combined employee count of all of § 80.1105.
following addresses: corporate entities in the venture. (3) The waiver must be sent to EPA
(1) For U.S. mail: U.S. EPA—Attn: (v) For government-owned refiners, at one of the addresses listed in
RFS Program, Transportation and the total employee count includes all paragraph (i) of this section.
Regional Programs Division (6406J), government employees. (h) A refiner that acquires a refinery
1200 Pennsylvania Avenue, NW., (2) The total corporate crude oil from another refiner with approved
Washington, DC 20460; or capacity of each refinery as reported to small refiner status under paragraph (a)
(2) For overnight or courier services: the Energy Information Administration of this section shall notify EPA in
U.S. EPA, Attn: RFS Program, (EIA) of the U.S. Department of Energy writing no later than 20 days following
Transportation and Regional Programs (DOE), for the period January 1, 2004 the acquisition.
Division (6406J), 1310 L Street, NW., 6th through December 31, 2004. The (i) Applications under paragraph (b)
floor, Washington, DC 20005. information submitted to EIA is of this section shall be sent to one of the
presumed to be correct. In cases where following addresses:
§ 80.1142 What are the provisions for a company disagrees with this (1) For U.S. Mail: U.S. EPA—Attn:
small refiners under the RFS program? information, the company may petition RFS Program, Transportation and
(a)(1) A refiner qualifies for a small EPA with appropriate data to correct the Regional Programs Division (6406J),
refiner exemption if the refiner does not record when the company submits its 1200 Pennsylvania Avenue, NW.,
meet the definition of a small refinery application. Washington, DC 20460; or
under § 80.1101(i) but meets all of the (3) A letter signed by the president, (2) For overnight or courier services:
following criteria: chief operating or chief executive officer U.S. EPA, Attn: RFS Program,
(i) The refiner produced gasoline at of the company, or his/her designee, Transportation and Regional Programs
the refinery by processing crude oil stating that the information contained in Division (6406J), 1310 L Street, NW., 6th
through refinery processing units from the application is true to the best of his/ floor, Washington, DC 20005.
January 1, 2004 through December 31, her knowledge, and that the company
2004. owned the refinery as of January 1, § 80.1143 What are the opt-in provisions
(ii) The refiner employed an average 2006. for noncontiguous states and territories?
of no more than 1,500 people, based on (4) Name, address, phone number, (a) A noncontiguous state or United
the average number of employees for all facsimile number, and e-mail address of States territory may petition the
pay periods for calendar year 2004 for a corporate contact person. Administrator to opt-in to the program
all subsidiary companies, all parent (c) Applications under paragraph (b) requirements of this subpart.
companies, all subsidiaries of the parent of this section must be submitted by (b) The petition must be signed by the
companies, and all joint venture September 1, 2007. EPA will notify a Governor of the state or his authorized
partners. refiner of approval or disapproval of its representative (or the equivalent official
(iii) The refiner had a corporate- small refiner status in writing. of the territory).
average crude oil capacity less than or (d) A refiner who qualifies as a small (c) The Administrator will approve
equal to 155,000 barrels per calendar refiner under this section and the petition if it meets the provisions of
day (bpcd) for 2004. subsequently fails to meet all of the paragraphs (b) and (d) of this section.
(2) The small refiner exemption shall qualifying criteria as set out in (d)(1) A petition submitted under this
apply through December 31, 2010, paragraph (a) of this section will have section must be received by the Agency
unless a refiner chooses to opt-in to the its small refiner exemption terminated by October 31 for the state or territory
program requirements of this subpart effective January 1 of the next calendar to be included in the RFS program in
(per paragraph (g) of this section) prior year; however, disqualification shall not the next calendar year.
to this date. apply in the case of a merger between (2) A petition submitted under this
(b) To apply for an exemption under two approved small refiners. section should be sent to one of the
this section, a refiner must submit an (e) If EPA finds that a refiner provided following addresses:
application to EPA containing all of the false or inaccurate information on its (i) For U.S. Mail: U.S. EPA–Attn: RFS
following information for the refiner application for small refiner status Program, Transportation and Regional
and for all subsidiary companies, all under this subpart, the small refiner’s Programs Division (6406J), 1200
parent companies, all subsidiaries of the exemption will be void ab initio upon Pennsylvania Avenue, NW.,
parent companies, and all joint venture notice from EPA. Washington, DC 20460; or
partners; approval of an exemption (f) If a small refiner is complying on (ii) For overnight or courier services:
application will be based on all an aggregate basis for multiple U.S. EPA, Attn: RFS Program,
information submitted under this refineries, the refiner may exclude those Transportation and Regional Programs
Division (6406J), 1310 L Street, NW., 6th THE FINAL RULE IN THE FEDERAL (5) Verifiable records of all the
floor, Washington, DC 20005. REGISTER], must provide EPA the following:
(e) Upon approval of the petition by information specified under § 80.76, if (i) The amount and type of fossil fuel
the Administrator— such information has not already been and waste material-derived fuel used in
(1) EPA shall calculate the standard provided under the provisions of this producing on-site thermal energy
for the following year, including the part, by no later than [DATE 90 DAYS dedicated to the production of ethanol
total gasoline volume for the state or AFTER PUBLICATION OF THE FINAL at plants producing cellulosic ethanol as
territory in question. RULE IN THE FEDERAL REGISTER] . defined in § 80.1101(a)(2).
(2) Beginning on January 1 of the next (2) Any producer of renewable fuel (ii) The equivalent amount of fossil
calendar year, all gasoline producers in that becomes subject to a renewable fuel (based on reasonable estimates)
the state or territory for which a petition fuels standard under this subpart after associated with the use of off-site
has been approved shall be obligated the date specified in paragraph (b)(1) of generated waste heat that is used in the
parties as defined in § 80.1106. this section, must provide EPA the production of ethanol at plants
(3) Beginning on January 1 of the next information specified for registration producing cellulosic ethanol as defined
calendar year, all renewable fuel under § 80.76, if such information has in § 80.1101(a)(2).
producers in the State or territory for not already been provided under the (b) Beginning with [DATE 60 DAYS
which a petition has been approved provisions of this part, and must receive AFTER PUBLICATION OF THE FINAL
shall, pursuant to § 80.1126(a)(2), be EPA-issued company and facility RULE IN THE FEDERAL REGISTER],
required to generate RINs and assign identification numbers prior to any importer or producer of renewable
them to batches of renewable fuel. generating or creating any RINs. fuel as defined under § 80.1101(e) must
(c) Any party not covered by keep all the following records:
§§ 80.1144–80.1149 [Added and Reserved] paragraphs (a) and (b) of this section (1) The applicable product transfer
12. Sections 80.1144 through 80.1149 must provide EPA the information documents under § 80.1153.
are added and reserved. specified under § 80.76, if such (2) Copies of all reports submitted to
13. Sections 80.1150 through 80.1154 information has not already been EPA under § 80.1152(b).
are added to read as follows: provided under the provisions of this (3) Records related to the generation
part, and must receive EPA-issued of RINs, for each facility, including all
§ 80.1150 What are the registration company and facility identification of the following:
requirements under the RFS program? (i) Batch Volume.
numbers prior to owning any RINs.
