EPA Proposes  New  Regulations for
the  National Renewable Fuel Standard
Program  for 2010 and Beyond
The U.S. Environmental Protection Agency is proposing revisions to the National
Renewable Fuel Standard program (commonly known as the RFS program). Today's
proposed rule intends to address changes to the Renewable Fuel Standard program as
required by the Energy Independence and Security Act of 2007 (EISA). The revised
statutory requirements establish new specific volume standards for cellulosic biofuel,
biomass-based diesel, advanced biofuel, and total renewable fuel that must be used
in transportation fuel each year. The revised statutory requirements also include new
definitions and criteria for both renewable fuels and the feedstocks used to produce
them, including new greenhouse gas emission (GHG) thresholds for renewable fuels.
The regulatory requirements for RFS will apply to domestic and foreign producers
and importers of renewable fuel.
General Background
The U.S. Environmental Protection Agency (EPA) is proposing to modify the
national RFS program. The current Renewable Fuel Standard program (RFS1) was
established under the Energy Policy Act of 2005 (EPAct) which amended the Clean
Air Act by establishing the first national renewable fuel standard. The U.S. Congress
gave EPA the responsibility to coordinate with the U.S. Department of Energy, the
U.S. Department of Agriculture, and stakeholders to design and implement this new
program.  With the passage of EISA, Congress made several important revisions to
these renewable fuel standards that require EPA to promulgate new regulations to
implement these changes.
New Renewable Volume Standards
This rule proposes to establish the revised annual renewable fuel standard (RFS2)
and to make the necessary program modifications as set forth in EISA. Of these
modifications, several are significantly notable. First, the volume standard under
United States
Environmental Protection
                                 Office of Transportation and Air Quality
                                                         May 2009

RFS2 was increased beginning in 2008 from 5.4 billion gallons (Bgal) to 9.0 Bgal. Thereafter,
the required volume continues to increase under RFS2, eventually reaching 36 Bgal by 2022.
The following chart shows all the volume requirements from EISA.

             Renewable Fuel Volume Requirements for RFS2 (billion gallons)

based diesel
Advanced biofuel
Total renewable fuel
         1 To be determined by EPA through a future rulemaking, but no less than 1.0 billion gallons.
         5 To be determined by EPA through a future rulemaking.
EISA Expands Coverage to Include Diesel and Nonroad Fuels
EISA expanded the program application beyond gasoline to generally cover all transportation
fuel. This now includes gasoline and diesel fuel intended for use in highway vehicles and en-
gines, and nonroad, locomotive and marine engines. As in RFS1, EPA is proposing that these
provisions apply to refiners, blenders, and importers of transportation fuel (with limited flexibili-
ties for small refiners), and that their percentage standards apply to the total amount of gasoline
and diesel they produce for such use. We also propose to use the current definition of motor
vehicle, nonroad, locomotive, and marine diesel fuel (MVNRLM) to determine the obligated
volumes of non-gasoline transportation fuel for this rule.

Greenhouse Gas Reduction Thresholds
EISA established new renewable fuel categories and eligibility requirements, including setting
the first ever mandatory GHG reduction thresholds for the various categories of fuels. For each
renewable fuel pathway, GHG emissions are evaluated over the full lifecycle, including produc-
tion and transport of the feedstock; land use change; production, distribution, and blending of
the renewable fuel; and end use of the renewable fuel. The GHG emissions are then compared
to the lifecycle emissions of 2005 petroleum baseline fuels (base year established as 2005 by
EISA) displaced by the renewable fuel, such as gasoline or diesel. The lifecycle GHG emissions
performance reduction thresholds as established by EISA range from 20 to 60 percent reduction
depending on the renewable fuel category.

                      Lifecycle GHG Thresholds Specified in EISA
                             (percent reduction from 2005 baseline)
                       Renewable fuela
                       Advanced biofuel
                       Biomass-based diesel
                       Cellulosic biofuel
                 a The 20% criterion generally applies to renewable fuel from new facili-
                 ties that commenced construction after December 19, 2007.
                 *EPA is proposing to exercise the 10% adjustment allowance provided for
                 in EISA for the advanced biofuels threshold to as low as 40%

