[Federal Register Volume 70, Number 250 (Friday, December 30, 2005)]
[Proposed Rules]
[Pages 77351-77363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-24610]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-OAR-2005-0161; FRL 8016-9]
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard
Requirements for 2006
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice of proposed rulemaking.
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SUMMARY: EPA is proposing to interpret and clarify the 2006 default
standard applicable under the Renewable Fuel Program set forth in the
Energy Policy Act of 2005. The Act requires that 2.78 volume percent of
gasoline sold or dispensed to consumers in the U.S. in 2006 be
renewable fuel if EPA does not promulgate comprehensive regulations to
implement the Renewable Fuel Program by August 8, 2006. Given the short
timeframe available and the need to provide certainty to the regulated
community, the Agency is proposing a limited set of regulations for the
default standard for 2006 that will provide for collective compliance
by refiners, blenders, and importers to meet the 2.78 volume percent
requirement, with compliance determined by looking at the national pool
of gasoline sold in 2006. The Agency will develop and promulgate the
comprehensive program subsequent to this action.
DATES: Comments: Comments must be received on or before January 30,
2006.
Hearings: If EPA receives a request from a person wishing to speak
at a public hearing by January 17, 2006, a public hearing will be held
on January 30, 2006. If a public hearing is requested, it will be held
at 10 a.m. at the EPA Office Building, 2000 Traverwood, Ann Arbor, MI
48105, or at an alternate site nearby. To request to speak at a public
hearing, send a request to the contact in FOR FURTHER INFORMATION
CONTACT.
ADDRESSES: Submit your comments, identified by Docket ID No. OAR-2005-
0161, by one of the following methods:
www.regulations.gov: Follow the on-line instructions for
submitting comments.
E-mail: [email protected].
Fax: (734) 214-4816.
Mail: U.S. Environmental Protection Agency, EPA West (Air
Docket), 1200 Pennsylvania Ave., NW., Room B108, Mail Code 6102T,
Washington, DC 20460, Attention Docket ID No. OAR-2005-0161. Please
include a total of 2 copies.
Hand Delivery: EPA Docket Center, EPA/DC, EPA West, Room
B102, 1301 Constitution Ave., NW., Washington, DC. Such deliveries are
only accepted during the Docket's normal hours of operation, and
special arrangements should be made for deliveries of boxed
information.
Instructions: Direct your comments to Docket ID No. OAR-2005-0161.
EPA's policy is that all comments received will be included in the
public docket without change and may be made available online at http://www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Do not submit information that you consider to
be CBI or otherwise protected through www.regulations.gov or e-mail.
The www.regulations.gov Web site is an ``anonymous access'' system,
which means EPA will not know your identity or contact information
unless you provide it in the body of your comment. If you send an e-
mail comment directly to EPA without going through www.regulations.gov
your e-mail address will be automatically captured and included as part
of the comment that is placed in the public docket and made available
on the Internet. If you submit an electronic comment, EPA recommends
that you include your name and other contact information in the body of
your comment and with any disk or CD-ROM you submit. If EPA cannot read
your comment due to technical difficulties and cannot contact you for
clarification, EPA may not be able to consider your comment. Electronic
files should avoid
[[Page 77352]]
the use of special characters, any form of encryption, and be free of
any defects or viruses.
Docket: All documents in the docket are listed in the
www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in http://www.regulations.gov or in hard copy at the EPA Docket Center,
EPA/DC, EPA West, Room B102, 1301 Constitution Ave., NW., Washington,
DC. This Docket Facility is open from 8:30 a.m. to 4:30 p.m., Monday
through Friday, excluding legal holidays. The Docket telephone number
is (202) 566-1742. The telephone number for the Public Reading Room is
(202) 566-1744.
FOR FURTHER INFORMATION CONTACT: Julia MacAllister, U.S. EPA, National
Vehicle and Fuel Emissions Laboratory, 2000 Traverwood, Ann Arbor, MI
48105; Telephone (734) 214-4131, FAX (734) 214-4816, E-mail
[email protected].
SUPPLEMENTARY INFORMATION: We are proposing a limited set of
regulations to interpret and clarify the default renewable fuel
standard for 2006 that will go into effect pursuant to the Energy
Policy Act of 2005. In the ``Rules and Regulations'' section of the
Federal Register, we are issuing these regulations as a direct final
rule without prior proposal because we view this as a noncontroversial
action and anticipate no adverse comment. We have explained our reasons
for this action in the preamble to the direct final rule. If we receive
no adverse comment, we will not take further action on this proposed
rule. If EPA receives adverse comment on one or more distinct sections
of this proposal we will publish a timely withdrawal in the Federal
Register indicating which provisions of the direct final rule will
become effective and which provisions are being withdrawn due to
adverse comment. Any distinct section of this proposal for which we do
not receive adverse comment will become effective on the date set out
in the direct final rule, notwithstanding any adverse comment on any
other distinct section of today's proposal. We will not institute a
second comment period on this action. Any parties interested in
commenting must do so at this time.
I. General Information
A. Does This Action Apply to Me?
Entities potentially affected by this proposed action include those
involved with the production, distribution and sale of gasoline motor
fuel or renewable fuels such as ethanol and biodiesel. Regulated
categories and entities include:
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NAICS \1\ SIC \2\ Examples of potentially regulated
Category codes codes entities
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Industry...................................... 324110 2911 Petroleum Refiners, Importers.
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\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.
This table is not intended to be exhaustive, but provides a guide
for readers regarding entities likely to be regulated by this action.
This table lists the types of entities that EPA is now aware could
potentially be affected by this proposed action. Other types of
entities not listed in the table could also be affected. To decide
whether your organization might be affected if this proposed action is
finalized, you should carefully examine today's notice and the existing
regulations in 40 CFR part 80. If you have any questions regarding the
applicability of this action to a particular entity, consult the
persons listed in the preceding FOR FURTHER INFORMATION CONTACT
section.
B. What Should I Consider as I Prepare My Comments for EPA?
1. Submitting CBI. Do not submit this information to EPA through
http://www.regulations.gov or e-mail. Clearly mark the part or all of
the information that you claim to be CBI. For CBI information in a disk
or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM
as CBI and then identify electronically within the disk or CD ROM the
specific information that is claimed as CBI). In addition to one
complete version of the comment that includes information claimed as
CBI, a copy of the comment that does not contain the information
claimed as CBI must be submitted for inclusion in the public docket.
Information so marked will not be disclosed except in accordance with
procedures set forth in 40 CFR part 2.
2. Tips for Preparing Your Comments. When submitting comments,
remember to:
Identify the rulemaking by docket number and other
identifying information (subject heading, Federal Register date and
page number).
Follow directions--The agency may ask you to respond to
specific questions or organize comments by referencing a Code of
Federal Regulations (CFR) part or section number.
Explain why you agree or disagree; suggest alternatives
and substitute language for your requested changes.
Describe any assumptions and provide any technical
information and/or data that you used.
If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
Provide specific examples to illustrate your concerns, and
suggest alternatives.
Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
Make sure to submit your comments by the comment period
deadline identified.
3. Docket Copying Costs. A reasonable fee may be charged by EPA for
copying docket materials, as provided in 40 CFR part 2.
Table of Contents
I. Overview
A. What Is Proposed for 2006?
B. Why Is EPA Taking This Action?
C. When Will EPA Take Action for 2007 and Beyond?
II. Statutory Requirements for the Renewable Fuel Standard Program
A. What Is the Renewable Fuels Standard Program?
B. What Is the Default Standard for 2006?
C. What Happens if EPA Does Not Promulgate Default Regulations
for 2006?
