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[ORAL ARGUMENT NOT YET SCHEDULED] Nos. 13-1265, 13-1267 & 13-1268 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT MONROE ENERGY, LLC, ET AL., Petitioners, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent. PETITIONS FOR REVIEW OF FINAL ACTION OF THE ENVIRONMENTAL PROTECTION AGENCY BRIEF FOR PETITIONERS AMERICAN PETROLEUM INSTITUTE AND AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS

Chet M. Thompson Robert Meyers David Y. Chung CROWELL & MORING LLP 1001 Pennsylvania Avenue NW Washington, DC 20004–2595 Richard Moskowitz AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS 1667 K Street, NW Suite 700 Washington, DC 20006 Counsel for Petitioner American Fuel & Petrochemical Manufacturers December 9, 2013

Robert A. Long, Jr. Kristen E. Eichensehr COVINGTON & BURLING LLP 1201 Pennsylvania Avenue NW Washington, DC 20004–2401 (202) 662–6000 rlong@cov.com Harry M. Ng Erik C. Baptist AMERICAN PETROLEUM INSTITUTE 1220 L Street NW Washington, DC 20005–4070 Counsel for Petitioner American Petroleum Institute

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CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES Pursuant to Circuit Rule 28(a)(1), Petitioners hereby certify as follows: A. Parties and Amici: The parties in this Court are Petitioners Monroe Energy (No. 13-1265), American Petroleum Institute (No. 13-1267), American Fuel & Petrochemical Manufacturers (No. 13-1268) and Respondent Environmental Protection Agency (“EPA”). The Intervenor for Petitioners is PBF Holding Co. LLC. Intervenors for Respondent are the Biotechnology Industry Organization, Growth Energy, National Biodiesel Board, and Renewable Fuels Association. There are no amici at this time. B. Rulings Under Review: The agency action under review is EPA’s final action, entitled “Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards; Final Rule,” 78 Fed Reg. 49,794 (Aug. 15, 2013). C. Related Cases: Petitioners are not aware of any related cases.

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RULE 26.1 DISCLOSURE STATEMENT Pursuant to Federal Rule of Appellate Procedure 26.1 and Local Rule 26.1, Petitioner American Petroleum Institute (“API”) states that it is a nationwide, notfor-profit association representing over 550 member companies engaged in all aspects of the oil and gas industry, including science and research, exploration and production of oil and natural gas, transportation, refining of crude oil, and marketing of oil and gas products. API has no parent companies, and no publicly held company has a 10% or greater ownership interest in API. Petitioner American Fuel & Petrochemical Manufacturers (“AFPM”) states that it is a national trade association of more than 400 companies, including virtually all U.S. refiners and petrochemical manufacturers. AFPM has no parent companies, and no publicly held company has a 10% or greater ownership interest in AFPM. API and AFPM are “trade associations” within the meaning of Circuit Rule 26.1. API and AFPM are continuing associations operating for the purpose of promoting the general commercial, professional, legislative, or other interests of their memberships.

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TABLE OF CONTENTS Page(s) CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES ............. i RULE 26.1 DISCLOSURE STATEMENT.............................................................. ii TABLE OF CONTENTS ......................................................................................... iii TABLE OF AUTHORITIES .................................................................................... v GLOSSARY............................................................................................................. ix INTRODUCTION .................................................................................................... 1 JURISDICTIONAL STATEMENT ......................................................................... 3 ISSUES PRESENTED.............................................................................................. 3 STATEMENT OF FACTS ....................................................................................... 3 A. B. The RFS Program ................................................................................. 3 Regulatory History ............................................................................... 6 1. 2. Persistent Delays and Prior RFS Rulemakings .......................... 6 2013 RFS Rulemaking ............................................................... 8 a) b) Proposed Rule .................................................................. 8 Final Rule......................................................................... 9

SUMMARY OF THE ARGUMENT ..................................................................... 11 STANDING ............................................................................................................ 13 ARGUMENT .......................................................................................................... 14 I. EPA’S DECISION TO INCREASE THE RFS DURING THE COMPLIANCE YEAR WITHOUT NOTICE IS CONTRARY TO LAW AND ARBITRARY AND CAPRICIOUS. ........................................ 15

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A. B.

EPA Impermissibly Increased The RFS By Altering The Estimate Of Transportation Fuel Volume Without Notice. ............... 15 EPA Arbitrarily And Capriciously Increased The RFS By Granting A Small Refinery Exemption During The Compliance Year. ................................................................................................... 20

II.

EPA’S 2013 VOLUME REQUIREMENT FOR CELLULOSIC BIOFUEL IS ARBITRARY AND CAPRICIOUS. ..................................... 22 A. B. EPA’s Projected Available Volume For Cellulosic Biofuel Is Arbitrary And Capricious. .................................................................. 22 EPA’s Methodology for Projecting Cellulosic Biofuel Production Is Arbitrary And Capricious. ........................................... 28 1. 2. EPA Failed To Adequately Explain Its Methodology. ............ 29 EPA Failed To Provide Adequate Notice Regarding Its “Benchmark” Methodology. .................................................... 31

CONCLUSION ....................................................................................................... 34 CERTIFICATE OF COMPLIANCE ...................................................................... 35 CERTIFICATE OF SERVICE ............................................................................... 36

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TABLE OF AUTHORITIES* Page(s) Cases Am. Lung Ass’n v. EPA, 134 F.3d 388 (D.C. Cir. 1998) ............................................................................ 30 *API v. EPA, 706 F.3d 474 (D.C. Cir. 2013) ............................................. 2, 7, 8, 12, 17, 22, 25 Chamber of Commerce of the United States v. EPA, 642 F.3d 192 (D.C. Cir. 2011) ............................................................................ 13 *Envtl. Integrity Project v. EPA, 425 F.3d 992 (D.C. Cir. 2005) ..........................................................18, 19, 31, 32 Hunt v. Washington State Apple Adver. Comm’n, 432 U.S. 333 (1977) ............................................................................................ 13 *Motor Vehicle Mfrs. Ass’n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) ............................................................... 14, 20, 26, 28, 29, 30 Nat’l Petrochem. & Refiners Ass’n v. EPA, 287 F.3d 1130 (D.C. Cir. 2002) .......................................................................... 14 Ne. Md. Waste Disposal Auth. v. EPA, 358 F.3d 936 (D.C. Cir. 2004) ............................................................................ 19 New York v. U.S. EPA, 413 F.3d 3 (D.C. Cir. 2005) ................................................................................ 29 North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008) ............................................................................ 14 SEC v. Chenery Corp., 332 U.S. 194 (1947) ............................................................................................ 30

*

Authorities upon which we chiefly rely are marked with asterisks.

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Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506 (D.C. Cir. 1983) ............................................................................ 15 Yellow Taxi Co. v. NLRB, 721 F.2d 366 (D.C. Cir. 1983) ............................................................................ 23 Statutes 42 U.S.C. § 7545(d)(1)............................................................................................... 5 42 U.S.C. § 7545(o)(1)............................................................................................... 4 42 U.S.C. § 7545(o)(2)(B) ......................................................................................... 4 42 U.S.C. § 7545(o)(3)(A) .......................................................................4, 15, 16, 17 42 U.S.C. § 7545(o)(3)(B) .................................................................................16, 17 42 U.S.C. § 7545(o)(3)(B)(i) ..................................................................................... 4 42 U.S.C. § 7545(o)(3)(B)(ii) .................................................................................... 5 42 U.S.C. § 7545(o)(3)(B)(ii)(I) ................................................................................ 4 42 U.S.C. § 7545(o)(3)(B)(ii)(II) ............................................................................... 4 42 U.S.C. § 7545(o)(7)(A) ......................................................................................... 6 42 U.S.C. § 7545(o)(7)(D) ......................................................................................... 6 42 U.S.C. § 7545(o)(7)(D)(i) ..................................................................................... 5 42 U.S.C. § 7607(b) ................................................................................................... 3 42 U.S.C. § 7607(d)(3)............................................................................................. 19 42 U.S.C. § 7607(d)(5)............................................................................................. 33 42 U.S.C. § 7607(d)(6)(C) ....................................................................................... 33 42 U.S.C. § 7607(d)(6)-(9) ...................................................................................... 33 42 U.S.C. § 7607(d)(8).......................................................................................14, 22

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42 U.S.C. § 7607(d)(9)(D) ....................................................................................... 14 Energy Independence and Security Act of 2007, Pub. L. No. 110-140, 121 Stat. 1492....................................................................................................................... 3 Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 ................................ 3 Regulations 40 C.F.R. § 80.1401 ................................................................................................... 5 40 C.F.R. § 80.1405(c)...................................................................................9, 10, 16 40 C.F.R. § 80.1406 ................................................................................................... 4 40 C.F.R. § 80.1407 ................................................................................................... 4 40 C.F.R. § 80.1415 ................................................................................................... 5 40 C.F.R. § 80.1427 ................................................................................................... 5 40 C.F.R. § 80.1427(a)(5) .......................................................................................... 5 40 C.F.R. § 80.1427(a)(6) .......................................................................................... 5 40 C.F.R. § 80.1427(b) .............................................................................................. 5 40 C.F.R. § 80.1451 ................................................................................................... 5 40 C.F.R. § 80.1451(a)............................................................................................... 5 40 C.F.R. § 80.1456 ................................................................................................... 6 40 C.F.R. § 80.1463 ................................................................................................... 5 Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 75 Fed. Reg. 14,670 (Mar. 26, 2010) ............................................... 6, 7 Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards, 75 Fed. Reg. 76,790 (Dec. 9, 2010) ............................................................................... 6, 7 Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards, 77 Fed. Reg. 1320 (Jan. 9, 2012) ................................................................................... 6, 7

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Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards, 78 Fed. Reg. 49,794 (Aug. 15, 2013) (to be codified at 40 C.F.R. pt. 80) ........................ 3 2014 Standards for the Renewable Fuel Standard Program; Proposed Rule, 78 Fed. Reg. 71,732 (Nov. 29, 2013) (to be codified at 40 C.F.R. pt. 80) .............. 28 Other Authorities Complaint, Berry v. KiOR, Inc., No. 4:13-cv-2443 (S.D. Tex. Aug. 20, 2013), ECF No. 1 .................................................................................................................... 26 Documentation of OMB Review Under Executive Order 12,866, Attachment 1, EPA-HQ-OAR-2012-0546-0014 (Dec. 21 Draft NPRM) .................................. 18 EPA, 2010 RFS2 Data, http://www.epa.gov/otaq/fuels/rfsdata/2010emts.htm (updated Nov. 7, 2013) ......................................................................................... 7 EPA, 2011 RFS2 Data, http://www.epa.gov/otaq/fuels/rfsdata/2011emts.htm (updated Nov. 7, 2013) ......................................................................................... 7 EPA, 2012 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm (updated Nov. 7, 2013) ......................................................................................... 7 EPA, 2013 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm, (updated Nov. 7, 2013) .....................................................................11, 23, 24, 26 Fed. R. Evid. 201(b)(2) ............................................................................................ 23 Press Release, KiOR, KiOR to Announce Second Quarter 2013 Financial Results on August 8, 2013, July 11, 2013, http://investor.kior.com/releases.cfm. ......... 27 Q1 2013 KiOR Inc Earnings Conference Call - Final, Roll Call, at 4 (May 9, 2013) .............................................................................. 26 Q2 2013 KiOR Inc., Earnings Conf. Call – Final, Roll Call (Aug. 8, 2013) ...................................................................10, 11, 27, 28

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GLOSSARY APA AFPM API CAA EIA EPA RFS RFS2 Administrative Procedure Act American Fuel & Petrochemical Manufacturers American Petroleum Institute Clean Air Act Energy Information Administration Environmental Protection Agency Renewable Fuel Standard Revised Renewable Fuel Standard program implementing the Energy Independence and Security Act of 2007, Pub. L. No. 110-140, 121 Stat. 1492. Renewable Identification Number Renewable Volume Obligation

RIN RVO

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INTRODUCTION The federal Renewable Fuel Standards (“RFS”) program requires EPA to issue, by November 30 of each year, standards for the use of renewable fuel for the following year. Although EPA was statutorily required to issue the 2013 RFS by November 30, 2012, it failed to issue the standards until August 15, 2013—almost two-thirds of the way through the compliance year. Refiners and importers of transportation fuel (collectively “obligated parties”) bear the burden of EPA’s chronic tardiness. Instead of benefitting from the lead time Congress mandated, obligated parties must scramble to alter their compliance strategies more than half way through the compliance year. EPA exacerbated the negative effects of its tardiness by increasing obligated parties’ RFS obligations without notice based on new information that was not available for comment by interested parties. In an unprecedented move, EPA solicited a new projection of total transportation fuel use from the Energy Information Administration (“EIA”) during the compliance period and used the new estimate to calculate the RFS. EPA also granted a small refinery exemption and reallocated the exempt refiner’s obligations to the other obligated parties. Both actions had the effect of increasing obligated parties’ compliance burdens (their renewable volume obligation (“RVO”)) well into the compliance year, without any notice or opportunity to comment.