(a)(1) Any obligated party as defined (d) Registration shall be on forms, and (ii) RIN number as assigned under
in § 80.1106 and any exporter of following policies, established by the § 80.1126.
renewable fuel that is subject to a Administrator. (iii) Identification of those batches
renewable fuels standard under this meeting the definition of cellulosic
subpart, as of [DATE 60 DAYS AFTER § 80.1151 What are the recordkeeping biomass ethanol.
PUBLICATION OF THE FINAL RULE requirements under the RFS program? (iv) Date of production or import.
IN THE FEDERAL REGISTER], must (a) Beginning with [DATE 60 DAYS (v) Results of any laboratory analysis
provide EPA with the information AFTER PUBLICATION OF THE FINAL of batch chemical composition or
specified for registration under § 80.76, RULE IN THE FEDERAL REGISTER], physical properties.
if such information has not already been any obligated party as defined under (vi) Additional information related to
provided under the provisions of this § 80.1106 or exporter of renewable fuel details of RIN generation.
part. In addition, for each import that is subject to the renewable fuels (4) Records related to each transaction
facility, the same identifying standard under § 80.1105 must keep all involving the sale, purchase, brokering,
information as required for each refinery the following records: and trading of RINs, including all of the
under § 80.76(c) must be provided. (1) The applicable product transfer following:
Registrations must be submitted by no documents under § 80.1153. (i) A list of the RINs acquired, owned
later than [DATE 90 DAYS AFTER (2) Copies of all reports submitted to or transferred.
EPA under § 80.1152(a). (ii) The parties involved in each
PUBLICATION OF THE FINAL RULE
(3) Records related to each transaction transaction including the transferor,
IN THE FEDERAL REGISTER].
involving the sale, purchase, brokering, transferee, and any broker or agent.
(2) Any obligated party, as defined in (iii) The location, time, and date of
§ 80.1106, or any exporter of renewable and trading of RINs, which includes all
the following: the transfer of the RIN(s).
fuel that becomes subject to a renewable (iv) Additional information related to
(i) A list of the RINs owned or
fuels standard under this subpart after details of the transaction and its terms.
transferred.
the date specified in paragraph (a)(1) of (ii) The parties involved in each (c) Beginning with [DATE 60 DAYS
this section, must provide EPA the transaction including the transferor, AFTER PUBLICATION OF THE FINAL
information specified for registration transferee, and any broker or agent. RULE IN THE FEDERAL REGISTER],
under § 80.76, if such information has (iii) The location, time, and date of any party, other than those parties
not already been provided under the the transfer of the RIN(s). covered in paragraphs (a) and (b) of this
provisions of this part, and must receive (iv) Additional information related to section, that owns RINs must keep all of
EPA-issued company and facility details of the transaction and its terms. the following records:
identification numbers prior to engaging (4) Records related to the use of RINs, (1) The applicable product transfer
in any transaction involving RINs. by facility, for compliance, which documents under § 80.1153.
Additionally, for each import facility, includes all the following: (2) Copies of all reports submitted to
the same identifying information as (i) Methods and variables used to EPA under § 80.1152(c).
required for each refinery under calculate the Renewable Volume (3) Records related to each transaction
§ 80.76(c) must be provided. Obligation pursuant to § 80.1107. involving the sale, purchase, brokering,
(b)(1) Any producer of a renewable (ii) List of RINs surrendered to EPA and trading of RINs, including all of the
fuel that is subject to a renewable fuels used to demonstrate compliance. following:
standard under this subpart as of [DATE (iii) Additional information related to (i) A list of the RINs acquired, owned,
60 DAYS AFTER PUBLICATION OF details of RIN use for compliance. or transferred.
(ii) The parties involved in each (ix) A list of all RINs used for batch basis, where ‘‘batch’’ means a
transaction including the transferor, compliance. discreet quantity of renewable fuel
transferee, and any broker or agent. (x) Any additional information that produced and assigned a unique RIN:
(iii) The location, time, and date of the Administrator may require. (i) The renewable fuel producer’s
the transfer of the RIN(s). (2) A report documenting each name.
(iv) Additional information related to transaction of RINs traded between two (ii) The EPA company registration
details of the transaction and its terms. parties, shall include all of the number.
(d) The records required under this following: (iii) The EPA facility registration
section and under § 80.1153 shall be (i) The submitting party’s name. number(s).
kept for five years from the date they (ii) The submitter’s EPA company (iv) The 34 character RINs generated
were created, except that records related registration number. for each batch according to § 80.1126.
to transactions involving RINs shall be (iii) The submitter’s EPA facility (v) The production date of each batch.
kept for five years from the date of registration number(s). (vi) The renewable fuel type as
transfer. (iv) The compliance period, defined in § 80.1101(f).
(e) On request by EPA, the records (v) Transaction type (e.g. purchase, (vii) Information related to the volume
required under this section and under sale). of denaturant and applicable
§ 80.1153 must be made available to the (vi) Transaction date. equivalence value.
Administrator or the Administrator’s (vii) Trading partner’s name. (viii) The volume produced.
authorized representative. For records (viii) Trading partner’s EPA company (ix) Any additional information the
that are electronically generated or registration number. Administrator may require.
(ix) Trading partner’s EPA facility (2) A report documenting each
maintained, the equipment or software
registration number. transaction of RINs traded between two
necessary to read the records shall be (x) RINs traded.
made available; or, if requested by EPA, parties, shall include all of the following
(xi) Any additional information that information:
electronic records shall be converted to the Administrator may require.
paper documents which shall be (i) The submitting party’s name.
(3) A report that summarizes RIN (ii) The submitter’s EPA company
provided to the Administrator’s activities for a given compliance year registration number.
authorized representative. shall include all of the following (iii) The submitter’s EPA facility
§ 80.1152 What are the reporting information: registration number(s).
requirements under the RFS program? (i) The total prior-years RINs carried (iv) The compliance period.
(a) Beginning with [DATE 60 DAYS over into the current year (on an annual (v) Transaction type (e.g. purchase,
AFTER PUBLICATION OF THE FINAL basis beginning January 1). sale).
(ii) The total current-year RINS (vi) Transaction date.
RULE IN THE FEDERAL REGISTER],
acquired. (vii) Trading partner’s name.
any obligated party as defined in
(iii) The total prior-years RINs (viii) Trading partner’s EPA company
§ 80.1106 or exporter of renewable fuel
acquired. registration number.
that is subject to the renewable fuels (iv) The total current-year RINs sold. (ix) Trading partner’s EPA facility
standard under § 80.1105, and (v) The total prior-years RINs sold. registration number;
continuing for each year thereafter, must (vi) The total current-year RINs used. (x) RINs traded.
submit to EPA annual reports that (vii) The total prior-years RINs used. (xi) Any additional information the
contain the information required in this (viii) The total current-year RINs Administrator may require.
section and such other information as expired. (3) A report that summarizes RIN
EPA may require: (ix) The total prior-years RINs activities for a compliance year shall
(1) A summary report of the annual expired. include all of the following information:
gasoline volume produced or imported, (x) The total current-year RINs to be (i) The total prior-years RINs carried
or volume of renewable fuel exported, carried into next year. over into the current year (on an annual