III. Collective Renewable Fuel Use and the Default Standard
A. Liability Under the Default Standard
1. Who should be liable?
2. What is collective liability?
B. Why We Believe That the Default Standard Will Be Met
Collectively
IV. Our Proposed Program for 2006
A. Liable Parties
B. How Would Compliance Be Determined?
1. Activities required of liable parties
[[Page 77353]]
2. Renewable fuels accounting for compliance purposes
3. EPA determination of collective compliance with the default
standard
C. No Role for Credit Trading
V. Public Participation
VI. Administrative Requirements
A. Executive Order 12866: Regulatory Planning and Review
B. Paperwork Reduction Act
C. Regulatory Flexibility Act (RFA), as Amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5
U.S.C. 601 et. seq
D. Unfunded Mandates Reform Act
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 and Safety Risks
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
I. National Technology Transfer Advancement Act
VII. Legal Authority
I. Overview
Section 1501 of the Energy Policy Act of 2005 (Energy Act or the
Act) amended the Clean Air Act by adding a new provision establishing a
national renewable fuel program (also commonly known as the Renewable
Fuel Standard program, or RFS program). This program is designed to
significantly increase the volume of renewable fuels that are blended
into gasoline, starting with calendar year 2006. The Act calls on EPA
to issue implementing regulations by August 8, 2006, and provides that
if EPA has not adopted such regulations by that date then 2.78 percent
of the gasoline sold or dispensed to consumers for calendar year 2006
must be renewable fuel.
EPA does not believe that it can meet the August, 2006, statutory
deadline. The issues that need to be resolved in adopting regulations
to establish the comprehensive compliance and credit trading program
are complex, making it important for EPA to receive input from the
various stakeholders. This effort will require significant amounts of
time and effort. In addition, a comprehensive set of regulations
implementing the RFS would constitute a major rulemaking effort, which
typically requires a significant amount of analysis of important issues
such as emissions inventory impacts, costs, feasibility, and benefits.
This work cannot be completed in the context of a final rulemaking by
August, 2006, which must be preceded by a notice and comment process.
At the same time, it is critical that industry be informed of how to
demonstrate compliance prior to August, 2006, since the program defined
by the Act begins in January 2006. The default provisions in the Act
are not self explanatory, neither identifying the responsible parties
nor the method by which they must demonstrate compliance. EPA is
therefore proposing a limited set of regulations that would interpret
and clarify the statutory default provision for 2006. The rule would
provide certainty to the parties involved as to their responsibilities
for 2006, and will help to provide a smooth transition to the long-term
RFS program. This section summarizes the regulatory approach we propose
taking for 2006.
A. What Is Proposed for 2006?
The Energy Policy Act of 2005 anticipated the possibility that a
full RFS program might not be promulgated by the start of 2006, and so
provided a default standard applicable to 2006 only. The default
standard specifies that 2.78 volume percent of gasoline sold or
dispensed to consumers in the U.S. in calendar year 2006 must be
renewable fuel. The default standard is applicable if the Agency does
not promulgate regulations to implement the full RFS program.
The Agency proposes to interpret the default standard for 2006 with
regulations identifying the liable parties as refiners, importers, and
blenders. Compliance with the default standard, however, would be
determined on a collective, rather than an individual, basis. Under
this approach, refiners, blenders, and importers would together be
responsible for meeting the default 2.78 percent standard, and
compliance with this standard would be calculated over the pool of
gasoline sold to consumers. An individual refiner, blender, or importer
would not be responsible for meeting the 2.78 percent standard for the
specific gasoline it produces. The Agency would determine compliance
following 2006 using data on gasoline and renewable fuel consumption
available from the Energy Information Administration, supplemented by
other readily available information. If we determine that the default
standard has not been met in 2006 on this collective basis, any deficit
would be carried forward and applied as an adjustment to the standard
for 2007. The regulations implementing the default standard for 2006
would not include any provisions for credit generation or trading,
given the collective nature of the obligation.
B. Why Is EPA Taking This Action?
The rulemaking required to implement the full RFS program,
including both program design and the various analyses necessary, will
require a substantial effort involving many stakeholders. For instance,
it will require the Agency to undertake an analysis of small business
impacts under the Small Business Regulatory Enforcement Flexibility Act
(SBREFA), provide public notice through a proposed rule and an
opportunity for comment including an opportunity for a public hearing,
a Regulatory Impact Analysis, and ultimately produce a final rule. This
process cannot occur by the time the RFS program begins in January
2006, nor does EPA anticipate that it can be completed by the one year
deadline set in the Act. Therefore, we believe the default standard of
2.78 percent will apply to calendar year 2006.
However, the default standard provided in the Act will be difficult
for the regulated community to interpret and implement without
additional guidance from the Agency. Although the Act provided that the
default standard of 2.78 percent would apply in 2006 in the event that
the Agency did not promulgate regulations implementing the full
renewable fuels program, the default standard provision does not
specify the liable parties and the specific nature of their obligation.
It also does not discuss compliance mechanisms, reporting requirements,
or credit trading. The resulting uncertainty associated with the
default standard will create confusion and risks a problematic initial
implementation of the RFS program. In the extreme, allowing the default
standard to go into effect without EPA guidance could result in
significant disruptions in the gasoline and renewable fuel production,
blending, and distribution systems.
The goal of today's action is to provide certainty to parties
involved in the production and distribution of gasoline and renewable
fuels regarding the Agency's approach to determining compliance with
the default standard for 2006. Today's action proposes a compliance
mechanism that is simple and straightforward to implement, explains
that the default standard would be applied on a collective basis, and
can be finalized expeditiously.
In addition to meeting the need for clarity in the limited
timeframe available, we believe that the collective approach to
compliance for 2006 is reasonable given our expectation that the
default standard would be met on a collective basis in 2006 even
without imposition of any RFS obligations. Not only has the U.S.
Department of Agriculture projected total ethanol production for 2006
to be above 4.0 billion gallons, but the Renewable Fuel
[[Page 77354]]
Association has indicated that total ethanol production capacity
already exceeds 4.1 billion gallons and that additional production
capacity currently under construction exceeds 1.2 billion gallons.
Production of biodiesel and cellulosic ethanol, as well as imports of
ethanol, increase these estimates even further. It's clear that
capacity in 2006 will be adequate to produce the renewable fuel needed
to meet the 2.78 percent default standard. In addition, sustained high
gasoline prices, state bans on MTBE, and continued gasoline demand
growth in the face of limited refining capacity all support our
conclusion that the default standard for 2006 will be met on a
collective basis based on market forces alone. Section III.B provides
more details regarding these projections. In the unlikely event that
the default standard is not met on a collective basis for 2006, a
proposed deficit carryover provision would allow us to make up for any
shortfall by adjusting the applicable standard in 2007 commensurately.
C. When Will EPA Take Action for 2007 and Beyond?
The default standard of 2.78 percent provided in the Act applies
exclusively to calendar year 2006, and the collective compliance
approach we are proposing in today's action would likewise apply only
to 2006. For 2007 and beyond, the Agency will not only need to
determine and publish the applicable renewable fuel standard for each
year, but will also need to specifically identify liable parties, lay
out the compliance program including recordkeeping and reporting
requirements, and delineate all elements of the credit trading program
including how credits are generated, how they can be transferred, and
how they can be used for compliance purposes. All these and many other
issues impacting the full RFS program will be addressed in a subsequent
Agency action and are not discussed in today's notice of proposed
rulemaking (NPRM).
II. Statutory Requirements for the Renewable Fuel Standard Program
This section describes the Act's provision regarding the long-term
RFS program, and the default standard that goes into effect
automatically in the event that the Agency does not promulgate
regulations before August 8, 2006 implementing the long-term program.
It also describes the problems that may occur if the Agency does not
clarify such things as liable parties, compliance mechanisms, and the
role of credit trading under the default standard.