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Additionally, EPA engaged in yet another overly optimistic projection of cellulosic biofuel production, despite this Court’s recent decision vacating the 2012 cellulosic biofuel RFS. API v. EPA, 706 F.3d 474 (D.C. Cir. 2013). Despite this Court’s admonition that EPA must issue a cellulosic biofuel projection that “aims at accuracy, not at deliberately indulging a greater risk of overshooting than undershooting,” id. at 479, EPA selectively relied on information that supported its projection and ignored information that undercut it. As a result, EPA has again said, in effect, “‘Do a good job, cellulosic fuel producers. If you fail, we’ll fine your customers.’” Id. at 480. EPA also failed to place information in the

rulemaking docket to permit notice and comment. EPA’s failure to comply with statutory deadlines, notice and comment requirements, and this Court’s order to aim at accuracy in cellulosic biofuel projections renders the final rule arbitrary and capricious and not in accordance with the Clean Air Act (“CAA”).

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JURISDICTIONAL STATEMENT EPA published its final rule in the Federal Register on August 15, 2013. JA790-827 (Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards, 78 Fed. Reg. 49,794 (Aug. 15, 2013) (to be codified at 40 C.F.R. pt. 80)). API and AFPM filed timely petitions for review on October 8 and 10, 2013 respectively. This Court has jurisdiction pursuant to 42 U.S.C. § 7607(b). ISSUES PRESENTED 1. Whether EPA violated the CAA by impermissibly and without notice relying on a May 2013 EIA projection of transportation fuel consumption and other information generated after the close of the public comment period. 2. Whether EPA violated the CAA by arbitrarily and without notice increasing the RFS and consequently obligated parties’ RVOs due to EPA’s grant of a small refinery exemption during the 2013 compliance year. 3. Whether EPA violated the CAA by setting a cellulosic biofuel volume requirement that is unrealistically high and inadequately explained. STATEMENT OF FACTS A. The RFS Program

Congress amended the CAA to establish the RFS program in the Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594; it expanded that program in the Energy Independence and Security Act of 2007, Pub. L. No. 110-140, 121 Stat. 1492. The CAA sets yearly applicable volume requirements for renewable fuel, 3

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advanced biofuel, cellulosic biofuel, and biomass-based diesel. See 42 U.S.C. § 7545(o)(2)(B); see also id. § 7545(o)(1). The Act states that, by October 31 of each year, the EIA must provide EPA with estimates for the “volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold or introduced into commerce in the United States” in the following calendar year. Id. § 7545(o)(3)(A). EPA, in turn, must determine and publish in the Federal Register by November 30 an annual RFS, which is expressed as a percentage, for the following calendar year for each of four categories of fuel (cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel). Id. § 7545(o)(3)(B)(i). The RFS is expressed as a

“percentage of transportation fuel sold or introduced into commerce in the United States.” Id. § 7545(o)(3)(B)(ii)(II). Obligated parties must demonstrate that they meet a required volume, known as the annual RVO, for each type of renewable fuel. Id. § 7545(o)(3)(B)(ii)(I); 40 C.F.R. § 80.1406. The RVO (expressed in gallons) is determined by multiplying the volume of non-renewable gasoline and diesel that the obligated party produces or imports in a calendar year by the applicable RFS published annually by EPA. See 42 U.S.C. § 7545(o)(3)(B)(i); 40 C.F.R. § 80.1407. Obligated parties demonstrate compliance with their annual RVOs by acquiring and then surrendering “Renewable Identification Numbers” (“RINs”), 40

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C.F.R. § 80.1427, which generally represent one gallon of renewable fuel produced or imported into the United States, id. § 80.1401, § 80.1415.1 After biofuel is blended into transportation fuel, RINs can be bought, sold, or transferred, id. § 80.1451, and may be used for RVO compliance in the year in which they are produced or in the following year, id. § 80.1427(a)(6). Obligated parties must submit a compliance report to EPA by February 28 of each year for the preceding calendar year. Id. § 80.1451(a). Obligated parties that fail to acquire sufficient current year RINs to meet their annual RVO may use prior year RINs, subject to a 20% cap and other limitations. Id. §§ 80.1427(a)(5), 80.1427(b). Obligated parties must demonstrate compliance with the RVO annually and may face substantial penalties. See 42 U.S.C. §§ 7545(d)(1), 7545(o)(3)(B)(ii); 40 C.F.R. §§ 80.1427, 80.1463. The statute includes special requirements for cellulosic biofuel. The CAA provides that EPA “shall reduce the applicable volume of cellulosic biofuel . . . to the projected volume available during that calendar year” if, based on the EIA estimate referenced above, EPA projects that the volume of cellulosic biofuel production for the following year will be less than the applicable volume specified in the statute. 42 U.S.C. § 7545(o)(7)(D)(i). Different types of renewable fuels carry different values based on energy density. For example, one gallon of ethanol generates 1.0 RIN, while one gallon of biodiesel results in 1.5 RINs. See 40 C.F.R. § 80.1415.
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Whenever EPA reduces annual requirements for cellulosic biofuel below the applicable statutory volumes, EPA must make cellulosic biofuel waiver credits available for purchase. If production of cellulosic biofuel falls below EPA’s

projection and EPA does not waive its over-projection, obligated parties must purchase credits from EPA equal to the volume by which EPA over-estimated cellulosic biofuel production, or suffer substantial penalties for non-compliance. Id. § 7545(o)(7)(A); id. § 7545(o)(7)(D); 40 C.F.R. § 80.1456. B. Regulatory History 1. Persistent Delays and Prior RFS Rulemakings

EPA has failed repeatedly to meet the November 30 statutory deadline for publishing the annual RFS. Compliance Year 2010 2011 2012 2013 Statutory Deadline Nov. 30, 2009 Nov. 30, 2010 Nov. 30, 2011 Nov. 30, 2012 Final Rule Publication Date2 Mar. 26, 2010 Dec. 9, 2010 Jan. 9, 2012 Aug. 15, 2013

See Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 75 Fed. Reg. 14,670 (Mar. 26, 2010); Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards, 75 Fed. Reg. 76,790 (Dec. 9, 2010); Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards, 77 Fed. Reg. 1320 (Jan. 9, 2012); JA790.

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Despite its habitual tardiness, until this rulemaking, EPA consistently based the RFS on the estimates of total transportation fuel that EIA provided to EPA by October 31 of the preceding year, in accordance with the CAA deadline.3 Each year EPA has recognized that cellulosic biofuel production would not meet the statutory volumes and has therefore reduced the cellulosic biofuel applicable volume for each year as required by § 7545(o)(7)(D). Despite those reductions, EPA has grossly overestimated cellulosic biofuel production every year: Compliance Year 2010 2011 2012 Projected Production (in gallons)4 5,000,000 6,600,000 8,650,000 Actual Production5 0 0 21,0936

This Court held EPA’s 2012 cellulosic biofuel projection to be arbitrary and capricious and vacated the 2012 cellulosic biofuel RFS. API, 706 F.3d 474. The Court concluded that the CAA does not allow EPA “to adopt a methodology in

See 75 Fed. Reg. at 14,748, 14,760; 75 Fed. Reg. at 76,796; 77 Fed. Reg. at 1323. 75 Fed. Reg. at 14,751; 75 Fed. Reg. at 76,794; 77 Fed. Reg. at 1325. EPA, 2010 RFS2 Data, http://www.epa.gov/otaq/fuels/rfsdata/2010emts.htm (updated Nov. 7, 2013); EPA, 2011 RFS2 Data, http://www.epa.gov/otaq/fuels/rfsdata/2011emts.htm (updated Nov. 7, 2013). 6 This total includes 20,069 gallons of cellulosic biofuel and 1,024 gallons of cellulosic diesel. EPA, 2012 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm (updated Nov. 7, 2013). The cellulosic biofuel was not available for compliance purposes because it was exported to Brazil. JA803. Thus, the effective production in 2012 was only 1,024 gallons.

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which the risk of overestimation is set deliberately to outweigh the risk of underestimation.” Id. at 479. It further emphasized that EPA acted arbitrarily and capriciously by not “tak[ing] neutral aim at accuracy” in its projection. Id. at 476. 2. 2013 RFS Rulemaking

EPA’s 2013 final rule violates the statutory deadlines more egregiously than in past years, relies on information of which interested parties had no notice, and continues EPA’s pattern of over-projection of cellulosic biofuel. a) Proposed Rule

Although the statutory deadline for the final 2013 rule was November 30, 2012, EPA did not even propose the 2013 RFS until February 7, 2013. See JA16. EPA based its proposal on EIA’s October 2012 estimates of the volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold or introduced into commerce in the United States in 2013. JA36. For cellulosic biofuel, EPA considered EIA’s October 2012 estimate and data from individual facilities, and it projected 14 million ethanol-equivalent gallons of cellulosic biofuel production in 2013. See JA24-29. In particular, EPA projected that two facilities owned by KiOR and INEOS Bio would produce 8 million and 6 million ethanol-equivalent gallons, respectively. See JA28. EPA asserted that these facilities “are scheduled to have already begun fuel production, making our 2013 projections more reliable than prior year projections.” Id.

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Petitioners commented that EPA’s cellulosic biofuel projections were once again unrealistic. They pointed out that the EPA Moderated Transaction System (“EMTS”) data for 2013 showed zero cellulosic biofuel production as of April 2013. See, e.g., JA183 (AFPM comments); JA505 (API comments). Commenters proposed various alternatives, including projecting zero volume based on historic production or finalizing a projected volume based on the demonstrated production rates. See JA183-84 (AFPM comments); JA504 (API comments). b) Final Rule

Nearly two-thirds of the 2013 compliance year had passed by the time EPA finalized the 2013 volume projections and RFS on August 15, 2013. See JA790. EPA rejected all comments urging it to reduce the standards to account for its untimely promulgation. See JA796. Instead, EPA increased the applicable

percentage standards for three of the four renewable fuels based on two developments. First, EPA obtained a May 2013 EIA estimate that lowered the total transportation fuel projection for 2013. See JA795. EPA used this new estimate to calculate the 2013 RFS, but did not change the volume requirements for any fuel types other than cellulosic biofuel.7 Consequently, the RFS (and thus obligated parties’ RVOs) for three out of four renewable fuels increased in the final Lowering the projected gasoline and diesel to be used in 2013 lowers the denominator in the calculation that EPA uses to develop the RFS. This effectively increases the standard when the numerator stays the same. See 40 C.F.R. § 80.1405(c).
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rule. Compare JA38 with JA823. Second, EPA granted a small refinery/small refiner exemption for 2013, which further increased the RFS.8 See JA795. EPA made both of these changes without providing notice or an opportunity for comment. For cellulosic biofuel, EPA selectively relied upon updated information from facilities that supported a higher production projection. EPA based its final

cellulosic biofuel projection on the updated May 8, 2013, EIA projection and additional facility-specific data that purportedly reflected “[t]he current status of each of these facilities, including target production levels for each facility in 2013.” JA801-02. EPA relied on a July 31 press release from one cellulosic biofuel producer (INEOS Bio) announcing that it had begun production. JA803. For another cellulosic biofuel producer (KiOR), EPA relied on information from May 2013 that was no longer plausible when EPA released the final rule. See id. EPA essentially adopted a May 9, 2013, KiOR projection of 5-6 million gallons of cellulosic biofuel production for 2013, see id., even though KiOR had missed its intermediate production targets and, a week before EPA published the final rule in the Federal Register, projected that it would achieve less than half of that projection (1 to 2 million gallons). See Q2 2013 KiOR Inc., Earnings Conf. Call – By regulation, if EPA grants a small refinery/small refiner exemption, it deducts the amounts of gasoline and diesel projected to be produced by such exempt entity from the total transportation fuel volume that it uses to calculate the RFS, i.e., it decreases the denominator. See 40 C.F.R. § 80.1405(c).
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Final, Roll Call, at 4 (Aug. 8, 2013).9

EPA did not make any of this new

information available for public comment prior to finalizing the rule. SUMMARY OF THE ARGUMENT 1. EPA’s increase of the RFS during the compliance year is contrary to law and arbitrary and capricious. First, EPA impermissibly and without notice

switched from using the October 2012 EIA estimate of total transportation fuel, which is specifically required by the CAA, to using a new, lower EIA estimate from May 2013, which had the effect of increasing obligated parties’ RVOs. Although EPA has issued late RFS rules in the past, it has never before used an EIA estimate other than the one provided in October of the preceding year, and it gave no notice that it would switch the estimate in 2013. The final rule is therefore not a “logical outgrowth” of the proposed rule, and obligated parties were deprived of notice and an opportunity to comment. Second, EPA did not include a small refinery exemption in the proposed rule, but it granted an exemption in the final rule, thereby increasing the RFS and obligated parties’ RVOs. EPA thus deprived obligated parties of the regulatory certainty that Congress intended and that EPA has repeatedly acknowledged is

EMTS data reveal limited, intermittent production of cellulosic biofuel through August 2013, with entire months of zero production. See EPA, 2013 EMTS Data, RIN Generation and Renewable Fuel Volume Production by Month (last updated Nov. 7, 2013), http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm (“2013 EMTS Data”).

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necessary.

