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Rule2023-13462

Renewable Fuel Standard (RFS) Program: Standards for 2023-2025 and Other Changes

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Published

July 12, 2023

Effective

September 11, 2023

Issuing agencies

Environmental Protection Agency

Abstract

Under the Clean Air Act, the Environmental Protection Agency (EPA) is required to determine the applicable volume requirements for the Renewable Fuel Standard (RFS) for years after those specified in the statute. This action establishes the applicable volumes and percentage standards for 2023 through 2025 for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel. This action also establishes the second supplemental standard addressing the judicial remand of the 2016 standard-setting rulemaking. Finally, this action makes several regulatory changes to the RFS program, including changes related to the treatment of biogas and other modifications to improve the program's implementation. At this time EPA is not finalizing proposed provisions related to the generation of RINs from qualifying renewable electricity.

Full Text

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<title>Federal Register, Volume 88 Issue 132 (Wednesday, July 12, 2023)</title>
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[Federal Register Volume 88, Number 132 (Wednesday, July 12, 2023)]
[Rules and Regulations]
[Pages 44468-44593]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-13462]

[[Page 44467]]

Vol. 88

Wednesday,

No. 132

July 12, 2023

Part II

Environmental Protection Agency

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40 CFR Parts 80 and 1090

Renewable Fuel Standard (RFS) Program: Standards for 2023-2025 and
Other Changes; Final Rule

Federal Register / Vol. 88, No. 132 / Wednesday, July 12, 2023 /
Rules and Regulations

[[Page 44468]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 80 and 1090

[EPA-HQ-OAR-2021-0427; FRL-8514-02-OAR]
RIN 2060-AV14

Renewable Fuel Standard (RFS) Program: Standards for 2023-2025
and Other Changes

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under the Clean Air Act, the Environmental Protection Agency
(EPA) is required to determine the applicable volume requirements for
the Renewable Fuel Standard (RFS) for years after those specified in
the statute. This action establishes the applicable volumes and
percentage standards for 2023 through 2025 for cellulosic biofuel,
biomass-based diesel, advanced biofuel, and total renewable fuel. This
action also establishes the second supplemental standard addressing the
judicial remand of the 2016 standard-setting rulemaking. Finally, this
action makes several regulatory changes to the RFS program, including
changes related to the treatment of biogas and other modifications to
improve the program's implementation. At this time EPA is not
finalizing proposed provisions related to the generation of RINs from
qualifying renewable electricity.

DATES: This rule is effective on September 11, 2023, except for
amendatory instruction 30, which is effective on February 1, 2024, and
amendatory instructions 41 and 42, which are effective on April 1,
2024. The incorporation by reference of certain publications listed in
this regulation is approved by the Director of the Federal Register as
of July 12, 2023. The incorporation by reference of ASTM D1250, ASTM
D4442, ASTM D4444, ASTM D6866, and ASTM E870 was approved by the
Director of the Federal Register as of July 1, 2022. The incorporation
by reference of ASTM D4057, ASTM D4177, ASTM D5842, and ASTM D5854 was
approved by the Director of the Federal Register as of April 28, 2014.
The incorporation by reference of ASTM E711 was approved by the
Director of the Federal Register as of July 1, 2010.

ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-HQ-OAR-2021-0427. All documents in the docket are listed on the
<a href="https://www.regulations.gov">https://www.regulations.gov</a> website. Although listed in the index, some
information is not publicly available, e.g., confidential business
information (CBI) or other information whose disclosure is restricted
by statute. Certain other material is not available on the internet and
will be publicly available only in hard copy form. Publicly available
docket materials are available electronically through <a href="https://www.regulations.gov">https://www.regulations.gov</a>.

FOR FURTHER INFORMATION CONTACT: Dallas Burkholder, Office of
Transportation and Air Quality, Assessment and Standards Division,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI
48105; telephone number: 734-214-4766; email address: <a href="/cdn-cgi/l/email-protection#7f2d392c522d0a131a121e141611180c3f1a0f1e51181009">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION: Entities potentially affected by this final
rule are those involved with the production, distribution, and sale of
transportation fuels (e.g., gasoline and diesel fuel), renewable fuels
(e.g., ethanol, biodiesel, renewable diesel, and biogas). Potentially
affected categories include:

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NAICS \a\
Category codes Examples of potentially affected entities
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Industry...................................... 112111 Cattle farming or ranching.
Industry...................................... 112210 Swine, hog, and pig farming.
Industry...................................... 221210 Manufactured gas production and distribution,
and distribution of renewable natural gas
(RNG).
Industry...................................... 324110 Petroleum refineries.
Industry...................................... 325120 Biogases, industrial (i.e., compressed,
liquefied, solid), manufacturing.
Industry...................................... 325193 Ethyl alcohol manufacturing.
Industry...................................... 325199 Other basic organic chemical manufacturing.
Industry...................................... 424690 Chemical and allied products merchant
wholesalers.
Industry...................................... 424710 Petroleum bulk stations and terminals.
Industry...................................... 424720 Petroleum and petroleum products merchant
wholesalers.
Industry...................................... 454319 Other fuel dealers.
Industry...................................... 562212 Landfills.
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\a\ North American Industry Classification System (NAICS).

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

Table of Contents

I. Executive Summary
A. Summary of the Key Provisions of This Regulatory Action
B. Environmental Justice
C. Impacts of This Rule
D. Policy Considerations
E. Endangered Species Act
II. Statutory Requirements and Conditions
A. Requirement To Set Volumes for Years After 2022
B. Factors That Must Be Analyzed
C. Statutory Conditions on Volume Requirements
D. Authority To Establish Volumes and Percentage Standards for
Multiple Future Years
E. Considerations for Late Rulemaking
F. Impact on Other Waiver Authorities
G. Severability
III. Candidate Volumes and Baselines
A. Scope of Analysis
B. Production and Import of Renewable Fuel
C. Candidate Volumes for 2023-2025
D. Baselines
E. Volume Changes Analyzed
IV. Analysis of Candidate Volumes
A. Climate Change
B. Energy Security
C. Costs
D. Comparison of Impacts
E. Assessment of Environmental Justice
V. Response To Remand of 2016 Rulemaking
A. Supplemental 2023 Standard
B. Authority and Consideration of the Benefits and Burdens
VI. Volume Requirements for 2023-2025
A. Cellulosic Biofuel
B. Non-Cellulosic Advanced Biofuel
C. Biomass-Based Diesel
D. Conventional Renewable Fuel
E. Summary of Final Volume Requirements

[[Page 44469]]

VII. Percentage Standards for 2023-2025
A. Calculation of Percentage Standards
B. Treatment of Small Refinery Volumes
C. Percentage Standards
VIII. Administrative Actions
A. Assessment of the Domestic Aggregate Compliance Approach
B. Assessment of the Canadian Aggregate Compliance Approach
IX. Biogas Regulatory Reform
A. Background
B. Biogas Under a Closed Distribution System
C. RNG Producer as the RIN Generator
D. Assignment, Separation, Retirement, and Expiration of RNG
RINs
E. Structure of the Regulations
F. Implementation Date
G. Definitions
H. Registration, Reporting, Product Transfer Documents, and
Recordkeeping
I. Testing and Measurement Requirements
J. RFS QAP Under Biogas Regulatory Reform
K. Compliance and Enforcement Provisions and Attest Engagements
L. RNG Used as a Feedstock
M. RNG Imports and Exports
N. Biogas/RNG Storage Prior to Registration
O. Single Use for Biogas Production Facilities
P. Requirements for Parties That Own and Transact RNG RINs
X. Other Changes to Regulations
A. RFS Third-Party Oversight Enhancement
B. Deadline for Third-Party Engineering Reviews for Three-Year
Updates
C. RIN Apportionment in Anaerobic Digesters
D. BBD Conversion Factor for Percentage Standard
E. Flexibility for RIN Generation
F. Changes to Tables in 40 CFR 80.1426
G. Prohibition on RIN Generation for Fuels Not Used in the
Covered Location
H. Separated Food Waste Recordkeeping Requirements
I. Definition of Ocean-Going Vessels
J. Bond Requirement for Foreign RIN-Generating Renewable Fuel
Producers and Foreign RIN Owners
K. Definition of Produced from Renewable Biomass
L. Technical Amendments
XI. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Paperwork Reduction Act (PRA)
C. Regulatory Flexibility Act (RFA)
D. Unfunded Mandates Reform Act (UMRA)
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
I. National Technology Transfer and Advancement Act (NTTAA) and
1 CFR Part 51
J. Executive Orders 12898 (Federal Actions To Address
Environmental Justice in Minority Populations, and Low-Income
Populations) and 14096 (Revitalizing Our Nation's Commitment to
Environmental Justice for All)
K. Congressional Review Act (CRA)
XII. Statutory Authority

A red-line version of the regulatory language that incorporates the
changes in this action is available in the docket for this action.

I. Executive Summary

The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements of the Energy Policy Act of 2005 (EPAct), which were
codified in Clean Air Act (CAA) section 211(o). The statutory
requirements were subsequently amended by the Energy Independence and
Security Act of 2007 (EISA). The statute sets forth annual, nationally
applicable volume targets for each of the four categories of renewable
fuel for the years shown below.

Table I-1--Years for Which the Statute Provides Volume Targets
------------------------------------------------------------------------
Category Years
------------------------------------------------------------------------
Cellulosic biofuel.......................................... 2010-2022
Biomass-based diesel........................................ 2009-2012
Advanced biofuel............................................ 2009-2022
Renewable fuel.............................................. 2006-2022
------------------------------------------------------------------------

For calendar years after those for which the statute provides
volume targets, the statute directs EPA to determine the applicable
volume targets in coordination with the Secretary of Energy and the
Secretary of Agriculture, based on a review of the implementation of
the program for prior years and an analysis of specified factors:
<bullet> The impact of the production and use of renewable fuels on
the environment, including on air quality, climate change, conversion
of wetlands, ecosystems, wildlife habitat, water quality, and water
supply; \1\
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\1\ CAA section 211(o)(2)(B)(ii)(I).
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<bullet> The impact of renewable fuels on the energy security of
the U.S.; \2\
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\2\ CAA section 211(o)(2)(B)(ii)(II).
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<bullet> The expected annual rate of future commercial production
of renewable fuels, including advanced biofuels in each category
(cellulosic biofuel and biomass-based diesel); \3\
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\3\ CAA section 211(o)(2)(B)(ii)(III).
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<bullet> The impact of renewable fuels on the infrastructure of the
U.S., including deliverability of materials, goods, and products other
than renewable fuel, and the sufficiency of infrastructure to deliver
and use renewable fuel; \4\
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\4\ CAA section 211(o)(2)(B)(ii)(IV).
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<bullet> The impact of the use of renewable fuels on the cost to
consumers of transportation fuel and on the cost to transport goods;
\5\ and
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\5\ CAA section 211(o)(2)(B)(ii)(V).
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<bullet> The impact of the use of renewable fuels on other factors,
including job creation, the price and supply of agricultural
commodities, rural economic development, and food prices.\6\
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\6\ CAA section 211(o)(2)(B)(ii)(VI).
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While this statutory requirement does not apply to cellulosic
biofuel, advanced biofuel, and total renewable fuel until compliance
year 2023, it applied to biomass-based diesel (BBD) beginning in
compliance year 2013. Thus, EPA established applicable volume
requirements for BBD volumes for 2013-2022 in prior rulemakings.\7\
This action establishes the volume targets and applicable percentage
standards for cellulosic biofuel, BBD, advanced biofuel, and total
renewable fuel for 2023-2025. We are also promulgating a number of
regulatory changes intended to improve the operation of the RFS
program. This action describes our rationale for the final volume
targets and regulatory changes. Responses to comments received from
stakeholders on the proposed rule can be found in the associated
Response to Comments (RTC) document.
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\7\ See, e.g., 87 FR 39600 (July 1, 2022), establishing the 2022
BBD volume requirement.
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Low-carbon fuels are an important part of reducing greenhouse gas
(GHG) emissions in the transportation sector, and the RFS program is a
key federal policy that supports the development, production, and use
of low-carbon, domestically produced renewable fuels. This ``Set rule''
marks a new phase for the program, one which takes place following the
period for which the Clean Air Act enumerates specific volume targets.
We recognize the important role that the RFS program can play in
providing ongoing support for increasing production and use of
renewable fuels, particularly advanced and cellulosic biofuels. For a
number of years, RFS stakeholders have provided input on what policy
direction this action should take, and the Agency greatly appreciates
the sustained and constructive input we have received from
stakeholders. We appreciate the many comments we received, not only on
the volumes that we proposed on December 30, 2022, but also on the

[[Page 44470]]

analyses we conducted and the proposed regulatory changes. EPA looks
forward to continued engagement with stakeholders on the RFS program.

A. Summary of the Key Provisions of This Regulatory Action

1. Volume Requirements for 2023-2025
Based on our analysis of the factors required in the statute, and
in coordination with the Departments of Agriculture and Energy, we are
establishing the volume targets for three years, 2023 to 2025, as shown
below. We proposed setting standards for three years to strike an
appropriate balance between improving the program by providing
increased certainty over a multiple number of years and recognizing the
inherent uncertainty in longer-term projections. After reviewing
stakeholder comments and considering the statutory deadlines for
establishing RFS volume obligations we have determined that this three-
year timeframe remains appropriate. In addition to the volume targets
for 2023-2025, we are also completing our response to the D.C. Circuit
Court of Appeals' remand of the 2016 RFS annual rule in Americans for
Clean Energy v. EPA, 864 F.3d 691 (2017) (``ACE'') by establishing a
supplemental volume requirement of 250 million gallons of renewable
fuel for 2023. This ``supplemental standard'' follows the
implementation of a 250-million-gallon supplement for 2022 in a
previous action.\8\
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\8\ See 87 FR 39600, 39628-29 (July 1, 2022) (discussing
approaches for responding to the ACE remand).

Table I.A.1-1--Final Volume Targets
[Billion RINs] \a\
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2023 2024 2025
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Cellulosic biofuel.............................................. 0.84 1.09 1.38
Biomass-based diesel \b\........................................ 2.82 3.04 3.35
Advanced biofuel................................................ 5.94 6.54 7.33
Renewable fuel.................................................. 20.94 21.54 22.33
Supplemental standard........................................... 0.25 n/a n/a
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\a\ One RIN is equivalent to one ethanol-equivalent gallon of renewable fuel. Throughout this preamble, RINs are
generally used to describe total volumes in each of the four categories shown above, while gallons are
generally used to describe volumes for individual types of biofuel such as ethanol, biodiesel, renewable
diesel, etc. Exceptions include BBD (which is always given in physical volumes) and biogas (which are always
given in RINs).
\b\ The BBD volumes are in physical gallons (rather than RINs).

As discussed above, the statute requires that we analyze a
specified set of factors in making our determination of the appropriate
volume requirements. Many of those factors, particularly those related
to economic and environmental impacts, are difficult to analyze in the
abstract. As a result, we needed to identify a set of renewable fuel
volumes to analyze prior to determining the volume requirements that
would be appropriate to establish under the statute. To this end, we
began by using a subset of the statutory factors that are most closely
related to production and consumption of renewable fuel, and other
relevant factors, to identify ``candidate volumes.'' We then analyzed
the impacts of the candidate volumes on the other economic and
environmental factors that the statute lists. The derivation of these
candidate volumes is discussed in Section III. Section IV discusses the
analysis of those candidate volumes for the other economic and
environmental factors. Finally, Section VI discusses our conclusions
regarding the appropriate volume requirements to establish in light of
all of the analyses that we conducted and all of the comments we
received from stakeholders at the public hearing on January 10 and 11,
2023, written comments, letters, and other meetings and input provided
to us.
The cellulosic biofuel volumes we are finalizing in this rule for
2024 and 2025 are lower than the proposed volumes as they do not
include cellulosic biofuel from eRINs (all eRIN volumes projected in
the proposal have been zeroed out in this final rule). The decreases in
the cellulosic biofuel volumes for 2024 and 2025 are partially offset
by increases in the projected volumes of non-eRIN cellulosic biofuel
(i.e., CNG/LNG derived from biogas and ethanol from corn kernel fiber)
for all three years. The advanced and total biofuel volumes reflect
both these changes in cellulosic biofuel, and our new, higher
projections of the availability of BBD relative to the proposed rule.
The final volumes also reflect our decision to maintain a 15.0 billion
gallon implied conventional biofuel requirement for all three years
(plus an additional 250 million gallon supplemental volume requirement
for 2023 to complete EPA's response to the ACE remand), consistent with
the statutory level from 2015 through 2022, rather than increasing this
volume to 15.25 billion gallons in 2024 and 2025 as we originally
proposed.
The volume targets that we are establishing in this action have
similar status as those in the statute for the years shown in Table I-
1. Specifically, they are the basis for the calculation of percentage
standards applicable to producers and importers of gasoline and diesel
unless they are waived in a future action using one or more of the
available waiver authorities in CAA section 211(o)(7).
2. Applicable Percentage Standards for 2023-2025
For years after 2022,\9\ the CAA gives EPA authority to establish
percentage standards for several years simultaneously and at the same
time that it establishes the volume targets for those years. Consistent
with the proposed rule, we are finalizing the percentage standards for
2023, 2024, and 2025. The percentage standards corresponding to the
volume requirements from Table I.A.1-1 are shown below.
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\9\ Although the statute requires EPA to establish applicable
percentage standards annually by November 30 of the previous year,
as discussed in Section II, this requirement does not apply to years
after 2022. CAA section 211(o)(3).