and whether the party is complying on (xi) Any additional information that basis beginning January 1).
a corporate (aggregate) or facility-by- the Administrator may require. (ii) The total current-year RINs
facility basis. This report shall include (4) Reports shall be submitted on generated.
all of the following: forms and following procedures as (iii) The total current-year RINS
(i) The obligated party’s name. prescribed by EPA. acquired.
(ii) The EPA company registration (5) Reports shall be submitted by (iv) The total prior-years RINs
number. February 28 for the previous compliance acquired.
(iii) The EPA facility registration year. (v) The total current-years RINs sold.
number(s). (6) All reports must be signed and (vi) The total prior-years RINs sold.
(iv) The production volume of certified as meeting all the applicable (vii) The total current-years RINs
finished gasoline, RBOB as defined in requirements of this subpart by the expired.
§ 80.1107(c) and CBOB as defined in owner or a responsible corporate officer (viii) The total prior-years RINs
§ 80.1107(c). of the obligated party. expired.
(v) The renewable volume obligation (b) Beginning with [DATE 60 DAYS (ix) The total current-year RINs to be
(RVO), as defined in § 80.1127(a) for AFTER PUBLICATION OF THE FINAL carried into next year.
obligated parties and § 80.1130 for RULE IN THE FEDERAL REGISTER], (x) Any additional information the
exporters of renewable fuel, for the any producer or importer of a renewable Administrator may require.
reporting year. fuel that is subject to the renewable (4) Reports shall be submitted on
(vi) Any deficit RVO carried over from fuels standard under § 80.1105, and forms and following procedures as
the previous year. continuing for each year thereafter, must prescribed by EPA.
(vii) Any deficit RVO carried into the submit to EPA annual reports that (5) Reports shall be submitted by
subsequent year. contain all of the following information: February 28 for the previous year.
(viii) The total number of RINs used (1) An annual report that includes all (6) All reports must be signed and
for compliance. of the following information on a per- certified as meeting all the applicable
requirements of this subpart by the all of the following information as import a renewable fuel that is not
owner or a responsible corporate officer applicable: assigned the proper RIN value or
of the renewable fuel producer. (1) The name and address of the identified by a RIN number as required
(c) Any party, other than those parties transferor and transferee. under § 80.1126.
covered in paragraphs (a) and (b) of this (2) The transferor’s and transferee’s (b) RIN generation and transfer
section, who owns RINs must submit to EPA company registration number. violations. No person shall do any of the
EPA annual reports that contain all of (3) The transferor’s and transferee’s following:
the following information: EPA facility registration number. (1) Improperly generate a RIN (i.e.,
(1) A report documenting each (4) The volume of renewable fuel that generate a RIN for which the applicable
transaction of RINs traded between two is being transferred. renewable fuel volume was not
parties shall include all of the following: (5) The location of the renewable fuel produced).
(i) The submitting party’s name. at the time of transfer. (2) Transfer to any person an invalid
(ii) The submitter’s EPA company (6) The date of the transfer. RIN or a RIN that is not properly
registration number. (7) The RINs assigned to the volume identified as required under § 80.1125.
(iii) The submitter’s EPA facility of renewable fuel that is being (c) RIN use violations. No person shall
registration number(s). transferred. do any of the following:
(iv) The compliance period. (b) Except for transfers to truck (1) Fail to acquire sufficient RINs, or
(v) Transaction type (e.g. purchase, carriers, retailers or wholesale use invalid RINs, to meet the party’s
sale). purchaser-consumers, product codes renewable fuel obligation under
(vi) Transaction date. may be used to convey the information § 80.1127.
(vii) Trading partner’s name. required under paragraphs (a)(1) (2) Fail to acquire sufficient RINs to
(viii) Trading partner’s EPA company through (a)(4) of this section if such meet the party’s renewable fuel
registration number. codes are clearly understood by each obligation under § 80.1130.
(ix) Trading partner’s EPA facility transferee. The RIN number required (d) Causing a violation. No person
registration number. under paragraph (a)(7) of this section shall cause another person to commit an
(x) RINs traded. must always appear in its entirety. act in violation of any prohibited act
(xi) Any additional information the under this section.
§ 80.1154 What are the provisions for
Administrator may require. renewable fuel producers and importers § 80.1161 Who is liable for violations
(2) A report that summarizes RIN who produce or import less than 10,000 under the RFS program?
activities for a compliance year shall gallons of renewable fuel per year? (a) Persons liable for violations of
include all of the following information: (a) Renewable fuel production prohibited acts. (1) Any person who
(i) The total prior-years RINs carried facilities located within the United violates a prohibition under § 80.1160(a)
over into the current year (on an annual States that produce less than 10,000 through (c) is liable for the violation of
basis beginning January 1). gallons of renewable fuel each year, and that prohibition.
(ii) The total current-year RINS importers who import less than 10,000 (2) Any person who causes another
acquired. gallons of renewable fuel each year, are person to violate a prohibition under
(iii) The total prior-years RINs not required to generate RINs or to § 80.1160(a) through (c) is liable for a
acquired. assign RINs to batches of renewable violation of § 80.1160(d).
(iv) The total current-years RINs sold. fuel. Such producers and importers that (b) Persons liable for failure to meet
(v) The total prior-years RINs sold. do not generate and/or assign RINs to other provisions of this subpart. (1) Any
(vi) The total current-years RINs batches of renewable fuel are exempt person who fails to meet a requirement
expired. from the following requirements of of any provision of this subpart is liable
(vii) The total prior-years RINs subpart K, except as stated in paragraph for a violation of that provision.
expired. (b) of this section: (2) Any person who causes another
(viii) The total current-year RINs to be (1) The registration requirements of person to fail to meet a requirement of
carried into next year. § 80.1150: any provision of this subpart is liable for
(ix) Any additional information the (2) The recordkeeping requirements of causing a violation of that provision.
Administrator may require. § 80.1151; and (c) Parent corporation liability. Any
(3) Reports shall be submitted on (3) The reporting requirements of parent corporation is liable for any
forms and following procedures as § 80.1152. violation of this subpart that is
prescribed by EPA. (b) Renewable fuel producers and committed by any of its subsidiaries.
(4) Reports shall be submitted by importers who produce or import less (d) Joint venture liability. Each partner
February 28 for the previous year. than 10,000 gallons of renewable fuel to a joint venture is jointly and severally
(5) All reports must be signed and each year and that generate and/or liable for any violation of this subpart
certified as meeting all the applicable assign RINs to batches of renewable fuel that is committed by the joint venture
requirements of this subpart by the are subject to the provisions of operation.
owner or a responsible corporate officer §§ 80.1150 through 80.1152.
of the renewable fuel producer. § 80.1162 [Reserved]
§§ 80.1155–80.1159 [Added and Reserved]
§ 80.1153 What are the product transfer § 80.1163 What penalties apply under the
14. Sections 80.1155 through 80.1159 RFS program?
document (PTD) requirements for the RFS
program?
are added and reserved.
15. Sections 80.1160 through 80.1165 (a) Any person who is liable for a
(a) Any time that a person transfers are added to read as follows: violation under § 80.1161 is subject a to
ownership of renewable fuels subject to civil penalty of up to $32,500, as