In order for renewable fuels to qualify, they must meet or exceed these minimum GHG reduc-
tion thresholds. For general information on lifecycle GHG emissions methodology and results
for renewable fuel pathways, please see the Lifecycle GHG Analysis Fact Sheet.
Feedstock Production Limitations
The revised statutory requirements also include new definitions and criteria for both renewable
fuels and the feedstocks used to produce them. These definitions affect feedstock use for produc-
tion of compliant renewable fuels and certain restrictions on the type of land that can be used to
grow those feedstocks.
Treatment of Required Volumes in 2009
Under the RFS1  regulations the annual percentage standards that are applicable to obligated
parties are determined by a formula set forth in the regulations. The formula uses gasoline vol-
ume projections from the Energy Information Administration (EIA)  and the required volume
of renewable fuel provided in Clean Air Act section 211(o)(2)(B).  Since EISA modified the
required volumes in this section of the Clean Air Act, it is the new statutory volumes that
must be used under the RFS1 regulations in generating the standards for 2009. Therefore, in
a November 21,  2008 Federal Register notice1, we used the new total renewable fuel volume of
 73 FR 70643

11.1 billion gallons as the basis for the 2009 standard, and not the 6.1 billion gallons that was
required by the Energy Policy Act of 2005. The RFS standard in 2009 will continue to be appli-
cable to producers or importers of gasoline and only for the volume of gasoline that they produce
or import.

While this approach applies the total renewable fuel volume standard of 11.1 billion gallons
required by EISA for 2009, the RFS1 regulatory structure does not provide a mechanism for
implementing the 0.5 billion gallon requirement for biomass-based diesel. Therefore, we are
proposing to address this issue  by increasing the 2010 biomass-based diesel requirement by 0.5
billion gallons and allowing 2009 biodiesel and renewable diesel RINs to be used to meet this
combined 2009/2010 requirement. We believe this would provide similar incentive for biomasS'
based diesel use in 2009 as would have occurred had we been able to implement this standard
for 2009.
Proposed Standards for 2010
Once the RFS2 program is implemented, we expect to conduct a notice-and-comment rulemak-
ing process each year in order to determine the appropriate standards applicable in the following
year. We will thus need to issue an NPRM in the spring and a final rule by November 30 of each
year as required by statute. However, we are proposing the 2010 standards in today's notice. We
will consider comments received during the comment period associated with today's NPRM and
other information that has become available following the analyses in the NPRM, and we will
issue a final rule by November 30, 2009 setting the applicable standards for 2010.

Based on information from the industry, we believe that there are sufficient plans underway to
build plants capable of producing 0.1 billion gallons of cellulosic biofuel in 2010, the minimum
volume of cellulosic biofuel required by EISA for 2010. However, we recognize that cellulosic
biofuel is at the very earliest stages of commercialization and current economic concerns could
have significant impacts on these near term plans. Therefore, while based on industry plans
available to EPA, we are not proposing that any portion of the cellulosic biofuel requirement
for 2010 be waived, we are seeking additional and updated information that would be available
prior to November 30, 2009 which could result in a change in this conclusion. Similarly, we are
not aware  of the need to waive any other volume mandates for  2010. Therefore, we are propos-
ing that the renewable fuel volume requirements for RFS2 shown in the table above for all re-
newable fuel categories be used as the basis for the  applicable standards for 2010. The proposed
standards are shown below, each representing the fraction of a refiner's or importer's gasoline and
diesel volume which must be renewable fuel.

                              Proposed Standards for 2010
Cellulosic biofuel
Biomass-based diesel
Advanced biofuel
Renewable fuel

The proposed 2010 standards shown above were based on currently available projections of 2010
gasoline and diesel volumes. The final standards would be calculated on the basis of gasoline
and diesel volume projections from the Energy Information Administration's (EIA) Short'Term
Energy Outlook and published by November 30, 2009.
Program Design and Proposed Implementation Approach
Today's notice proposes to revise the RES program regulations to implement the EISA provi-
sions. In designing this proposed RFS2 program, the Agency is building on the same program-
matic structure created to implement the current renewable fuel program. We propose to con-
tinue to use the Renewable Identification Number (RIN) system currently in place to track
renewable fuels and determine compliance with modifications designed to implement the EISA
provisions. At the same time,  we are also proposing and seeking comment on several provisions
aimed at enhancing the RIN system based on our experience to date implementing RFS1.

We are proposing that the changes would apply starting January 1, 2010. The current RFS1
regulations would continue to apply until EPA amends them to implement EISA, and any delay
in issuance of the RFS2 regulations means that parties would continue to be subject to the RFS1
regulations until the RFS2 regulations are in effect. Therefore, regulated parties will continue to
be subject to the existing regulations at least through December 31, 2009, or later if the effective
date of the RFS2 program were later than January 1, 2010.
Overview of Impacts of the Rule
Analyses were conducted to determine the economic impacts of the rule, impacts on energy
security, fuel costs, petroleum consumption, greenhouse gases, the agricultural sector and emis-
sions affecting air and water quality.