A. What Is the Renewable Fuels Standard Program?
Section 1501 of the Energy Policy Act of 2005 (the Act) describes
the renewable fuel program, also known as the Renewable Fuel Standard
(RFS) program. This provision was added to the Clean Air Act as Section
211(o), and requires EPA to establish a program to ensure that U.S.
gasoline contains specific volumes of renewable fuel for each calendar
year 2006 through 2012, as shown in Table II.A-1 below.
Table II.A-1.--Applicable Volumes of Renewable Fuel Under the RFS
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Calendar year Billion gallons
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2006...................................... 4.0
2007...................................... 4.7
2008...................................... 5.4
2009...................................... 6.1
2010...................................... 6.8
2011...................................... 7.4
2012...................................... 7.5
------------------------------------------------------------------------
Starting with 2013, EPA is required to establish the applicable
national volume which must require at least the same overall volume
percentage of renewable fuel as was required in 2012.
In order to ensure the use of the renewable fuel volume specified
for each year, the Agency must set a percentage standard for each year
representing the percentage of gasoline sold or introduced into
commerce which must be renewable fuel. The standard is to be set based
on the renewable fuel volumes shown in Table II.A-1 and gasoline volume
projections provided by the Energy Information Administration (EIA).
The standard for each year must be published in the Federal Register by
November 30 of the previous year.
Renewable fuels are defined in the Act primarily on the basis of
the feedstock. In general, renewable fuels must be produced from plant
or animal products or wastes, as opposed to fossil fuel sources. The
Act specifically identifies several types of motor vehicle fuels as
being encompassed by the definition, including cellulosic biomass
ethanol, waste-derived ethanol, biogas, and biodiesel.
The percentage standard is applicable to refineries, blenders, and/
or importers, as appropriate. The percentage standard must be adjusted
such that redundant obligations are avoided, and must take into account
the fact that small refineries are exempted from the program through
2011\1\. For liable parties, the RFS standard must be met on an annual
averaging basis and does not apply on a per-gallon basis.
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\1\ Regulatory provisions promulgated by the Agency must also
contain provisions allowing exempted small refineries to opt into
the RFS program.
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The Act requires the Agency to promulgate a credit trading program
for the RFS program. The credit trading program will serve two
purposes. First, it will allow parties who are liable for the standard
to comply through the purchase of credits if they cannot or do not wish
to blend renewable fuels into gasoline themselves. Second, it will
permit renewable fuels that are not blended into gasoline, such as
biodiesel and biogas, to participate in the RFS program. The Agency
must also determine who can generate credits and under what conditions,
how credits may be transferred from one party to another, and in
certain cases the appropriate value of credits from different types of
renewable fuel.
The Agency envisions promulgation of facility registration,
recordkeeping and reporting requirements, enforcement provisions, and
various fuel tracking mechanisms to implement the program. These
provisions will enable the credit trading program to function properly
and will ensure adequate bases for Agency enforcement efforts.
The Act also contains several other provisions that could affect
the comprehensive RFS program. For instance, the Energy Information
Administration (EIA) is required to determine whether there is a
continuing pattern of less than 25 percent of the renewable fuel pool
being used in either summer or winter periods. If so, then EPA is
required to promulgate regulations establishing a requirement for such
minimum seasonal use of renewable fuel. The Act also provides for
several kinds of waivers, including one for the initial year of the
program in which the Department of Energy (DOE) may recommend that EPA
waive the RFS program in whole or in part. Another general waiver
provision authorizes EPA to waive the program in whole or in part in
response to a petition by a state or states.
Thus, the long-term RFS program envisioned in the Act presents many
complex and varied implementation issues. There are a large number of
parties that could potentially be affected by the program, including
the parties in the gasoline and renewable fuels production and
distribution systems. Credit generation, trading and use will be an
integral aspect of the program, and this credit program presents many
unique issues to address, as most of the
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blending and use of renewable fuels occurs by parties separate and
distinct from the gasoline producers. Limited discussions with
stakeholders have served to highlight the complexity. Because of the
many disparate interests involved and the large potential impacts of
the program, EPA wants to make sure that development of the long-term
RFS program is done thoughtfully and with broad stakeholder
involvement. In addition, significant actions such as this require us
to perform analyses of cost, feasibility, emission inventory impacts,
air quality, and impacts on small businesses. Consequently, EPA does
not believe that it can meet the August 8, 2006 statutory deadline to
issue final comprehensive regulations implementing the full program.
B. What Is the Default Standard for 2006?
If EPA fails to publish final regulations establishing the full RFS
program by August 8, 2006, Section 211(o)(2)(a)(iv) of the amended
Clean Air Act provides that ``* * * the percentage of renewable fuel in
gasoline sold or dispensed to consumers in the United States, on a
volume basis, shall be 2.78 percent for calendar year 2006.'' However,
the provision provides no details on how this requirement is to be
implemented.
For instance, the default standard provision does not identify what
parties are subject to this statutory requirement. There is a large
network of refiners, importers, blenders, distributors, and retailers
who arguably could be held responsible to meet this requirement. The
statutory language also does not indicate whether the default standard
is to be applied to each gallon of gasoline sold or dispensed in 2006,
if it is to represent the annual average renewable fuel content for the
gasoline sold or dispensed by each responsible party, or if instead it
is to be an annual average for all parties acting collectively in the
fuel production and distribution system.
Another aspect of the statutory language regarding the default
standard that makes its implementation problematic is the absence of
any explicit discussion of credit trading. Since producers of gasoline
are generally not directly involved in the blending of renewable fuels,
credit trading will be a critical component of the comprehensive RFS
program. Without credit trading, if each party was individually liable
to meet the default standard for their own gasoline, then a liable
party would need to ensure that the gasoline it produces actually
contains a minimum of 2.78 percent renewable fuel. This would be
inconsistent with the direction provided in the Act for the long-term
RFS program.
Finally, both the default standard and the annual standard to be
met under the long-term program are expressed in the statute in terms
of percent renewable fuel in gasoline. Although the definition of
renewable fuel includes biodiesel, this particular renewable fuel is
not blended into gasoline. While the long-term program will allow for
biodiesel integration in the program through credit trading, the
default standard provision does not specify the manner in which use of
biodiesel is to be counted towards compliance. However, for the
purposes of this rule we believe it is appropriate to include biodiesel
in the pool of renewable fuel used to determine compliance with the
default standard.
C. What Happens if EPA Does Not Promulgate Default Regulations for
2006?
The statutory language regarding the default standard for 2006 is
ambiguous and problematic in several respects. As a result, starting in
January 2006 there could be a great deal of uncertainty among parties
whose business involves gasoline or renewable fuels if the Agency does
not provide clarity. These parties will not know whether they are
liable for the default standard, and if they are liable how to comply
with it. The concern over potential individual liability and the lack
of a credit trading program could lead some parties to attempt to
procure and blend renewable fuels themselves, when under normal
circumstances the logistics and economics of doing so would make such
activities prohibitive. Others might attempt to ensure that every
gallon of gasoline contains at least 2.78 percent renewable fuel. Still
others could ignore the requirement entirely in the absence of explicit
descriptions of how the Agency would enforce it. All of these
activities could significantly disrupt the supply and distribution
system, potentially resulting in local supply shortages and/or price
spikes, and yet provide no assurance that the desired amount of
renewable fuel will be blended into gasoline.
Due to these concerns, the Agency has determined that it would be
in the public interest, and would further the goals of the Act, to
issue regulations interpreting and clarifying liability, the mechanism
of compliance, and the role of credit trading under the 2006 default
standard.
III. Collective Renewable Fuel Use and the Default Standard
This section describes our reasons for believing that a collective
compliance approach is a reasonable interpretation of the default
standard for the RFS program. We also describe our reasons for
believing that the default standard of 2.78 percent will be met in 2006
despite the absence of an RFS standard applicable to individual parties
in the fuel production and distribution system.