[[Page 44471]]

Table I.A.2-1--Percentage Standards
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2023 (%) 2024 (%) 2025 (%)
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Cellulosic biofuel.............................................. 0.48 0.63 0.81
Biomass-based diesel............................................ 2.58 2.82 3.15
Advanced biofuel................................................ 3.39 3.79 4.31
Renewable fuel.................................................. 11.96 12.50 13.13
Supplemental standard........................................... 0.14 n/a n/a
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The formulas used to calculate the percentage standards in 40 CFR
80.1405(c) require that EPA specify the projected volume of exempt
gasoline and diesel associated with exemptions for small refineries
granted because of disproportionate economic hardship resulting from
compliance with their obligations under the program under CAA section
211(o)(9). For this rulemaking, we have projected that there are not
likely to be small refinery exemptions (SREs) for 2023-2025 based on
the information available at the present time. This issue is discussed
further in Section VII along with the total nationwide projected
gasoline and diesel consumption volumes used in the calculation of the
percentage standards.
As in previous annual standard-setting rulemakings, the applicable
percentage standards for 2023-2025 are added to the regulations at 40
CFR 80.1405(a).
3. Carryover RINs and Gasoline and Diesel Projections
EPA assesses the availability of carryover RINs in determining the
volumes under our set authority. Carryover RINs provide important
benefits to the RFS program, including compliance flexibility to
individual obligated parties, liquidity to the RIN market, and
mitigation against market impacts that could occur if RIN generation in
any year exceeds or falls short of the required volume of renewable
fuel.
In establishing RFS volume requirements for 2020 and 2021 that were
equal to the number of RINs generated in those years, EPA intended that
compliance with the renewable volume obligations would not impact the
total number of available carryover RINs. Since that time, obligated
parties have submitted compliance reports for the 2020 and 2021
compliance years. These reports revealed that there exist significant
differences between the volume of obligated fuel reported by obligated
parties, on the one hand, and the volumes of gasoline and diesel from
EIA that EPA used to calculate the percentage standards for 2020 and
2021 on the other. Higher-than-expected volumes of obligated fuel in
2020 and 2021 meant that the number of RINs that must be retired for
these compliance years was higher than EPA anticipated. As discussed in
greater detail in Section III.C.4 and RIA Chapter 1.10, compliance with
these obligations has required the use of significant quantities of
carryover RINs, resulting in effectively no available carryover RINs
for several renewable fuel categories going into the 2022 compliance
year. In an effort to better project the volume of obligated fuel in
future years, we are adjusting how we project the obligated volume of
gasoline and diesel in 2023-2025. These changes are discussed further
in Section VII.A and RIA Chapter 1.11.
4. Regulatory Provisions for eRINs
The 2023-2025 proposed rule included a comprehensive program
governing the generation of RINs from renewable electricity produced
from biogas that is used in electric vehicles. The proposed ``eRIN''
regulations laid out a comprehensive approach to eRIN generation and
program implementation, and included details on multiple design
elements, including the entities that would be eligible to generate
eRINs, approaches to ensure the prevention of double-counting of such
RINs, and data requirements for valid eRIN generation. In addition to
the proposed eRIN program, the December 2022 proposal also described
several alternative approaches to how such a program could be
established and implemented.
In response to the proposal, we received a wide variety of comments
on all aspects of the proposed eRIN program. Stakeholder positions on
the proposed eRIN provisions varied greatly, with some stakeholders
strongly supportive of EPA finalizing the proposed provisions, some who
sought significant modifications to the program while remaining broadly
supportive of eRINs conceptually, and others who opposed, for a variety
of reasons, EPA moving forward to finalize a new eRIN framework. In
light of the significant number of comments provided by stakeholders on
EPA's proposed eRIN approach, and the complexity of many of the topics
raised in those comments, and the consent decree deadline on other
portions of the rule, we are not finalizing the proposed revisions to
the eRIN program at this time. We have adjusted the final volume
requirements for this rulemaking to reflect this decision.
The large number of comments EPA received on our proposed eRIN
language, representing a range of perspectives, is a clear signal that
stakeholders care a great deal about a potential eRIN program. As
discussed in the proposed rule, EPA's policy goal in developing an eRIN
program would be to support one of the objectives of the RFS program,
which is to increase the use of renewable transportation fuels, in
particular cellulosic biofuels, over time, consistent with the
statute's focus on growth in this category. Moreover, an eRIN program
would support Congress' goals of reducing GHGs and increasing energy
security,\10\ both of which can be affected by the design of that
program. We anticipate that an eRIN program may also have the ancillary
effect of incentivizing increased electrification of the vehicle fleet.
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\10\ Congress stated that the purposes of EISA, in which the
RFS2 program was enacted, included ``[t]o move the United States
toward greater energy independence and security, to increase the
production of clean renewable fuels, to protect consumers, to
increase the efficiency of products, building, and vehicles, to
promote research on and deploy greenhouse gas capture and storage
options, and to improve the energy performance of the Federal
Government, and for other purposes.'' Public Law 110-140 (2007). See
also, CAA 211(o)(1) (definitions of qualifying biofuel include
requirement that they reduce greenhouse gas emissions by specified
amounts relative to a petroleum baseline).
---------------------------------------------------------------------------

Given strong stakeholder interest in the proposed eRIN program and
the range of potential benefits that the program could provide, EPA
will continue to work on potential paths forward for the eRIN program.
To that end, EPA will continue to assess the comments received on the
proposal. EPA will also seek additional input from stakeholders to
inform potential next steps.

[[Page 44472]]

5. Other Regulatory Changes
We also proposed regulatory changes in several areas to strengthen
EPA's implementation of the RFS program. Stakeholders provided valuable
comment on these proposed modifications, and EPA is finalizing many of
the proposed changes with modifications based on that stakeholder
input. The regulatory changes we are finalizing in this rulemaking
include:
<bullet> Modification of the regulatory provisions for biogas-
derived renewable fuels to ensure that biogas is produced from
renewable biomass and used as a transportation fuel and to allow for
the use of biogas as a biointermediate.
<bullet> Enhancements to the third-party oversight provisions
including engineering reviews, the RFS quality assurance program, and
annual attest engagements.
<bullet> Establishing a deadline for third-party engineering
reviews for three-year registration updates.
<bullet> Updating procedures for the apportionment of RINs when
feedstocks qualifying for multiple D-codes (e.g., D3 and D5) are
converted to biogas simultaneously in an anaerobic digester.
<bullet> Revising the conversion factor in the formula for
calculating the percentage standard for BBD to reflect increasing
production volumes of renewable diesel.
<bullet> Flexibility for RIN generation.
<bullet> Reiterating the prohibition on generating RINs for fuels
not used in the covered location.
<bullet> Flexibilities for the generation and maintenance of
records for waste feedstocks.
<bullet> Clarifying the definition of fuel used in ocean-going
vessels.
<bullet> Modifications to the bonding requirements for foreign
parties that participate in the RFS program.
<bullet> Other minor changes and technical corrections.
Each of these regulatory changes is discussed in greater detail in
Section X.
We proposed but are not finalizing at this time the following
regulatory changes:
<bullet> A definition of produced from renewable biomass (discussed
more in Section X.K).
<bullet> The proposed changes to the requirements for the
separation of RINs.\11\
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\11\ See 87 FR 80707 (December 30, 2022).
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We need more time to consider the public comments received on these
proposed changes.

B. Environmental Justice

In considering environmental justice in this action, we have sought
to identify and address, as appropriate, disproportionately high and
adverse human health or environmental effects of their programs,
policies, and activities on communities with environmental justice
concerns in the United States.
This rule is projected to reduce GHG emissions, which would benefit
communities with environmental justice concerns who are
disproportionately impacted by climate change due to a greater reliance
on climate sensitive resources such as localized food and water
supplies which may be adversely impacted by climate change, as well as
having less access to information resources that would enable them to
adjust to such impacts.12 13 The manner in which the market
responds to the provisions in this rule could also have non-GHG
impacts. For instance, replacing petroleum fuels with renewable fuels
will also have potential impacts on water and air exposure for
communities living near biofuel and petroleum facilities given the
potential for biofuel facilities to have increased emissions of certain
criteria pollutants in local communities, resulting in a potential
corresponding decrease in exposure for local communities surrounding
petroleum facilities with less petroleum production. Replacing
petroleum fuels with renewable fuels is also projected to increase food
and fuel prices, the effects of which will be disproportionately borne
by the lowest income individuals. We received extensive comment,
primarily on the proposed eRIN provisions, from community-based and
environmental justice stakeholders expressing concern over the use of
biogas, particularly from landfills and concentrated animal feeding
operations, in the RFS. While EPA is not finalizing eRIN provisions as
part of this rule, we will continue to engage with stakeholders on
impacts of the RFS program related to biogas use and expansion. Our
assessment of potential economic impacts on communities with
environmental justice concerns is provided in Section IV.E.3.
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\12\ USGCRP, 2018: Impacts, Risks, and Adaptation in the United
States: Fourth National Climate Assessment, Volume II [Reidmiller,
D.R., C.W. Avery, D.R. Easterling, K.E. Kunkel, K.L.M. Lewis, T.K.
Maycock, and B.C. Stewart (eds.)]. U.S. Global Change Research
Program, Washington, DC, USA, 1515 pp. doi: 10.7930/NCA4.2018.
\13\ USGCRP, 2016: The Impacts of Climate Change on Human Health
in the United States: A Scientific Assessment. Crimmins, A., J.
Balbus, J.L. Gamble, C.B. Beard, J.E. Bell, D. Dodgen, R.J. Eisen,
N. Fann, M.D. Hawkins, S.C. Herring, L. Jantarasami, D.M. Mills, S.
Saha, M.C. Sarofim, J. Trtanj, and L. Ziska, Eds. U.S. Global Change
Research Program, Washington, DC, 312 pp. <a href="http://dx.doi.org/10.7930/J0R49NQX">http://dx.doi.org/10.7930/J0R49NQX</a>.
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C. Impacts of This Rule

CAA section 211(o)(2)(B)(ii) requires EPA to assess a number of
factors when determining volume targets for calendar years after those
shown in Table I-1. These factors are described in the introduction to
this Executive Summary, and each factor is discussed in detail in the
Regulatory Impact Analysis (RIA) accompanying this rule. Congress
provided EPA flexibility by enumerating factors to consider without
rigidly mandating the specific steps of analysis that EPA should take
or how EPA should weigh the various factors. For two of these statutory
factors--costs and energy security--we provide monetized impacts for
the purpose of comparing costs and benefits. For the other statutory
factors, we are either unable to quantify impacts, or we provide
quantitative estimated impacts that nevertheless cannot be easily
monetized. Thus, we are unable to quantitatively compare all of the
evaluated impacts of this rulemaking. Regardless of whether we
monetized a factor or not, however, EPA did consider all statutory
factors in this rulemaking, and we find that the final volumes are
appropriate under the set authority when we balance all the relevant
factors. Table ES-1 in the RIA provides a list of all of the impacts
that we assessed, both quantitative and qualitative. Our assessments of
each factor, including the impacts on costs, energy security, climate,
and other environmental and economic factors, are summarized in Section
IV of this document. Additional detail for each of the assessed factors
is provided in RIA Chapters 4 through 10.
Monetized impacts on cost and energy security are summarized in
Table I.C-1 below using two discount rates (3 percent and 7 percent)
following federal guidance on regulatory impact analyses.\14\
Summarized impacts are calculated in comparison to a No RFS baseline as
discussed in Section III.D and are summed across all three years of
standards.
---------------------------------------------------------------------------

\14\ Office of Management and Budget (OMB) Circular A-4. Sept.
17, 2003.

[[Page 44473]]

Table I.C-1--Cumulative Monetized Fuel Costs and Energy Security
Benefits of 2023-2025 Standards With Respect to the No RFS Baseline
[2022$, millions]
------------------------------------------------------------------------
Discount rate
-------------------------------
3% 7%
------------------------------------------------------------------------
Excluding Supplemental Standard:
Fuel Costs.......................... $23,218 $22,366
Energy Security Benefits............ 524 505
Including 2023 Supplemental Standard:
Fuel Costs.......................... 23,846 22,994
Energy Security Benefits............ 536 517
------------------------------------------------------------------------

D. Policy Considerations

This rule comes at a time when substantial policy developments and
global events are affecting the transportation energy and environmental
landscape in unprecedented ways. The Inflation Reduction Act (IRA)
makes historic investments in a range of areas, including in clean
vehicle and alternative fuel technologies, that will help decarbonize
the transportation sector and bolster a variety of clean technologies.
Provisions in the IRA will accelerate many of the pollution-reducing
shifts that are already occurring as part of a broad energy transition
in the transportation, power generation, and industrial sectors. Major
new incentives in legislation for cleaner vehicles, carbon capture and
sequestration, biofuels infrastructure, clean hydrogen production, and
other areas have effectively shifted the policy ground--and it is on
this new ground that EPA must develop forward-looking policies and
implement existing regulatory programs, including the RFS program.
Even as the IRA bolsters future investments in clean transportation
technologies, EPA recognizes that maintaining and strengthening energy
security in the near term remains an important policy consideration.
The war in Ukraine has significantly destabilized multiple global
commodity markets, including petroleum markets, and continues to have
impacts in these areas. In addition, global reductions in refining
capacity, which accelerated during the pandemic, have further tightened
the market for transportation fuels like gasoline and diesel. Programs
like the RFS program help boost energy security by supporting domestic
production of fuels and diversifying the fuel supply, and it has played
an important role in incentivizing the production of low-carbon
alternatives. At the same time, EPA recognizes that the transition to
such alternatives will take time, and that during this transition
maintaining stable fuel supplies and refining assets will continue to
be important to achieving our nation's energy and economic goals as
well as providing consistent investments in a skilled and growing
workforce.
It is against this backdrop that EPA is establishing RFS volume
requirements for the next three years in this action. The volumes that
EPA is finalizing continue to support ongoing growth in renewable
fuels, recognizing their benefits, and based on EPA's consideration of
the multiple factors identified in the statute. Beyond providing
continued support for fuels like ethanol and biodiesel, this action
provides a strong market signal for the continued growth of low carbon
advanced biofuels, including ``drop-in'' renewable diesel, and
cellulosic biofuels. Renewable fuels are a key policy tool identified
by Congress for decarbonizing the transportation sector, and this
rulemaking sets the stage for further growth and development of low-
carbon biofuels in the coming years.
In the proposed rule EPA requested comment on multiple volume
scenarios, including limiting the implied volume of conventional
renewable fuel to 15.0 billion gallons in 2024 and 2025, and
establishing RFS volumes with an implied volume of conventional
renewable fuel at or below the E10 blendwall. The volumes we are
finalizing in this rule reflect the scenario on which we requested
comment wherein we are limiting the implied volume of conventional
renewable fuel to 15.0 billion gallons in 2024 and 2025. We have also
included an analysis of the projected impact of the other alternative
scenarios in RIA Chapter 10.6.
In the proposal EPA also sought public comment on not only the
elements of the proposed rule, but also asked for responses to
questions on various topics that intersect with the larger energy
transition and energy security issues discussed above. For example,
several commenters provided responses on the topic of whether and how
EPA should consider incorporating some measure of carbon intensity into
the RFS program. Many of the commenters who weighed in on this topic
pointed to various non-federal ``clean fuel programs'' that are being
implemented in different states and jurisdictions and urged EPA to
consider changes that would make the RFS program more closely resemble
those programs. Other commenters suggested that the RFS program does
not lend itself well to such changes and that an entirely new framework
would be preferable if EPA were to pursue such carbon intensity-related
changes. Many different stakeholders provided suggestions and
perspectives on lifecycle analysis tools and approaches, and these
comments helped inform the discussion and analysis in this rulemaking
package related to the assessment of environmental impacts of renewable
fuels.
Multiple commenters also provided input on what RFS-related
policies EPA could pursue to incorporate new pathways and technologies
into the program. For example, some commenters urged EPA to take steps
to integrate carbon capture and storage (CCS) opportunities related to
the production of biofuels into the RFS program, while other commenters
cited various reasons why EPA should refrain from taking such steps.
Similarly, EPA received comment from different stakeholders that took
various positions on whether and how hydrogen should be integrated into
the RFS program. Many stakeholders also shared their perspectives on
how the RFS program can and should be used to further support the
development of sustainable aviation fuels (SAF).
EPA appreciates commenters' input on these other policy topics
raised in the proposal. We will continue to engage stakeholders on the
topics we raised in the December 2022 proposal and welcome continued
input on RFS policy options and opportunities. These

[[Page 44474]]

comments will be used to inform future rulemaking decisions.
EPA also recognizes the concerns that diverse stakeholders have
shared about the potential impacts from implementation of the RFS
program. Stakeholders have also shared concerns about RIN market
dynamics, including RIN price volatility. EPA understands that
maintaining and strengthening energy security in the near term remains
a policy imperative. The war in Ukraine continues to affect multiple
global commodity markets and reductions in global refining capacity,
which accelerated during the pandemic, have further tightened the
market for transportation fuels like gasoline and diesel. Programs like
the RFS program help boost energy security by supporting domestic
production of fuels and diversifying the fuel supply, and the RFS has
played an important role in incentivizing the production of low-carbon
alternatives. At the same time, EPA recognizes that maintaining stable
fuel supplies and refining assets continues to be important to
achieving our nation's energy and economic goals and retaining a
skilled and necessary workforce.
Given these factors, and because we are starting a new phase of the
RFS program where Congress has not prescribed volumes and with
prospective standards covering three years, careful administration of
the RFS program and monitoring of its impacts is critical. EPA intends
to use all available data and tools to monitor the implementation of
the RFS program and its impacts. EPA is committed to successful
implementation of the program, and the Clean Air Act provides EPA the
tools to adjust course if appropriate. EPA will monitor a set of
indicators that will help us assess the impact from implementation of
the final Set rule volumes to determine whether EPA should consider
adjusting those volumes or taking other action. These indicators could
include, but are not limited to, the following:
<bullet> The prices of biofuels relative to the petroleum-based
fuels they displace;
<bullet> The cost to consumers of transportation fuel;
<bullet> The prices of biofuel feedstocks and their impacts on food
prices to consumers;
<bullet> Changes in domestic energy supply that affect domestic
energy security;
<bullet> Changes in domestic energy demand that negatively impact
the energy security of a State, region, or the U.S.;
<bullet> The stability of fuel supplies and domestic refining
assets;
<bullet> The potential for RIN deficits and noncompliance by
obligated parties;
<bullet> Signs of market manipulation in RIN markets;
<bullet> RIN prices, generally, as an indicator of how the RFS
program is functioning, including significant increases in RIN prices;
<bullet> Various other impacts of the RFS standards, as
appropriate.
In addition to these indicators, EPA will also monitor the
volatility in D6 (``conventional'') RIN prices. Specifically, as part
of our oversight of program implementation, EPA intends to consider
whether the following volatility measure is met:
<bullet> A 50% deviation in the monthly average D6 RIN price,
relative to the 6-month rolling average D6 RIN price, evaluated at the
end of the calendar month and based on EPA data or third-party data, as
EPA determines appropriate. EPA would also consider whether changes in
RFS standards, other related EPA actions, or court decisions have
occurred which affect the relevance of this measure at a particular
time.
Based on EPA's assessment of these indicators, the Administrator
may then consider using the statutory authorities available under the
Clean Air Act to adjust the volume standards or make other programmatic
changes. For example, EPA has authority to reconsider its volumes and
standards, and has shown its willingness to do so when extreme and
unforeseen events require it, such as revising the 2020 and 2021
volumes to account for changes due to the COVID-19 pandemic. For years
after 2022, CAA section 211(o)(2)(B)(ii) establishes the processes,
criteria, and standards for setting the applicable annual renewable
fuel volumes. That provision provides that the Administrator shall, in
coordination with the Secretary of Energy and the Secretary of
Agriculture and after public notice and opportunity for comment,
determine the applicable volumes of each biofuel category specified
based on a review of implementation of the program during the calendar
years specified in the tables in CAA section 211(o)(2)(B)(i) and an
analysis of the multiple factors, as described in Section II.B of this
action.\15\ Those factors include, for example, the impact of the use
of renewable fuels on the cost to consumers of transportation, and the
impact of the use of renewable fuel on other factors, including job
creation, the price and supply of agricultural commodities, rural
economic development, and food prices. As EPA has stated in previous
actions, we generally do not think it is appropriate to reconsider and
revise previously finalized RFS standards. Revising standards has the
potential to decrease market certainty and create unnecessary market
disruption (which could in turn exacerbate some of the indicators
listed above). At the same time, given the new phase of the program, we
want to reiterate our commitment to monitoring various measures to
ensure successful program implementation and consider adjusting course
if appropriate.
---------------------------------------------------------------------------