this subpart, and when RINs continue to § 80.1160 What acts are prohibited under specified in sections 205 and 211(d) of
accompany the renewable fuel, the the RFS program? the Clean Air Act, for every day of each
transferor must provide to the transferee (a) Renewable fuels producer or such violation and the amount of
documents identifying the renewable importer violation. Except as provided economic benefit or savings resulting
fuel and assigned RINs which include in § 80.1154, no person shall produce or from each violation.
(b) Any person liable under deficit RVO carried over from the report required under § 80.1152(b)(2)
§ 80.1161(a) for a violation of previous year or carried into the which contains information regarding
§ 80.1160(c) for failure to meet a subsequent year, and verify that the RIN trading transactions.
renewable fuels obligation or causing values agree with the values reported to (ii) Obtain contracts or other
another party to fail to meet a renewable EPA. documents for all RIN transactions with
fuels obligation during any averaging (vi) Obtain documentation for all RINs another party during the year being
period, is subject to a separate day of used for compliance during the year reviewed; compute and report as a
violation for each day in the averaging being reviewed; compute and report as finding the transaction types,
period. a finding the RIN numbers and year of transaction dates, and the RINs traded;
(c) Any person liable under generation of RINs represented in these and agree with the report to EPA.
§ 80.1161(b) for failure to meet, or documents; and agree with the report to (3) RIN activity report. (i) Obtain and
causing a failure to meet, a requirement EPA. read a copy of the RIN activity report
of any provision of this subpart is liable (2) RIN transaction report. (i) Obtain required under § 80.1152(b)(3) which
for a separate day of violation for each and read a copy of the RIN transaction contains information regarding RIN
day such a requirement remains report required under § 80.1152(a)(2) activity for the compliance year.
unfulfilled. which contains information regarding (ii) Obtain documentation of all RINs
RIN trading transactions. owned (including RINs created and
§ 80.1164 What are the attest engagement (ii) Obtain contracts or other acquired), transferred, sold and expired
requirements under the RFS program? documents for all RIN transactions with during the year being reviewed;
In addition to the requirements for another party during the year being compute and report as a finding the
attest engagements under §§ 80.125 reviewed; compute and report as a total RINs owned, transferred, sold and
through 80.133, and other applicable finding the transaction types, expired as represented in these
attest engagement provisions, the transaction dates and RINs traded; and documents; and agree with the report to
following annual attest engagement agree with the report to EPA. EPA.
procedures are required under this (3) RIN activity report. (i) Obtain and (c) For each averaging period, each
subpart. read a copy of the RIN activity report party subject to the attest engagement
(a) The following attest procedures required under § 80.1152(a)(3) which requirements under this section shall
shall be completed for any obligated contains information regarding RIN cause the reports required under this
party as stated in § 80.1106(b) or activity for the compliance year. section to be submitted to EPA by May
exporter of renewable fuel that is subject (ii) Obtain documentation of all RINs 31 of each year.
to the renewable fuel standard under acquired, used for compliance
§ 80.1105: (including current-year RINs used and § 80.1165 What are the additional
(1) Annual summary report. (i) Obtain previous-year RINs used) transferred, requirements under this subpart for
and read a copy of the annual summary sold, and expired during the year being gasoline produced at foreign refineries?
report required under § 80.1152(a)(1) reviewed; compute and report as a (a) Definitions. The following
which contains information regarding: finding the total RINs acquired, used for definitions apply for this section:
(A) The obligated party’s volume of compliance, transferred, sold, and (1) Foreign refinery is a refinery that
finished gasoline, reformulated gasoline expired as represented in these is located outside the United States, the
blendstock for oxygenate blending documents; and agree with the report to Commonwealth of Puerto Rico, the U.S.
(RBOB), and conventional gasoline EPA. Virgin Islands, Guam, American Samoa,
blendstock that becomes finished (b) The following attest procedures and the Commonwealth of the Northern
conventional gasoline upon the addition shall be completed for any renewable Mariana Islands (collectively referred to
of oxygenate (CBOB) produced or fuel producer: in this section as ‘‘the United States’’).
imported during the reporting year; (1) Annual batch report. (i) Obtain (2) Foreign refiner is a person that
(B) Renewable volume obligation and read a copy of the annual batch meets the definition of refiner under
(RVO); and report required under § 80.1152(b)(1) § 80.2(i) for a foreign refinery.
(C) RINs used for compliance. which contains information regarding (3) RFS–FRGAS is gasoline produced
(ii) Obtain documentation of any renewable fuel batches. at a foreign refinery that has received a
volumes of renewable fuel used in (ii) Obtain production data for each small refinery exemption under
gasoline during the reporting year; renewable fuel batch produced during § 80.1141 or a small refiner exemption
compute and report as a finding the the year being reviewed; compute and under § 80.1142 that is imported into
volumes of renewable fuel represented report as a finding the RIN numbers, the United States.
in these documents. production dates, types, volumes of (4) Non-RFS–FRGAS is one of the
(iii) Agree the volumes of gasoline denaturant and applicable equivalence following:
reported to EPA in the report required values, and production volumes for (i) Gasoline produced at a foreign
under § 80.1152(a)(1) with the volumes, each batch; and agree with the report to refinery that has received a small
excluding any renewable fuel volumes, EPA. refinery exemption under § 80.1141 or a
contained in the inventory (iii) Verify that the proper number of small refiner exemption under § 80.1142
reconciliation analysis under § 80.133. RINs were generated for each batch of that is not imported into the United
(iv) Verify that the production volume renewable fuel produced, as required States.
information in the obligated party’s under § 80.1126. (ii) Gasoline produced at a foreign
annual summary report required under (iv) Obtain product transfer refinery that has not received a small
§ 80.1152(a)(1) agrees with the volume documents for each renewable fuel refinery exemption under § 80.1141 or
information, excluding any renewable batch produced during the year being small refiner exemption under
fuel volumes, contained in the reviewed; report as a finding any § 80.1142.
inventory reconciliation analysis under product transfer document that did not (b) General requirements for RFS–
§ 80.133. include the RIN for the batch. FRGAS foreign small refiners. (1) A
(v) Compute and report as a finding (2) RIN transaction report. (i) Obtain foreign refiner that has a small refinery
the obligated party’s RVO, and any and read a copy of the RIN transaction exemption under § 80.1141 or a small
refiner exemption under § 80.1142 must (v) Determine the date and time the first United States port of entry and the
designate, at the time of production, vessel departs the port serving the subsequent port of entry.
each batch of gasoline produced at the foreign refinery; and (2) If the temperature-corrected