Indeed, EPA has recognized that the CAA requires issuance of a

“single annual standard in November” because “[p]eriodic revisions to the standards to reflect” small refinery exemptions would contravene the statute and “introduce an undesirable level of uncertainty for obligated parties.” JA822. EPA failed to explain how its increase of the RVOs well into the compliance year comports with its recognition of the need for regulatory certainty. 2. EPA’s 2013 volume requirement for cellulosic biofuel is arbitrary and capricious and the product of procedural violations. First, EPA’s projected

available volume for cellulosic biofuel is arbitrary and capricious and violates this Court’s directive to “aim at accuracy” rather than overly optimistic projections. API, 706 F.3d at 479. EPA relied on updated information about one facility (INEOS Bio) that supported its projection, but ignored information about another facility (KiOR) that showed its projection was too high. EPA based its projection for KiOR on an assumption that the facility would undergo a “6 month straight-line ramp-up period” beginning in March, even though the facility produced no fuel at all in April or May 2013. EPA also relied on a May 2013 projection from KiOR, even though by August the facility had missed its own production targets and was no longer on pace to meet its May projection. Most seriously, EPA took into account the start of production at INEOS Bio on July 31, while ignoring evidence

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of KiOR’s low production—production so low that KiOR reduced its own target well below EPA’s projection before EPA published its final rule. Second, EPA appears to be using a new methodology for projecting cellulosic biofuel production based on “benchmarks.” But EPA has failed to explain its “benchmark” concept or to provide any justification for why a sixmonth ramp-up period is reasonable for cellulosic biofuel facilities. Moreover, EPA failed to provide any notice of its “benchmark” methodology. EPA claims it received no comments opposing its benchmark methodology, but it never used the words “benchmark” or “methodology” in its proposed rule. In fact, the proposed ruled specifically stated that EPA used different ramp-up schedules for INEOS Bio and KiOR, not a single benchmark. Thus, obligated parties had no reason to believe that EPA was proposing a new methodology. This failure of notice renders the final rule arbitrary and capricious. STANDING API and AFPM are trade associations whose members include many companies that are obligated parties under the 2013 RFS Rule. Both associations filed comments in the rulemaking proceeding and have associational standing to challenge EPA’s 2013 RFS Rule in this Court. See Hunt v. Washington State Apple Adver. Comm’n, 432 U.S. 333, 343 (1977); Chamber of Commerce of the United States v. EPA, 642 F.3d 192, 199 (D.C. Cir. 2011).

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ARGUMENT The Court applies the same standard for “arbitrary and capricious” review under the CAA as it does under the Administrative Procedure Act (“APA”). Nat’l Petrochem. & Refiners Ass’n v. EPA, 287 F.3d 1130, 1135 (D.C. Cir. 2002); see also North Carolina v. EPA, 531 F.3d 896, 906 (D.C. Cir. 2008). Under this standard, the agency must “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” Motor Vehicle Mfrs. Ass’n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (citation and internal quotation marks omitted). A rule will be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Id. Agency rules are also subject to reversal if the Court finds them “to be . . . without observance of procedure required by law, if . . . such failure . . . is arbitrary and capricious,” 42 U.S.C. § 7607(d)(9)(D), and the error is “so serious and related to matters of such central relevance to the rule that there is a substantial likelihood that the rule would have been significantly changed if such errors had not been made,” id. § 7607(d)(8). Procedural errors sufficient for reversal under the APA

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also justify reversal under the CAA. Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 523, 543-44 (D.C. Cir. 1983). I. EPA’S DECISION TO INCREASE THE RFS DURING THE COMPLIANCE YEAR WITHOUT NOTICE IS CONTRARY TO LAW AND ARBITRARY AND CAPRICIOUS. EPA arbitrarily increased regulated parties’ obligations during the compliance year in two ways. First, it impermissibly and without notice switched to a lower EIA estimate of the total volume of transportation fuel, thereby increasing the RFS and consequently obligated parties’ RVOs. Second, it granted a small refinery exemption and reallocated the exempted party’s obligation across the remaining obligated parties. Both changes increased obligated parties’ RVOs 7.5 months into the compliance year, without notice and in contravention of EPA’s stated goal of providing regulatory certainty. A. EPA Impermissibly Increased The RFS By Altering The Estimate Of Transportation Fuel Volume Without Notice.

The CAA requires EIA to provide to EPA by October 31 of each year “an estimate, with respect to the following calendar year, of the volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold or introduced into commerce in the United States.” 42 U.S.C.

§ 7545(o)(3)(A). It then requires that “[n]ot later than November 30 of each of calendar years 2005 through 2021, based on the estimate provided under subparagraph (A), the Administrator of the [EPA] shall determine and publish in

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the Federal Register, with respect to the following calendar year, the renewable fuel obligation . . . .” Id. § 7545(o)(3)(B) (emphasis added). EPA based its calculations in the proposed rule on the EIA estimate of total transportation fuel provided by the October 31, 2012 statutory deadline, JA20. For the first time in the history of the RFS program, however, EPA relied on a new EIA estimate from May 2013 that EPA requested from EIA three days before the close of the comment period (and that was not made public until the final rule was released). The revised estimate decreased the projection of transportation fuel that would be sold or introduced into commerce in 2013. JA795; compare JA88 (projecting 8.74 and 3.46 million barrels/day of gasoline and diesel respectively) with JA937) (projecting 8.68 and 3.42 million barrels/day of gasoline and diesel respectively). EIA’s reduction totaled 1.533 billion gallons of transportation fuel, which represents a significant change.10 The projected decrease in the total amount of fuel sold in 2013 increased the RFS.11 For example, the proposed rule included a total renewable fuel standard of 9.63%, while the final rule set a standard of 9.74%. Compare JA20 with JA795.

A decrease of 0.10 million barrels/day equals 1.533 billion gallons/year (0.10 barrels/day x 42 gallons/barrel x 365 days/year = 1.533 billion gallons/year). 11 Decreasing the total amount of fuel sold decreased the denominator in the equation EPA uses to calculate the RFS, while leaving the numerator (the amount of renewable fuel that must be used) unchanged. This resulted in a higher percentage, i.e., a higher RFS. See 40 C.F.R. § 80.1405(c).

10

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This had the effect of increasing obligated parties’ compliance burdens 7.5 months into the compliance year. Although “Congress didn’t contemplate slavish adherence by EPA to the EIA estimate,” API, 706 F.3d at 478, the statute specifically directs EPA to base its projection on the EIA estimate “provided not later than October 31.” See 42 U.S.C. § 7545(o)(3)(A); see also API, 706 F.3d at 478 (“The statute called first for EIA to supply an estimate of the amount of cellulosic biofuel to be sold, 42 U.S.C. § 7545(o)(3)(A), then for EPA to ‘determine’ the obligation ‘based on’ that estimate, id. § 7545(o)(3)(B).” (emphasis added)). Moreover, EPA failed to provide any notice of its intent to rely on a revised EIA estimate that would have the effect of increasing regulated parties’ obligations well into the compliance year. EPA asserts that “obligated parties have been provided reasonable notice that EPA would act in approximately the manner specified in the final rule” and notes that “as proposed” EPA “has not lowered the applicable volumes of total renewable fuel and advanced biofuel below the applicable volumes specified in the statute.” JA796. This is an incomplete, and therefore unfair, description of EPA’s action. While EPA did not change the applicable volumes for advanced biofuel or total renewable fuel, it increased the percentage of each obligated party’s fuel that must be renewable, thereby increasing obligated parties’ compliance obligations.

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EPA’s assertion that obligated parties had “reasonable notice” of this change is simply untrue. The proposed rule gave no indication that EPA would request and then use the May 2013 EIA estimate of total transportation fuel without providing an opportunity for stakeholders to review. To the contrary, the A

rulemaking materials in the EPA docket suggested precisely the opposite.

December 21, 2012, draft of the proposed rule, which was posted to the rulemaking docket on February 7, 2013, deleted a statement that “EPA intends to use updated EIA projections of gasoline and diesel consumption in 2013 in calculating the final percentage standards.” Documentation of OMB Review

Under Executive Order 12,866, Attachment 1 at 8, EPA-HQ-OAR-2012-05460014 (Dec. 21 Draft NPRM). The deletion specifically indicated that EPA did not intend to change the EIA estimate on which it would rely for the final rule. Obligated parties thus had no notice that the denominator for the RFS calculation was subject to change.12 The final rule is not a “logical outgrowth” of the proposed rule. Envtl. Integrity Project v. EPA, 425 F.3d 992, 996 (D.C. Cir. 2005) (“[A]n agency’s proposed rule and its final rule may differ only insofar as the latter is a ‘logical outgrowth’ of the former.”). As this Court has explained,

The public comment period ended on April 5, 2013, and the EIA letter is dated May 8, 2013.

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The ‘logical outgrowth’ doctrine does not extend to a final rule that finds no roots in the agency’s proposal . . . , nor does it apply where interested parties would have had to divine [the agency’s] unspoken thoughts because the final rule was surprisingly distant from the Agency’s proposal. Id. (second alteration in original) (citations and internal quotation marks omitted). In other words, this Court has “refused to allow agencies to use the rulemaking process to pull a surprise switcheroo on regulated entities.” Id. EPA’s

unprecedented substitution of a new EIA estimate in the final rule occurred without notice and in the face of a publicly available edit to the proposed rule that indicated the precise opposite. EPA’s failure to provide notice was not remedied by its placement of the May 2013 EIA letter in the docket when the final rule was published in the Federal Register. EPA is required to provide advance notice and an opportunity to

comment on a proposed rule, including “[a]ll data, information, and documents . . . on which the proposed rule relies[.]” 42 U.S.C. § 7607(d)(3). Obligated parties became aware of the existence of the May 2013 EIA estimate only when the final rule was signed in August. “EPA violates the structure and spirit of section 307 if it submits so late as to preclude any effective public comment [on] a document vital to EPA’s support for its rule.” Ne. Md. Waste Disposal Auth. v. EPA, 358 F.3d 936, 952 (D.C. Cir. 2004) (citation and internal quotation marks omitted).

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B.

EPA Arbitrarily And Capriciously Increased The RFS By Granting A Small Refinery Exemption During The Compliance Year.

In the proposed rule, EPA did not include a small refinery exemption. Instead, it “calculated the proposed 2013 standards without a small refinery/small refiner adjustment.” JA37. In the final rule, however, EPA granted a small refinery exemption and, contrary to its own avowed concern with regulatory certainty, reallocated the exempted party’s RVO across the rest of the industry, thereby increasing every obligated party’s RVO during the compliance year.13 Imposing the exempt small refiner’s RVOs on the remaining obligated parties during the compliance year is arbitrary and capricious because it deprives obligated parties of the regulatory certainty that Congress intended and EPA has elsewhere acknowledged is necessary. EPA has failed to “articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” State Farm, 463 U.S. at 43 (citation and internal quotation marks omitted). In the final rule, EPA explained that if it granted any additional small refinery exemptions, they would “not affect the 2013 standards” because, as EPA explained in the 2011 final rule, the CAA:

EPA acknowledges in the final rule that “an adjustment has been made to the standards to account for” the exemption. JA795.

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is best interpreted to require issuance of a single annual standard in November that is applicable in the following calendar year, thereby providing advance notice and certainty to obligated parties regarding their regulatory requirements. Periodic revisions to the standards to reflect waivers issued to small refineries or refiners would be inconsistent with the statutory text, and would introduce an undesirable level of uncertainty for obligated parties. JA822. EPA’s rationale is equally applicable to altering obligated parties’ RVOs at any time during the compliance year based on grants of exemptions. Because EPA missed the statutory deadline of November 30, its alteration of the RVO based on the grant of the small refinery exemption deprived obligated parties of the notice and regulatory certainty that EPA has recognized is required. The consequences of this regulatory uncertainty are clear from the final rule. EPA argues that obligated parties have “adequate lead time to comply with the 2013 RFS standards notwithstanding EPA’s delay in issuing the rule” because they “have been acquiring RINs since the beginning of 2013 in anticipation of” the final standards. JA797. But EPA fails to acknowledge that obligated parties who responsibly acquired RINs throughout 2013 in anticipation of the 2013 RFS found themselves in a hole after publication of the final rule because EPA increased each obligated party’s RVO without notice.14
14

EPA also argues that parties have sufficient “lead time” to comply because EPA extended the compliance deadline to June 30, 2014. JA797. But EPA provided no lead time by finalizing the RFS after the start of the compliance year, and allowed
(continued…)

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II.

EPA’S 2013 VOLUME REQUIREMENT FOR BIOFUEL IS ARBITRARY AND CAPRICIOUS.

CELLULOSIC

EPA acted arbitrarily and capriciously by relying on updated information that supported a higher projection for cellulosic production while ignoring highly relevant information that pointed in the opposite direction. As a result, EPA violated the statutory requirement that it “aim at accuracy” rather than overly optimistic projections. API, 706 F.3d at 479. EPA also failed to provide advance notice or any explanation of its “benchmark” methodology for projecting cellulosic biofuel production and for other information on which it relied in setting the cellulosic biofuel RFS. There is a substantial likelihood that the final rule would have been different absent these procedural violations. 42 U.S.C. § 7607(d)(8). A. EPA’s Projected Available Volume For Cellulosic Biofuel Is Arbitrary And Capricious.