A. Liability Under the Default Standard
1. Who should be liable?
EPA proposes to identify parties who produce or import gasoline as
the parties responsible for implementing the renewable fuel standard
for 2006, including refiners, blenders, and importers, with an
exemption for refiners that own only small refineries. The default
provision itself is ambiguous with respect to liable parties, and could
be interpreted as placing ultimate responsibility on a variety of
parties in the gasoline production and distribution system, including
the retailers who dispense gasoline to consumers. With respect to the
long-term renewable fuel program, Congress directed EPA to establish
regulations that make the renewable fuel obligation applicable to
``refineries, blenders and importers, as appropriate,'' [see Clean Air
Act Section 211(o)(2)(A)(iii)(I)], with an exemption until 2011 for
``small refineries'' [see Clean Air Act Section 211(o)(9)(A)(i)]. Our
proposed interpretation of the default standard for 2006 is consistent
with these statutory provisions for the long-term renewable fuel
program.
EPA believes that refiners, blenders and importers are best
positioned to ensure that an appropriate amount of renewable fuel is
added to gasoline. Our proposed regulation identifies blenders as a
subset of refiners, consistent with our regulatory definition of
``refiner'' at 40 CFR 80.2(i).\2\ In addition, EPA believes that
retailers are not in the best position to guarantee the renewable fuel
content of the gasoline they sell, and placing this responsibility on
the many thousands of retailers, many of whom are small businesses,
would likely be very burdensome for them and economically disruptive.
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\2\ Parties whose only activity involves adding oxygenates to
gasoline would not be considered refiners under this definition.
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2. What is collective liability?
EPA also proposes that the default provision for 2006 be
interpreted as imposing a collective obligation on the
[[Page 77356]]
regulated parties. This means that if the average volume percent of
renewable fuel used in 2006 meets or exceeds 2.78 percent, then the
standard is satisfied for all responsible parties, regardless of their
individual efforts towards that goal. In light of the fact that
industry on average will very likely use more than 2.78 percent
renewable fuel in 2006 based solely on market forces (see further
discussion below), EPA does not believe that it is necessary or
appropriate to interpret the default standard for 2006 as imposing any
greater degree of individual responsibility for liable parties. Such a
system would require complex credit trading, recordkeeping, and
reporting provisions that are not consistent with a default standard
that Congress envisioned going into effect without a detailed
regulatory program.
EPA is confident that its proposed approach will achieve the
statutory objective of ensuring that 2.78 percent of gasoline sold in
the United States in 2006 will be renewable fuel, and it will do so in
an efficient manner that minimizes costs to industry and consumers. In
the unlikely event that EPA's projections of renewable fuel use in 2006
prove inaccurate and the default standard is not met, EPA proposes that
the volume obligation for industry in 2007 be adjusted to reflect any
volume deficit represented by the difference between the actual
renewable fuel volume percentage in 2006 and 2.78 percent. This
effectively means that if there is a deficit in renewable fuel use in
2006, the applicable percent standard for 2007 could be higher than it
would otherwise be. This deficit carryover provision is similar in
concept to the provision required for the long-term renewable-fuel
program, to allow individuals that cannot satisfy their renewable fuel
obligation in a given year to fulfill any deficit in a subsequent year.
See Clean Air Act (CAA) Section 211(o)(5)(D).
Thus under today's proposed approach to compliance with the default
standard, individual parties would still be considered to be in
compliance even if they themselves blended little or no renewables, so
long as the 2.78 percent requirement is met collectively nationwide in
2006. The carryover of any volume deficit will ensure that compliance
with the default standard is ultimately achieved.
B. Why We Believe That the Default Standard Will Be Met Collectively
In proposing a collective compliance approach to meeting the
default standard in 2006, we are doing so with the expectation that
normal business practices will actually result in the default standard
being met. While we are also proposing a deficit carryover provision to
address the possibility of a failure to meet the default standard in
2006, we have high confidence that such a provision would not have to
be used. This section provides our reasons for believing that the
default standard of 2.78 percent will be met in 2006 through existing
market forces.
Although the full RFS program specifies that EPA should set a
percentage standard designed to ensure use of a renewable volume of at
least 4.0 billion gallons, the provision describing the default
standard directly sets the percentage as 2.78 percent and makes no
reference to this volume. As a result, the actual volume of renewable
fuel used in gasoline in 2006 could be greater than or less than 4.0
billion gallons when the default standard of 2.78 percent is met. This
potential result is illustrated in Figure III.B-1, where the shaded
region represents cases in which the default standard of 2.78 percent
has been met.
[GRAPHIC] [TIFF OMITTED] TP30DE05.143
A recent projection of the total gasoline consumption volume for
2006 is 141.6 billion gallons.\3\ With this gasoline volume, 3.94
billion gallons of renewable fuel would need to be consumed in order
for the default standard of 2.78 percent to be met. For simplicity we
have focused in this section on our reasons for believing that a least
4.0 billion gallons of renewable fuel will be sold in 2006.
---------------------------------------------------------------------------
\3\ EIA Short-Term Energy Outlook, October 2005.
---------------------------------------------------------------------------
Of all the renewable fuels that may play a role in meeting the
default standard in 2006, ethanol is by far expected to represent the
largest fraction. Therefore, our reasons for believing that at least
4.0 billion gallons of renewable fuel will be blended into gasoline in
2006 are based primarily on expectations regarding the production and
sale of ethanol. Biodiesel volumes are also quickly rising and serve to
provide added assurance that the default standard will be met in 2006.
The recent excise tax credit for biodiesel
[[Page 77357]]
and its value as a lubricity agent in ultra-low sulfur diesel also add
to the attractiveness of biodiesel.
There are a variety of sources of information strongly suggesting
that ethanol volumes will exceed 4.0 billion
gallons in 2006. These include recent production trends, evaluations of
expanding ethanol production capacity, and analyses of future demand.
Each of these information sources is discussed in this section.
For instance, recent trends indicate that fuel-grade ethanol
consumption has steadily increased since it was first introduced into
the gasoline market in the early 1980s. The most recent consumption
levels are shown in Figure III.B-2.
Figure III.B-2: Recent Ethanol Consumption Volumes
[GRAPHIC] [TIFF OMITTED] TP30DE05.144
Some of the recent growth in ethanol consumption appears to have
resulted from state bans on the use of the gasoline additive methyl
tertiary butyl ether (MTBE). For areas required to use reformulated
gasoline (RFG), ethanol often represents the most cost-efficient
alternative to MTBE to meet the current RFG oxygen mandate.\4\ State
bans on MTBE went into effect in 2004 for California, New York, and
Connecticut, where approximately one-third of all RFG is sold. The
amount of ethanol sold in these three states increased by approximately
1 billion gallons between 2002 and 2004. But ethanol use has increased
steadily over the last five years in other RFG areas and in
conventional gasoline as well for reasons not associated with MTBE
bans. We believe that these increases in ethanol use are due primarily
to the beneficial economics of blending ethanol into gasoline as
gasoline prices have risen. If the market forces that led to the rising
demand for ethanol over the last several years continue into the
future, ethanol consumption could easily reach 4.0 billion gallons in
2006.\5\
---------------------------------------------------------------------------
\4\ The Energy Act contains a provision requiring the Agency to
promulgate regulations eliminating the oxygen mandate for RFG by May
5, 2006.
\5\ Data from EIA's Monthly Energy Review indicates that ethanol
production in the first half of 2005 was 6.8% higher than the same
period in 2004. Extrapolated through 2006, this trend would result
in just over 4.0 billion gallons produced in 2006.