\15\ EPA may consider using an expedited process if EPA
determines such process is appropriate and consistent with statutory
authority.
---------------------------------------------------------------------------

Apart from EPA's authority to reconsider our RFS standards, CAA
section 211(o)(7)(A) provides the Administrator the discretion to waive
the national quantity of renewable fuel required under the RFS program,
upon petition by one or more States, or by any party subject to the
requirements of the RFS program. The Administrator may also waive the
volume requirements on his own motion. The Administrator may do so only
after consultation with the Secretary of Agriculture and the Secretary
of Energy and after public notice and opportunity for comment.\16\ A
waiver may be issued if the Administrator determines that
implementation of the RFS volume requirements would severely harm the
economy or environment of a State, region, or the United States, or
that there is an inadequate domestic supply. EPA has previously
interpreted this waiver authority in prior responses to requests for a
waiver of the RFS volume requirements \17\ and in annual
rulemakings.\18\ EPA will monitor as appropriate the criteria we have
laid out previously in order to determine whether we should adjust
volume requirements using existing waiver authority under the statute.
These criteria, for example, include whether, under the severe economic
harm waiver authority, the harm is occurring with a high degree of
certainty, the harm is severe, and whether the harm is to an entire
state, region, or the United States.
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\16\ EPA may consider using an expedited process if EPA
determines such process is appropriate and consistent with the
statutory waiver authority.
\17\ See 73 FR 47168 (August 13, 2008) and 77 FR 70752 (November
27, 2012).
\18\ See, e.g., Renewable Fuel Standard Program--Standards for
2020 and Biomass-Based Diesel Volume for 2021 and Other Changes:
Response to Comments, EPA-420-R-19-018; see also American Fuel &
Petrochemical Manufacturers v. EPA, 937 F.3d 559, 580 (D.C. Cir.
2019) (upholding EPA's interpretation of the severe economic harm
waiver authority in the 2018 RFS rulemaking).
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In addition to monitoring the program's implementation for the

[[Page 44475]]

potential need to adjust the standards, EPA will also strengthen
existing efforts, and work to develop new tools, to help us monitor and
oversee the RIN market. EPA welcomes ideas from stakeholders impacted
by the RFS program on how to improve market oversight capabilities,
including ideas on how EPA's compliance regulations could be enhanced.
EPA closely monitors the RIN market, and we take seriously claims
of RIN market manipulation. In March 2016, EPA entered into a
Memorandum of Understanding (MOU) with the Commodity Futures Trading
Commission (CFTC).\19\ This MOU allows EPA to share RIN transaction
data with CFTC to advise EPA on the techniques used to minimize market
manipulation, to increase CFTC's understanding of the RIN market, and
to conduct oversight for this market. Under the MOU, EPA has met with
CFTC to discuss RIN market data and to evaluate strategies to identify
and reduce the potential for manipulation in the RFS program.
---------------------------------------------------------------------------

\19\ See ``Memorandum of Understanding Between the Environmental
Protection Agency and the Commodity Futures Trading Commission on
the Sharing of Information Available to EPA Related to the
Functioning of Renewable Fuel and Related Markets'' (2016),
available at <a href="https://www.epa.gov/sites/production/files/2016-03/documents/epa-cftc-mou-2016-03-16.pdf">https://www.epa.gov/sites/production/files/2016-03/documents/epa-cftc-mou-2016-03-16.pdf</a>.
---------------------------------------------------------------------------

In June 2019, EPA modified certain elements of the RFS compliance
system, in order to improve functioning of the RIN market and prevent
any potential manipulation in the RFS compliance market.\20\ The 2019
rulemaking requires reporting of RIN holdings above a threshold to help
ensure no single party can manipulate the price of RINs through the
sheer size of their holdings.\21\ Underpinning that reform was the
observation that increased transparency would help deter market
participants from amassing an excess of separated RINs, which due to
the concentration in ownership could result in undue influence or
market power. Since EPA implemented these provisions, no company has
had RIN holdings which have exceeded the thresholds set in the rule.
---------------------------------------------------------------------------

\20\ See 84 FR 27013-27019.
\21\ See 40 CFR 80.1435.
---------------------------------------------------------------------------

The 2019 rulemaking also required reporting of RIN transaction
prices to EPA.\22\ EPA has utilized the new reported price data to
supplement third-party RIN price assessment data. EPA has also
increased transparency by aggregating the reporting price data and
making it publicly available on our website.\23\ We believe that
publishing as much data and information on the RIN market as possible,
while still protecting confidential business information, improves
market transparency and helps obligated parties and other market
participants make informed decisions. Since the June 2019 rule, we have
not seen data-based evidence of RIN market manipulation. The potential
for such behavior, however, remains a concern.
---------------------------------------------------------------------------

\22\ See 40 CFR 80.1451(c)(2).
\23\ See ``RIN Trades and Price Information,'' available at
<a href="https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rin-trades-and-price-information">https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rin-trades-and-price-information</a>.
---------------------------------------------------------------------------

We have recently further expanded our oversight and enforcement
capabilities by entering into an MOU with California Air Resources
Board (CARB).\24\ This MOU expands our oversight capabilities and
supports our enforcement activities by leveraging information collected
under California's Low Carbon Fuel Standard to help identify non-
compliance and potential market manipulation in the renewable fuels and
RIN markets. EPA and CARB compliance staff meet regularly to analyze
market forces and participant behavior to ensure that our program meets
the CAA requirements.
---------------------------------------------------------------------------

\24\ See ``Confidentiality Agreement Between the United States
Environmental Protection Agency Offices of Transportation and Air
Quality and Civil Enforcement and the California Air Resources Board
for the Sharing of Information.'' August 17, 2021 (on file with
EPA).
---------------------------------------------------------------------------

As we begin to implement the Set Rule volumes, EPA will work with
partners in federal and state governments to assess what new
improvements and modifications could reasonably be made that would
further strengthen market oversight and program implementation.
Furthermore, within 45 days of publication of the final 2023-2025 rule,
EPA will meet with CFTC to review our MOU with CFTC and the sufficiency
of the existing RIN data collection to address potential market
manipulation. EPA will also discuss with CFTC whether the existing MOU
should be revised to allow for the monitoring of daily trades and
whether the existing MOU should be revised to include additional market
oversight experts, such as the Federal Trade Commission.

E. Endangered Species Act

Section 7(a)(2) of the Endangered Species Act (ESA), 16 U.S.C.
1536(a)(2), requires that federal agencies such as EPA, in consultation
with the U.S. Fish and Wildlife Service (USFWS) and/or the National
Marine Fisheries Service (NMFS) (collectively ``the Services''), ensure
that any action authorized, funded, or carried out by the action agency
is not likely to jeopardize the continued existence of any endangered
or threatened species or result in the destruction or adverse
modification of designated critical habitat for such species. Under ESA
implementing regulations, the action agency is required to formally
consult with the Services for actions that ``may affect'' listed
species or designated critical habitat, unless the Services concur in
writing that the action is not likely to adversely affect ESA-listed
species or critical habitat. 50 CFR 402.14. Consultation is not
required where the action has no effect on such species or habitat. For
several prior RFS annual standard-setting rules, EPA did not consult
with the Services under ESA section 7(a)(2).
Consistent with ESA section 7(a)(2) and relevant ESA implementing
regulations at 50 CFR part 402, for approximately two years, EPA
engaged in technical assistance and informal consultation discussions
with the Services regarding this rule. On January 30, 2023, EPA
submitted its initial biological evaluation to the Services, and
following continued informal consultation--including regular meetings
and telephone and email communications between EPA and the Services--on
May 20, 2023, EPA submitted to the Services its May 19, 2023 biological
evaluation. On May 31, 2023, EPA provided an addendum to the May 19,
2023 biological evaluation in response to a request from NMFS.\25\ EPA
has determined that this action is not likely to adversely affect
listed species and critical habitat. The Services have confirmed that
EPA's biological evaluation with the May 31, 2023 addendum is
sufficient and USFWS and NMFS intend to proceed with informal
consultation. EPA has prepared an ESA section 7(d) determination
memorandum that discusses our decision to finalize this action before
the informal consultation process is complete, which is also available
in the docket for this action.
---------------------------------------------------------------------------

\25\ ``Biological Evaluation of the Renewable Fuel Standard
(RFS) Set Rule,'' May 19, 2023, and email from T. Phillips, EPA, to
D. Baldwin, NOAA (May 31, 2023) are both available in the docket for
this action.
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II. Statutory Requirements and Conditions

A. Requirement to Set Volumes for Years After 2022

The CAA provides EPA with the authority to establish the applicable
renewable fuel volume targets for calendar years after those specified
in

[[Page 44476]]

the Act in Section 211(o)(2).\26\ For total renewable fuel, cellulosic
biofuel, and total advanced biofuel, the CAA provides volume targets
through 2022, after which EPA must establish or ``set'' the volume
targets via rulemaking. For BBD, the CAA only provides volume targets
through 2012; EPA has been setting the biomass-based diesel volume
requirements in annual rulemakings since 2013.
---------------------------------------------------------------------------

\26\ We refer to CAA section 211(o)(2)(B)(ii) as the ``set
authority.''
---------------------------------------------------------------------------

This section discusses EPA's statutory authority and additional
factors we have considered due to the lateness of this rulemaking, as
well as the severability of the various portions of this rule.

B. Factors That Must Be Analyzed

CAA section 211(o)(2)(B)(ii) establishes the processes, criteria,
and standards for setting the applicable annual renewable fuel volumes.
That provision provides that the Administrator shall, in coordination
with the Secretary of Energy and the Secretary of Agriculture,\27\
determine the applicable volumes of each biofuel category specified
based on a review of implementation of the program during the calendar
years specified in the tables in CAA section 211(o)(2)(B)(i) and an
analysis of the following factors:
---------------------------------------------------------------------------

\27\ In furtherance of this requirement, we have had periodic
discussions with DOE and USDA on this action. These have occurred
with agency staff throughout the proposal and final rule process, as
well as through the OMB interagency process. An additional
memorandum documenting discussions with the Administrator and
Secretaries is also available in the docket for this action.
---------------------------------------------------------------------------

<bullet> The impact of the production and use of renewable fuels on
the environment; \28\
---------------------------------------------------------------------------

\28\ CAA section 211(o)(2)(B)(ii)(I).
---------------------------------------------------------------------------

<bullet> The impact of renewable fuels on the energy security of
the U.S.; \29\
---------------------------------------------------------------------------

\29\ CAA section 211(o)(2)(B)(ii)(II).
---------------------------------------------------------------------------

<bullet> The expected annual rate of future commercial production
of renewable fuels; \30\
---------------------------------------------------------------------------

\30\ CAA section 211(o)(2)(B)(ii)(III).
---------------------------------------------------------------------------

<bullet> The impact of renewable fuels on the infrastructure of the
U.S.; \31\
---------------------------------------------------------------------------

\31\ CAA section 211(o)(2)(B)(ii)(IV).
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<bullet> The impact of the use of renewable fuels on the cost to
consumers of transportation fuel and on the cost to transport goods;
\32\ and
---------------------------------------------------------------------------

\32\ CAA section 211(o)(2)(B)(ii)(V).
---------------------------------------------------------------------------

<bullet> The impact of the use of renewable fuel on other factors,
including job creation, the price and supply of agricultural
commodities, rural economic development, and food prices.\33\
---------------------------------------------------------------------------

\33\ CAA section 211(o)(2)(B)(ii)(VI).
---------------------------------------------------------------------------

Congress provided EPA flexibility by enumerating factors to
consider without rigidly mandating the specific steps of analysis that
EPA should take or how EPA should weigh the various factors.
Additionally, we are not aware of anything in the legislative history
of EISA that is authoritative on these issues. Thus, as the Clean Air
Act ``does not state what weight should be accorded to the relevant
factors,'' it ``give[s] EPA considerable discretion to weigh and
balance the various factors required by statute.'' \34\ These factors
were analyzed in the context of the 2020-2022 standard-setting rule
that modified volumes under CAA section 211(o)(7)(F),\35\ which
requires EPA to comply with the processes, criteria, and standards in
CAA section 211(o)(2)(B)(ii). Consistent with our past practice in
evaluating the factors,\36\ we have again determined that a holistic
balancing of the factors is appropriate.\37\
---------------------------------------------------------------------------

\34\ See Nat'l Wildlife Fed'n v. EPA, 286 F.3d 554, 570 (D.C.
Cir. 2002) (analyzing factors within the Clean Water Act); accord
Riverkeeper, Inc. v. U.S. EPA, 358 F.3d 174, 195 (2d Cir. 2004)
(same); BP Exploration & Oil, Inc. v. EPA, 66 F.3d 784, 802 (6th
Cir. 1995) (same); see also Brown v. Watt, 668 F.3d 1290, 1317 (D.C.
Cir. 1981) (``A balancing of factors is not the same as treating all
factors equally. The obligation instead is to look at all factors
and then balance the results. The Act does not mandate any
particular balance, but vests the Secretary with discretion to weigh
the elements . . . .'') (addressing factors articulated in the Out
Continental Shelf Lands Act).
\35\ See 87 FR 39600 (July 1, 2022).
\36\ See 87 FR 39600, 39607-08 (July 1, 2022).
\37\ RFS Annual Rules Response to Comments Document at 10.
---------------------------------------------------------------------------

In addition to those factors listed in the statute, the statute
also directs EPA to consider ``the impact of the use of renewable fuels
on other factors.'' \38\ Moreover, many other factors affect the
statutory factors themselves. Accordingly, consistent with the statute,
we have considered several other factors, including:
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\38\ CAA section 211(o)(2)(B)(ii)(VI).
---------------------------------------------------------------------------

<bullet> The interaction between volume requirements for years
2023-2025, including the nested nature of those volume requirements and
the availability of carryover RINs.\39\
---------------------------------------------------------------------------

\39\ This also informs our analysis of the statutory factor
``review of the implementation of the program.'' CAA section
211(o)(2)(B)(ii).
---------------------------------------------------------------------------

<bullet> The ability of the market to respond given the timing of
this rulemaking.\40\
---------------------------------------------------------------------------

\40\ This also informs our analysis of the statutory factor
``the expected annual rate of future commercial production of
renewable fuels.'' CAA section 211(o)(2)(B)(ii)(III).
---------------------------------------------------------------------------

<bullet> Our obligation to respond to the ACE remand (Section V).
<bullet> The supply of qualifying renewable fuels to U.S. consumers
(Section III.A.5).\41\
---------------------------------------------------------------------------

\41\ This is based on our analysis of the statutory factor the
expected annual rate of future commercial production of renewable
fuel as well as of downstream constraints on biofuel use, including
the statutory factors relating to infrastructure and costs.
---------------------------------------------------------------------------

<bullet> Soil quality (RIA Chapter 3.4).\42\
---------------------------------------------------------------------------

\42\ Soil quality is closely tied to water quality and is also
relevant to the impact of renewable fuels on the environment more
generally, such that this analysis also informs our analysis of the
statutory factor ``the impact of the production and use of renewable
fuels on the environment.'' CAA section 211(o)(2)(B)(ii)(I).
---------------------------------------------------------------------------

<bullet> Environmental justice (Section IV.E and RIA Chapter
8).\43\
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\43\ Addressing environmental justice involves assessing the
potential for the use of renewable fuels to have a disproportionate
and adverse health or environmental effect on minority populations,
low-income populations, tribes, and/or indigenous peoples.
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<bullet> A comparison of costs and benefits (Section IV.D).\44\
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\44\ The comparison of costs and benefits compares our
quantitative analysis of various statutory factors, including costs
and energy security.
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C. Statutory Conditions on Volume Requirements

As indicated above, the CAA affords EPA flexibility to consider
each of the enumerated factors and the weight to give those factors.
However, the CAA does contain three conditions that affect our
determination of the applicable volume requirements:
<bullet> A constraint in setting the applicable volume of total
renewable fuel as compared to advanced biofuel, with implications for
the implied volume requirement for conventional renewable fuel.
<bullet> Direction in setting the cellulosic biofuel applicable
volume regarding potential future waivers.
<bullet> A floor on the applicable volume of BBD.
1. Advanced Biofuel as a Percentage of Total Renewable Fuel
While the statute provides broad discretion in setting the
applicable volume requirements for advanced biofuel and total renewable
fuel, it also establishes a constraint on the relationship between
these two volume requirements, and this constraint has implications for
the implied volume requirement for conventional renewable fuel. The CAA
provides that the applicable advanced biofuel requirement must ``be at
least the same percentage of the applicable volume of renewable fuel as
in calendar year 2022,'' \45\ meaning that EPA must, at a minimum,
maintain the ratio of advanced biofuel to total renewable fuel that was
established for 2022 for the years in which EPA sets the applicable
volume requirements. In effect, this limits the implied volume of
conventional renewable fuel within the

[[Page 44477]]

total renewable fuel volume for years after 2022.
---------------------------------------------------------------------------

\45\ CAA section 211(o)(2)(B)(iii).
---------------------------------------------------------------------------

The applicable advanced biofuel volume requirement is 5.63 billion
gallons for 2022.\46\ The total renewable fuel volume requirement for
2022 is 20.63 billion gallons, resulting in an implied conventional
volume requirement of 15 billion gallons. For 2022, then, advanced
biofuel would represent 27.3 percent of total renewable fuel. The
volume requirements we are finalizing in this action for 2023-2025,
shown in Table I.A.1-1, all exceed this 27.3 percent minimum, and thus
the applicable volume requirements that we are finalizing satisfy this
statutory criterion.
---------------------------------------------------------------------------

\46\ 87 FR 39601.
---------------------------------------------------------------------------

2. Cellulosic Biofuel
The statute requires that EPA set the applicable cellulosic biofuel
requirement ``based on the assumption that the Administrator will not
need to issue a waiver . . . under [CAA section 211(o)](7)(D)'' for the
years in which EPA sets the applicable volume requirement.\47\ We
interpret this requirement to mean that we must establish the
cellulosic volume requirement at a level that is achievable and not
expected to require us in the future to lower the applicable cellulosic
volume requirement using the cellulosic waiver authority under CAA
section 211(o)(7)(D).\48\ CAA section 211(o)(7)(D) provides that if
``the projected volume of cellulosic biofuel production is less than
the minimum applicable volume established under paragraph (2)(B),'' EPA
``shall reduce the applicable volume of cellulosic biofuel required
under paragraph (2)(B) to the projected volume available during that
calendar year.'' Therefore, we are setting the volume requirements such
that the mandatory waiver of the cellulosic volume is not anticipated
to be triggered in those future years. Operating within this
limitation, and in light of our consideration of the statutory factors
explained in Section VI, we are setting the cellulosic volumes for
2023, 2024, and 2025 at the projected volume available in each year,
respectively, consistent with our past actions in determining the
cellulosic biofuel volume.\49\ These projections, discussed further in
Sections III.B.1 and VI.A, represent our best efforts to project the
growth in the volume of these fuels that can be achieved in 2023-2025.
---------------------------------------------------------------------------