EPA projected 2013 cellulosic biofuel production from two facilities: INEOS Bio and KiOR. In the proposed rule, EPA stated that it expected both facilities “to begin fuel production in the first quarter of 2013 and achieve production rates at or near their nameplate capacities by the end of 2013.” JA24. obligated parties only 4.5 months between issuance of the final rule and the end of the 2013 compliance year. Thus, EPA arbitrarily shortened the amount of “lead time” Congress mandated. During a compliance year, obligated parties can take a range of steps to meet their obligations, including altering their production or export plans. Once a compliance year ends, these options are no longer available. For example, RINS generated after December 31, 2013, cannot be used for compliance with the 2013 RFS. “Lead time” is therefore not measured by the time between a final rule and the compliance deadline, but encompasses the advance notice of upcoming standards required by statute.

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In the final rule, EPA (i) noted that KiOR had shipped its first renewable fuel to customers on March 18, 2013, and (ii) relied on a May 9, 2013 KiOR quarterly update that projected production of 3-5 million actual gallons of cellulosic gasoline and diesel for 2013. JA803. EPA projected that KiOR would produce 3-4 million actual gallons (5-6 million ethanol-equivalent gallons) of cellulosic biofuel in 2013. Id. EPA’s projection is arbitrary and capricious because EPA knew, or at a minimum should have known, that KiOR was unlikely to meet its production targets. 1. EPA’s own data show that no cellulosic biofuel was produced by KiOR or anyone else in the month preceding KiOR’s May 9 quarterly update. EPA, 2013 EMTS Data (updated Nov. 7, 2013),

http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm (“2013 EMTS Data”).15 No cellulosic fuel was produced in May 2013 either. Id. EPA’s data show production of only 16,664 RINs for cellulosic diesel in March 2013, and then no further production of any cellulosic fuel until June 2013. Id.

The Court may take judicial notice of this official governmental publication. See Yellow Taxi Co. v. NLRB, 721 F.2d 366, 375 n.29 (D.C. Cir. 1983) (“Judicial notice may be taken of facts which are ‘capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.’” (quoting Fed. R. Evid. 201(b)(2)).

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Despite these facts, EPA based its KiOR projection on a “6 month straightline ramp-up period” beginning with KiOR’s first commercial shipment in March 2013. JA803. When EPA released the 2013 final rule in mid-August, it was clear that no “straight-line ramp up” was occurring at KiOR, and therefore March was not a reasonable starting point for a “6 month straight-line ramp-up period.” Id. Given the complete lack of production in April and May, a reasonable straight-line ramp-up period could have begun in June at the earliest.16 EPA did not explain the origin or meaning of its “6 month straight-line ramp-up period.” Assuming, however, that the “straight-line ramp-up” is a prediction that the facility will go from zero production to full capacity in 6 months and produce at full capacity for the remainder of the year, moving the starting date from March to June produces a “best case scenario benchmark” of 3.67 million actual gallons of cellulosic biofuel from KiOR in 2013.17 This “best case scenario” falls in the middle of EPA’s projection of 3-4 million actual gallons for KiOR. Id. Thus, applying EPA’s own methodology by starting a straight-line six-month ramp-up period in June 2013—the earliest potentially reasonable date based on Even a June starting date would have been too optimistic. After some production in June and July, EPA’s data show zero production again in August 2013. 2013 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm. 17 The KiOR facility has an annual capacity of 11 million gallons of cellulosic biofuel, JA803, which makes its monthly capacity 916,666.67 gallons. A six month ramp up period running from June through the end of November would result in a volume of 2,750,000 million gallons of cellulosic biofuel ((1/2 x 6) x 916,666.67). One additional month (December) of production at 100% of capacity (916,666.67 gallons), would result in a total of 3,666,666.67 gallons for the year.
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facts EPA knew when it released the final rule in August—demonstrates that EPA’s projection of 3-4 million gallons from KiOR approaches (and, at the high end, exceeds) EPA’s self-identified “best-case scenario benchmark.”18 Contrary to EPA’s claims of accuracy, a simple application of EPA’s own methodology reveals that the agency is once again making a projection that impermissibly “plans for the expected value of upside errors . . . to exceed the expected value of downside errors.” API, 706 F.3d at 479 n.2. As this Court explained in invalidating the 2012 cellulosic biofuel RFS, the CAA “call[s] for a projection that aims at accuracy, not at deliberately indulging in a greater risk of overshooting than undershooting.” Id. at 479. 2. EPA’s final rule relies on KiOR’s May 9, 2013 quarterly update, which projected production of 3-5 million gallons of cellulosic biofuel in 2013. JA803. KiOR President Fred Cannon stated that KiOR anticipated production of between 300,000 and 500,000 gallons in the second quarter to “keep[] us on track to fall within our projected production range of 3 million to 5 million gallons for 2013.”

EPA asserted that its 5-6 million ethanol-equivalent gallon projection was “significantly lower than the volume of fuel that would be produced assuming our best case scenario benchmark of a 6 month straight-line ramp-up period starting in mid March (~9 million ethanol-equivalent gallons).” JA803. EPA could make this claim only because it arbitrarily began its calculations in March, despite zero cellulosic biofuel production in April or May and June and July production far below what a straight-line ramp-up from March would project.

18

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Q1 2013 KiOR Inc Earnings Conference Call - Final, Roll Call, at 4 (May 9, 2013).19 By the release of the final rule in mid-August, EPA’s own data showed that KiOR was no longer on pace to produce 3-5 million gallons. By the end of the second quarter, only 75,636 total gallons of cellulosic biofuel and cellulosic diesel had been produced. 2013 EMTS Data,

http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm.

This is far below the

300,000-500,000 that KiOR stated was necessary to keep it on track to produce 3-5 million gallons in 2013. The record also shows a call between EPA staff and KiOR on June 17, 2013, by which time KiOR’s failure to meet its projection would have been clear. JA1145. EPA acted arbitrarily and capriciously in relying on KiOR’s May production projection without assessing its continued plausibility. By August, it was clear that the May projection was no longer reliable. State Farm, 463 U.S. at 43 (a rule is arbitrary and capricious where an agency “entirely failed to consider an important

On August 20, 2013, KiOR shareholders filed a putative class action against the company, alleging violations of the federal securities laws and arguing that the company “misled investors concerning the timing of projected production levels of biofuel” and “continued to falsely reassure investors that the Company remained on track to achieve commercially meaningful biofuel production levels at the Columbus facility during the timeframes promised.” Complaint, ¶ 5, Berry v. KiOR, Inc., No. 4:13-cv-2443 (S.D. Tex. Aug. 20, 2013), ECF No. 1. The complaint cites as one of the false or misleading statements the May 9, 2013, earnings call on which EPA relied. Id. ¶ 32.

19

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aspect of the problem” or “offered an explanation for its decision that runs counter to the evidence before the agency”). 3. Perhaps most serious of all, EPA acted arbitrarily and capriciously by selectively relying on updated information that supported a higher projection while disregarding information that supported a lower projection. EPA relied on updated information that the INEOS Bio facility began production on July 31, 2013. JA803. In contrast, it ignored updated information about the low production at KiOR in the same period, as described above. Thus, EPA based the final rule on “updated information from the companies expected to produce cellulosic biofuel,” JA800, only when the updated information supported a higher projection. The updated information from KiOR was even more dramatic than the missed second quarter targets discussed above. On August 8, just after EPA made a prepublication version of the final rule available on its website and before the final rule was published in the Federal Register, KiOR held its second quarter earnings conference call.20 In that call, KiOR decreased its 2013 production

projection to only 1-2 million gallons, far below EPA’s projection of 3-4 million gallons. See Q2 2013 KiOR Inc., Earnings Conference Call - Final, Roll Call, at 4 (Aug. 8, 2013). KiOR also projected that it would not achieve normal steady-state The call was scheduled well in advance. See Press Release, KiOR, KiOR to Announce Second Quarter 2013 Financial Results on August 8, 2013, July 11, 2013, http://investor.kior.com/releases.cfm.
20

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production until 2014.21 Id. As a result, EPA—which claims to track KiOR’s production—knew or should have known by no later than August 8 that its KiOR projection was unreasonable. In sum, EPA selectively used updated July 31 information concerning INEOS Bio that supported EPA’s projection, while disregarding information from the same time period concerning KiOR that showed EPA’s projection was unreasonably high. This is the essence of arbitrary decision-making. For these reasons, EPA failed to “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” State Farm, 463 U.S. at 43 (citation and internal quotation marks omitted). B. EPA’s Methodology for Projecting Cellulosic Biofuel Production Is Arbitrary And Capricious.

In discussing changes it made in light of this Court’s invalidation of the 2012 cellulosic biofuel RFS, EPA stated that it has established “[b]enchmarks for how quickly new facilities ramp up to full production and for production volumes during this ramp-up period in a best case scenario” and that it has used the “benchmarks” “to assess the reasonableness of the production estimates received In its 2014 Proposed Rule, EPA’s projected production range for KiOR begins at zero gallons “reflect[ing] uncertainty surrounding KiOR’s future production levels.” 2014 Standards for the Renewable Fuel Standard Program; Proposed Rule, 78 Fed. Reg. 71,732, 71,742 (Nov. 29, 2013) (to be codified at 40 C.F.R. Part 80).
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from producers.” JA800. EPA further noted that, “[p]roduction projections from companies that exceed the volumes calculated using this benchmark are not considered credible, even as the high end of a possible range of production.” Id. 1. EPA Failed To Adequately Explain Its Methodology.

EPA violated the CAA by failing adequately to explain its “benchmark” concept. State Farm, 463 U.S. at 43; New York v. U.S. EPA, 413 F.3d 3, 18 (D.C. Cir. 2005). In the final rule, EPA references both a “benchmark” and “best case scenario benchmarks,” JA800, but fails to explain or justify either concept—or even to explain whether these terms describe one concept or two. By “benchmark,” EPA seems to refer, without explaining, to a “six month straight-line ramp-up period” for cellulosic biofuel facilities. JA803. The closest EPA comes to an explanation occurs in its description of INEOS Bio in the final rule, which states: Applying the six month straight-line ramp up period, which we consider a best case scenario . . . with a start-up date in August results in a projection of approximately 1 mill gal in 2013, EPA believes this is a reasonable benchmark to use as a best case scenario when assessing the ramp-up of cellulosic biofuel facilities. When compared to the expected ramp-up rates of grain ethanol facilities, which are generally 1-2 months this is a conservative benchmark, but one we believe is appropriate given the challenges of scaling up new technologies.

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Id. EPA offers no explanation for why it is reasonable to use grain ethanol facilities, which deploy well-established technology, as comparators or why six months is an appropriate ramp-up estimate for the new and unproven technologies employed for cellulosic biofuel. Moreover, EPA does not appear to have relied on its “benchmark” methodology in setting a projection for KiOR. EPA simply noted that its

projection of 5-6 million ethanol-equivalent gallons from KiOR is “significantly lower than the volume of fuel that would be produced assuming our best case scenario benchmark of a 6 month straight-line ramp-up period starting in mid March (~9 million ethanol-equivalent gallons).” Id. With the exception of the single sentence regarding grain ethanol facilities, EPA provides no explanation for its “benchmark” or “best case scenario benchmark.” This failure to explain or justify this new methodology is arbitrary and capricious and violates the CAA. State Farm, 463 U.S. at 43; see also Am. Lung Ass’n v. EPA, 134 F.3d 388, 392 (D.C. Cir. 1998) (“[J]udicial review can occur only when agencies explain their decisions with precision, for ‘it will not do for a court to be compelled to guess at the theory underlying the agency’s action . . . .’” (quoting SEC v. Chenery Corp., 332 U.S. 194, 196-97 (1947)).

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2.

EPA Failed To Provide Adequate Notice Regarding Its “Benchmark” Methodology.

EPA’s “benchmark” also violates the CAA because it was not included in and is not a “logical outgrowth” of the proposed rule. Envtl. Integrity Project, 425 F.3d at 996. As explained above, see supra pp. 18-19, the “logical outgrowth” requirement ensures that agencies cannot “pull a surprise switcheroo on regulated entities.” Envtl. Integrity Project, 425 F.3d at 996. EPA asserts that it “did not receive any comments suggesting that [its] benchmark was inappropriate.” JA801. This is not surprising because EPA did not identify, much less explain, the “benchmark” in the proposed rule, which made it impossible for parties to comment on it. In fact, the proposed rule did not use the words “benchmark” or “methodology” at any point. The closest EPA came to describing what it appears to use as a methodology was a request for comments concerning INEOS Bio, on “a six month straight-line ramp-up period beginning in January 2013” and “on the projected available volume from INEOS Bio’s facility in 2013, as well as these assumptions for the appropriate ramp-up period for cellulosic biofuel facilities and expectations for production during this ramp-up phase.” JA25. This was insufficient to provide parties with adequate notice to comment on and consider a new methodology. Its location in a section specifically addressed to INEOS Bio belies any intention by

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EPA to announce a broader methodology for predicting production of cellulosic biofuels facilities more generally. Moreover, EPA’s explicit statements in the proposed rule indicated that it did not intend to establish a single “benchmark” for predicting production at cellulosic biofuels facilities. EPA explained that it established different ramp-up schedules for INEOS Bio and KiOR based on differences in the facilities. JA27 (“The ramp-up schedules estimated for these facilities [INEOS Bio and KiOR] differ from each other and were developed based on information received from the companies and EPA’s knowledge of the production processes used by each company. We believe these different ramp-up schedules, which correspond to different effective utilization rates, are appropriate due to the significant differences in the technologies used by INEOS Bio and KiOR to produce cellulosic biofuel.”). Indeed, the section on KiOR in the proposed rule does not discuss a “straight-line six-month ramp up period” like the one mentioned for INEOS Bio. This Court has explained that “[w]hatever the ‘logical outgrowth’ of [a] proposal may include, it certainly does not include the Agency’s decision to repudiate its proposed interpretation and adopt its inverse.” Envtl. Integrity Project, 425 F.3d at 998. Similarly here, EPA’s adoption of a uniform “benchmark” in the final rule cannot be a “logical outgrowth” of the proposed rule’s differing ramp-up schedules and “different effective utilization rates” for each facility. JA27.