foreign refinery that is exported for use (vi) Review original documents that volumes determined at the port of entry
in the United States as RFS–FRGAS; reflect movement and storage of the and at the load port differ by more than
and RFS–FRGAS from the foreign refinery to one percent, the United States importer
(2) Meet all requirements that apply to the load port, and from this review shall include the volume of gasoline
refiners who have received a small determine: from the importer’s RFS compliance
refinery or small refiner exemption (A) The refinery at which the RFS– calculations.
under this subpart. FRGAS was produced; and (f) Foreign refiner commitments. Any
(c) Designation, foreign refiner (B) That the RFS–FRGAS remained small foreign refiner shall commit to
certification, and product transfer segregated from Non-RFS–FRGAS and and comply with the provisions
documents. (1) Any foreign refiner that other RFS–FRGAS produced at a contained in this paragraph (f) as a
has received a small refinery exemption different refinery. condition to being approved for a small
under § 80.1141 or a small refiner (2) The independent third party shall refinery or small refiner exemption
exemption under § 80.1142 must submit a report to: under this subpart.
designate each batch of RFS–FRGAS as (i) The foreign small refiner (1) Any United States Environmental
such at the time the gasoline is containing the information required Protection Agency inspector or auditor
produced. under paragraph (d)(1) of this section, to must be given full, complete and
accompany the product transfer immediate access to conduct
(2) On each occasion when RFS–
documents for the vessel; and inspections and audits of the foreign
FRGAS is loaded onto a vessel or other
(ii) The Administrator containing the refinery.
transportation mode for transport to the (i) Inspections and audits may be
information required under paragraph
United States, the foreign refiner shall either announced in advance by EPA, or
(d)(1) of this section, within thirty days
prepare a certification for each batch of unannounced.
following the date of the independent
RFS–FRGAS that meets the following (ii) Access will be provided to any
third party’s inspection. This report
requirements: location where:
shall include a description of the
(i) The certification shall include the (A) Gasoline is produced;
method used to determine the identity
report of the independent third party (B) Documents related to refinery
of the refinery at which the gasoline was
under paragraph (d) of this section, and operations are kept; and
produced, assurance that the gasoline
the following additional information: (C) RFS–FRGAS is stored or
remained segregated as specified in
(A) The name and EPA registration transported between the foreign refinery
paragraph (i)(1) of this section, and a
number of the refinery that produced and the United States, including storage
description of the gasoline’s movement
the RFS–FRGAS; tanks, vessels and pipelines.
and storage between production at the
(B) [Reserved] (iii) Inspections and audits may be by
source refinery and vessel loading.
(ii) The identification of the gasoline (3) The independent third party must: EPA employees or contractors to EPA.
as RFS–FRGAS; and, (i) Be approved in advance by EPA, (iv) Any documents requested that are
(iii) The volume of RFS–FRGAS being based on a demonstration of ability to related to matters covered by
transported, in gallons. perform the procedures required in this inspections and audits must be
(3) On each occasion when any paragraph (d); provided to an EPA inspector or auditor
person transfers custody or title to any (ii) Be independent under the criteria on request.
RFS–FRGAS prior to its being imported (v) Inspections and audits by EPA
specified in § 80.65(e)(2)(iii); and
into the United States, it must include (iii) Sign a commitment that contains may include review and copying of any
the following information as part of the the provisions specified in paragraph (f) documents related to:
product transfer document information: (A) The volume of RFS–FRGAS;
of this section with regard to activities, (B) The proper classification of
(i) Designation of the gasoline as RFS– facilities, and documents relevant to
FRGAS; and gasoline as being RFS–FRGAS or as not
compliance with the requirements of being RFS–FRGAS;
(ii) The certification required under this paragraph (d). (C) Transfers of title or custody to
paragraph (c)(2) of this section. (e) Comparison of load port and port RFS–FRGAS;
(d) Load port independent testing and of entry testing. (1)(i) Any small foreign (D) Testing of RFS–FRGAS; and
refinery identification. (1) On each refiner and any United States importer (E) Work performed and reports
occasion that RFS–FRGAS is loaded of RFS–FRGAS shall compare the prepared by independent third parties
onto a vessel for transport to the United results from the load port testing under and by independent auditors under the
States the small foreign refiner shall paragraph (d) of this section, with the requirements of this section, including
have an independent third party: port of entry testing as reported under work papers.
(i) Inspect the vessel prior to loading paragraph (j) of this section, for the (vi) Inspections and audits by EPA
and determine the volume of any tank volume of gasoline, except as specified may include interviewing employees.
bottoms; in paragraph (e)(1)(ii) of this section. (vii) Any employee of the foreign
(ii) Determine the volume of RFS– (ii) Where a vessel transporting RFS– refiner must be made available for
FRGAS loaded onto the vessel FRGAS off loads this gasoline at more interview by the EPA inspector or
(exclusive of any tank bottoms before than one United States port of entry, the auditor, on request, within a reasonable
loading); requirements of paragraph (e)(1)(i) of time period.
(iii) Obtain the EPA-assigned this section do not apply at subsequent (viii) English language translations of
registration number of the foreign ports of entry if the United States any documents must be provided to an
refinery; importer obtains a certification from the EPA inspector or auditor, on request,
(iv) Determine the name and country vessel owner that the requirements of within 10 working days.
of registration of the vessel used to paragraph (e)(1)(i) of this section were (ix) English language interpreters
transport the RFS–FRGAS to the United met and that the vessel has not loaded must be provided to accompany EPA
States; any gasoline or blendstock between the inspectors and auditors, on request.
(2) An agent for service of process (g) Sovereign immunity. By subpart, including where such conduct
located in the District of Columbia shall submitting an application for a small violates the False Statements
be named, and service on this agent refinery or small refiner exemption Accountability Act of 1996 (18 U.S.C.
constitutes service on the foreign refiner under this subpart, or by producing and 1001) and section 113(c)(2) of the Clean
or any employee of the foreign refiner exporting gasoline to the United States Air Act (42 U.S.C. 7413);
for any action by EPA or otherwise by under such exemption, the foreign (ii) Be provided by a corporate surety
the United States related to the refiner, and its agents and employees, that is listed in the United States
requirements of this subpart. without exception, become subject to Department of Treasury Circular 570
(3) The forum for any civil or criminal the full operation of the administrative ‘‘Companies Holding Certificates of
enforcement action related to the and judicial enforcement powers and Authority as Acceptable Sureties on