\47\ CAA section 211(o)(2)(B)(iv).
\48\ The cellulosic biofuel waiver applies when the projected
volume of cellulosic biofuel production is less than the minimum
applicable volume. CAA section 211(o)(7)(D).
\49\ See, e.g., 2020-2022 Rule, 87 FR 39600 (July 1, 2022).
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3. Biomass-Based Diesel
EPA has established the BBD requirement under CAA section
211(o)(2)(B)(ii) since 2013 because the statute only provided BBD
volume targets through 2012. The statute also requires that the BBD
volume requirement be set at or greater than the 1.0 billion gallon
volume requirement for 2012 in the statute, but does not provide any
other numerical criteria that EPA is to consider.\50\ EPA is setting
the BBD volume requirement for 2023, 2024, and 2025 at 2.82, 3.04, and
3.35 billion gallons respectively. These volumes are significantly
greater than 1.0 billion gallon minimum requirement for these years.
---------------------------------------------------------------------------

\50\ CAA Section 211(o)(2)(B)(iv).
---------------------------------------------------------------------------

D. Authority To Establish Volumes and Percentage Standards for Multiple
Future Years

EPA is finalizing volume and percentage standards for 2023, 2024,
and 2025 in this single action. In the proposed rule, we sought comment
on volume requirements for 2026, and proposed volumes for 2023, 2024,
and 2025. We also proposed corresponding percentage standards for 2023,
2024, and 2025.
In the proposal, we discussed how the number of years for which we
might establish standards, and thus the numbers of years for which we
must analyze the impacts of those standards, represented a tension
between providing certainty for stakeholders of future demand and being
able to project renewable fuel supply with reasonable certainty. We
discussed how we focused our assessment of renewable fuel supply on the
three years immediately following the end of the statutory volume
targets (i.e., 2023-2025) as an attempt to find a balance between these
opposing concerns. Additionally, we have considered the statutory
deadlines from promulgating applicable volumes, two of which have
already passed (October 31, 2021, for 2023 applicable volumes, and
October 31, 2022, for 2024 applicable volumes). The statutory deadline
for promulgating the 2025 applicable volumes is later this year on
October 31, 2023. Establishing volume requirements for three years
strikes an appropriate balance between these opposing concerns.
We acknowledge that establishing volume targets and the associated
percentage standards for a greater number of years would increase
market certainty for obligated parties, biofuel producers, and other
RIN market participants. However, the uncertainty inherent in making
future projections increases for longer timeframes. Moreover, our
experience with the RFS program since its inception is that unforeseen
market circumstances involving not only renewable fuel supply but also
relevant economics mean that fuels markets are continually evolving and
changing in ways that cannot be predicted. These facts affect all
supply-related elements of biofuel: projections of production capacity,
availability of imports, rates of consumption, availability of
qualifying feedstocks, and the gasoline and diesel demand projections
that provide the basis for the calculation of percentage standards.
Greater uncertainty in future projections means a higher likelihood
that those future projections could turn out to be inaccurate, leading
to the potential need to revise them after they are established
through, for instance, one of the statutory waiver provisions. Such
actions to revise applicable standards after they have been set could
be expected to increase market uncertainty.
Promulgating standards for three years in a single action also
increases the likelihood that we can meet the statutory deadline to
promulgate applicable volumes by 14 months prior to the beginning of
the calendar year. In this action, we are promulgating the 2025 volumes
ahead of the statutory deadline of October 2023. Given the extensive
analysis required to support the volumes, and the associated length of
time necessary for CAA rulemaking actions, promulgating standards for
multiple years facilitates compliance with the statutory requirements.
Many of the comments we received from stakeholders supported our
proposal to establish standards for three years. While some
stakeholders requested that standards be set for fewer than three
years, others requested that we set standards for more than three
years. Based on our desire to strengthen market certainty by
establishing applicable standards for as many years as is practical,
tempered by the knowledge that longer time periods increase uncertainty
in projected volumes, increasing the potential that applicable
standards might need to be waived at a later date, we continue to
believe that three years represents an appropriate balance at this
time. We are not making a determination in this action that three years
is the appropriate number of years to establish standards under all
circumstances and in all future actions. Indeed, it may be appropriate
in future standard-setting

[[Page 44478]]

actions to establish standards for more or less than three years at a
time.
The CAA requires EPA to promulgate regulations that, regardless of
the date of promulgation, contain compliance provisions applicable to
refineries, blenders, distributors and importers that ensure that the
volumes in CAA section 211(o)(2)(B), which includes set volumes, are
met.\51\ As to setting percentage standards, for years after 2022, the
CAA does not expressly direct EPA to continue to implement volume
requirements through percentage standards established through annual
rulemakings. Furthermore, in establishing volumes for years after 2022,
EPA is directed to review ``the implementation of the program'' in
years during which Congress provided statutory volumes.\52\ Thus,
Congress provided EPA discretion as to how to implement the volume
requirements of the RFS program in years 2023 and beyond.
---------------------------------------------------------------------------

\51\ CAA section 211(o)(A)(i), (iii).
\52\ CAA Section 211(o)(2)(B)(ii).
---------------------------------------------------------------------------

CAA section 211(o)(3)(B)(i) provides that by ``November 30 of each
of calendar years 2005 through 2021, based on the estimate provided [by
EIA], the Administrator . . . shall determine and publish in the
Federal Register, with respect to the following calendar year, the
renewable fuel obligation that ensures that the requirements of
paragraph (2) are met.'' \53\ The next clause (ii) provides further
requirements for the obligation described in clause (i). On its face,
this language does not apply to rulemakings establishing obligations
for years subsequent to 2022. Therefore, EPA is not bound by this
language for those years.
---------------------------------------------------------------------------

\53\ CAA Section 211(o)(3)(b)(i).
---------------------------------------------------------------------------

EPA could choose to continue to utilize the same procedures
articulated in CAA section 211(o)(3)(B)(i) for establishing percentage
standards for years beyond 2022. In that case, EPA would establish
standards for 2023 in this rulemaking, and separately set standards for
2024 and 2025 in later actions. However, EPA has chosen to set
percentage standards at one time for several future years (i.e., for
2023, 2024, and 2025). Doing so increases certainty for obligated
parties, renewable fuel producers, and RIN market participants, as both
the applicable volume requirements and the associated percentage
standards can be established in advance of the year in which they
apply. This also provides certainty for obligated parties in
determining compliance deadlines. The regulations at 40 CFR
80.1451(f)(1)(i)(A) provide that compliance will not be required for a
given compliance year until after the percentage standards for the
following year are established. Thus, establishing the percentage
standards through this rulemaking process provides certainty as to the
date of the compliance deadlines for 2022-2024. This action properly
balances creating certainty for obligated parties, renewable fuel
producers, and RIN market participants in establishing percentage
standards and limiting the scope of uncertainty in projections of
future gasoline and diesel consumption by setting percentage standards
only for the next three compliance years.\54\
---------------------------------------------------------------------------

\54\ See Growth Energy v. Env't Prot. Agency, 5 F.4th 1, 15
(D.C. Cir. 2021) (acknowledging deference to agency's predictive
judgments).
---------------------------------------------------------------------------

Several commenters supported EPA's proposal to establish volumes
and associated percentage standards for 2023-2025. Other commenters
suggested that EPA should only promulgate percentage standards for 2023
and 2024 because EPA could instead finalize the percentage standards
for 2025 along with the 2026 volumes and percentage standards given the
statutory deadline of October 31, 2024. We discuss responses to these
comments in the RTC document.
In this action, we are finalizing applicable volume requirements
and the associated percentage standards for 2023-2025, as described
further in Sections VI and VII. We believe that establishing both the
volume requirements and percentage standards for the next three years
strikes an appropriate balance between improving the program by
providing increased certainty over a multiple number of years and
recognizing the inherent uncertainty in longer-term projections.

E. Considerations for Late Rulemaking

In this rulemaking, we are finalizing applicable volume targets for
the 2023 and 2024 compliance years that miss the statutory
deadlines.\55\ EPA has in the past also missed statutory deadlines for
promulgating RFS standards, including the BBD Standards in 2014-2016,
which were established under CAA section 211(o)(2)(B)(ii), the same
provision under which we are establishing the 2023 and 2024 standards.
The U.S. Court of Appeals for the D.C. Circuit found that EPA retains
authority to promulgate volumes and annual standards beyond the
statutory deadlines, even those that apply retroactively, so long as
EPA exercises this authority reasonably.\56\ In doing so, EPA must
balance the burden on obligated parties of a delayed rulemaking with
the broader goal of the RFS program to increase renewable fuel use.\57\
In upholding EPA's late and retroactive standards in ACE, the court
considered several specific factors, including the availability of RINs
for compliance, the amount of lead time and adequate notice for
obligated parties, and the availability of compliance flexibilities. In
addressing rulemakings that were late (i.e., those issued after the
statutory deadline) but not retroactive, the court emphasized the
amount of lead time and adequate notice for obligated parties.\58\ Most
relevant here is EPA's action in 2015 that established the BBD volume
requirements for 2014-2017.\59\ There, EPA missed the statutory
deadline, that EPA establish an applicable volume target for BBD no
later than 14 months before the first year to which that volume
requirement will apply, for all four years.\60\ The court found that
EPA properly balanced the relevant considerations and had provided
sufficient notice to parties in establishing the applicable volume
requirements for 2014-2017.\61\ A commenter suggested that EPA is
further limited on our promulgation of the 2023 and 2024 standards at
no greater than the 2022 standards. We disagree for the reasons
articulated in the RTC document.
---------------------------------------------------------------------------

\55\ See CAA Section 211(o)(2)(B)(ii), requiring EPA promulgate
applicable volume requirements no later than 14 months prior to the
first year in which they will apply.
\56\ Americans for Clean Energy v. EPA, 864 F.3d 691 (D.C. Cir.
2017) (ACE) (EPA may issue late applicable volumes under CAA section
211(o)(2)(B)(ii)); Monroe Energy, LLC v. EPA, 750 F.3d 909 (D.C.
Cir. 2014); NPRA v. EPA, 630 F.3d 145, 154-58 (D.C. Cir. 2010).
\57\ NPRA v. EPA, 630 F.3d 145, 164-65.
\58\ ACE, 864 F.3d at 721-22.
\59\ 80 FR 77420, 77427-28, 77430-31 (Dec. 14, 2015).
\60\ CAA section 211(o)(2)(B)(ii).
\61\ ACE, 864 F.3d at 721-23.
---------------------------------------------------------------------------

In this rulemaking, we are exercising our authority to set the
applicable renewable fuel volume requirements for 2023 and 2024 after
the statutory deadline to promulgate volumes no later than 14 months
before the first year to which those volume requirements apply.\62\
This final rule will also be partly retroactive, as the 2023 standards
are being finalized in the middle of the 2023 calendar year.
Nevertheless, we believe that the 2023 standards being finalized in
this action can be met and that the available RIN generation data from
the first quarter of 2023 suggests the market is on track to supply the
volumes we are finalizing for 2023 (see Section VI and RIA Chapter 6).
We are finalizing the 2024 standards prior to

[[Page 44479]]

the beginning of the 2024 calendar year and do not expect those
standards to apply retroactively. Additionally, we have provided
obligated parties notice as of December 1, 2022 of the proposed 2023
and 2024 standards, a month ahead of when the 2023 standards would
apply, and over a year in advance of when the 2024 standards would
apply. Additionally, obligated parties will have at least nine months
from the time of promulgation of this final rule before they are
required to submit associated compliance reports for 2023.\63\ There
will additionally be approximately 22 months between the promulgation
of this rule and the compliance deadline for the 2024 standards.\64\
Additionally, all obligated parties will continue to have available
compliance flexibilities such as carry forward deficits, and carryover
RINs to comply with the 2023 and 2024 standards.
---------------------------------------------------------------------------

\62\ CAA section 211(o)(2)(B)(ii).
\63\ EPA expects the 2023 compliance deadline to be March 31,
2024. See 40 CFR 80.1451(f)(1)(A).
\64\ The 2024 compliance deadline is March 31, 2025. 40 CFR
80.1451(f)(1)(A).
---------------------------------------------------------------------------

In addition, in completing its response to the ACE remand of the
2016 annual rule, we are establishing a supplemental standard for
2023.\65\ This supplemental standard is being promulgated after the
statutory deadline for the 2016 standards (November 30, 2015). However,
the supplemental standard would prospectively apply to gasoline and
diesel produced or imported in 2023, therefore is only partly
retroactive. We further discuss our response to the ACE remand in
Section V.
---------------------------------------------------------------------------

\65\ We also established a supplemental standard for 2022 in a
prior action. See, e.g., 87 FR 39600 (July 1, 2022).
---------------------------------------------------------------------------

F. Impact on Other Waiver Authorities

While we are establishing applicable volume requirements in this
action for future years that are achievable and appropriate based on
our consideration of the statutory factors, we retain our legal
authority to waive volumes in the future under the waiver authorities
should circumstances so warrant.\66\ For example, the general waiver
authority under CAA section 211(o)(7)(A) provides that EPA may waive
the volume targets in ``paragraph (2),'' which provides both the
statutory applicable volume tables and EPA's set authority (the
authority to set applicable volumes for years not specified in the
table). Therefore, similar to our exercise of the waiver authorities to
modify the statutory volumes in past annual standard-setting
rulemakings, EPA has the authority to modify the applicable volumes for
2023 and beyond in future actions through the use of our waiver
authorities to modify the applicable volumes we are setting in this
action.
---------------------------------------------------------------------------

\66\ See J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Intern.,
Inc., 534 U.S. 124, 143-44 (2001) (holding that when two statutes
are capable of coexistence and there is not clearly expressed
legislative intent to the contrary, each should be regarded as
effective).
---------------------------------------------------------------------------

We note that, as described above, CAA section 211(o)(2)(B)(iv)
requires that EPA set the cellulosic biofuel volume requirements for
2023 and beyond based on the assumption that the Administrator will not
need to waive those volume requirements under the cellulosic waiver
authority. Because we are, in this action, establishing the applicable
volume targets for 2023-2025 under the set authority, we do not believe
we could also waive those requirements using the cellulosic waiver
authority in this same action in a manner that would be consistent with
CAA section 211(o)(2)(B)(iv), since that waiver authority is only
triggered when the projected production of cellulosic biofuel is less
than the ``applicable volume established under [211(o)(2)(B)].'' In
other words, it does not appear that EPA could use both the set
authority and the cellulosic waiver authority to establish volumes at
the same time in this action.
Establishing the volume requirements for 2023-2025 using our set
authority apart from the cellulosic waiver authority has important
implications for the availability of cellulosic waiver credits (CWCs)
in these years. When EPA reduces cellulosic volumes under the
cellulosic waiver authority, EPA is also required to make CWCs
available under CAA section 211(o)(7)(D)(ii). In this rule we are, for
the first time, establishing a cellulosic biofuel standard without
utilizing the cellulosic waiver authority. We interpret CAA section
211(o)(7)(D)(ii) such that CWCs are only made available in years in
which EPA uses the cellulosic waiver authority to reduce the cellulosic
biofuel volume. Because of this, cellulosic waiver credits would not be
available as a compliance mechanism for obligated parties in these
years absent a future action to exercise the cellulosic waiver
authority. We recognized this likelihood in the recent rule
establishing volume requirements for 2020-2022, where we stated that
CWCs were unlikely to be available in 2023 as part of our rationale for
not requiring the use of cellulosic carryover RINs in setting the
cellulosic volume requirements for 2020-2022. \67\ Some commenters
suggested that we should make CWCs available even in the absence of
exercising our cellulosic waiver authority to provide a price cap on
cellulosic volume, or to provide additional flexibility for obligated
parties. As we do not find authority to issue cellulosic waiver credits
without use of the cellulosic waiver authority, we will not be issuing
CWCs absent a future waiver of the cellulosic standard. Despite the
absence of CWCs, we expect that obligated parties will be able to
satisfy their cellulosic biofuel obligations for these years because we
are proposing to establish the cellulosic biofuel volume requirement
based on the quantity of cellulosic biofuel we project will be produced
and imported in the U.S. each year.
---------------------------------------------------------------------------

\67\ 87 FR 39616 (July 1, 2022).
---------------------------------------------------------------------------

G. Severability

As stated in the proposal, we intend for the volume requirements
and percentage standards for each single year covered by this rule
(i.e., 2023, 2024, and 2025) to be severable from the volume
requirements and percentage standards for the other years. Each year's
volume requirements and percentage standards are supported by analyses
for that year. Similarly, we intend for the 2023 supplemental standard
and percentage standard to be severable from the annual volume
requirements and percentage standards.
We also intend for the other regulatory amendments to be severable
from the volume requirements and percentage standard. The regulatory
amendments are intended to improve the RFS program in general and are
not part of EPA's analysis for the volume requirements and percentage
standards for any specific year. Further, each of the regulatory
amendments in Sections IX and X is severable from the other regulatory
amendments because they all function independently of one another.
If any of the portions of the rule identified in the preceding
paragraph (i.e., volume requirements and percentage standards for a
single year, the 2023 supplemental standard, the individual regulatory
amendments) is invalidated by a reviewing court, we intend the
remainder of this action to remain effective as described in the
preceding paragraph. To further illustrate, if a reviewing court were
to invalidate the volume requirements and percentage standards and
supplemental standard, we intend the other regulatory amendments to
remain effective. Or, as another example, if a reviewing court
invalidates the BBD conversion factor provisions, we intend the volume
requirements and percentage standards as well as the supplemental
standard and other regulatory amendments to remain effective.