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In light of EPA’s explicit statements disclaiming uniformity in assessing different facilities and failure to note or explain its “benchmark” concept in the proposed rule, obligated parties were not on notice of EPA’s intent to establish a new methodology for projecting cellulosic biofuel production, a methodology that remains unexplained in the final rule. Finally, EPA’s cellulosic biofuel projection is also procedurally deficient because EPA relied upon information from cellulosic biofuel producers without notice and failed to place certain information into the record. The CAA requires that parties have an opportunity to comment on centrally relevant data, see 42 U.S.C. § 7607(d)(6)-(9), and prohibits basing a rule on “any information or data which has not been placed in the docket as of the date” on which the rule is promulgated. See id. § 7607(d)(6)(C). The CAA also requires that a transcript be kept of any instances in which interested parties are given the opportunity for oral presentation of “data, views, or arguments,” id. § 7607(d)(5). Here, EPA posted a call log showing over 60 phone calls with cellulosic biofuel producers, including four calls with INEOS Bio and KiOR after the public comment period closed, only after publication of the final rule in the Federal Register. See JA1145 (posted Sept. 9, 2013). The final rule also references information, including KiOR’s May 9, 2013 quarterly update and INEOS Bio’s July 31, 2013 announcement, that clearly was generated after the close of the public comment period on April 5, 2013. No

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information appears in the docket regarding these multiple contacts. The final rule is thus procedurally deficient. CONCLUSION The Court should grant the petitions for review and invalidate the 2013 RFS and corresponding RVOs. The Petitioners respectfully request that the Court issue its decision in advance of the June 30, 2014, compliance deadline for the 2013 RFS. Respectfully submitted, /s/ Robert A. Long, Jr. Robert A. Long, Jr. Kristen E. Eichensehr COVINGTON & BURLING LLP 1201 Pennsylvania Ave., NW Washington, DC 20004–2401 (202) 662–6000 rlong@cov.com Harry M. Ng Erik C. Baptist AMERICAN PETROLEUM INSTITUTE 1220 L Street NW Washington, DC 20005–4070

Chet M. Thompson Robert Meyers David Chung CROWELL & MORING LLP 1001 Pennsylvania Avenue NW Washington, DC 20004–2595

Richard Moskowitz AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS 1667 K Street, NW Suite 700 Washington, DC 20006

Counsel for Petitioner American Fuel & Counsel for Petitioner Petrochemical Manufacturers American Petroleum Institute DATE: December 9, 2013

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CERTIFICATE OF COMPLIANCE This brief complies with the type-volume limitations of Federal Rule of Appellate Procedure 32(a)(7)(B) because it contains 7898 words, excluding the parts of the brief exempted by Rule 32(a)(7)(B)(iii). This brief complies with the typeface requirements of Rule 32(a)(5) and the type style requirements of Rule 32(a)(6) because it has been prepared in a proportionally spaced typeface using Microsoft Word 2010 in Times New Roman and 14 point font.

/s/ Robert A. Long, Jr. Robert A. Long, Jr. December 9, 2013

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CERTIFICATE OF SERVICE I hereby certify that on December 9, 2013, I caused copies of the Opening Brief for Petitioners American Petroleum Institute and American Fuel & Petrochemical Manufacturers to be served by the Court’s CM/ECF system, which will send a notice of the filing to all registered CM/ECF users.

/s/ Robert A. Long, Jr. Robert A. Long, Jr. December 9, 2013

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ADDENDUM A: STATUTORY SUPPLEMENT TABLE OF CONTENTS Page 42 U.S.C. § 7545(d) .................................................................................................. 1 42 U.S.C. § 7545(o) .................................................................................................. 2 42 U.S.C. § 7607(d) ................................................................................................ 20 40 C.F.R. § 80.1401 ................................................................................................ 24 40 C.F.R. § 80.1405(c)............................................................................................ 24 40 C.F.R. § 80.1406 ................................................................................................ 26 40 C.F.R. § 80.1407 ................................................................................................ 27 40 C.F.R. § 80.1415 ................................................................................................ 30 40 C.F.R. § 80.1427 ................................................................................................ 33 40 C.F.R. § 80.1451 ................................................................................................ 34 40 C.F.R. § 80.1456 ................................................................................................ 36 40 C.F.R. § 80.1463 ................................................................................................ 37

42 U.S.C. § 7545(d) (d) Penalties and injunctions. (1) Civil penalties. Any person who violates subsection (a), (f), (g), (k), (l), (m), (n), or (o) of this section or the regulations prescribed under subsection (c), (h), (i), (k), (l), (m), (n), or (o) of this section or who fails to furnish any information or conduct any tests required by the Administrator under subsection (b) of this section shall be liable to the United States for a civil penalty of not more than the sum of $ 25,000 for every day of such violation and the amount of economic benefit or savings resulting from the violation. Any violation with respect to a regulation prescribed under subsection (c), (k), (l), (m), or (o) of this section

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which establishes a regulatory standard based upon a multiday averaging period shall constitute a separate day of violation for each and every day in the averaging period. Civil penalties shall be assessed in accordance with subsections (b) and (c) of section 205 [42 U.S.C. § 7524(b), (c)]. (2) Injunctive authority. The district courts of the United States shall have jurisdiction to restrain violations of subsections (a), (f), (g), (k), (l), (m), (n), and (o) of this section and of the regulations prescribed under subsections (c), (h), (i), (k), (l), (m), (n), and (o) of this section, to award other appropriate relief, and to compel the furnishing of information and the conduct of tests required by the Administrator under subsection (b) of this section. Actions to restrain such violations and compel such actions shall be brought by and in the name of the United States. In any such action, subpoenas for witnesses who are required to attend a district court in any district may run into any other district. 42 U.S.C. § 7545(o) (o) Renewable fuel program. (1) Definitions In this section: (A) Additional renewable fuel The term “additional renewable fuel” means fuel that is produced from renewable biomass and that is used to replace or reduce the quantity of fossil fuel present in home heating oil or jet fuel. (B) Advanced biofuel (i) In general The term “advanced biofuel” means renewable fuel, other than ethanol derived from corn starch, that has lifecycle greenhouse gas emissions, as determined by the Administrator, after notice and opportunity for comment, that are at least 50 percent less than baseline lifecycle greenhouse gas emissions. (ii) Inclusions

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The types of fuels eligible for consideration as “advanced biofuel” may include any of the following: (I) Ethanol derived from cellulose, hemicellulose, or lignin. (II) Ethanol derived from sugar or starch (other than corn starch). (III) Ethanol derived from waste material, including crop residue, other vegetative waste material, animal waste, and food waste and yard waste. (IV) Biomass-based diesel. (V) Biogas (including landfill gas and sewage waste treatment gas) produced through the conversion of organic matter from renewable biomass. (VI) Butanol or other alcohols produced through the conversion of organic matter from renewable biomass. (VII) Other fuel derived from cellulosic biomass. (C) Baseline lifecycle greenhouse gas emissions The term “baseline lifecycle greenhouse gas emissions” means the average lifecycle greenhouse gas emissions, as determined by the Administrator, after notice and opportunity for comment, for gasoline or diesel (whichever is being replaced by the renewable fuel) sold or distributed as transportation fuel in 2005. (D) Biomass-based diesel The term “biomass-based diesel” means renewable fuel that is biodiesel as defined in section 312(f) of the Energy Policy Act of 1992 (42 U.S.C. 13220(f)) and that has lifecycle greenhouse gas emissions, as determined by the Administrator, after notice and opportunity for comment, that are at least 50 percent less than the baseline lifecycle greenhouse gas emissions. Notwithstanding the preceding sentence, renewable fuel derived from coprocessing biomass with a petroleum feedstock shall be advanced biofuel if it meets the requirements of subparagraph (B), but is not biomass-based diesel. 3

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(E) Cellulosic biofuel The term “cellulosic biofuel” means renewable fuel derived from any cellulose, hemicellulose, or lignin that is derived from renewable biomass and that has lifecycle greenhouse gas emissions, as determined by the Administrator, that are at least 60 percent less than the baseline lifecycle greenhouse gas emissions. (F) Conventional biofuel The term “conventional biofuel” means renewable fuel that is ethanol derived from corn starch. (G) Greenhouse gas The term “greenhouse gas” means carbon dioxide, hydrofluorocarbons, methane, nitrous oxide, perfluorocarbons, sulfur hexafluoride. The Administrator may include any other anthropogenically emitted gas that is determined by the Administrator, after notice and comment, to contribute to global warming. (H) Lifecycle greenhouse gas emissions The term “lifecycle greenhouse gas emissions” means the aggregate quantity of greenhouse gas emissions (including direct emissions and significant indirect emissions such as significant emissions from land use changes), as determined by the Administrator, related to the full fuel lifecycle, including all stages of fuel and feedstock production and distribution, from feedstock generation or extraction through the distribution and delivery and use of the finished fuel to the ultimate consumer, where the mass values for all greenhouse gases are adjusted to account for their relative global warming potential. (I) Renewable biomass The term “renewable biomass” means each of the following: (i) Planted crops and crop residue harvested from agricultural land cleared or cultivated at any time prior to the enactment of this sentence that is either actively managed or fallow, and nonforested.

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(ii) Planted trees and tree residue from actively managed tree plantations on non-federal land cleared at any time prior to enactment of this sentence, including land belonging to an Indian tribe or an Indian individual, that is held in trust by the United States or subject to a restriction against alienation imposed by the United States. (iii) Animal waste material and animal byproducts. (iv) Slash and pre-commercial thinnings that are from non-federal forestlands, including forestlands belonging to an Indian tribe or an Indian individual, that are held in trust by the United States or subject to a restriction against alienation imposed by the United States, but not forests or forestlands that are ecological communities with a global or State ranking of critically imperiled, imperiled, or rare pursuant to a State Natural Heritage Program, old growth forest, or late successional forest. (v) Biomass obtained from the immediate vicinity of buildings and other areas regularly occupied by people, or of public infrastructure, at risk from wildfire. (vi) Algae. (vii) Separated yard waste or food waste, including recycled cooking and trap grease. (J) Renewable fuel The term “renewable fuel” means fuel that is produced from renewable biomass and that is used to replace or reduce the quantity of fossil fuel present in a transportation fuel. (K) Small refinery The term “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. (L) Transportation fuel

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The term “transportation fuel” means fuel for use in motor vehicles, motor vehicle engines, nonroad vehicles, or nonroad engines (except for ocean-going vessels). (2) Renewable fuel program (A) Regulations (i) In general Not later than 1 year after the date of enactment of this paragraph [enacted Aug. 8, 2005], the Administrator shall promulgate regulations to ensure that gasoline sold or introduced into commerce in the United States (except in noncontiguous States or territories), on an annual average basis, contains the applicable volume of renewable fuel determined in accordance with subparagraph (B). Not later than 1 year after the date of enactment of this sentence [enacted Dec. 19, 2007], the Administrator shall revise the regulations under this paragraph to ensure that transportation fuel sold or introduced into commerce in the United States (except in noncontiguous States or territories), on an annual average basis, contains at least the applicable volume of renewable fuel, advanced biofuel, cellulosic biofuel, and biomass-based diesel, determined in accordance with subparagraph (B) and, in the case of any such renewable fuel produced from new facilities that commence construction after the date of enactment of this sentence, achieves at least a 20 percent reduction in lifecycle greenhouse gas emissions compared to baseline lifecycle greenhouse gas emissions. * * *

(iii) Provisions of regulations Regardless of the date of promulgation, the regulations promulgated under clause (i)— (I) shall contain compliance provisions applicable to refineries, blenders, distributors, and importers, as appropriate, to ensure that the requirements of this paragraph are met; but (II) shall not—