provisions of this section for violations provisions of the United States without Federal Bonds’’ and
of the Clean Air Act or regulations limitation based on sovereign immunity, (iii) Include a commitment that the
promulgated thereunder shall be with respect to actions instituted against bond will remain in effect for at least
governed by the Clean Air Act, the foreign refiner, its agents and five years following the end of latest
including the EPA administrative forum employees in any court or other tribunal annual reporting period that the foreign
where allowed under the Clean Air Act. in the United States for conduct that refiner produces gasoline pursuant to
(4) United States substantive and violates the requirements applicable to the requirements of this subpart.
procedural laws shall apply to any civil the foreign refiner under this subpart, (4) On any occasion a foreign refiner
or criminal enforcement action against including conduct that violates the bond is used to satisfy any judgment,
the foreign refiner or any employee of False Statements Accountability Act of the foreign refiner shall increase the
the foreign refiner related to the 1996 (18 U.S.C. 1001) and section bond to cover the amount used within
provisions of this section. 113(c)(2) of the Clean Air Act (42 U.S.C. 90 days of the date the bond is used.
(5) Submitting an application for a 7413). (5) If the bond amount for a foreign
small refinery or small refiner (h) Bond posting. Any foreign refiner refiner increases, the foreign refiner
exemption, or producing and exporting shall meet the requirements of this shall increase the bond to cover the
gasoline under such exemption, and all paragraph (h) as a condition to approval shortfall within 90 days of the date the
other actions to comply with the as benzene foreign refiner under this bond amount changes. If the bond
requirements of this subpart relating to subpart. amount decreases, the foreign refiner
such exemption constitute actions or (1) The foreign refiner shall post a may reduce the amount of the bond
activities covered by and within the bond of the amount calculated using the beginning 90 days after the date the
meaning of the provisions of 28 U.S.C. following equation: bond amount changes.
1605(a)(2), but solely with respect to Bond = G * $ 0.01 (i) English language reports. Any
actions instituted against the foreign Where: document submitted to EPA by a foreign
refiner, its agents and employees in any Bond = Amount of the bond in United States refiner shall be in English language, or
court or other tribunal in the United dollars. shall include an English language
States for conduct that violates the G = The largest volume of gasoline produced translation.
requirements applicable to the foreign at the foreign refinery and exported to (j) Prohibitions. (1) No person may
refiner under this subpart, including the United States, in gallons, during a combine RFS–FRGAS with any Non-
conduct that violates the False single calendar year among the most RFS–FRGAS, and no person may
Statements Accountability Act of 1996 recent of the following calendar years, combine RFS–FRGAS with any RFS–
up to a maximum of five calendar years:
(18 U.S.C. 1001) and section 113(c)(2) of FRGAS produced at a different refinery,
the calendar year immediately preceding
the Clean Air Act (42 U.S.C. 7413). the date the refinery’s application is until the importer has met all the
(6) The foreign refiner, or its agents or submitted, the calendar year the requirements of paragraph (k) of this
employees, will not seek to detain or to application is submitted, and each section.
impose civil or criminal remedies succeeding calendar year. (2) No foreign refiner or other person
against EPA inspectors or auditors, (2) Bonds shall be posted by: may cause another person to commit an
whether EPA employees or EPA (i) Paying the amount of the bond to action prohibited in paragraph (j)(1) of
contractors, for actions performed the Treasurer of the United States; this section, or that otherwise violates
within the scope of EPA employment (ii) Obtaining a bond in the proper the requirements of this section.
related to the provisions of this section. amount from a third party surety agent (k) United States importer
(7) The commitment required by this that is payable to satisfy United States requirements. Any United States
paragraph (f) shall be signed by the administrative or judicial judgments importer of RFS–FRGAS shall meet the
owner or president of the foreign refiner against the foreign refiner, provided following requirements:
business. EPA agrees in advance as to the third (1) Each batch of imported RFS–
(8) In any case where RFS–FRGAS party and the nature of the surety FRGAS shall be classified by the
produced at a foreign refinery is stored agreement; or importer as being RFS–FRGAS.
or transported by another company (iii) An alternative commitment that (2) Gasoline shall be classified as
between the refinery and the vessel that results in assets of an appropriate RFS–FRGAS according to the
transports the RFS–FRGAS to the liquidity and value being readily designation by the foreign refiner if this
United States, the foreign refiner shall available to the United States, provided designation is supported by product
obtain from each such other company a EPA agrees in advance as to the transfer documents prepared by the
commitment that meets the alternative commitment. foreign refiner as required in paragraph
requirements specified in paragraphs (3) Bonds posted under this paragraph (c) of this section. Additionally, the
(f)(1) through (f)(7) of this section, and (h) shall— importer shall comply with all
these commitments shall be included in (i) Be used to satisfy any judicial requirements of this subpart applicable
the foreign refiner’s application for a judgment that results from an to importers.
small refinery or small refiner administrative or judicial enforcement (3) For each gasoline batch classified
exemption under this subpart. action for conduct in violation of this as RFS–FRGAS, any United States
importer shall have an independent reconciliation, or other criteria, to Obtain tank activity records for any
third party: confirm that all RFS–FRGAS remains storage tank where the RFS–FRGAS is
(i) Determine the volume of gasoline segregated throughout the distribution stored, and pipeline activity records for
in the vessel; system. any pipeline used to transport the RFS–
(ii) Use the foreign refiner’s RFS– (3) The petition required by this FRGAS prior to being loaded onto the
FRGAS certification to determine the section must be submitted to EPA along vessel. Use these records to determine
name and EPA-assigned registration with the application for a small refinery whether the RFS–FRGAS was produced
number of the foreign refinery that or small refiner exemption under this at the refinery that is the subject of the
produced the RFS–FRGAS; subpart. attest engagement, and whether the
(iii) Determine the name and country (m) Additional attest requirements for RFS–FRGAS was mixed with any Non-
of registration of the vessel used to importers of RFS–FRGAS. Importers of RFS–FRGAS or any RFS–FRGAS
transport the RFS–FRGAS to the United RFS–FRGAS, for each annual produced at a different refinery.
States; and compliance period, must arrange to (4) Select a sample from the list of
(iv) Determine the date and time the have an attest engagement performed of vessels identified in paragraph (m)(2) of
vessel arrives at the United States port the underlying documentation that this section used to transport RFS–
of entry. forms the basis of any report or FRGAS, in accordance with the
(4) Any importer shall submit reports document required under this subpart. guidelines in § 80.127, and for each