The revised renewable fuel standards are expected to reduce dependence on foreign sources of
crude oil, increase domestic sources of energy, and diversify our energy portfolio to help in mov-
ing beyond a petroleum-based economy, while at the same time providing important reductions
in greenhouse gas emissions such as carbon dioxide that affect climate change. The increased
use of renewable fuels such as ethanol, biodiesel and other renewable fuels is also expected to
have the added benefit of providing an expanded market for agricultural products such as corn
and soybeans and open new markets  for the development of cellulosic feedstock industries and
conversion technologies. As we work to implement the requirements of EISA, we will continue
to assess these impacts. While the volumes of renewable fuel were specified by statute and would
thus not be based on or revised by these impact assessments, such assessments nevertheless play
a critical role in the wider public policy considerations of renewable fuels.

The proposed rule also includes substantial analysis  for when we anticipate ethanol production
to exceed the volume that can practically be blended into gasoline nationwide at 10 volume
percent level (E10), known as the "blend wall." The 10% per  gallon by volume limit in gaso-
line is based on a Clean Air Act waiver granted in 1978. The  analysis includes a discussion of

distribution issues for E10, E85, and potential mid-level blends such as E15, and how distribu-
tion issues may affect when the blend wall is reached.

In a separate process, the Agency is handling a Clean Air Act waiver request to expand the al-
lowable ethanol content of gasoline up to El5. The Agency is evaluating whether vehicles and
engines will meet emission and durability standards over their useful lives on E15.
Greenhouse Gas Emissions
For the first time in a regulatory program, lifecycle analysis of GHG emissions is being utilized to
establish those fuels that qualify for the different renewable fuel standards. Based on our lifecycle
analysis, we believe that the expanded use of renewable fuels would provide significant reduc-
tions in GHG emissions over time, such as carbon dioxide. To determine the GHG impacts of
the RFS2 program, EPA analyses considered the full useful life assessment of the production of
biofuels compared to the petroleum-based fuels they would replace. Based on a combined use of
various models, we have analyzed the lifecycle GHG emissions for a number of pathways for pro-
ducing the increased volumes of renewable fuels that are mandated by EISA. The incremental
volumes of each biofuel type were then evaluated to determine their average impact on GHG
emissions compared to the 2005 baseline petroleum fuel they would be displacing.

We estimate the greater volumes of biofuel mandated by RFS2 will reduce GHG emissions from
transportation by a total of 6.8 billion tons CO2 equivalent when measured over a 100 year
timeframe and discounted at 2%. This is equivalent to approximately 160 million tons CO2
equivalent per year. Determining lifecycle GHG emissions values for renewable fuels using a 0%
discount rate over 30 years would result in a total of 4.5 billion tons CO2 equivalent, which is
equivalent to an annual average reduction of 150 million tons of CO2 equivalent. These reduc-
tions would be primarily in the form of carbon dioxide, with small contributions from other
greenhouse gases. The reductions would be equivalent to taking about 24 million vehicles off
the road.
Emissions and Air Quality
The increased use of renewable fuels can also impact criteria air pollutant emissions, with some
pollutants such as hydrocarbons, nitrogen oxides (NOx), acetaldehyde and ethanol expected to
increase and other pollutants such as carbon monoxide (CO) and benzene expected to decrease.
It should be noted that the aggregate nationwide emission inventory impacts presented in
today's proposal may not be a good indication of air quality and health impacts, as there can be
highly localized impacts such as increased emissions from ethanol plants and evaporative emis-
sions from cars, versus decreased emissions from gasoline refineries.

We project the proposed program will result in  significant increases in ethanol and acetaldehyde
emissions, increasing  the total U.S inventories  of these pollutants by 30-40% in 2022 relative to
emissions resulting from the RFS1 mandate. We project more modest increases in NOx, form-
aldehyde, particulate  matter, hydrocarbons, acrolein, and sulfur dioxide We project a decrease
in ammonia (NH3) emissions (due to reductions in livestock agricultural activity), CO (due to

impacts of ethanol on exhaust emissions from vehicles and nonroad equipment), and benzene
(due to displacement of gasoline with ethanol in the fuel pool).

Our estimates of the emissions impacts of the RFS2 program took into account both "down-
stream" emissions from vehicles and engines and "upstream" emissions from the production and
distribution of the fuel. Both upstream and downstream emissions are important contributors to
the overall nationwide effects.