[[Page 44480]]

III. Candidate Volumes and Baselines

The statute requires that we analyze a specified set of factors in
making our determination of the appropriate volume requirements to
establish for years after 2022, and further requires that we review
implementation of the program in prior years. The statutory factors are
listed in Section II.B. Because many of those factors, particularly
those related to economic and environmental impacts, are difficult to
analyze in the abstract, we have therefore opted to analyze those
factors based on specific ``candidate volumes'' for each category of
renewable fuel. To accomplish this, we first derived a set of renewable
fuel volumes from the statutory factors most closely related to
renewable fuel supply and other relevant factors. The development of
these candidate volumes helps further our consideration of the
statutory factor to analyze the expected annual rate of future
commercial production of renewable fuels and provide us with renewable
fuel volumes with which to perform the remaining analyses required by
the statute. We used these candidate volumes to conduct analyses of the
other environmental and economic factors. Finally, we determined, based
on the results of all of the analyses (those that went into developing
the candidate volumes, described in this section, and the subsequent
analyses performed using these candidate volumes, described in Sections
IV and VI), the volume requirements that would be appropriate to
establish. Our approach can be summarized as a three-step process:
1. Development of candidate volumes (described in this section).
2. Multifactor analysis based on those candidate volumes (described
in Section IV).
3. Determination of applicable volume requirements based on a
consideration of all factors analyzed (described in Section VI).
We acknowledge that we are taking a different approach to
developing candidate volumes in this rule than we did under the reset
authority in the 2020-2022 rule. The primary difference is that in the
2020-2022 rule the candidate volumes for non-cellulosic advanced
biofuel and conventional renewable fuel were generally in the implied
statutory volumes for these fuel types in comparison to the statutory
volumes. In this rule we are establishing volumes for 2023-2025, a time
period for which there are no statutory targets. We therefore developed
the candidate volumes for non-cellulosic biofuel and conventional
biofuel based primarily on a consideration of supply-related factors,
with a consideration of other relevant factors as noted in the
following sections. This approach is generally consistent with the
approach we took for developing the candidate cellulosic biofuel
volumes in the 2020-2022 rule, as the statutory cellulosic biofuel
volumes were far beyond the quantity of these fuels that could be
supplied.
For the first step in this process, we analyzed a subset of the
statutory factors that are most closely related to supply of and demand
for renewable fuel. These supply-and-demand-related factors
(hereinafter ``supply-related factors'') \68\ include the production
and use of renewable fuels (as a necessary prerequisite to analyzing
their impacts under CAA section 211(o)(2)(B)(ii)(I), (II), (V), and
(VI))), the expected annual rate of future commercial production of
renewable fuels (CAA section 211(o)(2)(B)(ii)(III)), and the
sufficiency of infrastructure to deliver and use renewable fuel (CAA
section 211(o)(2)(B)(ii)(IV)). Consideration of these supply-related
statutory factors necessarily included a consideration of imports and
exports of renewable fuel, consumer demand for renewable fuel, the
availability of qualifying feedstocks, and other relevant factors as
discussed in the following sections. Since the statute also requires us
to review the implementation of the program in prior years, an analysis
of renewable fuel supply includes not just projections for the future
but also an assessment of the historical supply of renewable fuel.
While we focused on supply-related factors, as discussed further in the
following sections we also considered other information such as trends
in statutory volumes, GHG reduction implications, and market
expectations resulting from our proposed rule.
---------------------------------------------------------------------------

\68\ We use this shorthand (``supply-related factors'') only for
ease of explanation in the context of identifying candidate volumes
for analysis under CAA section 211(o)(2)(B)(ii). We recognize that
this shorthand (``supply-related factors'') utilizes the term
``supply'' in a manner that is incongruent with the D.C. Circuit's
interpretation of the scope of the term ``supply'' in the general
waiver authority provision in CAA section 211(o)(7)(A). ACE, 864
F.3d at 710. (holding that the term ``inadequate domestic supply''
under the general waiver authority excludes ``demand-side
factors''). References to ``supply-related factors'' in the context
of our discussion of the candidate volumes for analysis under CAA
section 211(o)(2)(B)(ii) have no bearing on our interpretation of
the term ``inadequate domestic supply'' under the general waiver
authority under CAA section 211(o)(7)(A).
---------------------------------------------------------------------------

This section describes the derivation of ``candidate volumes''
based on a consideration of supply-related factors as the first step in
our consideration of all factors that we are required to analyze under
the statute. The candidate volumes represent those volumes that might
be reasonable to require based on the supply-related factors, but which
have not yet been evaluated in terms of the other economic and
environmental factors. Basing the candidate volumes primarily on
supply-related considerations is a reasonable first step because doing
so narrows the scope for the multifactor analysis in a commonsense way.
This step better enables our analysis of the remaining statutory
factors. The candidate volumes we have identified in this final rule
are similar to, but slightly higher than the candidate volumes in the
proposed rule. Specifically, the candidate cellulosic biofuel volumes
are higher for all three years (after accounting for the fact that we
are not finalizing the proposed eRIN provisions in this rule). The
candidate volumes for non-cellulosic advanced biofuels in this final
rule are higher than the candidate volumes from the proposed rule for
2023-2025. Finally, the candidate volumes for conventional biofuel in
this final rule are lower than the candidate volumes in the proposed
rule for all three years, due to lower projected gasoline consumption.
Section VI provides our rationale for the final volume requirements in
light of all the analyses that we conducted.
In this final rule we updated the candidate volumes after
considering the comments we received on our proposed rule as well as
additional data not available at the time the analyses for the proposed
rule were completed. We received many comments on the supply-related
factors that informed the candidate volumes, including comments related
to renewable fuel production capacity, the availability of feedstocks
to produce renewable fuel, the quantity of renewable fuel that can be
consumed in the transportation sector, and the ability for the
incentives provided by the RFS program to incentivize increased
renewable fuel production and use. These comments, along with more
recent data, led us to increase the candidate volumes for CNG/LNG
derived from biogas, ethanol produced from corn kernel fiber, biomass-
based diesel, and other advanced biofuels projected to be produced or
imported in 2023-2025, and corresponding increases to the candidate
volumes for these fuel types relative to the proposal. Our
consideration of comments on the proposed rule and additional data also
resulted in slight decreases to the candidate volumes of conventional
renewable fuel for 2023-2025.
Our updated projections of projected renewable fuel production and
imports, including a brief discussion of the

[[Page 44481]]

relevant comments and new data that informed these projections, can be
found in Section III.B. Section III.C summarizes the candidate volumes
we analyzed. Finally, Sections III.D and III.E describe, respectively,
the No RFS baseline that we believe would be the most appropriate point
of reference for the analysis of the other statutory factors, and the
volume changes calculated in comparison to that baseline.

A. Scope of Analysis

In Section II.D we discuss our statutory authority to establish RFS
volumes and percentage standards for multiple years in a single rule.
As discussed in that section, in this final rule we are establishing
volumes and percentage standards for three years, 2023-2025. Consistent
with this decision, Sections III.B and III.C discuss our determination
of the candidate volumes for each year covered by this rule.

B. Production and Import of Renewable Fuel

1. Cellulosic Biofuel
Cellulosic biofuel is defined as renewable fuel derived from any
cellulose, hemi-cellulose, or lignin that has lifecycle greenhouse gas
emissions that are at least 60 percent less than the baseline lifecycle
greenhouse gas emissions.\69\ In the past several years, production of
cellulosic biofuel has continued to increase. Cellulosic biofuel
production reached record levels in 2022, driven by compressed natural
gas (CNG) and liquified natural gas (LNG) derived from biogas. This
section describes our assessment of the rate of production of
qualifying cellulosic biofuel from 2023 to 2025, and some of the
uncertainties associated with these volumes. Further detail on our
projections of the rate of cellulosic biofuel production and import can
be found in RIA Chapter 6.1.
---------------------------------------------------------------------------

\69\ 40 CFR 80.1401.
[GRAPHIC] [TIFF OMITTED] TR12JY23.000

a. CNG/LNG Derived From Biogas
To be eligible to generate RINs for CNG/LNG derived from biogas,
biogas from qualifying sources first must be collected and upgraded to
enable its use in CNG/LNG vehicles. This upgrading process involves
removing undesirable components and contaminants from biogas. Biogas
that has been upgraded and distributed via a closed, private
distribution system is called ``treated biogas'' while biogas that has
been upgraded and distributed via the natural gas commercial pipeline
system is referred to as renewable natural gas (RNG). RNG is
essentially indistinguishable from fossil-based natural gas and can be
used interchangeably and transported through the same pipelines. While
treated biogas is typically used to fuel CNG/LNG vehicles at the site
where it is produced, RNG is injected into the natural gas commercial
pipeline system. Once injected into the natural gas commercial pipeline
system, RNG can be used in a variety of applications, including to fuel
CNG/LNG vehicles, for generating electricity, for residential heating,
and for other industrial or commercial purposes.
In the proposed rule we projected the use of CNG/LNG produced from
RNG \70\ in 2023-2025 using an industry-wide projection of the rate of
growth calculated from RIN generation over the previous 24 months.
While some commenters argued that EPA should project future production
of CNG/LNG from RNG based on a facility-by-facility assessment, many
supported the proposed methodology of using an industry-wide rate of
growth to project production in future years. Many of the commenters
who generally supported the rate of growth approach, however, requested
that EPA use a higher rate of growth that considered data beyond just
the most recent 24 months. These comments are discussed briefly at the
end of this section, and in greater detail in the RTC document. In this
final rule we are using an industry-wide rate of growth based on RIN
generation data

[[Page 44482]]

from 2015-2022 to project the production and use of RNG as CNG/LNG. As
discussed later in this section, we believe the growth rate calculated
using data from 2015-2022 better reflects the potential production and
use of RNG as CNG/LNG through 2025. This results in a significantly
higher rate of grow in the final rule (25.0%) relative to the proposed
rule (13.1%), and higher projected volumes of RNG use as CNG/LNG for
each year from 2023-2025.
---------------------------------------------------------------------------

\70\ We note that as described in the biogas regulatory reform
provisions in Section IX, we define RNG to mean biogas that has been
upgraded to commercial pipeline quality and placed onto the natural
gas commercial pipeline system. We also define the term ``treated
biogas'' to refer to biogas that has undergone treatment for use as
transportation fuel but that is not placed onto the natural gas
commercial pipeline system (i.e., it is distributed via a closed,
private distribution system). For purposes of this section of the
preamble, we use the term RNG to refer collectively to treated
biogas and RNG.
---------------------------------------------------------------------------

In projecting the production and use of RNG used as CNG/LNG in
2023-2025 we primarily considered two potential limiting factors. The
first factor considered was the quantity of RNG we project will be
produced from qualifying biogas in 2023-2025. Because biogas must be
upgraded to enable its use in CNG/LNG vehicles, the quantity of RNG
that we project will be produced sets a maximum for the quantity of
biogas that can be used in vehicles as CNG/LNG. The second major factor
we consider is the quantity of RNG that is capable of being used as
transportation fuel in CNG/LNG vehicles. As discussed above, RNG can be
used in many different applications and a variety of factors, including
limitations related to the demand for CNG/LNG from vehicles, fueling
infrastructure, and demand for RNG from other sectors can all impact
the quantity of CNG/LNG used in vehicles. Our projection of the
quantity of RNG used as CNG/LNG that will be produced and used in 2023-
2025 is described briefly in this section, and in greater detail in RIA
Chapter 6.1.3.
To project qualifying RNG production for this final rule we used an
industry wide projection approach that is similar, though not
identical, to the approach used to project the production of RNG used
as CNG/LNG in previous RFS rules as well as in the proposed rule. While
the approach we are using to project the production of CNG/LNG is
similar to the approach used in previous years and the proposal, we are
now using a broader range of data to calculate the growth rate used to
project future projection. This reflects our consideration of an
appropriate growth rate following engagement with stakeholders and
review of both new data and commenter submissions on the proposal. More
detail on our consideration of the appropriate rate of growth is
provided later in this section. We have successfully used an industry
wide projection methodology in previous years and continue to believe
it better reflects the projected growth of the industry in light of
potential limiting factors (which are more likely to be market based
than technology based) than a projection based on an assessment of each
potential RNG producer.
To project the production of qualifying RNG we calculated a year-
over-year growth rate and applied this growth rate to the total
production of RNG used as CNG/LNG in 2022 (the most recent year for
which complete data are available). To calculate the year-over-year
growth rate we considered RIN generation data for RNG used as CNG/LNG
from 2015-2022 instead of just the most recent 24 months for the
proposal. We believe a rate of growth based on this larger set of data
better reflects the potential for RNG production in 2023-2025. We also
note that this rate of growth is within the range of the growth rates
suggested by RNG producers in the public comment period (generally 20-
30%) and closer to, though still less than, estimated RNG production
from the Coalition for Renewable Natural Gas based on their analysis of
new RNG facilities under construction and in development.\71\ The data
used to calculate the projected rate of growth for RNG and the
resulting projections of RNG production in 2023-2025 are shown in Table
III.B.1.a-1 and Table III.B.1.a-2.
---------------------------------------------------------------------------

\71\ Further discussion of the growth rate used to project the
production of CNG/LNG derived from biogas, and our reasons for
considering data beyond the most recent 24 months, can be found in
RTC Section 3.2.2.

Table III.B.1.a-1--Generation of Cellulosic Biofuel RINs for RNG Used as
CNG/LNG
[Ethanol-equivalent gallons]
------------------------------------------------------------------------
2022 RIN
2015 RIN generation (million generation Year-over-year
RINs) (million RINs) increase (%)
------------------------------------------------------------------------
139.9........................... 666.1 25.0
------------------------------------------------------------------------

Table III.B.1.a-2--Projected Generation of Qualifying RNG
[Ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
Growth rate Volume (million
Year Date type (%) RINs)
----------------------------------------------------------------------------------------------------------------
2022........................................ Actual......................... N/A 665
2023........................................ Projection..................... 25.0 831
2024........................................ Projection..................... 25.0 1,039
2025........................................ Projection..................... 25.0 1,299
----------------------------------------------------------------------------------------------------------------

We next considered how much of the qualifying RNG produced in 2023-
2025 could be used as transportation fuel in the form of CNG/LNG. While
the volumes of RNG use as CNG/LNG in Table III.B.1.a-2. appear to be
approaching the upper limit (estimated to be 1.4-1.75 billion ethanol-
equivalent gallons) of all CNG/LNG capable of being used as
transportation fuel in 2023-2025 in CNG/LNG vehicles in the fleet,
these 2023-2025 volumes are still below the total quantity of CNG/LNG
projected to be used as transportation fuel in 2023-2025.\72\ Thus, the
entire quantity of qualifying RNG produced in 2023-2025 could still be
used as transportation fuel and be able to generate RINs under the RFS
program. We therefore used the volumes in Table III.B.1.a-2 as the
candidate volumes for RNG use as CNG/LNG in 2023-2025.
---------------------------------------------------------------------------

\72\ See RIA Chapter 6.1.3 for a further discussion of our
estimate of CNG/LNG used as transportation fuel in 2023-2025.
---------------------------------------------------------------------------

We received many comments on our projected volume for RNG used as
CNG/LNG in our proposed rule. While some commenters supported the
proposed volumes, many stakeholders involved in

[[Page 44483]]

the production, distribution, and use of RNG as CNG/LNG stated that the
projected volumes were too low. In particular, they stated that the
growth in RNG use as CNG/LNG in recent years was significantly impacted
by the COVID pandemic and did not reflect projected growth in this
industry through 2025. Some commenters also noted significant
investment in expanding RNG production which they claimed supported a
much higher growth rate in the projected volume of biogas used in CNG/
LNG vehicles.\73\
---------------------------------------------------------------------------

\73\ See RTC Section 3.2.2 for a summary of these comments and a
more detailed response.
---------------------------------------------------------------------------

In this final rule we used a growth rate based on a longer time-
period (2015-2022) than in both our proposed rule and previous RFS
rules. We believe the higher growth rate that results from using
additional data better reflects the likely production of RNG use as
CNG/LNG in 2023-2025 than using a growth rate based on the last 24
months of data. Using data from 2015-2022 strikes a balance between
using the most recent data available and not focusing exclusively on
data from the last 24 months, during which the industry may still have
been recovering from the impacts of the COVID pandemic. As noted
earlier, the growth rate that results from using this additional data
is supported by the public comments (which generally requested that EPA
use growth rates that ranged from 20 to 30 percent), as well as the
data received during the public comment period on the large number of
RNG production facilities that are currently under construction or in
the project development phase. Finally, we note that the limited data
available from early 2023 suggest that 25% growth is achievable in
2023.\74\
---------------------------------------------------------------------------

\74\ Further discussion of the growth rate used to project the
production of CNG/LNG derived from biogas, and our reasons for
considering data beyond the most recent 24 months, can be found in
RTC Section 3.2.2.
---------------------------------------------------------------------------

b. Ethanol From Corn Kernel Fiber
While there are several different technologies currently being
developed to produce liquid fuels from cellulosic biomass, these
technologies are by and large highly unlikely to produce significant
quantities of cellulosic biofuel by 2025. One exception is the
production of ethanol from corn kernel fiber (CKF), for which several
different companies have developed processes. Many of these processes
involve co-processing of both the starch and cellulosic components of
the corn kernel making it difficult to quantify what portion of the
ethanol they produce is from cellulosic biomass.
In the proposed rule we noted the potential for the production of
cellulosic ethanol from CKF in 2023-2025. We did not, however, project
any production of ethanol from CKF in 2023-2025 beyond the few
facilities that were currently registered as cellulosic biofuel
producers. At the time of the proposal no facilities had yet requested
to register as cellulosic biofuel producers using analytical methods
consistent with recently published guidance.\75\ Since the proposal,
however, a number of facilities have approached EPA with registration
requests. In this final rule we are now projecting that the production
of ethanol from CKF will increase from 7 million gallons in 2023 to 77
million gallons in 2025. These projections, which are described further
in the remainder of this section and in greater detail in RIA Chapter
6.1 are based on projections of the number of facilities we expect will
register as cellulosic biofuel producers and the expected rate of
cellulosic biofuel production at each facility.
---------------------------------------------------------------------------

\75\ Guidance on Qualifying an Analytical Method for Determining
the Cellulosic Converted Fraction of Corn Kernel Fiber Co-Processed
with Starch. Compliance Division, Office of Transportation and Air
Quality, U.S. EPA. September 2022 (EPA-420-B-22-041).
---------------------------------------------------------------------------

To be eligible to generate cellulosic RINs, facilities that are co-
processing starch and cellulosic components of the corn kernel must be
able to determine the amount of ethanol that is produced from the
cellulosic portion of the corn kernel. This requires the ability to
accurately and reliably calculate the amount of ethanol produced from
the cellulosic portion as opposed to the starch portion of the corn
kernel; EPA has to date had significant concerns with facilities'
abilities to accurately perform this calculation. In September 2022 EPA
published a document providing updated guidance on analytical methods
that could be used to quantify the amount of ethanol produced when co-
processing corn kernel fiber and corn starch. \76\ This guidance
highlighted several outstanding critical technical issues that need to
be addressed.
---------------------------------------------------------------------------

\76\ Guidance on Qualifying an Analytical Method for Determining
the Cellulosic Converted Fraction of Corn Kernel Fiber Co-Processed
with Starch. Compliance Division, Office of Transportation and Air
Quality, U.S. EPA. September 2022 (EPA-420-B-22-041).
---------------------------------------------------------------------------

Since issuing the proposed rule EPA has continued to have
substantive discussions with technology providers intending to use
analytical methods consistent with the guidance document and owners of
facilities intending to register as cellulosic biofuel producers using
these analytical methods. The technology providers have indicated that
using analytical methods consistent with those in the guidance document
they can demonstrate that approximately 1.5% of the ethanol produced
from existing corn ethanol facilities is produced from cellulosic
biomass.
Based on the information from the technology providers, we believe
that 1.5% of cellulosic ethanol can generally be produced from corn
kernel fiber at existing ethanol facilities with few, if any,
additional processing units or process changes. We are aware that many
ethanol facilities are working with the technology providers in order
to register their facilities to produce cellulosic ethanol. We are
therefore projecting volumes of ethanol from corn kernel fiber through
2025 that include production from facilities that have not yet
registered as cellulosic biofuel producers, but are expected to do so
during this time period. The projected production of cellulosic ethanol
from CKF, shown in Table III.B.1.b-1, are based on projections of when
facilities will register as cellulosic biofuel producers under the RFS
program and begin producing fuel. The projection methodology for
cellulosic ethanol production from CKF used in this final rule is
discussed further in RIA Chapter 6.1.2.