within 30 days following the date any The attest engagement must comply vessel selected perform the following:
vessel transporting RFS–FRGAS arrives with the procedures and requirements (i) Obtain a commercial document of
at the United States port of entry to: that apply to importers under §§ 80.125 general circulation that lists vessel
(i) The Administrator containing the through 80.130, and other applicable arrivals and departures, and that
information determined under attest engagement provisions, and must includes the port and date of departure
paragraph (k)(3) of this section; and be submitted to the Administrator of of the vessel, and the port of entry and
(ii) The foreign refiner containing the EPA by August 31 of each year for the date of arrival of the vessel.
information determined under prior annual compliance period. The (ii) Agree the vessel’s departure and
paragraph (k)(3)(i) of this section, and following additional procedures shall be arrival locations and dates from the
including identification of the port at carried out for any importer of RFS– independent third party and United
which the product was off loaded. FRGAS. States importer reports to the
(5) Any United States importer shall (1) Obtain listings of all tenders of information contained in the
meet all other requirements of this RFS–FRGAS. Agree the total volume of commercial document.
subpart for any imported gasoline that is tenders from the listings to the gasoline (5) Obtain separate listings of all
not classified as RFS–FRGAS under inventory reconciliation analysis in tenders of RFS–FRGAS, and perform the
paragraph (k)(2) of this section. § 80.128(b), and to the volumes following:
(l) Truck imports of RFS–FRGAS determined by the third party under (i) Agree the volume of tenders from
produced at a foreign refinery. (1) Any paragraph (d) of this section. the listings to the gasoline inventory
refiner whose RFS–FRGAS is (2) For each tender under paragraph
reconciliation analysis in § 80.128(b).
transported into the United States by (m)(1) of this section, where the gasoline
truck may petition EPA to use (ii) Obtain a separate listing of the
is loaded onto a marine vessel, report as
alternative procedures to meet the tenders under this paragraph (m)(5)
a finding the name and country of
following requirements: where the gasoline is loaded onto a
registration of each vessel, and the
(i) Certification under paragraph (c)(2) marine vessel. Select a sample from this
volumes of RFS–FRGAS loaded onto
of this section; listing in accordance with the
each vessel.
(ii) Load port and port of entry testing (3) Select a sample from the list of guidelines in § 80.127, and obtain a
under paragraphs (d) and (e) of this vessels identified in paragraph (m)(2) of commercial document of general
section; and this section used to transport RFS– circulation that lists vessel arrivals and
(iii) Importer testing under paragraph FRGAS, in accordance with the departures, and that includes the port
(k)(3) of this section. guidelines in § 80.127, and for each and date of departure and the ports and
(2) These alternative procedures must vessel selected perform the following: dates where the gasoline was off loaded
ensure RFS–FRGAS remains segregated (i) Obtain the report of the for the selected vessels. Determine and
from Non-RFS–FRGAS until it is independent third party, under report as a finding the country where
imported into the United States. The paragraph (d) of this section, and of the the gasoline was off loaded for each
petition will be evaluated based on United States importer under paragraph vessel selected.
whether it adequately addresses the (k) of this section. (6) In order to complete the
following: (A) Agree the information in these requirements of this paragraph (m) an
(i) Provisions for monitoring pipeline reports with regard to vessel auditor shall:
shipments, if applicable, from the identification and gasoline volume. (i) Be independent of the foreign
refinery, that ensure segregation of RFS– (B) Identify, and report as a finding, refiner or importer;
FRGAS from that refinery from all other each occasion the load port and port of (ii) Be licensed as a Certified Public
gasoline. entry volume results differ by more than Accountant in the United States and a
(ii) Contracts with any terminals and/ the amount allowed in paragraph (e) of citizen of the United States, or be
or pipelines that receive and/or this section, and determine whether the approved in advance by EPA based on
transport RFS–FRGAS that prohibit the foreign refiner adjusted its refinery a demonstration of ability to perform the
commingling of RFS–FRGAS with Non- calculations as required in paragraph (e) procedures required in §§ 80.125
RFS–FRGAS or RFS–FRGAS from other of this section. through 80.130 and this paragraph (m);
foreign refineries. (ii) Obtain the documents used by the and
(iii) Attest procedures to be conducted independent third party to determine (iii) Sign a commitment that contains
annually by an independent third party transportation and storage of the RFS– the provisions specified in paragraph (f)
that review loading records and import FRGAS from the refinery to the load of this section with regard to activities
documents based on volume port, under paragraph (d) of this section. and documents relevant to compliance
with the requirements of §§ 80.125 procedures under paragraph (l) of this information is material for determining
through 80.130 and this paragraph (m). section, any report, certification, or compliance under these regulations; and
(n) Withdrawal or suspension of other submission required under this (3) that I have read and understand the
foreign refiner status. EPA may section shall be— information being Certified or
withdraw or suspend a foreign refiner’s (1) Submitted in accordance with submitted, and this information is true,
small refinery or small refiner procedures specified by the complete and correct to the best of my
exemption where— Administrator, including use of any knowledge and belief after I have taken
(1) A foreign refiner fails to meet any forms that may be specified by the reasonable and appropriate steps to
requirement of this section; Administrator.
(2) A foreign government fails to verify the accuracy thereof. I affirm that
allow EPA inspections as provided in (2) Be signed by the president or I have read and understand the
paragraph (f)(1) of this section; owner of the foreign refiner company, or provisions of 40 CFR part 80, subpart K,
(3) A foreign refiner asserts a claim of, by that person’s immediate designee, including 40 CFR 80.1165 apply to
or a right to claim, sovereign immunity and shall contain the following [NAME OF FOREIGN REFINER].
in an action to enforce the requirements declaration: ‘‘I hereby certify: (1) That I Pursuant to Clean Air Act section 113(c)
in this subpart; or have actual authority to sign on behalf and 18 U.S.C. 1001, the penalty for
(4) A foreign refiner fails to pay a civil of and to bind [NAME OF FOREIGN furnishing false, incomplete or
or criminal penalty that is not satisfied REFINER] with regard to all statements misleading information in this
using the foreign refiner bond specified contained herein; (2) that I am aware certification or submission is a fine of
in paragraph (g) of this section. that the information contained herein is up to $10,000 U.S., and/or
(o) Additional requirements for being Certified, or submitted to the imprisonment for up to five years.’’
applications, reports and certificates. United States Environmental Protection
Any application for a small refinery or Agency, under the requirements of 40 [FR Doc. 06–7887 Filed 9–21–06; 8:45 am]
small refiner exemption, alternative CFR part 80, subpart K, and that the BILLING CODE 6560–50–P