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(aa) restrict geographic areas in which renewable fuel may be used; or (bb) impose any per-gallon obligation for the use of renewable fuel. (iv) Requirement in case of failure to promulgate regulations If the Administrator does not promulgate regulations under clause (i), 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. (B) Applicable volumes (i) Calendar years after 2005 (I) Renewable fuel For the purpose of subparagraph (A), the applicable volume of renewable fuel for the calendar years 2006 through 2022 shall be determined in accordance with the following table: Applicable volume of renewable fuel (in billions of gallons): Calendar year: 2006 2007 2008 2009 2010 2011 2012 2013 2014 4.0 4.7 9.0 11.1 12.95 13.95 15.2 16.55 18.15

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2015 2016 2017 2018 2019 2020 2021 2022

20.5 22.25 24.0 26.0 28.0 30.0 33.0 36.0

(II) Advanced biofuel. For the purpose of subparagraph (A), of the volume of renewable fuel required under subclause (I), the applicable volume of advanced biofuel for the calendar years 2009 through 2022 shall be determined in accordance with the following table: Applicable volume of renewable fuel (in billions of gallons): Calendar year: 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 0.6 0.95 1.35 2.0 2.75 3.75 5.5 7.25 9.0 11.0 13.0 15.0 18.0

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2022 (III) Cellulosic biofuel

21.0

For the purpose of subparagraph (A), of the volume of advanced biofuel required under subclause (II), the applicable volume of cellulosic biofuel for the calendar years 2010 through 2022 shall be determined in accordance with the following table: Applicable volume of renewable fuel (in billions of gallons): Calendar year: 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (IV) Biomass-based diesel For the purpose of subparagraph (A), of the volume of advanced biofuel required under subclause (II), the applicable volume of biomass-based diesel for the calendar years 2009 through 2012 shall be determined in accordance with the following table: Applicable volume of renewable fuel (in 9 0.1 0.25 0.5 1.0 1.75 3.0 4.25 5.5 7.0 8.5 10.5 13.5 16.0

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billions of gallons): Calendar year: 2009 2010 2011 2012 (ii) Other calendar years For the purposes of subparagraph (A), the applicable volumes of each fuel specified in the tables in clause (i) for calendar years after the calendar years specified in the tables shall be determined by the Administrator, in coordination with the Secretary of Energy and the Secretary of Agriculture, based on a review of the implementation of the program during calendar years specified in the tables, and an analysis of— (I) the impact of the production and use of renewable fuels on the environment, including on air quality, climate change, conversion of wetlands, ecosystems, wildlife habitat, water quality, and water supply; (II) the impact of renewable fuels on the energy security of the United States; (III) the expected annual rate of future commercial production of renewable fuels, including advanced biofuels in each category (cellulosic biofuel and biomass-based diesel); (IV) the impact of renewable fuels on the infrastructure of the United States, including deliverability of materials, goods, and products other than renewable fuel, and the sufficiency of infrastructure to deliver and use renewable fuel; (V) the impact of the use of renewable fuels on the cost to consumers of transportation fuel and on the cost to transport goods; and 0.5 0.65 0.80 1.0

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(VI) the impact of the use of renewable fuels on other factors, including job creation, the price and supply of agricultural commodities, rural economic development, and food prices. The Administrator shall promulgate rules establishing the applicable volumes under this clause no later than 14 months before the first year for which such applicable volume will apply. (iii) Applicable volume of advanced biofuel For the purpose of making the determinations in clause (ii), for each calendar year, the applicable volume of advanced biofuel shall be at least the same percentage of the applicable volume of renewable fuel as in calendar year 2022. (iv) Applicable volume of cellulosic biofuel For the purpose of making the determinations in clause (ii), for each calendar year, the applicable volume of cellulosic biofuel established by the Administrator shall be based on the assumption that the Administrator will not need to issue a waiver for such years under paragraph (7)(D). (v) Minimum applicable volume of biomass-based diesel For the purpose of making the determinations in clause (ii), the applicable volume of biomass-based diesel shall not be less than the applicable volume listed in clause (i)(IV) for calendar year 2012. (3) Applicable percentages (A) Provision of estimate of volumes of gasoline sales Not later than October 31 of each of calendar years 2005 through 2021, the Administrator of the Energy Information Administration shall provide to the Administrator of the Environmental Protection Agency an estimate, with respect to the following calendar year, of the volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold or introduced into commerce in the United States. (B) Determination of applicable percentages

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(i) In general Not later than November 30 of each of calendar years 2005 through 2021, based on the estimate provided under subparagraph (A), the Administrator of the Environmental Protection Agency shall determine and publish in the Federal Register, with respect to the following calendar year, the renewable fuel obligation that ensures that the requirements of paragraph (2) are met. (ii) Required elements The renewable fuel obligation determined for a calendar year under clause (i) shall— (I) be applicable to refineries, blenders, and importers, as appropriate; (II) be expressed in terms of a volume percentage of transportation fuel sold or introduced into commerce in the United States; and (III) subject to subparagraph (C)(i), consist of a single applicable percentage that applies to all categories of persons specified in subclause (I). (C) Adjustments In determining the applicable percentage for a calendar year, the Administrator shall make adjustments— (i) to prevent the imposition of redundant obligations on any person specified in subparagraph (B)(ii)(I); and (ii) to account for the use of renewable fuel during the previous calendar year by small refineries that are exempt under paragraph (9). * * *

(5) Credit program (A) In general The regulations promulgated under paragraph (2)(A) shall provide— 12

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(i) for the generation of an appropriate amount of credits by any person that refines, blends, or imports gasoline that contains a quantity of renewable fuel that is greater than the quantity required under paragraph (2); (ii) for the generation of an appropriate amount of credits for biodiesel; and (iii) for the generation of credits by small refineries in accordance with paragraph (9)(C). (B) Use of credits A person that generates credits under subparagraph (A) may use the credits, or transfer all or a portion of the credits to another person, for the purpose of complying with paragraph (2). (C) Duration of credits A credit generated under this paragraph shall be valid to show compliance for the 12 months as of the date of generation. (D) Inability to generate or purchase sufficient credits The regulations promulgated under paragraph (2)(A) shall include provisions allowing any person that is unable to generate or purchase sufficient credits to meet the requirements of paragraph (2) to carry forward a renewable fuel deficit on condition that the person, in the calendar year following the year in which the renewable fuel deficit is created— (i) achieves compliance with the renewable fuel requirement under paragraph (2); and (ii) generates or purchases additional renewable fuel credits to offset the renewable fuel deficit of the previous year. (E) Credits for additional renewable fuel The Administrator may issue regulations providing: (i) for the generation of an appropriate amount of credits by any person that refines, blends, or imports additional renewable fuels specified by the Administrator; and (ii)

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for the use of such credits by the generator, or the transfer of all or a portion of the credits to another person, for the purpose of complying with paragraph (2). * * *

(7) Waivers (A) In general The Administrator, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the requirements of paragraph (2) in whole or in part on petition by one or more States, by any person subject to the requirements of this subsection, or by the Administrator on his own motion by reducing the national quantity of renewable fuel required under paragraph (2)— (i) based on a determination by the Administrator, after public notice and opportunity for comment, that implementation of the requirement would severely harm the economy or environment of a State, a region, or the United States; or (ii) based on a determination by the Administrator, after public notice and opportunity for comment, that there is an inadequate domestic supply. (B) Petitions for waivers The Administrator, in consultation with the Secretary of Agriculture and the Secretary of Energy, shall approve or disapprove a petition for a waiver of the requirements of paragraph (2) within 90 days after the date on which the petition is received by the Administrator. (C) Termination of waivers A waiver granted under subparagraph (A) shall terminate after 1 year, but may be renewed by the Administrator after consultation with the Secretary of Agriculture and the Secretary of Energy. (D) Cellulosic biofuel

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(i) For any calendar year for which the projected volume of cellulosic biofuel production is less than the minimum applicable volume established under paragraph (2)(B), as determined by the Administrator based on the estimate provided under paragraph (3)(A), not later than November 30 of the preceding calendar year, the Administrator shall reduce the applicable volume of cellulosic biofuel required under paragraph (2)(B) to the projected volume available during that calendar year. For any calendar year in which the Administrator makes such a reduction, the Administrator may also reduce the applicable volume of renewable fuel and advanced biofuels requirement established under paragraph (2)(B) by the same or a lesser volume. (ii) Whenever the Administrator reduces the minimum cellulosic biofuel volume under this subparagraph, the Administrator shall make available for sale cellulosic biofuel credits at the higher of $ 0.25 per gallon or the amount by which $ 3.00 per gallon exceeds the average wholesale price of a gallon of gasoline in the United States. Such amounts shall be adjusted for inflation by the Administrator for years after 2008. (iii) Eighteen months after the date of enactment of this subparagraph, the Administrator shall promulgate regulations to govern the issuance of credits under this subparagraph. The regulations shall set forth the method for determining the exact price of credits in the event of a waiver. The price of such credits shall not be changed more frequently than once each quarter. These regulations shall include such provisions, including limiting the credits’ uses and useful life, as the Administrator deems appropriate to assist market liquidity and transparency, to provide appropriate certainty for regulated entities and renewable fuel producers, and to limit any potential misuse of cellulosic biofuel credits to reduce the use of other renewable fuels, and for such other purposes as the Administrator determines will help achieve the goals of this subsection. The regulations shall limit the number of cellulosic biofuel credits for any calendar year to the minimum applicable volume (as reduced under this subparagraph) of cellulosic biofuel for that year. (E) Biomass-based diesel (i) Market evaluation

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The Administrator, in consultation with the Secretary of Energy and the Secretary of Agriculture, shall periodically evaluate the impact of the biomass-based diesel requirements established under this paragraph on the price of diesel fuel. (ii) Waiver If the Administrator determines that there is a significant renewable feedstock disruption or other market circumstances that would make the price of biomass-based diesel fuel increase significantly, the Administrator, in consultation with the Secretary of Energy and the Secretary of Agriculture, shall issue an order to reduce, for up to a 60-day period, the quantity of biomass-based diesel required under subparagraph (A) by an appropriate quantity that does not exceed 15 percent of the applicable annual requirement for biomass-based diesel. For any calendar year in which the Administrator makes a reduction under this subparagraph, the Administrator may also reduce the applicable volume of renewable fuel and advanced biofuels requirement established under paragraph (2)(B) by the same or a lesser volume. (iii) Extensions If the Administrator determines that the feedstock disruption or circumstances described in clause (ii) is continuing beyond the 60-day period described in clause (ii) or this clause, the Administrator, in consultation with the Secretary of Energy and the Secretary of Agriculture, may issue an order to reduce, for up to an additional 60-day period, the quantity of biomass-based diesel required under subparagraph (A) by an appropriate quantity that does not exceed an additional 15 percent of the applicable annual requirement for biomass-based diesel. (F) Modification of applicable volumes For any of the tables in paragraph (2)(B), if the Administrator waives— (i) at least 20 percent of the applicable volume requirement set forth in any such table for 2 consecutive years; or (ii) at least 50 percent of such volume requirement for a single year,

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the Administrator shall promulgate a rule (within 1 year after issuing such waiver) that modifies the applicable volumes set forth in the table concerned for all years following the final year to which the waiver applies, except that no such modification in applicable volumes shall be made for any year before 2016. In promulgating such a rule, the Administrator shall comply with the processes, criteria, and standards set forth in paragraph (2)(B)(ii). (8) Study and waiver for initial year of program (A) In general Not later than 180 days after the date of enactment of this paragraph [enacted Aug. 8, 2005], the Secretary of Energy shall conduct for the Administrator a study assessing whether the renewable fuel requirement under paragraph (2) will likely result in significant adverse impacts on consumers in 2006, on a national, regional, or State basis. (B) Required evaluations The study shall evaluate renewable fuel— (i) supplies and prices; (ii) blendstock supplies; and (iii) supply and distribution system capabilities. (C) Recommendations by the Secretary Based on the results of the study, the Secretary of Energy shall make specific recommendations to the Administrator concerning waiver of the requirements of paragraph (2), in whole or in part, to prevent any adverse impacts described in subparagraph (A). (D) Waiver (i) In general Not later than 270 days after the date of enactment of this paragraph [enacted Aug. 8, 2005], the Administrator shall, if and to the extent recommended by the Secretary of Energy under subparagraph (C), waive,

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in whole or in part, the renewable fuel requirement under paragraph (2) by reducing the national quantity of renewable fuel required under paragraph (2) in calendar year 2006. (ii) No effect on waiver authority Clause (i) does not limit the authority of the Administrator to waive the requirements of paragraph (2) in whole, or in part, under paragraph (7). (9) Small refineries (A) Temporary exemption (i) In general The requirements of paragraph (2) shall not apply to small refineries until calendar year 2011. (ii) Extension of exemption (I) Study by Secretary of Energy Not later than December 31, 2008, the Secretary of Energy shall conduct for the Administrator a study to determine whether compliance with the requirements of paragraph (2) would impose a disproportionate economic hardship on small refineries. (II) Extension of exemption In the case of a small refinery that the Secretary of Energy determines under subclause (I) would be subject to a disproportionate economic hardship if required to comply with paragraph (2), the Administrator shall extend the exemption under clause (i) for the small refinery for a period of not less than 2 additional years. (B) Petitions based on disproportionate economic hardship (i) Extension of exemption