---------------------------------------------------------------------------
In addition to ethanol consumption trends, import trends also
suggest that the supply of ethanol will increase into 2006. According
to EIA, imports of ethanol increased significantly in 2004, totaling
nearly 150 million gallons.\6\ This volume represents a more than ten-
fold increase from each of the previous two years.
---------------------------------------------------------------------------
\6\ Petroleum Supply Annual 2004, vol. 2. Table 20.
---------------------------------------------------------------------------
Biodiesel production has also risen significantly in the last
several years, and further supports our belief that total renewable
fuel volumes in 2006 will exceed 4.0 billion gallons. Figure III.B-3
shows the volumes of biodiesel production in the U.S. in recent years.
[[Page 77358]]
[GRAPHIC] [TIFF OMITTED] TP30DE05.145
If the trends shown in Figure III.B-3 continue into 2006, there
could be as much as 35 million gallons of biodiesel produced. If the
ethanol import volumes of 150 million gallons per year continue into
2006, then an additional total of nearly 0.2 billion gallons of
renewable fuel may be consumed in the U.S. in 2006 in addition to the
ethanol production estimates. Thus the total projected volume of
renewable fuel consumed in 2006 would be about 4.2 billion gallons
instead of the 4.0 billion gallons we estimated above.
An evaluation of expanding ethanol production capacity also points
towards 2006 ethanol volumes easily exceeding 4 billion gallons. For
instance, Table III.B-1 shows data from the Renewable Fuels Association
for existing and underway ethanol production capacity in the U.S. for
the past several years.\7\
---------------------------------------------------------------------------
\7\ 2003 source: Ethanol Industry Outlook 2004, RFA, February
2004. 2004 source: Ethanol Industry Outlook 2005, RFA, February
2005. 2005 source: ``U.S. Fuel Ethanol Production Capacity'',
Renewable Fuels Association. Update September 2005. http://www.ethanolrfa/eth_prod_fnc.html.
Table III.B.--U.S. Ethanol Production Capacity
----------------------------------------------------------------------------------------------------------------
Number of production plants Production capacity (million
-------------------------------- gal per year)
-------------------------------
Existing Underway Existing Underway
----------------------------------------------------------------------------------------------------------------
2003 (December)................................. 72 15 3,101 598
2004 (December)................................. 81 16 3,644 754
2005 (October).................................. 89 21 4,159 1,249
----------------------------------------------------------------------------------------------------------------
The average new ethanol plant or plant expansion takes about 14
months to complete, though the time required can range from a few
months to over two years.\8\ Based on target construction completion
dates in Ethanol Producer Magazine, we estimate that, of the 1,249 mgpy
of production capacity underway as of October of 2005, 232 mgpy will be
online by the end of 2005. At least another 895 mgpy will be online
sometime in 2006. However, accounting for the fact that different
facilities will come online at different points throughout 2006, the
total annual increase in capacity will be roughly 352 mgpy. The total
amount of ethanol production capacity for 2006 is thus expected to be
4,743 mgpy. Actual ethanol production has historically been a very
large fraction of production capacity as demand increased, generally
exceeding ninety percent. As a result these figures strongly suggest
that production in 2006 is very likely to be greater than 4 billion
gallons.
---------------------------------------------------------------------------
\8\ ``Ethanol Plant Construction'', Ethanol Producer Magazine,
October 2005. Page 30.
---------------------------------------------------------------------------
Two other analyses support our expectation that 2006 ethanol
production volumes will exceed 4 billion gallons. The EIA made its own
projections of ethanol production in 2006 using its National Energy
Modeling System, an annual forecasting tool.\9\ In addition to
evaluating various versions of the RFS program prior to enactment of
the Energy Policy Act of 2005, the EIA also modeled a case in which no
RFS program existed. In that event, EIA projected that total annual
ethanol consumption in 2006 would be 4.6 billion gallons.
---------------------------------------------------------------------------
\9\ ``Renewable Fuels Legislation Impact Analysis'', Energy
Information Administration, July 2005. http://www.eia.doe.gov/oiaf/servicerpt/jeffords/.
---------------------------------------------------------------------------
The U.S. Department of Agriculture has also made projections of
ethanol production under a scenario in which no RFS program is assumed.
Their most recent ``Baseline Projections'' apply to all years between
2006 and 2014, and are based on an analysis of the major forces and
uncertainties affecting future agricultural markets.\10\ This analysis
included such factors as trade, farm income, food prices, weather,
international developments, and other macroeconomic conditions
affecting the production of corn and other crops used for the
production of ethanol. In association with this analysis, total ethanol
production in 2006 was projected to be 4.18 billion gallons. Again,
considering ethanol imports and biodiesel production, actual renewable
[[Page 77359]]
fuel consumption could be as high as 4.4 billion gallons in this
scenario.
---------------------------------------------------------------------------
\10\ ``USDA Agricultural Baseline Projections to 2014,''
February 2005 (OCE-2005-1).
---------------------------------------------------------------------------
There are other important, though less quantitative, indicators of
growth in the ethanol industry. For instance, in response to increasing
trading volume, the Chicago Board of Trade recently announced that it
is expanding the number of ethanol futures contracts available.\11\
Also, the New York Mercantile Exchange will now offer a New York Harbor
ethanol blendstock (RBOB) gasoline futures contract that will replace
the MTBE-blended gasoline based contract.
---------------------------------------------------------------------------
\11\ Renewable Fuel News, Hart Energy Publishing. Sept. 26,
2005. Page 4.
---------------------------------------------------------------------------
In addition to simple volume projections from past years, we also
believe that ethanol production will exceed 4 billion gallons in 2006
due to the favorable economics currently associated with it.
Historically the 51[cent]/gal federal excise tax credit and various
state and local credits have provided sufficient economic incentive to
overcome the higher production costs of ethanol compared to the
production costs of the gasoline it displaces. As a result, demand for
ethanol has steadily increased over the years, aided by the RFG oxy
mandate and state MTBE bans. However, the increase in crude oil prices
in recent years has dramatically increased the production cost of
gasoline. Although the price of natural gas used in ethanol production
has also risen in recent years, ethanol production costs have remained
relatively stable in comparison to gasoline and thus the economic
incentive to blend ethanol into gasoline has risen significantly. A
similar incentive also now exists for biodiesel in the wake of its
recently enacted excise tax subsidy. As long as crude prices remain
high, this incentive to blend ethanol and biodiesel into conventional
fuels is anticipated to continue. Other factors that have historically
been important such as octane, and even the RFG oxygen mandate, are
expected to be much less important in 2006. Ethanol's value simply as a
extender for gasoline volume is sufficient to keep demand high. Also,
with refineries operating at or near capacity and the demand for
gasoline increasing in the U.S., the phaseout of MTBE could result in a
potential reduction of gasoline volume. We expect that many refiners
will use ethanol to replace the lost octane and volume associated with
the phaseout of MTBE.
As a result of these favorable economics, despite the removal of
the oxy mandate for RFG as required by the Act, we do not anticipate
any overall reduction in demand for ethanol next year. The Act provides
for immediate elimination in California of the statutory requirement
for oxygen in RFG, and 270 days after enactment for the rest of the
country.\12\ Although the elimination of the oxygen requirement has the
potential to reduce ethanol use in some RFG areas, given the strong
economic incentive to blend ethanol, its use is expected to rise in
others, offsetting any impact. State-mandated ethanol requirements will
only solidify this conclusion. Currently, three states mandate the use
of ethanol in all gasoline through a state renewable fuels standard:
Minnesota, Hawaii, and Montana. Other states may follow in the future--
currently state legislators in Illinois, Missouri and Michigan have
been discussing introducing similar legislation in those states.