Proposed Rule: Air Programs: Fuel and Fuel Additives&#8212 Renewable Fuel Standard Program

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Proposed Rule: Air Programs: Fuel and Fuel Additives&#8212 Renewable Fuel Standard Program

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Friday,

September 22, 2006

Industry ................................................. 324110 2911 Petroleum Refineries.

number and other identifying

Another successful clean fuel strategy

in Table I.B–1 apply to the contiguous calendar year 2006.

no increase while other areas may see

TABLE II.A.1.–1—RENEWABLE FUEL VOLUME SCENARIOS

Corn-ethanol ............................................................................................................ 3.5 3.9 6.95 9.35

Total volume ..................................................................................................... 3.025 3.928 7.5 9.9

we estimated that VOC and NOX biodiesel to be about 100 tons

coupled, high density catalysts and their associated

renewable fuel that is required to come of the RFS requirements.

TABLE III.A.2–1.—PROJECTED STANDARDS

2007 ................................................................... 3.71% ............................................................... Not applicable.

11 ‘‘Calculation of the Renewable Fuel Standard,’’

memo to the docket from Christine Brunner, ASD,

Where biodiesel, as defined in the Energy or renewable diesel. Methane, made

13 As discussed below, for purposes of this renewable fuel evidences an intention to

‘‘fossil fuel normally used in the 15 In Section IX of today’s preamble we discuss

proposing that Equivalence Values be greenhouse gas emissions. Each metric

the RFS program. would be treated as any other blendstock with

the Volume of Renewable Fuel Required

Hawaii. The territories are the Commonwealth of

Our proposed RIN-based program The D code would identify cellulosic

TABLE III.D.3.c–1.—Example of RIN Rollover Issue

Available RINs Compliance Determination

2007 ................................................................................. 4.7 5.2 0.5 0.0 4.7 0.5

TABLE III.D.3.C–2.—REQUIRED AND PROJECTED RENEWABLE FUEL VOLUMES

2008 ................................................................................................................................. 5.4 6.0 0.6 ....................

three biodiesel fuels at temperatures up to 300 °C’’,

TABLE III.E.1.B.I–1.—TWO BATCH SPLITTING PROTOCOLS

TABLE III.E.1.B.I–2.—EXAMPLE OF PROPORTIONAL BATCH SPLITTING

Batch-RIN SSSSSS code ................................................................................................................................................. 000001 000001

Batch-RIN SSSSSS code ................................................................................................................................................. 000001 000001

RIN volume block start (SSSSSS) ................................................................................................................................... 000481 001501

TABLE III.E.1.B.I–3—EXAMPLE OF BATCH SPLITTING WITH ONE-TO-ONE ALIGNMENT

Batch-RIN SSSSSS code ................................................................................................................................................. 000001 000001

Batch-RIN SSSSSS code ................................................................................................................................................. 000001 000001

Batch-RIN SSSSSS code ................................................................................................................................................. 000601 000601

arrange transfers. Our experience with Under this approach non-obligated

TABLE VI.A.1–1.—2006 U.S. ETHANOL PRODUCTION BY FEEDSTOCK

Corn a ............................................................................................................................... 4,516 92.7 85 83.3

Total .......................................................................................................................... 4,872 100.0 102 100.0

Natural Gas a ................................................................................................................... 4,671 95.9 98 96.1

Total .......................................................................................................................... 4,872 100.0 102 100.0

TABLE VI.A.1–3.—2006 U.S. ETHANOL PRODUCTION BY PADD

PADD 1 ............................................................................................................................ 0.4 0.0 1 1.0

Total .......................................................................................................................... 4,872 100.0 102 100.0

TABLE VI.A.2–1.—UNDER CONSTRUCTION U.S. ETHANOL PLANT CAPACITY

PADD 1 ............................................................ 0.4 1 0 0 0 0 0.4 1

TABLE VI.A.2–1.—UNDER CONSTRUCTION U.S. ETHANOL PLANT CAPACITY—Continued

Total .......................................................... 4,872 102 2,218 39 259 9 7,349 141

TABLE VI.A.2–2.—POTENTIAL U.S. ETHANOL PRODUCTION PROJECTS

MMGal/yr Plants MMGal/yr Plants MMGal/yr Plants MMGal/yr Plants

PADD 1 .......................................................... 0.4 1 250 3 1,005 21 1,255 25

Total ........................................................ 7,349 141 2,426 21 10,603 152 20,378 314

TABLE VI.A.3–1.—2004 U.S. GASOLINE & OXYGENATE CONSUMPTION BY PADD

PADD 1 .................................................................................................... 49,193 660 1.34 1,360 2.76

Total .................................................................................................. 135,893 3,500 2.58 1,878 1.38

industry. gallons/yr). 2.1.3.

TABLE VI.A.4–1.—2012 RFG AREA ASSUMPTIONS

RFG areas Max-RFG scenario