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A small refinery may at any time petition the Administrator for an extension of the exemption under subparagraph (A) for the reason of disproportionate economic hardship. (ii) Evaluation of petitions In evaluating a petition under clause (i), the Administrator, in consultation with the Secretary of Energy, shall consider the findings of the study under subparagraph (A)(ii) and other economic factors. (iii) Deadline for action on petitions The Administrator shall act on any petition submitted by a small refinery for a hardship exemption not later than 90 days after the date of receipt of the petition. (C) Credit program If a small refinery notifies the Administrator that the small refinery waives the exemption under subparagraph (A), the regulations promulgated under paragraph (2)(A) shall provide for the generation of credits by the small refinery under paragraph (5) beginning in the calendar year following the date of notification. (D) Opt-in for small refineries A small refinery shall be subject to the requirements of paragraph (2) if the small refinery notifies the Administrator that the small refinery waives the exemption under subparagraph (A). * * *

(11) Periodic reviews To allow for the appropriate adjustment of the requirements described in subparagraph (B) of paragraph (2), the Administrator shall conduct periodic reviews of— (A) existing technologies; (B) the feasibility of achieving compliance with the requirements; and

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(C) the impacts of the requirements described in subsection (a)(2) on each individual and entity described in paragraph (2). * * * 42 U.S.C. § 7607(d) * * * (d) Rulemaking (1) This subsection applies to— * * *

(E) the promulgation or revision of any regulation pertaining to any fuel or fuel additive under section 7545 of this title, * * *

The provisions of section 553 through 557 and section 706 of title 5 shall not, except as expressly provided in this subsection, apply to actions to which this subsection applies. This subsection shall not apply in the case of any rule or circumstance referred to in subparagraphs (A) or (B) of subsection 553(b) of title 5. (2) Not later than the date of proposal of any action to which this subsection applies, the Administrator shall establish a rulemaking docket for such action (hereinafter in this subsection referred to as a “rule”). Whenever a rule applies only within a particular State, a second (identical) docket shall be simultaneously established in the appropriate regional office of the Environmental Protection Agency. (3) In the case of any rule to which this subsection applies, notice of proposed rulemaking shall be published in the Federal Register, as provided under section 553 (b) of title 5, shall be accompanied by a statement of its basis and purpose and shall specify the period available for public comment (hereinafter referred to as the “comment period”). The notice of proposed rulemaking shall also state the docket number, the location or locations of the docket, and the times it will be open to public inspection. The statement of basis and purpose shall include a summary of— (A) the factual data on which the proposed rule is based; 20

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(B) the methodology used in obtaining the data and in analyzing the data; and (C) the major legal interpretations and policy considerations underlying the proposed rule. The statement shall also set forth or summarize and provide a reference to any pertinent findings, recommendations, and comments by the Scientific Review Committee established under section 7409(d) of this title and the National Academy of Sciences, and, if the proposal differs in any important respect from any of these recommendations, an explanation of the reasons for such differences. All data, information, and documents referred to in this paragraph on which the proposed rule relies shall be included in the docket on the date of publication of the proposed rule. (4) (A) The rulemaking docket required under paragraph (2) shall be open for inspection by the public at reasonable times specified in the notice of proposed rulemaking. Any person may copy documents contained in the docket. The Administrator shall provide copying facilities which may be used at the expense of the person seeking copies, but the Administrator may waive or reduce such expenses in such instances as the public interest requires. Any person may request copies by mail if the person pays the expenses, including personnel costs to do the copying. (B) (i) Promptly upon receipt by the agency, all written comments and documentary information on the proposed rule received from any person for inclusion in the docket during the comment period shall be placed in the docket. The transcript of public hearings, if any, on the proposed rule shall also be included in the docket promptly upon receipt from the person who transcribed such hearings. All documents which become available after the proposed rule has been published and which the Administrator determines are of central relevance to the rulemaking shall be placed in the docket as soon as possible after their availability. (ii) The drafts of proposed rules submitted by the Administrator to the Office of Management and Budget for any interagency review process prior to proposal of any such rule, all documents accompanying such drafts, and all written comments thereon by other agencies and all written responses to such written comments by the Administrator shall be placed in the docket no later than the date of proposal of the rule. The drafts of the final rule submitted for such review process prior to promulgation and all such written comments thereon, all documents accompanying

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such drafts, and written responses thereto shall be placed in the docket no later than the date of promulgation. (5) In promulgating a rule to which this subsection applies (i) the Administrator shall allow any person to submit written comments, data, or documentary information; (ii) the Administrator shall give interested persons an opportunity for the oral presentation of data, views, or arguments, in addition to an opportunity to make written submissions; (iii) a transcript shall be kept of any oral presentation; and (iv) the Administrator shall keep the record of such proceeding open for thirty days after completion of the proceeding to provide an opportunity for submission of rebuttal and supplementary information. (6) (A) The promulgated rule shall be accompanied by (i) a statement of basis and purpose like that referred to in paragraph (3) with respect to a proposed rule and (ii) an explanation of the reasons for any major changes in the promulgated rule from the proposed rule. (B) The promulgated rule shall also be accompanied by a response to each of the significant comments, criticisms, and new data submitted in written or oral presentations during the comment period. (C) The promulgated rule may not be based (in part or whole) on any information or data which has not been placed in the docket as of the date of such promulgation. (7) (A) The record for judicial review shall consist exclusively of the material referred to in paragraph (3), clause (i) of paragraph (4)(B), and subparagraphs (A) and (B) of paragraph (6). (B) Only an objection to a rule or procedure which was raised with reasonable specificity during the period for public comment (including any public hearing) may be raised during judicial review. If the person raising an objection can demonstrate to the Administrator that it was impracticable to raise such objection within such time or if the grounds for such objection arose after the period for public comment (but within the time specified for judicial review) and if such objection is of central relevance to the outcome of the rule, the Administrator shall convene a proceeding for reconsideration of the rule and provide the same procedural rights as would have been afforded had the information been available at the time the rule was proposed. If the Administrator refuses to convene such a proceeding, such person may seek review of such refusal in the United States court of appeals for the appropriate circuit (as provided in subsection (b) of this section). 22

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Such reconsideration shall not postpone the effectiveness of the rule. The effectiveness of the rule may be stayed during such reconsideration, however, by the Administrator or the court for a period not to exceed three months. (8) The sole forum for challenging procedural determinations made by the Administrator under this subsection shall be in the United States court of appeals for the appropriate circuit (as provided in subsection (b) of this section) at the time of the substantive review of the rule. No interlocutory appeals shall be permitted with respect to such procedural determinations. In reviewing alleged procedural errors, the court may invalidate the rule only if the errors were so serious and related to matters of such central relevance to the rule that there is a substantial likelihood that the rule would have been significantly changed if such errors had not been made. (9) In the case of review of any action of the Administrator to which this subsection applies, the court may reverse any such action found to be— (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; or (D) without observance of procedure required by law, if (i) such failure to observe such procedure is arbitrary or capricious, (ii) the requirement of paragraph (7)(B) has been met, and (iii) the condition of the last sentence of paragraph (8) is met. (10) Each statutory deadline for promulgation of rules to which this subsection applies which requires promulgation less than six months after date of proposal may be extended to not more than six months after date of proposal by the Administrator upon a determination that such extension is necessary to afford the public, and the agency, adequate opportunity to carry out the purposes of this subsection. (11) The requirements of this subsection shall take effect with respect to any rule the proposal of which occurs after ninety days after August 7, 1977.

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40 C.F.R. § 80.1401 * * * Renewable Identification Number (RIN), is a unique number generated to represent a volume of renewable fuel pursuant to §§80.1425 and 80.1426. * * *

40 C.F.R. § 80.1405(c) (c) EPA will calculate the annual renewable fuel percentage standards using the following equations:

Where: StdCB,i = The cellulosic biofuel standard for year i, in percent. StdBBD,i= The biomass-based diesel standard for year i, in percent. StdAB,i= The advanced biofuel standard for year i, in percent. StdRF,i= The renewable fuel standard for year i, in percent.

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RFVCB,i= Annual volume of cellulosic biofuel required by 42 U.S.C. 7545(o)(2)(B) for year i, or volume as adjusted pursuant to 42 U.S.C. 7545(o)(7)(D), in gallons. RFVBBD,i= Annual volume of biomass-based diesel required by 42 U.S.C. 7545 (o)(2)(B) for year i, in gallons. RFVAB,i= Annual volume of advanced biofuel required by 42 U.S.C. 7545(o)(2)(B) for year i, in gallons. RFVRF,i= Annual volume of renewable fuel required by 42 U.S.C. 7545(o)(2)(B) for year i, in gallons. Gi= Amount of gasoline projected to be used in the 48 contiguous states and Hawaii, in year i, in gallons. Di= Amount of diesel projected to be used in the 48 contiguous states and Hawaii, in year i, in gallons. RGi= Amount of renewable fuel blended into gasoline that is projected to be consumed in the 48 contiguous states and Hawaii, in year i, in gallons. RDi= Amount of renewable fuel blended into diesel that is projected to be consumed in the 48 contiguous states and Hawaii, in year i, in gallons. GSi= Amount of gasoline projected to be used in Alaska or a U.S. territory, in year i, if the state or territory has opted-in or opts-in, in gallons. RGSi= Amount of renewable fuel blended into gasoline that is projected to be consumed in Alaska or a U.S. territory, in year i, if the state or territory optsin, in gallons. DSi= Amount of diesel projected to be used in Alaska or a U.S. territory, in year i, if the state or territory has opted-in or opts-in, in gallons. RDSi= Amount of renewable fuel blended into diesel that is projected to be consumed in Alaska or a U.S. territory, in year i, if the state or territory optsin, in gallons.

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GEi= The amount of gasoline projected to be produced by exempt small refineries and small refiners, in year i, in gallons in any year they are exempt per §§ 80.1441 and 80.1442. DEi= The amount of diesel fuel projected to be produced by exempt small refineries and small refiners in year i, in gallons, in any year they are exempt per §§ 80.1441 and 80.1442. 40 C.F.R. § 80.1406 § 80.1406 Who is an obligated party under the RFS program? (a)(1) An obligated party is any refiner that produces gasoline or diesel fuel within the 48 contiguous states or Hawaii, or any importer that imports gasoline or diesel fuel into the 48 contiguous states or Hawaii during a compliance period. A party that simply blends renewable fuel into gasoline or diesel fuel, as defined in § 80.1407(c) or (e), is not an obligated party. (2) If the Administrator approves a petition of Alaska or a United States territory to opt-in to the renewable fuel program under the provisions in § 80.1443, then “obligated party” shall also include any refiner that produces gasoline or diesel fuel within that state or territory, or any importer that imports gasoline or diesel fuel into that state or territory. (b) For each compliance period starting with 2010, an obligated party is required to demonstrate, pursuant to § 80.1427, that it has satisfied the Renewable Volume Obligations for that compliance period, as specified in § 80.1407(a). (c) Aggregation of facilities—(1) Except as provided in paragraphs (c)(2), (d) and of this section, an obligated party may comply with the requirements of paragraph (b) of this section in the aggregate for all of the refineries that it operates, or for each refinery individually. (2) An obligated party that carries a deficit into year i+1 must use the same approach to aggregation of facilities in year i+1 as it did in year i. (d) An obligated party must comply with the requirements of paragraph (b) of this section for all of its imported gasoline or diesel fuel in the aggregate. (e) An obligated party that is both a refiner and importer must comply with the requirements of paragraph (b) of this section for its imported gasoline or 26

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diesel fuel separately from gasoline or diesel fuel produced by its domestic refinery or refineries. (f) Where a refinery or import facility is jointly owned by two or more parties, the requirements of paragraph (b) of this section may be met by one of the joint owners for all of the gasoline or diesel fuel produced/imported at the facility, or each party may meet the requirements of paragraph (b) of this section for the portion of the gasoline or diesel fuel that it produces or imports, as long as all of the gasoline or diesel fuel produced/imported at the facility is accounted for in determining the Renewable Volume Obligations under § 80.1407. In either case, all joint owners are subject to the liability provisions of § 80.1461(d). (g) The requirements in paragraph (b) of this section apply to the following compliance periods: Beginning in 2010, and every year thereafter, the compliance period is January 1 through December 31. 40 C.F.R. § 80.1407 § 80.1407 How are the Renewable Volume Obligations calculated? (a) The Renewable Volume Obligations for an obligated party are determined according to the following formulas: (1) Cellulosic biofuel. RVOCB,I = (RFStdCB,i * (GVi + DVi)) + DCB,i-1 Where: RVOCB,i = The Renewable Volume Obligation for cellulosic biofuel for an obligated party for calendar year i, in gallons. RFStdCB,i = The standard for cellulosic biofuel for calendar year i, determined by EPA pursuant to § 80.1405, in percent. GVi = The non-renewable gasoline volume, determined in accordance with paragraphs (b), (c), and (f) of this section, which is produced in or imported into the 48 contiguous states or Hawaii by an obligated party in calendar year i, in gallons. DVi = The non-renewable diesel volume, determined in accordance with paragraphs (d), (e), and (f) of this section, produced in or imported into the 27

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48 contiguous states or Hawaii by an obligated party in calendar year i, in gallons. DCB,i-1 = Deficit carryover from the previous year for cellulosic biofuel, in gallons. (2) Biomass-based diesel. RVOBBD,i = (RFStdBBD,i * (GVi + DVi)) + DBBD,i-1 Where: RVOBBD,i = The Renewable Volume Obligation for biomass-based diesel for an obligated party for calendar year i, in gallons. RFStdBBD,i = The standard for biomass-based diesel for calendar year i, determined by EPA pursuant to § 80.1405, in percent. GVi = The non-renewable gasoline volume, determined in accordance with paragraphs (b), (c), and (f) of this section, which is produced in or imported into the 48 contiguous states or Hawaii by an obligated party in calendar year i, in gallons. DVi = The non-renewable diesel volume, determined in accordance with paragraphs (d), (e), and (f) of this section, produced in or imported into the 48 contiguous states or Hawaii by an obligated party in calendar year i, in gallons. DBBD,i-1 = Deficit carryover from the previous year for biomass-based diesel, in gallons. (3) Advanced biofuel. RVOAB,i = (RFStdAB,i * (GVi + DVi)) + DAB,i-1 Where: RVOAB,i = The Renewable Volume Obligation for advanced biofuel for an obligated party for calendar year i, in gallons. RFStdAB,i = The standard for advanced biofuel for calendar year i, determined by EPA pursuant to § 80.1405, in percent.