Table III.B.1.b-1--Projected Production of Ethanol From CKF
[Ethanol-equivalent gallons]
------------------------------------------------------------------------
Volume (million
Year RINs)
------------------------------------------------------------------------
2023................................................. 7
2024................................................. 51
2025................................................. 77
------------------------------------------------------------------------

c. Other
For the 2023-2025 timeframe, we expect that commercial scale
production of cellulosic biofuel in the U.S. beyond CNG/LNG derived
from biogas and ethanol produced from CKF will be very limited. There
are several cellulosic biofuel production facilities in various stages
of development, construction, and commissioning that may be capable of
producing commercial scale volumes of cellulosic biofuel by 2025. These
facilities generally are focusing on producing cellulosic hydrocarbons
that could be blended into gasoline, diesel, and jet fuel from
feedstocks such as separated municipal solid waste (MSW) and slash,
precommercial thinnings, and tree residue. In light of the fact that no
parties have achieved consistent production of liquid cellulosic
biofuel

[[Page 44484]]

in the U.S. or consistently exported liquid cellulosic biofuel to the
U.S., production and import of liquid cellulosic biofuel in 2023-2025
is highly uncertain and likely to be relatively small (see RIA Chapter
6.1.4 for more detail on the potential production of liquid cellulosic
biofuel through 2025). For the candidate volumes we have projected no
production of these fuels in 2023-2025.
d. eRINs
As noted in the Executive Summary, we are not finalizing the
proposed revisions to the eRIN program in this rulemaking. We are
therefore not including any volume from renewable electricty in our
projections of the production and import of cellulosic biofuel. eRINs
were projected to be a significant source of cellulosic biofuel in the
proposed rule in 2024 and 2025 (representing 600 million and 1.2
billion RINs in 2024 and 2025 respectively). Because we no longer
included projected volumes of eRINs, our projections of the production
and imports of total cellulosic biofuel for 2024 and 2025 in this final
rule are lower than the proposed rule, despite the higher projections
for RNG used in vehicles as a renewable form of CNG/LNG and ethanol
produced from CKF in this final rule.
2. Biomass-Based Diesel
Since 2010, when the BBD volume requirement was added to the RFS
program, production of BBD has generally increased year-on-year. The
volume of BBD supplied in any given year is influenced by a number of
factors, including: production capacity, feedstock availability and
cost, available incentives including the RFS program, the availability
of imported BBD, the demand for BBD in foreign markets, and several
other economic factors.
The vast majority of fuel that qualifies as BBD is biodiesel and
renewable diesel. Both these fuels are produced from animal fat and
vegetable oils and are replacements for diesel fuel, however they
differ in their production processes and chemical composition.
Biodiesel is an oxygenated fuel that is generally produced using a
transesterification process. Renewable diesel is a hydrocarbon fuel
that closely resembles petroleum diesel that is generally produced by
hydrotreating renewable feedstocks. From 2010 through 2015 the vast
majority of BBD supplied to the U.S. was biodiesel. While biodiesel is
still the largest source of BBD supplied to the U.S., the supply of
renewable diesel in 2022 was nearly as large as the supply of
biodiesel, and the supply of renewable diesel is projected to exceed
the supply of biodiesel in future years as renewable diesel production
and imports continue to grow.
[GRAPHIC] [TIFF OMITTED] TR12JY23.001

There are also very small volumes of renewable jet fuel and heating
oil that qualify as BBD, and there are currently significant efforts
underway to incentivize growth in renewable jet fuel in particular
(often referred to as sustainable aviation fuel or SAF).\77\ Jet fuel
has qualified as a RIN-generating advanced biofuel under the RFS
program since 2010, and must achieve at least a 50 percent reduction in
GHGs in comparison to petroleum-based fuels. The technology and
feedstocks that can be used to produce SAF today are often the same as
those currently used to produce renewable diesel. For example, the same
process that produces renewable diesel from waste fats, oils, and
greases or plant oils generally

[[Page 44485]]

produces hydrocarbons in the distillation range of jet fuel that can be
separated and sold as SAF instead of being sold as renewable diesel.
While relatively little SAF has been produced since 2010--less than 15
million gallons per year--opportunities for increasing this category of
advanced biofuel exist. A new tax credit for SAF, which was included in
the Inflation Reduction Act, may result in increasing volumes of SAF
produced from existing renewable diesel production facilities. SAF
production from existing renewable diesel facilities would increase the
amount of renewable fuel available for a transportation sector that may
be otherwise particularly difficult to reduce carbon intensity;
however, it would likely result in a decrease in renewable diesel
production, with little or no net change in their overall production of
RIN-generating fuels.\78\ In this rule we have not separately projected
growth in SAF production, but we recognize that some of the projected
growth in renewable diesel production may instead be SAF from the same
production facilities. Other SAF production technologies and production
facilities also being developed could enable the future production of
SAF from new facilities and feedstocks that are not expected to impact
renewable diesel production.
---------------------------------------------------------------------------

\77\ According to EMTS data renewable jet fuel supply has ranged
from 0-15 million gallons per year from 2014-2022. Jet fuel is
eligible to generate RINs per 40 CFR 80.1426(a)(1)(iv), provided all
other regulatory requirements are met.
\78\ The equivalence values for renewable diesel and jet fuel
are similar, with renewable diesel generating 1.6-1.7 RINs per
gallon depending on the energy content of the fuel and Jet fuel
generally generating 1.6 RINs per gallon.
---------------------------------------------------------------------------

In addition, in April 2022 the Biden Administration announced a new
Sustainable Aviation Fuel Grand Challenge to inspire the dramatic
increase in the production of sustainable aviation fuels to at least 3
billion gallons per year by 2030. This effort is accompanied by new and
ongoing funding opportunities to support sustainable aviation fuel
projects and fuel producers totaling up to $4.3 billion.
The remainder of this section provides historical data on biodiesel
and renewable diesel production and production capacity, briefly
discusses potential feedstock limitations for biodiesel and renewable
diesel production in future years, and summarizes our assessment of the
rate of production and use of qualifying BBD from 2023 to 2025, and
some of the uncertainties associated with those volumes. Our
assessments of production capacity, available feedstocks, and likely
future production of biodiesel and renewable diesel in this final rule
reflect our consideration of the comments we received on this rule as
well as updated data not available at the time of the proposed rule.
Our projections of the likely future production of biodiesel and
renewable diesel in this final rule are higher than in the proposed
rule, particularly in 2025 due to higher projections of feedstock
availability. Further details on these volume projections can be found
in RIA Chapter 6.2.
a. Biodiesel
Historically, the largest volumes of biomass-based diesel and
advanced biofuel supplied in the RFS program have been biodiesel.
Domestic biodiesel production increased from approximately 1.3 billion
gallons in 2014 to approximately 1.8 billion gallons in 2018. Since
2018 domestic biodiesel production decreased slightly, to approximately
1.6 billion gallons in 2022. The U.S. has also imported significant
volumes of biodiesel in previous years and has been a net importer of
biodiesel since 2013. Biodiesel imports reached a peak in 2016 and
2017, with the majority of the imported biodiesel coming from
Argentina.\79\ In August 2017, the U.S. announced tariffs on biodiesel
imported from Argentina and Indonesia.\80\ These tariffs were
subsequently confirmed in April 2018.\81\ Since that time no biodiesel
has been imported from Argentina or Indonesia, and net biodiesel
imports have been relatively small.
---------------------------------------------------------------------------

\79\ EIA U.S. Imports by Country of Origin,<a href="https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPOORDB_im0_mbbl_a.htm">https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPOORDB_im0_mbbl_a.htm</a>. According to
EIA data, 67 percent of all biodiesel imports in 2016 and 2017 were
from Argentina.
\80\ 82 FR 40748 (Aug. 28, 2017).
\81\ 83 FR 18278 (April 26, 2018).
---------------------------------------------------------------------------

Available data suggests that there is significant unused biodiesel
production capacity in the U.S., and thus domestic biodiesel production
could grow without the need to invest in additional production
capacity. Consistent with comments we received on the rule, we have
updated our assessment of domestic biodiesel production capacity using
the latest information available from EIA. Data reported by EIA shows
that biodiesel production capacity in January 2023 was approximately
2.05 billion gallons per year.\82\ According to EIA data biodiesel
production capacity grew slowly from about 2.1 billion gallons in 2012
\83\ to a peak of approximately 2.5 billion gallons in 2018.\84\ EIA
reports that domestic biodiesel production capacity was approximately
2.5 billion gallons as recently as October 2021.\85\ This facility
capacity data is collected by EIA in monthly surveys, which suggests
that this capacity represents the production at facilities that are
currently producing some volume of biodiesel and likely does not
include inactive facilities that are far less likely to complete a
monthly survey. EPA separately collects facility capacity information
through the facility registration process. This data includes both
facilities that are currently producing biodiesel and those that are
inactive. EPA's data shows a total domestic biodiesel production
capacity of 3.1 billion gallons per year in April 2022, of which 2.8
billion gallons per year was at biodiesel facilities that generated
RINs in 2021. These estimates of domestic production capacity strongly
suggest that domestic biodiesel production capacity is unlikely to
limit domestic biodiesel production through 2025.
---------------------------------------------------------------------------

\82\ EIA Monthly Biofuels Feedstock and Capacity Update, <a href="https://www.eia.gov/biofuels/update">https://www.eia.gov/biofuels/update</a>. Mar. 31, 2023 ().
\83\ EIA Monthly Biodiesel Production Report. February 2013.
\84\ EIA Monthly Biodiesel Production Report. February 2019.
\85\ EIA Monthly Biofuels Feedstock and Capacity Update. January
31, 2023 (<a href="https://www.eia.gov/biofuels/update">https://www.eia.gov/biofuels/update</a>).
---------------------------------------------------------------------------

b. Renewable Diesel and SAF
Renewable diesel and SAF are currently produced using the same
feedstocks and very similar production technologies, and in most cases
are produced at the same production facilities. Historically, greater
incentives have been available for renewable diesel production, which
has caused many of these production facilities to maximize renewable
diesel production. In the near term, we expect that any increase in SAF
production will result in a corresponding decrease in renewable diesel
production.\86\ In this section we have focused on renewable diesel
production, but we acknowledge that an increasing portion of this fuel
may be used as SAF in future years.
---------------------------------------------------------------------------

\86\ We recognize that new technologies are being developed to
produce SAF from a wider variety of feedstocks. Production of SAF
using these technologies would not negatively impact renewable
diesel production. Through 2025, however, we expect that only
relatively modest volumes of these fuels might be produced.
---------------------------------------------------------------------------

Renewable diesel has historically been produced and imported in
smaller quantities than biodiesel as shown in Figure III.B.2-1. In
recent years, however, domestic production of renewable diesel has
increased significantly. Renewable diesel production facilities
generally have higher capital costs and production costs relative to
biodiesel, which likely accounts for the much higher volumes

[[Page 44486]]

of biodiesel production relative to renewable diesel production to
date. The higher cost of renewable diesel production can largely be
offset through the benefits of economies of scale, since renewable
diesel facilities tend to be much larger than biodiesel production
facilities. More importantly, because renewable diesel more closely
resembles petroleum-based diesel than biodiesel fuel (both renewable
diesel and petroleum-based diesel are hydrocarbons while biodiesel is a
methyl-ester) renewable diesel can be blended at much higher levels
than biodiesel. This allows renewable diesel producers to benefit to a
greater extent from the LCFS credits in California and other states in
addition to the RFS incentives and the federal tax credit. The greater
ability for renewable diesel to generate credits under California's
LCFS program provides a significant advantage over biodiesel. Biodiesel
blends in California containing 6 to 20 percent biodiesel require the
use of an additive to comply with California's Alternative Diesel Fuels
Regulations, making the use of higher level biodiesel blends more
challenging in California.\87\ We expect that an increasing number of
states will adopt clean fuels programs, and that these programs could
provide an advantage to renewable diesel production relative to
biodiesel production in the U.S. See RIA Chapter 6.2 for further
discussion.
---------------------------------------------------------------------------

\87\ CARB Alternative Diesel Fuels Regulations Frequently Asked
Questions. In 2021 nearly all renewable diesel consumed in the U.S.
was consumed in California. Together renewable diesel and biodiesel
represented approximately 26 percent of all diesel fuel consumed in
California in 2021.
---------------------------------------------------------------------------

Total domestic renewable diesel production capacity has increased
significantly in recent years from approximately 280 million gallons in
2017 to approximately 2.9 billion gallons in January 2023.\88\
Additionally, a number of parties have announced plans to build new
renewable diesel production capacity with the potential to begin
production by the end of 2025. This new capacity includes new renewable
diesel production facilities, expansions of existing renewable diesel
production facilities, and the conversion of units at petroleum
refineries to produce renewable diesel.
---------------------------------------------------------------------------

\88\ 2017 renewable diesel capacity based on facilities
registered in EMTS; January 2023 renewable capacity based on EIA
March 2023 Monthly Biofuels Feedstock and Capacity Update.
---------------------------------------------------------------------------

We received numerous comments on the proposed rule related to
renewable diesel production capacity. These comments generally cited
projections that renewable diesel production capacity will grow
significantly through 2025, and many of these comments cited data and
projections from EIA. In this final rule we have updated our projection
of renewable diesel production capacity through 2025 based on updated
information from EIA, consistent with these comments. As in the
proposed rule, however, we expect that renewable diesel production
through 2025 will be limited to a level below production capacity
primarily due to limited feedstock availability, which is further
discussed later in Section III.B.2.c.
EIA currently projects that renewable diesel production capacity
could reach nearly 6 billion gallons by 2025,\89\ though it is possible
that not all these announced projects will be completed, and not all of
those that are completed will necessarily produce renewable diesel in
the 2023-2025 timeframe addressed by this rule.\90\ In previous years,
domestic renewable diesel production has increased in concert with
increases in domestic production capacity, with renewable diesel
facilities generally operating at high utilization rates. In future
years we expect that feedstock limitations will result in renewable
diesel and biodiesel facilities operating below their production
capacity. Competition for qualifying feedstocks could also result in
reductions in biodiesel production if larger renewable diesel
facilities are able to out-compete smaller biodiesel producers for
feedstock.
---------------------------------------------------------------------------

\89\ Domestic renewable diesel capacity could more than double
through 2025. EIA Today in Energy. Feb. 2, 2023.
\90\ Reuters. CVR Pauses Renewable Diesel Plans as Feedstock
Prices Surge. August 3, 2021. Available at: <a href="https://www.reuters.com/business/energy/cvr-pauses-renewable-diesel-plans-feedstock-prices-surge-2021-08-03">https://www.reuters.com/business/energy/cvr-pauses-renewable-diesel-plans-feedstock-prices-surge-2021-08-03</a>.
---------------------------------------------------------------------------

In addition to domestic production of renewable diesel, the U.S.
has also imported renewable diesel, with nearly all of it produced from
FOG and imported from Singapore.\91\ In more recent years, the U.S. has
also exported increasing volumes of renewable diesel. Net imports of
renewable diesel were approximately 120 million gallons in 2021 and 130
million gallons in 2022. This situation, wherein significant volumes of
renewable diesel are both imported and exported, is likely the result
of a number of factors, including the design of the biodiesel tax
credit (which is available to renewable diesel that is either produced
or used in the U.S. and thus eligible for exported volumes as well),
the varying structures of incentives for renewable diesel (with the
level of incentives varying depending on the feedstocks used to produce
the renewable diesel varying as well as by country), and logistical
considerations (renewable diesel may be imported and exported from
different parts of the country). We are projecting that net renewable
diesel imports will continue through 2025 at approximately the levels
observed in recent years, as domestic producers export volumes to take
advantage of both the U.S. tax incentives and other incentives abroad.
However, we also recognize that increasing net imports of renewable
diesel could be a significant source of additional renewable fuel
supply in future years.
---------------------------------------------------------------------------

\91\ EIA Monthly Renewable Diesel Imports by Country, available
at <a href="https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPOORDO_im0_mbbl_m.htm">https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPOORDO_im0_mbbl_m.htm</a>.
---------------------------------------------------------------------------

c. BBD Feedstocks
As was highlighted in the proposal, when considering the likely
production and import of biodiesel and renewable diesel in future
years, the availability of feedstock is a key consideration. We
received many comments on our assessment of the availability of BBD
feedstocks in the proposed rule. Many of these commenters stated that
the data from USDA \92\ that EPA used to project domestic soybean oil
production through 2025 was not appropriate for this use. For this
final rule we have updated our projections of soybean oil production in
the U.S. and canola oil production in Canada through 2025. Our current
projections of the production of these feedstocks are significantly
higher than our projections in the proposed rule (which did not
consider increased availability of canola oil from Canada \93\) and are
generally in alignment with the projections provided by the commenters
and discussions with market experts. As in our proposed rule, however,
we continue to believe that the availability of qualifying feedstocks
will serve to limit the production of biodiesel and renewable diesel
through 2025. We also continue to believe that when evaluating the
various statutory factors, the greatest benefits and fewest negative
impacts of these fuels occur when increased production of these fuels
is consistent with increased production of qualifying feedstocks
produced in North America. Our assessment of available feedstocks
(including our consideration of

[[Page 44487]]

comments on the proposed rule and data not available at the time of the
proposed rule) is discussed briefly in this section, and in greater
detail in RIA Chapter 6.2 and the RTC document.
---------------------------------------------------------------------------

\92\ USDA Agricultural Projections to 2031.
\93\ Since the analyses for the proposed rule were conducted,
EPA approved a pathway for renewable diesel produced from canola
oil. In addition, Canadian feedstocks are covered by an aggregate
compliance approach and are likely to be sourced from increased
production of canola oil rather than diverted from existing uses.
For a further discussion of the inclusion of canola oil from Canada
in our projection of available feedstocks for biodiesel and
renewable diesel production, see RTC Section 4.2.
---------------------------------------------------------------------------

Currently, biodiesel and renewable diesel in the U.S. are produced
from a number of different feedstocks, including fats, oils and greases
(FOG), distillers corn oil, and virgin vegetable oils such as soybean
oil and canola oil. As domestic production of biodiesel has increased
since 2014, an increasing percentage of total biodiesel production has
been produced from soybean oil, with smaller increases in the use of
FOG, distillers corn oil, and canola oil.
[GRAPHIC] [TIFF OMITTED] TR12JY23.002