---------------------------------------------------------------------------
\12\ Although the Act provides for the elimination of oxygen
from RFG, EPA is still required to revise the appropriate sections
of the CFR to allow RFG without oxygen to be sold. For purposes of
this analysis, we are assuming that such regulatory revision would
occur no later than March, 2006 for California, and by May, 2006
(i.e., by 270 days from enactment) for the rest of the U.S. We
expect to put out a rule in early 2006 adressing this issue.
---------------------------------------------------------------------------
IV. Our Proposed Program for 2006
For calendar year 2006, we are proposing a collective approach to
compliance that implements the default 2.78 percent standard. This
section describes our proposed 2006 program in detail, including our
proposed definition of liable parties under the standard and our
proposed mechanism for addressing any potential failure to meet the
2.78 percent collectively.
A. Liable Parties
For calendar year 2006, the Act states that if EPA fails to issue
comprehensive regulations establishing the renewable fuel program then
``the percentage of renewable fuel in gasoline sold or dispensed to
consumers in the United States on a volume basis, shall be 2.78 percent
for calendar year 2006.'' The default standard goes into effect
independently; that is, no regulations are required to implement the
default standard. EPA believes, however, that regulations are
nevertheless necessary to clarify how the standard is to be interpreted
and implemented.
While the Act provides that the renewable fuel obligation
determined pursuant to the long-term RFS program shall ``be applicable
to refineries, blenders, and importers, as appropriate,'' the Act does
not provide this level of specificity for the default RFS standard for
2006. We are proposing that compliance with the default standard be
determined based on the efforts of the collective refining, importing
and blending industries. Small refineries would be excluded from
liability in the 2006 collective compliance determination. However,
since the statutory language regarding the default standard indicates
that compliance should be based on gasoline sold or dispensed to
consumers in the United States, the gasoline produced by small refiners
as well as the ethanol used in gasoline produced by small refineries
would be counted in performing the compliance calculations.
The regulations would provide that refiners, blenders and importers
have collectively met the standard if the volume of renewable fuels
used in gasoline sold in the U.S. in calendar year 2006 is equal to or
greater than 2.78 percent. Thus if the standard is achieved
collectively, then every individual refiner, blender or importer will
be in compliance with the standard. This means that an individual
refiner may use less than 2.78 percent in the gasoline it refines,
imports or blends, but would not be in violation of the standard as
long as the 2.78 percent is met or exceeded in the aggregate by all
parties in these industries. If the 2.78 percent default standard is
not met collectively, then our proposed regulations would provide for a
deficit carryover to 2007 that would apply collectively to all liable
parties in 2007. There would be no other consequence for collective
failure to meet the 2.78 percent standard in 2006.
B. How Would Compliance Be Determined?
This section describes the activities that would be required of
liable parties under the default standard, the types of renewable fuels
that would be counted, and the mechanism through which the Agency will
determine compliance with the default standard for 2006.
1. Activities Required of Liable Parties
For the collective compliance determination, EPA will calculate the
actual volume percent of renewable fuel for 2006 using gasoline and
ethanol consumption volumes reported by EIA for 2006, supplemented by
readily available information on consumption volumes for other
renewable fuels. Thus, individual refiners, importers and blenders will
not be required to demonstrate compliance with the default standard.
EPA will evaluate whether the default standard has been met
collectively by use of readily available information. Individual
companies will not be required to keep records of volumes of ethanol
purchased
[[Page 77360]]
for purposes of compliance with this rule.
2. Renewable Fuels Accounting for Compliance Purposes
Under our proposed regulations, EPA would calculate the total
volume of renewable fuel to account for all ethanol and non-ethanol
renewable fuels used in motor fuel in 2006, including ethanol made from
cellulosic or waste feedstocks and biodiesel. We would use information
on the volumes of these renewable fuels that can be obtained from
available sources. We propose that one gallon of cellulosic biomass or
waste-derived ethanol count as 2.5 gallons of renewable fuel, following
the prescription in Section 211(o)(4) of the Clean Air Act as amended
by the Energy Policy Act of 2005.
Although the statutory language regarding the default standard
indicates that compliance should be based on renewable fuel in
gasoline, we believe that biodiesel should also be included even though
it is not blended into gasoline. Not only is biodiesel included within
the definition of renewable fuel, but in the context of the long-term
RFS program biodiesel can be counted as a component of the renewable
fuel pool for use in compliance calculations even though the RFS
standard is also based on the percentage use of renewable fuel in
gasoline. We further propose that one gallon of biodiesel be counted as
one gallon of renewable fuel in the context of 2006 compliance with the
default standard. We will revisit the credit value of biodiesel and
other renewable fuels in the context of the comprehensive rulemaking
implementing the full RFS program, and our approach in this rulemaking
is not intended to establish a precedent for our decision there.
3. EPA Determination of Collective Compliance With the Default Standard
We are proposing that the default standard has been met if the
volume percent of renewable fuel used in gasoline sold in the U.S. in
2006 is collectively greater than or equal to 2.78 percent. While small
refineries are not considered liable parties under the collective
compliance approach, we would include the volume of gasoline produced
by small refineries as well as the amount of ethanol used in such
gasoline in determining whether the 2.78 percent default standard has
been met. We believe that including volumes of gasoline and ethanol
from small refiners is consistent with the plain language of the
default standard, which calls for 2.78 percent renewable fuel in
``gasoline sold or dispensed to consumers.''
We propose to primarily use data published by EIA in determining
compliance with the default standard. We have identified the Monthly
Energy Review as the most appropriate source.\13\ Ethanol is available
in Table 10.1,\14\ while gasoline volumes are available under ``Product
Supplied'' in Table 3.4. Volumes of other renewable fuels that may not
be available through EIA publications will be estimated based on
information from other readily available and reliable sources.
---------------------------------------------------------------------------
\13\ The Monthly Energy Review for March 2007 is expected to
contain data through December 2006.
\14\ Fuel ethanol consumption in trillion Btu must be converted
into gallons using the higher heating value of 3.539 million Btu per
barrel, per Table A1.
---------------------------------------------------------------------------
If the default standard has been met on a collective basis, all
refiners, importers and blenders would be deemed to be in compliance
whether or not they individually used 2.78 percent ethanol in gasoline.
If the default standard has not been met on a collective basis, we
propose that an appropriate volume of renewable fuel be carried forward
to the 2007 volume obligation which would then be implemented and
enforced under the full RFS rule. The additional renewable fuel that is
carried forward is termed the ``deficit carryover''. In such an
instance, no individual refiner, blender or importer is held liable for
the default 2006 standard not being met. Rather, the RFS standard for
2007 would be adjusted to account for any deficit carryover.
Today's rule would provide that a deficit carryover will be
required if the 2.78 percent standard is not met. The size of the
deficit would be determined with respect to the 2.78 percent default
standard. As a result, the minimum necessary volume of renewable fuel
consumed in 2006 and the size of any deficit carryover volume will be
dependent upon the volume of gasoline consumed. The following examples
illustrate how the standard would work, and how the deficit carryover
would be calculated.
(A) Renewable volume percent is greater than 2.78%:
Actual 2006 gasoline volume: 136.8 bill gal
Actual 2006 renewable volume: 3.90 bill gal
Calculated percent: Actual renewable
volume/actual
gasoline volume =
3.9/136.8 = 2.85%
Result: Standard has been
met; no deficit
carryover to 2007
(B) Renewable volume percent is less than 2.78%:
Actual 2006 gasoline volume: 139.8 bill gal
Actual 2006 renewable volume: 3.8 bill gal
Calculated percent: Actual renewable
volume/actual
gasoline volume =
3.8/139.8 = 2.72%
Result: Standard has not
been met. Amount of
renewable fuel
needed to achieve
2.78%: (2.78%-
2.72%) x (actual
gasoline used) =
0.06% x 139.8 bill
gallon = 0.08
billion gallons.