The atmospheric chemistry related to ambient concentrations of PM2.5, ozone and air toxics is
very complex, and making predictions based solely on emissions changes is extremely difficult.
Full-scale photochemical air quality modeling is planned to characterize the air quality and
health impacts of the program in the final rule.
Overall Petroleum Consumption
EPA's analysis of the petroleum consumption impacts took a similar lifecycle approach to the
assessment of GHG impacts. For the year 2022, we estimate that the 36 billion gallons of re-
newable fuel mandated by these rules will increase renewable fuel usage by approximately 22
billion gallons over the 2022 base volume scenario which will displace about 15 billion gallons
of petroleum-based gasoline and diesel fuel. This represents about 11 % of annual gasoline and
diesel consumption in 2022, and most of these reductions would result in reduced imports of
Fuel Costs
We cannot predict the selling price of renewable fuels since price fluctuates with demand and
is driven by many complex market mechanisms. However, we can estimate the costs associated
with producing, transporting, and blending renewable fuels.

The RFS2 program is projected to significantly impact the cost of gasoline and diesel, though
the estimated costs vary based on the price of crude oil that we assumed. In our analysis we used
both $92 and $53 per barrel crude oil based on price projections made by EIA in 2008. At these
two crude oil price points, we estimated that gasoline costs would increase by about 2.7 and 10.9
cents per gallon, respectively, by 2022. Likewise, diesel fuel costs could experience a small cost
reduction of 0.1 cents per gallon, or increase by about 1.2 cent per gallon, respectively. These
costs represent the nationwide average impacts including the costs of producing and distribut-
ing both renewable fuels and gasoline  and diesel, as well as blending costs, but without consid-
eration of the tax subsidies and import tariff for ethanol or the tax subsidies for biodiesel and
renewable diesel fuel.

For the nation as a whole, the increases in gasoline and diesel fuel costs are equivalent to $4 bil-
lion and $18 billion in 2022 assuming that crude oil is priced at $92 and $53 per barrel, respec-
tively (in 2006 dollars, and amortizing capital costs using a 7% before-tax rate of return).

Economic Impacts and Energy Security
We estimate that 91% of the petroleum reductions resulting from the use of renewable fuel will
be met through reductions in net petroleum imports. We estimate the value of the decrease in
imported petroleum at about $16 billion in 2022 due to increased volumes of renewable fuels
mandated by RFS2. Net U.S. expenditures on petroleum imports in 2022 are projected to be
about $208 billion.

The above estimate of reduced U.S. petroleum import expenditures only partly assesses the
economic impacts of this proposal. One of the effects of increased use of renewable fuel is that
it diversifies the energy sources used in making transportation fuel. To the extent that diverse
sources of fuel energy reduce the U.S. dependence on any one source, the risks, both financial
as well as strategic, of a potential disruption in supply of a particular energy source are reduced.
EPA has worked with researchers at Oak Ridge National Laboratory (ORNL) to update a study
they previously published that has been used or cited in several government actions impact-
ing U.S. oil consumption. Using the updated ORNL estimate, the total energy security benefits
associated with a reduction of U.S. imported oil is $12.38/barrel. Based upon the $12.38/barrel
figure, total energy security benefits associated with this proposal were calculated and are shown

                    Total Energy Security Benefits (billions of 2006$)
Agricultural Sector Impacts
The RFS program is likely to spur the increased use of renewable transportation fuels made at
least initially, principally from agricultural crops and it is expected that most of these crops will
be produced in the U.S. As a result, we estimated the change in the price of various agricultural
products as a result of this rulemaking. The following table includes 2022 estimates for commod-
ity price increases for corn, soybeans, sugarcane and beef:

            Change in U.S. Commodity Prices for 2022 in Comparison to the
                               Reference Case (2006$)
$0.93/hundred pounds
Based on these figures, we estimate that U.S. food costs would increase by $10 per person per
year by 2022 while net U.S. farm income would increase by $7.1 billion dollars (10.6%).

Due to higher commodity prices, we estimate that U.S. corn exports would drop from 2.7 billion
bushels to 2.4 billion bushels (a 10% decrease) by 2022, while U.S. exports of soybeans would
decrease from 1.03 billion bushels to 943 million bushels (a 9.3% decrease).

For More Information
For more information on this proposal, including Frequently Asked Questions, please visit the
RFS website at: http://www.epa.gov/otaq/renewablefueIs/index.htm

Or, contact EPA's Office of Transportation and Air Quality, Assessment and Standards Division
information line  at: asdinfo@epa.gov. or (734) 214-4636