Use of soybean oil to produce biodiesel increased from
approximately 10 percent of all domestic soybean oil production in the
2009/2010 agricultural marketing year to 42 percent in the 2021/2022
agricultural marketing year.\94\ In the intervening years, the total
increase in domestic soybean oil production and the increase in the
quantity of soybean oil used to produce biodiesel and renewable diesel
were very similar, indicating that the increase in oil production was
likely driven by the increasing demand for biofuel. However, as the
production of renewable diesel has increased in recent years it appears
that demand for soybean oil is growing faster than demand for soybean
meal. Notably, the percentage of the soybean value that came from the
soybean oil (rather than the meal and hulls) had been relatively stable
and averaged approximately 33 percent from 2016-2020. The percentage of
the soybean value that came from the soybean oil increased
significantly starting in 2021, reaching a high of 53 percent in
October 2021, before declining slightly to 43 percent in August 2022
(the most recent date for which data are available).
---------------------------------------------------------------------------

\94\ USDA Oil Crops Yearbook. March 2023.
---------------------------------------------------------------------------

Through 2020, most of the renewable diesel produced in the U.S. was
made from FOG and distillers corn oil, with smaller volumes produced
from soybean oil. While many biodiesel production facilities are unable
to use FOG and distillers corn oil, renewable diesel production
facilities are generally able to use them. Additionally, nearly all the
renewable diesel consumed in the U.S. is used in California due to the
combined value of RFS and LCFS incentives (together with the blenders'
tax credit). Under California's LCFS program renewable diesel produced
from FOG and distillers corn oil receive more credits than renewable
diesel produced from soybean oil.
Available volumes of FOG and distillers corn oil from domestic
sources are expected to continue to increase in future years, but these
increases are expected to be limited. FOG are the byproducts of other
activities (rendering operations, for example), and production of FOG
is not responsive to increasing demand for biofuel production. We
therefore expect the availability of FOG to increase slowly, consistent
with the observed trend in recent years. Similarly, distillers corn oil
is a byproduct of ethanol production. Since we do not anticipate
significant growth in ethanol production in future years, we do not
project significant increases in the production of distillers corn oil
for biofuel production, as most ethanol production facilities currently
produce distillers corn oil. Therefore, if renewable diesel production
in future years increases rapidly as suggested by the large production
capacity announcements, it will likely require increased use of
vegetable oils such as soybean oil and canola oil, increased use of
imported feedstocks, or the use of feedstocks diverted from other
markets.
Greater volumes of soybean oil are projected to be produced from
new or expanded soybean crushing facilities. Several parties have
announced plans to expand existing soybean crushing capacity and/or
build new soybean crushing facilities.\95\ This new crushing

[[Page 44488]]

capacity is expected to come online in the 2023-2025 timeframe.
Increased crushing of soybeans in the U.S. will increase domestic
soybean oil production. In this final rule we have updated our
projections of domestic soybean oil production through 2025 to better
reflect recent investments in domestic soybean crushing facilities that
are expected to begin operating by 2025.
---------------------------------------------------------------------------

\95\ For example, see Demaree-Saddler, Holly, Cargill plans US
soy processing operations expansion, World Grain, March 4, 2021;
Sanicola, Laura, Chevron to invest in Bunge soybean crushers to
secure renewable feedstock, Reuters, Sept. 2, 2021.
---------------------------------------------------------------------------

If domestic crushing of soybeans increases at the expense of
soybean exports, domestic vegetable oil production could be increased
without the need for additional soybean production. Alternatively,
increased demand for soybeans from new or expanded crushing facilities
could result in increased soybean production in the U.S or increasing
volumes of qualifying feedstocks such as soybean oil and canola oil may
be diverted from existing markets to produce renewable diesel, with
non-qualifying feedstocks such as palm oil used in place of soybean and
canola oil in food and oleochemical markets.
We also expect that production of canola oil will increase in
future years due to expanding canola crushing capacity in Canada.
Similar to the investments in soybean crushing in the U.S., a number of
companies have announced investment in additional canola crushing
capacity, and some of these projects are already under construction.
Increasing canola oil production in Canada could provide an opportunity
for domestic renewable diesel producers to import canola oil for
biofuel production, however we expect that these parties will face
competition for this feedstock from Canadian biofuel producers as well
as food and other non-biofuel markets. The assessment of feedstock
availability for this final rule (discussed in greater detail in RIA
Chapter 6.2.3) includes volumes of imported canola oil we project could
be available to domestic BBD producers.
d. Projected BBD Production and Imports
We project that the supply of BBD to the U.S. will increase through
2025. Consistent with our updated projections of feedstock availability
discussed in the preceding section, our projections of BBD production
and imports are higher in this final rule than in the proposed rule,
particularly in 2025. We project that the largest increases will come
from domestic renewable diesel as new production facilities come
online. We project slight decreases in the volume of biodiesel used in
the U.S. as new renewable diesel producers are able to out-compete some
existing biodiesel producers for limited feedstocks. One significant
factor that is likely to negatively impact biodiesel production
relative to renewable diesel production is that opportunities for
renewable diesel expansion in California are not constrained by
blending limits. Renewable diesel can therefore continue to benefit
from both LCFS credits and the RFS RIN incentives. In contrast,
continued biodiesel expansion in California is expected to be more
limited due to requirements for the use of additives in higher level
biodiesel blends. Consequently, for biodiesel to continue to expand, it
must do so primarily outside of California and without the added
financial incentive of the LCFS credits. This provides a significant
advantage to renewable diesel in the competition for access to new
feedstocks, particularly feedstocks with low carbon intensity (CI)
scores in California's LCFS program and Oregon and Washington's Clean
Fuels programs. While we project most of the biodiesel and renewable
diesel supplied to the U.S. will be produced domestically, we project
that imports of both biodiesel and renewable diesel will continue to
contribute to the supply of these fuels through 2025. We note that in
the first quarter of 2023 imports of biodiesel and renewable diesel,
and the feedstocks used to produce these fuels in the U.S., increased
substantially on a year-over-year basis, seemingly in response to the
proposed volume requirements for 2023-2025. See RIA Chapter 6.2 for
more information on the projected supply of biodiesel and renewable
diesel to the U.S. in 2023-2025. We take this data into consideration
both in our assessment of the candidate volumes of non-cellulosic
advanced biofuel (discussed in Section III.C.2) and the final volumes
of advanced and total renewable fuel (discussed in Section VI).
3. Other Advanced Biofuel
In addition to BBD, other renewable fuels that qualify as advanced
biofuel have been consumed in the U.S. in the past and would be
expected to contribute to compliance with applicable volume
requirements in the years after 2022. These other advanced biofuels
include imported sugarcane ethanol, domestically produced advanced
ethanol, biogas that is purified and compressed to be used in CNG or
LNG vehicles, heating oil, naphtha, and renewable diesel that does not
qualify as BBD.\96\ However, these biofuels have been consumed in much
smaller quantities than biodiesel and renewable diesel in the past,
and/or have been highly variable.
---------------------------------------------------------------------------

\96\ Renewable diesel produced through coprocessing vegetable
oils or animal fats with petroleum cannot be categorized as BBD but
remains advanced biofuel. See 40 CFR 80.1426(f)(1).
---------------------------------------------------------------------------

We did not receive a significant number of comments suggesting
alternative projections of other advanced biofuel volumes. The comments
we did receive generally suggested higher volumes might be appropriate
due to expectations of increased production of SAF \97\ (which is
covered in Section III.B.2) and CNG/LNG produced from food waste or
other non-cellulosic feedstocks. For this final rule we used the same
general projection methodology as in the proposed rule, but we included
data from 2022 that was not available at the time of the proposed rule.
The inclusion of this additional data resulted in slightly higher
volumes of other advanced biofuels relative to the proposed rule.
---------------------------------------------------------------------------

\97\ While the existing pathways for SAF qualify as BBD, rather
than advanced biofuel, some commenters stated that increasing
production of SAF would result in additional volumes of other
advanced biofuel.
---------------------------------------------------------------------------

In order to estimate the volumes of these other advanced biofuels
that may be available in 2023-2025, we used the same general
methodology as in the proposed rule. This methodology was originally
presented in the annual rulemaking establishing the applicable
standards for 2020-2022.\98\ This methodology addresses the historical
variability in these categories of advanced biofuel while recognizing
that consumption in more recent years is likely to provide a better
basis for making future projections than consumption in earlier years.
Specifically, we applied a weighting scheme to historical volumes
wherein the weighting was higher for more recent years and lower for
earlier years. The result of this approach is shown in the table below.
Details of the derivation of these estimates can be found in RIA
Chapter 5.4.
---------------------------------------------------------------------------

\98\ 87 FR 39600 (July 1, 2022).

Table III.B.3-1--Estimate of Future Consumption of Other Advanced
Biofuel
------------------------------------------------------------------------
Volume
Fuel (million RINs)
------------------------------------------------------------------------
Imported sugarcane ethanol.............................. 95
Domestic ethanol........................................ 27
CNG/LNG................................................. 6
Heating oil............................................. 3

[[Page 44489]]

Naphtha................................................. 55
Renewable diesel........................................ 104
---------------
Total............................................... 290
------------------------------------------------------------------------

As the available data does not permit us to identify an upward or
downward trend in the historical consumption of these other advanced
biofuels, we have used the volumes in Table III.B.3-1 for all years
covered in this final rule (i.e., 2023-2025).
4. Conventional Renewable Fuel
Conventional renewable fuel includes any renewable fuel that is
made from renewable biomass as defined in 40 CFR 80.1401, does not
qualify as advanced biofuel, and meets one of the following criteria:
<bullet> Is demonstrated to achieve a minimum 20 percent reduction
in GHGs in comparison to the gasoline or diesel which it displaces; or
<bullet> Is exempt (``grandfathered'') from the 20 percent minimum
GHG reduction requirement due to having been produced in a facility or
facility expansion that commenced construction on or before December
19, 2007, as described in 40 CFR 80.1403.\99\
---------------------------------------------------------------------------

\99\ CAA section 211(o)(2)(A)(i).
---------------------------------------------------------------------------

Under the statute, there is no volume requirement for conventional
renewable fuel. Instead, conventional renewable fuel is that portion of
the total renewable fuel volume requirement that is not required to be
advanced biofuel. In some cases, it is referred to as an ``implied''
volume requirement. However, obligated parties are not required to
comply with it per se since any portion of it can be met with advanced
biofuel volumes in excess of that needed to meet the advanced biofuel
volume requirement.
To estimate candidate volumes of conventional renewable fuel for
2023-2025, we focused primarily on projecting volumes of corn ethanol
consumption, which in turn is driven by total ethanol consumption. For
this final rule we have updated our projections of total ethanol
consumption and corn ethanol consumption based on the comments we
received and additional data that was not available for the proposed
rule. We also investigated potential volumes of non-advanced biodiesel
and renewable diesel.
a. Corn Ethanol
Ethanol made from corn starch has dominated the renewable fuels
market on a volume basis in the past and is expected to continue to do
so for the time period addressed by this rulemaking.\100\ Corn starch
ethanol is prohibited by statute from being an advanced biofuel
regardless of its GHG performance in comparison to gasoline.\101\
---------------------------------------------------------------------------

\100\ Conventional ethanol from feedstocks other than corn
starch have been produced in the past, but at significantly lower
volumes. Production of ethanol from grain sorghum reached an
historical high of 125 million gallons in 2019, representing just
less than 1 percent of all conventional ethanol in that year; grain
sorghum ethanol in 2022 was only 77 million gallons. Waste
industrial ethanol and ethanol made from non-cellulosic portions of
separated food waste have been produced more sporadically and at
even lower volumes. These other sources do not materially affect our
assessment of volumes of conventional ethanol that can be produced.
\101\ CAA section 211(o)(1)(B)(i).
---------------------------------------------------------------------------

Total domestic corn ethanol production capacity increased
dramatically between 2005 and 2010 and increased at a slower rate
thereafter. In 2022, production capacity had reached 17.7 billion
gallons.102 103 Available production capacity was
significantly underused in 2020 and to some degree in 2021 because the
COVID-19 pandemic depressed gasoline demand in comparison to previous
years and thus ethanol demand in the form of E10 (gasoline containing
10% denatured ethanol). Actual production of ethanol in the U.S.
reached 15.4 billion gallons in 2022, compared to 16.1 billion gallons
in 2018.\104\
---------------------------------------------------------------------------

\102\ ``2022 Ethanol Industry Outlook--RFA,'' available in the
docket.
\103\ ``Ethanol production capacity--EIA August 2022,''
available in the docket.
\104\ ``EIA Monthly Energy Review, April 2023,'' available in
the docket.
---------------------------------------------------------------------------

The expected annual rate of future commercial production of corn
ethanol will continue to be driven primarily by gasoline demand in the
2023-2025 timeframe as most gasoline is expected to continue to contain
10 percent ethanol. Commercial production of corn ethanol is also a
function of exports of ethanol and the demand for E0, E15, and E85. We
have incorporated projected growth in opportunities for sales of E15
and E85 into our assessment. There is an excess of production capacity
of ethanol and corn feedstock in comparison to the ethanol volumes that
we estimate will be consumed in the near future given constraints on
consumption as described in Section III.B.5. Thus, consistent with the
proposed rule, it does not appear that production capacity will be a
limiting factor in 2023-2025 for meeting the candidate volumes.
b. Biodiesel and Renewable Diesel
Other than corn ethanol, the only other conventional renewable
fuels that have been used at significant levels in the U.S. have been
biodiesel and renewable diesel. The vast majority of those volumes were
imported, and all of it was grandfathered under 40 CFR 80.1403 and thus
was not required to meet the 20 percent GHG reduction requirement.
While conventional biodiesel and renewable diesel could be used in
2023-2025, as in the proposed rule we are not projecting any volumes of
these fuels will be used in these years.\105\
---------------------------------------------------------------------------

\105\ Data from EMTS shows some generation of D6 RINs for
biodiesel and renewable diesel in recent years, however these RINs
were retired using the retirement code ``renewable fuel used or
designated to be used in any application that is not transportation
fuel, heating oil, or jet fuel.'' These RINs therefore do not
represent qualifying fuel under the RFS program.
---------------------------------------------------------------------------

Actual global production of palm oil biodiesel and renewable diesel
was about 4.5 billion gallons in 2021.\106\ The U.S. could be an
attractive market for this foreign-produced conventional biodiesel and
renewable diesel if domestic demand for conventional renewable fuel
exceeded domestic supply, i.e., the amount of ethanol that could be
consumed combined with domestic production of conventional biodiesel
and renewable diesel. While there is no RIN-generating pathway for
biodiesel or renewable diesel produced from palm oil in the RFS
program, fuels produced at grandfathered facilities from any feedstock
meeting the definition of ``renewable biomass'' may be eligible to
generate conventional renewable fuel RINs. Total foreign production
capacity at grandfathered biodiesel and renewable diesel production
facilities is approximately 1 billion gallons, suggesting that
significant volumes of grandfathered biodiesel and renewable diesel
could be imported under favorable market conditions.
---------------------------------------------------------------------------

\106\ Total worldwide production of biodiesel and renewable
diesel was 55 billion liters in 2021, of which 31 percent was from
palm oil. See OECD-FAO Agricultural Outlook 2022-2031, p.236,
available at <a href="https://www.oecd.org/development/oecd-fao-agricultural-outlook-19991142.htm">https://www.oecd.org/development/oecd-fao-agricultural-outlook-19991142.htm</a>.
---------------------------------------------------------------------------

Historical U.S. imports of conventional biodiesel and renewable
diesel have been only a small fraction of global production in the
past. Conventional biodiesel imports rose between 2012 and 2016,
reaching a high of 113 million gallons.\107\ After 2016,

[[Page 44490]]

however, there have been no imports of conventional biodiesel. Small
refinery exemptions granted from 2016-2018 decreased demand for
renewable fuel in the U.S. and likely had an impact on conventional
biodiesel and renewable diesel imports. Imports of conventional
renewable diesel have been similarly low, reaching a high of 87 million
gallons in 2015 with no conventional renewable diesel imported since
2017.\108\ The highest imported volume of total conventional biodiesel
and renewable diesel occurred in 2016 with 160 million gallons (258
million RINs).
---------------------------------------------------------------------------

\107\ ``RIN supply as of 3-7-23,'' available in the docket.
\108\ ``RIN supply as of 3-7-23,'' available in the docket.
---------------------------------------------------------------------------

5. Ethanol Consumption
Ethanol consumption in the U.S. is dominated by E10, with higher
ethanol blends such as E15 and E85 being used in much smaller
quantities. The total volume of ethanol that can be consumed, including
that produced from corn, cellulosic biomass, the non-cellulosic
portions of separated food waste, and sugarcane, is a function of these
three ethanol blends and demand for E0. The use of these different
gasoline blends is reflected in the poolwide ethanol concentration
which increased dramatically from 2003 through 2010 and thereafter
increased at a considerably slower rate.\109\
---------------------------------------------------------------------------

\109\ As discussed in Section VII.B, the gasoline+diesel
estimates used to calculate the percentage standards have
historically been lower than the gasoline+diesel volumes used by
obligated parties to determine their Renewable Volume Obligations
(RVO). Relatedly, the historical ethanol concentration values shown
in Figure III are likely to be higher than actual values due to some
underestimates of total gasoline demand.
[GRAPHIC] [TIFF OMITTED] TR12JY23.003

As the average ethanol concentration approached and then exceeded
10 percent, the gasoline pool became saturated with E10, with a small,
likely stable volume of E0 and small but increasing volumes of E15 and
E85. The average ethanol concentration can exceed 10 percent only
insofar as the ethanol in E15 and E85 exceeds the ethanol content of
E10 and more than offsets the volume of E0.
We used the same general methodology to project total ethanol
consumption in this final rule as in the proposed rule, but we updated
the projections of poolwide ethanol concentration and total gasoline
consumption using more recent data. This methodology is different than
the methodology used in previous RFS rules, which generally looked to
EIA projections of ethanol concentration in the gasoline pool. We have
used this new methodology to better account for the projected increase
in retail stations selling higher level blends such as E15 and
E85.\110\
---------------------------------------------------------------------------

\110\ See RIA Chapter 6.5.1 for more information on our
projections of ethanol concentration in the gasoline pool.
---------------------------------------------------------------------------

In order to project total ethanol consumption for 2023-2025, we
correlated the poolwide average ethanol concentration shown in the
figure above with the number of retail service stations offering E15
and E85. Projections of the number of stations offering these blends in
the future then provided a basis for a projection of the average
ethanol concentration, and thus of total ethanol volumes consumed. In
this final rule we updated both the correlations between E15 and E85
stations and poolwide ethanol consumption and our projections of the
number of E15 and E85 stations for 2023-2025. The results are shown in
Table III.B.5-1. While the projected ethanol concentration in 2023-2025
are similar to the projected concentrations from the proposed rule,
projected ethanol consumption for 2023-2025 is significantly lower due
to lower projected gasoline demand in these years in EIA's most recent
AEO. Details of these calculations can be found in the RIA.