The 0.08 billion
gallons is added to
the RFS goal for
2007, resulting in
a modified goal of
4.78 billion gal/yr
of renewable fuel.
Although the Act requires EPA to publish the standard applicable to
2007 by November 30, 2006, the data on actual gasoline and renewable
fuel volumes consumed in all of 2006 will not be available at that
time. As a result, the addition of any deficit carryover to 2007, if
one is necessary, could occur no sooner than early 2007. Under these
circumstances, we expect that we would adjust the 2007 standard to
account for a carryover from 2006, if necessary, at such time as the
data for 2006 are available and in a manner consistent with the
regulations that will apply to 2007.
C. No Role for Credit Trading
The Act provides for the regulations implementing the long term RFS
to allow for credit generation and trading, and we will develop a
credit trading program under the full RFS program rule. Today's rule
allows for the industry to comply with the default standard on a
collective basis, providing no basis for setting up an individual
credit generation and trading program, as will be done for the long
term RFS program. For the default standard in
[[Page 77361]]
2006, companies do not have an individual standard to meet, so there is
no basis for determining that they have done more or less than is
required of them individually, which is the basis for generating or
needing credits. Therefore, under today's rule, individual companies
that exceed the 2.78 percent default standard do not generate credits,
and there are no credits to trade or sell to other companies. Also, no
credits are generated that can be used toward compliance with RFS
requirements after 2006.
V. Public Participation
We request comments on all aspects of this proposal. The comment
period for this proposed rule will end 30 days after publication in the
Federal Register.
If you would like to speak at a public hearing on this proposed
rule, please contact us within 15 days of publication of the proposal
in the Federal Register, as described above in DATES. If a request to
speak at a public hearing is received, we will hold the hearing on the
30th day after publication of the proposal in the Federal Register. An
announcement of the public hearing will be made on our Web site at
http://www.epa.gov/otaq/renewablefuel.htm. The public hearing would
start at 10 a.m. local time at the EPA Office Building, 2000
Traverwood, Ann Arbor, MI 48105, or at an alternate site nearby.
To contact us for updated information about the possibility of a
public hearing, please see the FOR FURTHER INFORMATION CONTACT section.
If you would like to present testimony at a public hearing, we ask
that you notify the contact person listed above at least ten days
beforehand. You should estimate the time you will need for your
presentation and identify any needed audio/visual equipment. We suggest
that you bring copies of your statement or other material for the EPA
panel and the audience. It would also be helpful if you send us a copy
of your statement or other materials before the hearing.
We will arrange for a written transcript of the hearing and keep
the official record of the hearing open for 30 days to allow for the
public to supplement the record. You may make arrangements for copies
of the transcript directly with the court reporter.
VI. Administrative Requirements
A. Executive Order 12866: Regulatory Planning and Review
Under Executive Order 12866, [58 FR 51735 (October 4, 1993)] the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to OMB review and the requirements of the
Executive Order. The Order defines ``significant regulatory action'' as
one that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
(2) create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.''
It has been determined that this rule will not have an annual
effect on the economy of $100 million or more, and that it is not
otherwise a ``significant regulatory action'' under the terms of
Executive Order 12866 and is therefore not subject to OMB review. EPA
has estimated that renewable fuel use in 2006 will be sufficient to
meet the default standard of 2.78 percent. Therefore, individual
refiners, blenders, and importers are already on track to meet rule
obligations through normal market-driven incentives.
B. Paperwork Reduction Act
This action does not impose an information collection burden under
the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.
There would not be a burden on liable parties because the Agency would
determine compliance immediately following 2006 using data on gasoline
and renewable fuel consumption available from the Energy Information
Administration and other information that may be readily available.
Burden means the total time, effort, or financial resources
expended by persons to generate, maintain, retain, or disclose or
provide information to or for a Federal agency. This includes the time
needed to review instructions; develop, acquire, install, and utilize
technology and systems for the purposes of collecting, validating, and
verifying information, processing and maintaining information, and
disclosing and providing information; adjust the existing ways to
comply with any previously applicable instructions and requirements;
train personnel to be able to respond to a collection of information;
search data sources; complete and review the collection of information;
and transmit or otherwise disclose the information.
An agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR part 9.
C. Regulatory Flexibility Act (RFA), as Amended by the Small Business
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et
seq.
The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
For purposes of assessing the impacts of today's rule on small
entities, small entity is defined as: (1) A small business as defined
by the Small Business Administration's (SBA) regulations at 13 CFR
121.201; (2) a small governmental jurisdiction that is a government of
a city, county, town, school district or special district with a
population of less than 50,000; and (3) a small organization that is
any not-for-profit enterprise which is independently owned and operated
and is not dominant in its field.
After considering the economic impacts of today's proposed rule on
small entities, I certify that this action will not have a significant
economic impact on a substantial number of small entities. EPA proposes
that the default provision for 2006 be interpreted as imposing a
collective obligation on the regulated parties. This means that if the
average volume percent of renewable fuel used in 2006 meets or exceeds
2.78 percent, then the standard is satisfied for all responsible
parties, regardless of their individual efforts towards that goal. In
light of the fact that refiners, blenders, and importers would together
be responsible for meeting the default 2.78 percent standard and
industry on average will very likely use more than 2.78 percent
renewable fuel in 2006 based solely on market forces, there will be no
significant economic impact on small entities. No individual refiner,
blender, or importer would be responsible for establishing compliance
with the default standard for the specific gasoline it produces in
2006,
[[Page 77362]]
and any deficit carryover to 2007 would be minimal if there is one at
all. We continue to be interested in the potential impacts of our
proposed rules on small entities and welcome comments on issues related
to such impacts. We continue to be interested in the potential impacts
of the proposed rule on small entities and welcome comments on issues
related to such impacts.
D. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, EPA
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local, and tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
one year. Before promulgating an EPA rule for which a written statement
is needed, section 205 of the UMRA generally requires EPA to identify
and consider a reasonable number of regulatory alternatives and adopt
the least costly, most cost-effective or least burdensome alternative
that achieves the objectives of the rule. The provisions of section 205
do not apply when they are inconsistent with applicable law. Moreover,
section 205 allows EPA to adopt an alternative other than the least
costly, most cost-effective or least burdensome alternative if the
Administrator publishes with the final rule an explanation why that
alternative was not adopted.
Before EPA establishes any regulatory requirements that may
significantly or uniquely affect small governments, including tribal
governments, it must have developed under section 203 of the UMRA a
small government agency plan. The plan must provide for notifying
potentially affected small governments, enabling officials of affected
small governments to have meaningful and timely input in the
development of EPA regulatory proposals with significant Federal
intergovernmental mandates, and informing, educating, and advising
small governments on compliance with the regulatory requirements.
This rule contains no federal mandates for State, local, or tribal
governments as defined by the provisions of Title II of the UMRA. The
rule imposes no enforceable duties on any of these governmental
entities. Nothing in the rule would significantly or uniquely affect
small governments.
EPA has determined that this rule does not contain a federal
mandate that may result in expenditures of $100 million or more for the
private sector in any one year. EPA has estimated that renewable fuel
use in 2006 will be sufficient to meet the default standard of 2.78
percent. Therefore, individual refiners, blenders, and importers are
already on track to meet rule obligations through normal market-driven
incentives. Thus, today's rule is not subject to the requirements of
sections 202 and 205 of the UMRA.
E. Executive Order 13132: Federalism
Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August
10, 1999), requires EPA to develop an accountable process to ensure
``meaningful and timely input by State and local officials in the
development of regulatory policies that have federalism implications.''
``Policies that have federalism implications'' is defined in the
Executive Order to include regulations that have ``substantial direct
effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various levels of government.''
This proposed rule does not have federalism implications. It will
not have substantial direct effects on the States, on the relationship
between the National Government and the States, or on the distribution
of power and responsibilities among the various levels of government,
as specified in Executive Order 13132. The rule reflects a nationwide
program that does not impose directives specific to any particular
State or region. Thus, Executive Order 13132 does not apply to this
rule.
F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175, entitled ``Consultation and Coordination
with Indian Tribal Governments'' (65 FR 67249, November 6, 2000),
requires EPA to develop an accountable process to ensure ``meaningful
and timely input by tribal officials in the development of regulatory
policies that have tribal implications.''
This proposed rule does not have tribal implications as specified
in Executive Order 13175. This rule would be implemented at the Federal
level and collectively apply to refiners, blenders, and importers. EPA
expects these entities to meet the standards on a collective basis in
2006 even without imposition of any RFS obligations on any individual
party. Thus, Executive Order 13175 does not apply to this rule.
G. Executive Order 13045: Protection of Children From Environmental
Health and Safety Risks
Executive Order 13045: ``Protection of Children from Environmental
health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies
to any rule that: (1) Is determined to be ``economically significant''
as defined under Executive Order 12866, and (2) concerns an
environmental health or safety risk that EPA has reason to believe may
have a disproportionate effect on children. If the regulatory action
meets both criteria, the Agency must evaluate the environmental health
or safety effects of the planned rule on children, and explain why the
planned regulation is preferable to other potentially effective and
reasonably feasible alternatives considered by the Agency.
EPA interprets Executive Order 13045 as applying only to those
regulatory actions that are based on health or safety risks, such that
the analysis required under section 5-501 of the Order has the
potential to influence the regulation. This proposal is not subject to
Executive Order 13045 because it is not economically significant and is
not based on health or safety risks.
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
This rule is not a ``significant energy action'' as defined in
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355
(May 22, 2001)) because it is not likely to have a significant adverse
effect on the supply, distribution, or use of energy. We believe that
the normal practices of liable parties will result in the default RFS
standard being met collectively.
I. National Technology Transfer Advancement Act
Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note)
directs EPA to use voluntary consensus standards in its regulatory
activities unless to do so would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g., materials specifications, test methods, sampling
procedures, and business practices) that are developed or adopted by
voluntary consensus standards bodies. The NTTAA directs EPA to provide
Congress, through OMB,
[[Page 77363]]
explanations when the Agency decides not to use available and
applicable voluntary consensus standards.
This proposed rulemaking does not involve technical standards.
Therefore, EPA is not considering the use of any voluntary consensus
standards.
VII. Legal Authority
Statutory authority for the rules proposed today can be found in 42
U.S.C. 7401-7671q.
List of Subjects in 40 CFR Part 80
Environmental protection, Fuel additives, Gasoline, Imports,
Reporting and recordkeeping requirements.
Dated: December 22, 2005.
Stephen L. Johnson,
Administrator.
For the reasons set forth in the preamble, we propose to amend part
80 of title 40 of the Code of Federal Regulations to read as follows:
PART 80--REGULATION OF FUELS AND FUEL ADDITIVES
1. The authority citation for part 80 continues to read as follows:
Authority: 42 U.S.C. 7414, 7545, and 7601(a).
2. Subpart K is added to read as follows:
Subpart K--Renewable Fuel Standard
Sec. 80.1100 How is the statutory default requirement for 2006
implemented?
(a) Definitions. (1) Renewable fuel. (i) Renewable fuel means motor
vehicle fuel that is used to replace or reduce the quantity of fossil
fuel present in a fuel mixture used to operate a motor vehicle, and
which
(A) Is produced from grain, starch, oil seeds, vegetable, animal,
or fish materials including fats, greases, and oils, sugarcane, sugar
beets, sugar components, tobacco, potatoes, or other biomass, or
(B) Is natural gas produced from a biogas source, including a
landfill, sewage waste treatment plant, feedlot, or other place where
decaying organic material is found.
(ii) The term ``renewable fuel'' includes cellulosic biomass
ethanol, waste derived ethanol, biodiesel, and any blending components
derived from renewable fuel.
(2) Cellulosic biomass ethanol means ethanol derived from any
lignocellulosic or hemicellulosic matter that is available on a
renewable or recurring basis, including dedicated energy crops and
trees, wood and wood residues, plants, grasses, agricultural residues,
fibers, animal wastes and other waste materials, and municipal solid
waste. The term also includes any ethanol produced in facilities where
animal wastes or other waste materials are digested or otherwise used
to displace 90 percent or more of the fossil fuel normally used in the
production of ethanol.
(3) Waste derived ethanol means ethanol derived from animal wastes,
including poultry fats and poultry wastes, and other waste materials,
or municipal solid waste.
(4) Small refinery means a refinery for which the average aggregate
daily crude oil throughput for a calendar year (as determined by
dividing the aggregate throughput for the calendar year by the number
of days in the calendar year) does not exceed 75,000 barrels.
(5) Biodiesel means a diesel fuel substitute produced from
nonpetroleum renewable resources that meets the registration
requirements for fuels and fuel additives established by the
Environmental Protection Agency under section 211 of the Clean Air Act.
It includes biodiesel derived from animal wastes (including poultry
fats and poultry wastes) and other waste materials, or biodiesel
derived from municipal solid waste and sludges and oils derived from
wastewater and the treatment of wastewater.
(b) Renewable Fuel Standard for 2006. The percentage of renewable
fuel in the total volume of gasoline sold or dispensed to consumers in
2006 in the United States shall be a minimum of 2.78 percent on an
annual average volume basis.
(c) Responsible parties. Parties collectively responsible for
attainment of the standard in paragraph (b) of this section are
refiners (including blenders) and importers of gasoline. However, a
party that is a refiner only because he owns or operates a small
refinery is exempt from this responsibility.
(d) EPA determination of attainment. EPA will determine after the
close of 2006 whether or not the requirement in paragraph (b) of this
section has been met. EPA will base this determination on information
routinely published by the Energy Information Administration on the
annual domestic volume of gasoline sold or dispensed to U.S. consumers
and of ethanol produced for use in such gasoline, supplemented by
readily available information concerning the use in motor fuel of other
renewable fuels such as cellulosic biomass ethanol, waste derived
ethanol, biodiesel, and other non-ethanol renewable fuels.
(1) The renewable fuel volume will equal the sum of all renewable
fuel volumes used in motor fuel, provided that:
(i) One gallon of cellulosic biomass ethanol or waste derived
ethanol shall be considered to be the equivalent of 2.5 gallons of
renewable fuel; and
(ii) Only the renewable fuel portion of blending components derived
from renewable fuel shall be counted towards the renewable fuel volume.
(2) If the nationwide average volume percent of renewable fuel in
gasoline in 2006 is equal to or greater than the standard in paragraph
(b) of this section, the standard has been met.
(e) Consequence of nonattainment in 2006. In the event that EPA
determines that the requirement in paragraph (b) of this section has
not been attained in 2006, a deficit carryover volume shall be added to
the renewable fuel volume obligation for 2007 for use in calculating
the standard applicable to gasoline in 2007.
(1) The deficit carryover volume shall be calculated as follows:
DC = Vgas [middot] (Rs-Ra)
Where:
DC = Deficit carryover in gallons of renewable fuel
Vgas = Volume of gasoline sold or dispensed to U.S.
consumers in 2006, in gallons
Rs = 0.0278
Ra = Ratio of renewable fuel volume divided by total
gasoline volume determined in accordance with paragraph (d)(2) of this
section.
(2) There shall be no other consequence of failure to attain the
standard in paragraph (b) of this section in 2006 for any of the
parties in paragraph (c) of this section.
[FR Doc. 05-24610 Filed 12-29-05; 8:45 am]
BILLING CODE 6560-50-P