[[Page 44491]]

Table III.B.5-1--Projected Ethanol Consumption
------------------------------------------------------------------------
Projected
Projected ethanol
Year ethanol consumption
concentration (million
(%) gallons)
------------------------------------------------------------------------
2023.................................... 10.41 13,974
2024.................................... 10.46 14,128
2025.................................... 10.51 13,978
------------------------------------------------------------------------

C. Candidate Volumes for 2023-2025

Based on our analysis of supply-related factors as described in
Section III.B above, we developed candidate volumes for 2023-2025 which
we then analyzed under the other economic and environmental factors
required by the statute. This section describes the candidate volumes,
while Section IV summarizes the results of the additional analyses we
performed. Relative to the candidate volumes in the proposed rule, the
candidate volumes for cellulosic biofuel, BBD, and other advanced
biofuels in this final rule are all higher for all three years (after
accounting for the fact that we are not finalizing the proposed eRIN
provisions in this rule). The candidate volumes for conventional
biofuel in this final rule are lower than the volumes from the proposed
rule.
We have largely framed our assessment of volumes in terms of the
component categories (cellulosic biofuel, non-cellulosic advanced
biofuel, and conventional renewable fuel) rather than in terms of the
statutory categories (cellulosic biofuel, advanced biofuel, total
renewable fuel). The statutory categories are those addressed in CAA
section 211(o)(2)(B)(i)-(iii), and cellulosic and advanced biofuel are
nested within the overall total renewable fuel category. The component
categories are the categories of renewable fuels which make up the
statutory categories but which are not nested within one another. They
possess distinct economic, environmental, technological, and other
characteristics relevant to the factors we must analyze under the
statute, making our focus on them rather than the nested categories in
the statute technically sound. Finally, an analysis of the component
categories is equivalent to analyzing the statutory categories, since
doing so would effectively require us to evaluate the difference
between various statutory categories (e.g., assessing ``the difference
between volumes of advanced biofuel and total renewable fuel'' instead
of assessing ``the volume of conventional renewable fuel''), adding
unnecessary complexity and length to our analysis. In any event, were
we to frame our analysis in terms of the statutory categories, we
believe that our substantive approach and conclusions would remain
materially the same.
1. Cellulosic Biofuel
In determining the candidate volumes for cellulosic biofuel, we
started by considering the statutory volume targets for 2010-2022. The
statutory volumes for cellulosic biofuel increased rapidly, from 100
million gallons in 2010 to 16 billion gallons in 2022 with the largest
increases in the later years. While notable on its own, it is even more
notable in comparison to the implied statutory volumes for the other
renewable fuel volumes. Statutory BBD volumes did not increase after
2012, implied conventional renewable fuel volumes did not increase
after 2015, and non-cellulosic advanced biofuel volume increases
tapered off in recent years with a final increment in 2022. Thus, the
clear focus of the statute by 2022 was on growth in cellulosic biofuel
volumes, which have the greatest greenhouse gas reduction threshold
requirement in the statute.\111\ The statutory cellulosic waiver
provision,\112\ while acknowledging that the statutory cellulosic
biofuel volumes may not be met, nevertheless effectively expresses
support for the cellulosic biofuel industry in directing EPA to
establish the cellulosic biofuel volume at the projected volume
available in years when the projected volume of cellulosic biofuel
production was less than the statutory volume. This increasing emphasis
in the statute on cellulosic biofuel over time is likely due to
expectations that cellulosic biofuel has significant potential to
reduce GHG emissions (cellulosic biofuels are required to reduce GHG
emissions by 60 percent relative to the gasoline or diesel fuel they
displace), that cellulosic biofuel feedstocks could be produced or
collected with relatively few negative environmental impacts, that the
feedstocks would be comparable or cheaper in cost relative to other
fuel feedstocks, allowing for lower cost biofuels to be produced than
those produced from feedstocks without other primary uses such as food,
and that the technological breakthroughs needed to convert cellulosic
feedstocks into biofuel were likely imminent.
---------------------------------------------------------------------------

\111\ CAA section 211(o)(1)(E). Cf. CAA section 211(o)(1)(B)(i),
(D), (2)(A)(i). See also definition of ``cellulosic biofuel'' at 40
CFR part 80, section 1401.
\112\ CAA section 211(o)(7)(D).
---------------------------------------------------------------------------

The candidate volumes discussed in this section represent the
volume of qualifying cellulosic biofuel we project will be produced or
imported into the U.S. in 2023-2025, after taking into consideration
the incentives provided by the RFS program and other available state
and federal incentives. The candidate volumes for 2023-2025 are shown
in Table III.C.1-1. Because the technical, economic, and regulatory
challenges related to cellulosic biofuel production vary significantly
between the various types of cellulosic biofuel, we have shown the
candidate volumes for liquid cellulosic biofuel and CNG/LNG derived
from biogas separately. Relative to the proposed rule the candidate
volumes of CNG/LNG derived from biogas are higher in all three years
due to the use of a higher growth rate to project these volumes.
Similarly, volumes of ethanol from CKF are higher in all three years as
we are now projecting additional facilities will register as cellulosic
biofuel producers using this pathway. Despite the increase in RNG use
as CNG/LNG and the addition of ethanol from CKF, total cellulosic
biofuel volumes for 2024 and 2025 are significantly lower in this final
rule relative to the proposal because we are not finalizing the eRIN
provisions in this rule.

[[Page 44492]]

Table III.C.1-1--Cellulosic Biofuel Candidate Volumes
[Million RINs]
----------------------------------------------------------------------------------------------------------------
2023 2024 2025
----------------------------------------------------------------------------------------------------------------
RNG use as CNG/LNG.............................................. 831 1,039 1,299
Ethanol from CKF................................................ 7 51 77
-----------------------------------------------
Total Cellulosic Biofuel.................................... 838 1,090 1,376
----------------------------------------------------------------------------------------------------------------

2. Non-Cellulosic Advanced Biofuel
Although there are no volume targets in the statute for years after
2022, the statutory volume targets for prior years represent a useful
point of reference in the consideration of volumes that may be
appropriate for 2023-2025. For non-cellulosic advanced biofuel, the
implied statutory requirement increased in every year between 2009 and
2019.\113\ It remained at 4.5 billion gallons for three years before
finally rising to 5.0 billion gallons in 2022. The candidate volumes
for non-cellulosic advanced biofuel in the final rule are higher than
the candidate volumes from the proposed rule for 2023-2025. The
increases are primarily the result of higher projections of feedstock
availability allowing for greater renewable diesel production relative
to the proposed rule.
---------------------------------------------------------------------------

\113\ See CAA section 211(o)(2)(B).
---------------------------------------------------------------------------

For years after 2022, we anticipate that a key factor in the growth
in the production of advanced biodiesel and renewable diesel (the two
non-cellulosic advanced biofuels projected to be available in the
greatest quantities through 2025) will be the availability of
feedstocks as discussed in III.B.2.c. above. We expect small increases
in the supply of FOG and distillers corn oil, but we project that the
largest increases in feedstock availability in the U.S. will come from
increased production of soybean oil. This expectation is largely in
line with data and input provided by commenters on the December 2022
proposed rule. Significant investments have been made in recent years
that would result in higher domestic soybean crushing capacity and thus
soybean oil production, particularly in 2024 and 2025 (see additional
discussion of the availability of biodiesel and renewable feedstocks in
RIA Chapter 6.2.3). Similar investments have also been made to increase
the production of canola oil in Canada, much of which could be supplied
to U.S. markets for biofuel production. While advanced biofuels have
the potential for significant GHG reductions, if pushing volume
requirements beyond the supply of low-GHG feedstocks results in an
increased use of higher-GHG feedstocks in non-biofuel markets as low-
GHG feedstocks are increasingly used for biofuel production, then it
would prove counterproductive.
Based on these considerations, we believe that increases in the
volume of non-cellulosic advanced biofuel in the 2023-2025 timeframe
should primarily be based on projected increases in the availability of
feedstocks from the U.S. and Canada. One potential methodology for
projecting the available supply of BBD in 2023-2025 is to base the
projected supply for these years solely on the quantity of these fuels
supplied in 2022 and the projected increases in feedstock availability
in the U.S. and Canada (see RIA Chapter 6.2 for additional detail on
our projections of biodiesel and renewable diesel supply for 2023-
2025). However, RIN generation data from the first three months of 2023
indicates that the market is supplying greater volumes of non-
cellulosic advanced biofuel than we would project based only on the
quantity of these fuels used in 2022 plus the projected growth in
feedstock production in the U.S. and Canada. The market appears to be
responding to the proposed RFS volume requirements for 2023 by drawing
upon imports and other sources of feedstock.
The candidate volumes for non-cellulosic advanced biofuel for 2023-
2025 attempt to balance the longer-term desire to maximize the benefits
(and minimize the potential negative impacts) of non-cellulosic
advanced biofuel production by aligning growth in these fuels with the
projected growth in feedstock production in North America and the
observed data on the quantities of these fuels that have been supplied
to the U.S. in the first quarter of 2023 (see Section VI for further
discussion of this topic). The candidate volume for 2023 is equal to
the quantity of non-cellulosic advanced biofuels to meet the proposed
RFS volumes for 2023 (including the projected shortfall in conventional
renewable fuel), consistent with the recent market data that indicates
that the market is on track to supply this quantity of non-cellulosic
advanced biofuel. The candidate volume for 2024 was determined in the
same way, but we note that we project that a greater proportion of the
increase over the quantity of these fuels supplied in 2022 is project
to be supplied with feedstocks from North America (rather than other
foreign countries) as soybean and canola crush capacity increases.
Finally, the candidate volume for 2025 is primarily based on the
projected increase in feedstocks from North America projected to be
available to biofuel producers. These candidate volumes are shown in
Table III.C.2-1, and the basis for these volumes are discussed in more
detail in RIA Chapter 6.

Table III.C.2-1--Total Non-Cellulosic Advanced Biofuel Candidate Volumes
[Million RINs]
----------------------------------------------------------------------------------------------------------------
2023 2024 2025
----------------------------------------------------------------------------------------------------------------
Advanced biodiesel.............................................. 2,565 2,500 2,436
Advanced renewable diesel \a\................................... 3,650 3,705 4,445
Other advanced biofuel.......................................... 290 290 290
-----------------------------------------------

[[Page 44493]]

Total....................................................... 6,505 6,495 7,171
----------------------------------------------------------------------------------------------------------------
\a\ Represents only renewable diesel and jet fuel with a D code of 4. Advanced renewable diesel with a D code of
5 is included in ``Other advanced biofuel.'' See also Table III.B.3-1.

3. Conventional Renewable Fuel
Consistent with the statute, EPA increased the implied conventional
renewable fuel volumes every year between 2009 and 2015, after which it
remained at 15 billion gallons through 2022.114 115 However,
since 2017 these standards were set with the expectation that corn
ethanol and other conventional biofuel volumes would not be sufficient
to meet the standards, and instead advanced biofuel volumes would be
required to make up for the shortfall. This is consistent with our
observations of the market, in which the total supply of conventional
renewable reached a maximum of approximately 14.5 billion gallons in
2016-2018. The candidate volume for conventional renewable in this
final rule are based primarily on supply related factors rather than
the implied volume requirements for conventional renewable fuel in
previous RFS rules.
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\114\ See CAA section 211(o)(2)(B).
\115\ While the 2020 implied volume requirement was originally
set at 15 billion gallons (85 FR 7016, February 6, 2020), we reduced
it to the volume actually consumed due to the significant impacts of
the COVID-19 pandemic on demand for renewable fuel and our change to
the treatment of exemptions for small refineries (87 FR 39600, July
1, 2022). For 2021, as EPA did not establish applicable standards
with sufficient time to influence market behavior, we set the
implied volume requirement for conventional renewable fuel at the
level actually consumed. In 2016 EPA reduced the implied
conventional renewable fuel volume to 14.5 billion gallons under our
general waiver authority; this action was subsequently invalidated
by the D.C. Circuit Court of Appeals in ACE. In this rule we are
completing our response to the ACE remand by establishing a
supplemental volume requirement of 250 million gallons of renewable
fuel for 2023. This ``supplemental standard'' follows the
implementation of a 250-million-gallon supplement for 2022 in a
previous action. These two supplemental actions effectuates the
Congressionally determined renewable fuel volume for 2016, modified
only by the proper exercise of EPA's waiver authorities, as upheld
by the court in ACE, as discussed in Section V.
---------------------------------------------------------------------------

The amount of conventional ethanol that could be consumed between
2023 and 2025 can be estimated from the total ethanol consumption
projections from Table III.B.5-1 and our projections for other forms of
ethanol as discussed earlier in this section. Relative to the proposed
rule both total ethanol consumption and corn ethanol consumption are
significantly lower in all years, primarily due to lower projections of
gasoline consumption in EIA's most recent AEO. We do not currently
project that non-ethanol conventional renewable fuels will be supplied
to the U.S. in 2023-2025. Therefore, our candidate volumes for
conventional renewable fuel are equal to our projections of
conventional ethanol consumption for 2023-2025.

Table III.C.3-1--Projections of Ethanol Consumption
[Million gallons]
----------------------------------------------------------------------------------------------------------------
2023 2024 2025
----------------------------------------------------------------------------------------------------------------
Ethanol in all blends........................................... 13,974 14,128 13,978
Cellulosic ethanol.............................................. 7 51 77
Imported sugarcane ethanol...................................... 95 95 95
Domestic advanced ethanol....................................... 27 27 27
Conventional ethanol............................................ 13,845 13,955 13,779
----------------------------------------------------------------------------------------------------------------

Since conventional ethanol consumption would be about 13.8-14.0
billion gallons, there would need to be about 1.0-1.2 billion ethanol-
equivalent gallons of non-ethanol renewable fuel in order for the
implied conventional renewable fuel volumes of 15.0 billion gallons to
be met.
4. Treatment of Carryover RINs
In our assessment of supply-related factors, we focused on those
factors that could directly or indirectly impact the consumption of
renewable fuel in the U.S. and thereby determine the number of RINs
generated in each year that could be available for compliance with the
applicable standards in those same years. However, carryover RINs
represent another source of RINs that can be used for compliance. We
therefore investigated whether and to what degree carryover RINs should
be considered in the context of determining appropriate levels for the
candidate volumes and ultimately the final volume requirements
(discussed in Section VI).
CAA section 211(o)(5) requires that EPA establish a credit program
as part of its RFS regulations, and that the credits be valid for
obligated parties to show compliance for 12 months as of the date of
generation. EPA implemented this requirement through the use of RINs,
which are generated for the production of qualifying renewable fuels.
Obligated parties can comply by blending renewable fuels themselves, or
by purchasing the RINs that represent the renewable fuels from other
parties that perform the blending. RINs can be used to demonstrate
compliance for the year in which they are generated or the subsequent
compliance year. Obligated parties can obtain more RINs than they need
in a given compliance year, allowing them to ``carry over'' these
excess RINs for use in the subsequent compliance year, although the RFS
regulations limit the use of these carryover RINs to 20 percent of the
obligated party's renewable volume obligation (RVO).\116\ For the
collective supply of carryover RINs to be preserved from one year to
the next, individual carryover RINs are used for compliance before they
expire and are essentially replaced with newer vintage RINs that are
then held for use in the next year. For example, vintage 2022 carryover
RINs must be used for compliance with 2023 compliance year obligations,
or they will expire.

[[Page 44494]]

However, vintage 2023 RINs can then be saved for use toward 2024
compliance.
---------------------------------------------------------------------------

\116\ 40 CFR 80.1427(a)(5).
---------------------------------------------------------------------------

As noted in past RFS annual rules, carryover RINs are a
foundational element of the design and implementation of the RFS
program.\117\ Carryover RINs are important in providing a liquid and
well-functioning RIN market upon which success of the entire program
depends, and in providing obligated parties compliance flexibility in
the face of substantial uncertainties in the transportation fuel
marketplace.\118\ Carryover RINs enable parties ``long'' on RINs to
trade them to those ``short'' on RINs, instead of forcing all obligated
parties to comply through physical blending. Carryover RINs also
provide flexibility and reduce spikes in compliance costs in the face
of a variety of unforeseeable circumstances--including weather-related
damage to renewable fuel feedstocks and other circumstances potentially
affecting the production and distribution of renewable fuel--that could
limit the availability of RINs.
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\117\ See, e.g., 72 FR 23904 (May 1, 2007).
\118\ See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55
(December 12, 2016), 82 FR 58493-95 (December 12, 2017), 83 FR
63708-10 (December 11, 2018), 85 FR 7016 (February 6, 2020), 87 FR
39600 (July 1, 2022).
---------------------------------------------------------------------------

Just as the economy as a whole is able to function efficiently when
individuals and businesses prudently plan for unforeseen events by
maintaining inventories and reserve money accounts, we believe that the
RFS program is able to function when sufficient carryover RINs are held
in reserve for potential use by the RIN holders themselves, or for
possible sale to others that may not have established their own
carryover RIN reserves. Were there to be too few RINs in reserve, then
even minor disruptions causing shortfalls in renewable fuel production
or distribution, or higher than expected transportation fuel demand
(requiring greater volumes of renewable fuel to comply with the
percentage standards that apply to all volumes of transportation fuel,
including the unexpected volumes) could result in deficits and/or
noncompliance by parties without RIN reserves. Moreover, because
carryover RINs are individually and unequally held by market
participants, a non-zero but nevertheless small number of available
carryover RINs may negatively impact the RIN market, even when the
market overall could satisfy the standards. In such a case, market
disruptions could force the need for a retroactive waiver of the
standards, undermining the market certainty so critical to the RFS
program. For all of these reasons, carryover RINs provide a necessary
programmatic buffer that helps facilitate compliance by individual
obligated parties, provides for smooth overall functioning of the
program to the benefit of all market participants, and is consistent
with the statutory provision requiring the generation and use of
credits.
Carryover RINs have also provided flexibility when EPA considered
the need to use its waiver authorities to lower previously established
volumes. For example, in the context of the 2013 RFS rulemaking we
noted that an abundance of carryover RINs available in that year,
together with possible increases in renewable fuel production and
import, justified maintaining the advanced and total renewable fuel
volume requirements for that year at the levels specified in the
statute.\119\
---------------------------------------------------------------------------

\119\ 79 FR 49793-95 (August 15, 2013).
---------------------------------------------------------------------------

a. Projected Number of Available Carryover RINs
The projected number of available carryover RINs after compliance
with the 2021 standards (i.e., the number of carryover RINs available
for compliance with the 2022 standards) are summarized in Table
III.C.4.a-1.\120\
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\120\ The calculations performed to project the number of
available carryover RINs can be found in RIA Chapter 1.10.

Table III.C.4.a-1--Projected 2021 Carryover RINs
[Million RINs]
----------------------------------------------------------------------------------------------------------------
Absolute 2021 Effective 2021
RFS standard RIN type carryover RINs carryover RINs
\a\ \b\
----------------------------------------------------------------------------------------------------------------
Cellulosic Biofuel............................ D3+D7........................... 25 0
Non-Cellulosic Advanced Biofuel \c\........... D4+D5........................... 61 0
Conventional Renewable Fuel \d\.....

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