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GVi = The non-renewable gasoline volume, determined in accordance with paragraphs (b), (c), and (f) of this section, which is produced in or imported into the 48 contiguous states or Hawaii by an obligated party in calendar year i, in gallons. DVi = The non-renewable diesel volume, determined in accordance with paragraphs (d), (e), and (f) of this section, produced in or imported into the 48 contiguous states or Hawaii by an obligated party in calendar year i, in gallons. DAB,i-1 = Deficit carryover from the previous year for advanced biofuel, in gallons. (4) Renewable fuel. RVORF,i = (RFStdRF,i * (GVi + DVi)) + DRF,i-1 Where: RVORF,i = The Renewable Volume Obligation for renewable fuel for an obligated party for calendar year i, in gallons. RFStdRF,i = The standard for renewable fuel for calendar year i, determined by EPA pursuant to § 80.1405, in percent. GVi = The non-renewable gasoline volume, determined in accordance with paragraphs (b), (c), and (f) of this section, which is produced in or imported into the 48 contiguous states or Hawaii by an obligated party in calendar year i, in gallons. DVi = The non-renewable diesel volume, determined in accordance with paragraphs (d), (e), and (f) of this section, produced in or imported into the 48 contiguous states or Hawaii by an obligated party in calendar year i, in gallons. DRF,i-1 = Deficit carryover from the previous year for renewable fuel, in gallons. * * * (f) The following products are not included in the volume of gasoline or diesel fuel produced or imported used to calculate a party’s Renewable Volume Obligations according to paragraph (a) of this section:

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(1) Any renewable fuel as defined in § 80.1401. (2) Blendstock that has not been combined with other blendstock, finished gasoline, or diesel to produce gasoline or diesel. (3) Gasoline or diesel fuel produced or imported for use in Alaska, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Marianas, unless the area has opted into the RFS program under § 80.1443. (4) Gasoline or diesel fuel produced by a small refinery that has an exemption under § 80.1441 or an approved small refiner that has an exemption under § 80.1442. (5) Gasoline or diesel fuel exported for use outside the 48 United States and Hawaii, and gasoline or diesel fuel exported for use outside Alaska, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Marianas, if the area has opted into the RFS program under § 80.1443. (6) For blenders, the volume of finished gasoline, finished diesel fuel, RBOB, or CBOB to which a blender adds blendstocks. (7) The gasoline or diesel fuel portion of transmix produced by a transmix processor, or the transmix blended into gasoline or diesel fuel by a transmix blender, under § 80.84. (8) Any gasoline or diesel fuel that is not transportation fuel. 40 C.F.R. § 80.1415 § 80.1415 How are equivalence values assigned to renewable fuel? (a)(1) Each gallon of a renewable fuel, or gallon equivalent pursuant to paragraph (b)(5) or (b)(6) of this section, shall be assigned an equivalence value by the producer or importer pursuant to paragraph (b) or (c) of this section. (2) The equivalence value is a number that is used to determine how many gallon-RINs can be generated for a gallon of renewable fuel according to § 80.1426. (b) Equivalence values shall be assigned for certain renewable fuels as follows: 30

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(1) Ethanol which is denatured shall have an equivalence value of 1.0. (2) Biodiesel (mono-alkyl ester) shall have an equivalence value of 1.5. (3) Butanol shall have an equivalence value of 1.3. (4) Non-ester renewable diesel with a lower heating value of at least 123,500 Btu/gal shall have an equivalence value of 1.7. (5) 77,000 Btu (lower heating value) of biogas shall represent one gallon of renewable fuel with an equivalence value of 1.0. (6) 22.6 kW-hr of electricity shall represent one gallon of renewable fuel with an equivalence value of 1.0. (7) For all other renewable fuels, a producer or importer shall submit an application to the Agency for an equivalence value following the provisions of paragraph (c) of this section. A producer or importer may also submit an application for an alternative equivalence value pursuant to paragraph (c) if the renewable fuel is listed in this paragraph (b), but the producer or importer has reason to believe that a different equivalence value than that listed in this paragraph (b) is warranted. (c) Calculation of new equivalence values. (1) The equivalence value for renewable fuels described in paragraph (b)(7) of this section shall be calculated using the following formula: EV = (R/0.972) * (EC/77,000) Where: EV = Equivalence Value for the renewable fuel, rounded to the nearest tenth. R = Renewable content of the renewable fuel. This is a measure of the portion of a renewable fuel that came from renewable biomass, expressed as a fraction, on an energy basis. EC = Energy content of the renewable fuel, in Btu per gallon (lower heating value).

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(2) The application for an equivalence value shall include a technical justification that includes a description of the renewable fuel, feedstock(s) used to make it, and the production process. (i) A calculation for the requested equivalence value according to the equation in paragraph (c)(1) of this section, including supporting documentation for the value of EC used in the calculation such as a certificate of analysis from a laboratory that verifies the lower heating value in Btu per gallon of the renewable fuel produced. (ii) For each feedstock, component, or additive that is used to make the renewable fuel, provide a description, the percent input, and identify whether or not it is renewable biomass or is derived from renewable biomass. (iii) For each feedstock that also qualifies as a renewable fuel, state whether or not RINs have been previously generated for such feedstock. (iv) A description of the renewable fuel and the production process, including a block diagram that shows all inputs and outputs at each step of the production process with a sample quantity of all inputs and outputs for one batch of renewable fuel produced. (3) The Agency will review the technical justification and assign an appropriate equivalence value to the renewable fuel based on the procedure in this paragraph (c). (4) Applications for equivalence values must be sent to one of the following addresses: (i) For U.S. Mail: U.S. EPA, Attn: RFS2 Program Equivalence Value Application, 6406J, 1200 Pennsylvania Avenue, NW., Washington, DC 20460. (ii) For overnight or courier services: U.S. EPA, Attn: RFS2 Program Equivalence Value Application, 6406J, 1310 L Street, NW., 6th floor, Washington, DC 20005. (202) 343-9038. (5) All applications required under this section shall be submitted on forms and following procedures prescribed by the Administrator.

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40 C.F.R. § 80.1427 § 80.1427 How are RINs used to demonstrate compliance? (a) Renewable Volume Obligations. (1) Except as specified in paragraph (b) of this section or § 80.1456, each party that is an obligated party under § 80.1406 and is obligated to meet the Renewable Volume Obligations under § 80.1407, or is an exporter of renewable fuels that is obligated to meet Renewable Volume Obligations under § 80.1430, must demonstrate pursuant to § 80.1451(a)(1) that it is retiring for compliance purposes a sufficient number of RINs to satisfy the following equations: * * *

(2) Except as described in paragraph (a)(4) of this section, RINs that are valid for use in complying with each Renewable Volume Obligation are determined by their D codes. (i) RINs with a D code of 3 or 7 are valid for compliance with the cellulosic biofuel RVO. (ii) RINs with a D code of 4 or 7 are valid for compliance with the biomassbased diesel RVO. (iii) RINs with a D code of 3, 4, 5, or 7 are valid for compliance with the advanced biofuel RVO. (iv) RINs with a D code of 3, 4, 5, 6, or 7 are valid for compliance with the renewable fuel RVO. (3)(i) Except as provided in paragraph (a)(3)(ii) of this section, a party may use the same RIN to demonstrate compliance with more than one RVO so long as it is valid for compliance with all RVOs to which it is applied. (ii) A cellulosic diesel RIN with a D code of 7 cannot be used to demonstrate compliance with both a cellulosic biofuel RVO and a biomass-based diesel RVO. * * *

(6) Except as provided in paragraph (a)(7) of this section:

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(i) RINs may only be used to demonstrate compliance with the RVOs for the calendar year in which they were generated or the following calendar year. (ii) RINs used to demonstrate compliance in one year cannot be used to demonstrate compliance in any other year. * * *

(b) Deficit carryovers. (1) An obligated party or an exporter of renewable fuel that fails to meet the requirements of paragraph (a)(1) or (a)(7) of this section for calendar year i is permitted to carry a deficit into year i+1 under the following conditions: (i) The party did not carry a deficit into calendar year i from calendar year i-1 for the same RVO. (ii) The party subsequently meets the requirements of paragraph (a)(1) of this section for calendar year i+1 and carries no deficit into year i+2 for the same RVO. (iii) For compliance with the biomass-based diesel RVO in calendar year 2011, the deficit which is carried over from 2010 is no larger than 57% of the party’s 2010 biomass-based diesel RVO as determined prior to any adjustment applied pursuant to paragraph (a)(7)(i) of this section. (iv) The party uses the same compliance approach in year i+1 as it did in year i, as provided in § 80.1406(c)(2). * * *

40 C.F.R. § 80.1451 § 80.1451 What are the reporting requirements under the RFS program? (a) Obligated parties and exporters. Any obligated party described in § 80.1406 or exporter of renewable fuel described in § 80.1430 must submit to EPA reports according to the schedule, and containing all the information, that is set forth in this paragraph (a). (1) Annual compliance reports for the previous compliance period shall be submitted by February 28 of each year and shall include all of the following information:

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(i) The obligated party’s or exporter’s name. (ii) The EPA company registration number. (iii) Whether the domestic refiner, as defined in § 80.1406, is complying on a corporate (aggregate) or facility-by-facility basis. (iv) The EPA facility registration number, if complying on a facility-by-facility basis. (v) The production volume and import volume of all of the products listed in § 80.1407(c) and (e) for the reporting year. (vi) The RVOs, as defined in § 80.1427(a) for obligated parties and § 80.1430(b) for exporters of renewable fuel, for the reporting year. (vii) Any deficit RVOs carried over from the previous year. (viii) The total current-year RINs by category of renewable fuel, as those fuels are defined in § 80.1401 (i.e., cellulosic biofuel, biomass-based diesel, advanced biofuel, renewable fuel, and cellulosic diesel), retired for compliance. (ix) The total prior-year RINs by renewable fuel category, as those fuels are defined in § 80.1401, retired for compliance. (x) The total cellulosic biofuel waiver credits used to meet the party’s cellulosic biofuel RVO. (xi) A list of all RINs retired for compliance in the reporting period. (xii) Any deficit RVO(s) carried into the subsequent year. (xiii) Any additional information that the Administrator may require. (2) The RIN transaction reports required under paragraph (c)(1) of this section. (3) The quarterly RIN activity reports required under paragraph (c)(2) of this section. (4) Reports required under this paragraph (a) must be signed and certified as meeting all the applicable requirements of this subpart by the owner or a responsible corporate officer of the obligated party or exporter. 35

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*

*

*

40 C.F.R. § 80.1456 § 80.1456 What are the provisions for cellulosic biofuel waiver credits? (a) If EPA reduces the applicable volume of cellulosic biofuel pursuant to section 211(o)(7)(D)(i) of the Clean Air Act (42 U.S.C. 7545(o)(7)(D)(i)) for any given compliance year, then EPA will provide cellulosic biofuel waiver credits for purchase for that compliance year. (1) The price of these cellulosic biofuel waiver credits will be set by EPA on an annual basis in accordance with paragraph (d) of this section. (2) The total cellulosic biofuel waiver credits available will be equal to the reduced cellulosic biofuel volume established by EPA for the compliance year. (b) Use of cellulosic biofuel waiver credits.—(1) Cellulosic biofuel waiver credits are only valid for use in the compliance year that they are made available. (2) Cellulosic biofuel waiver credits are nonrefundable. (3) Cellulosic biofuel waiver credits are nontransferable. (4) Cellulosic biofuel waiver credits may only be used for an obligated party’s current year cellulosic biofuel RVO and not towards any prior year deficit cellulosic biofuel volume obligations. (c) Purchase of cellulosic biofuel waiver credits.—(1) Only parties with an RVO for cellulosic biofuel may purchase cellulosic biofuel waiver credits. (2) Cellulosic biofuel waiver credits shall be purchased from EPA at the time that a party submits its annual compliance report to EPA pursuant to § 80.1451(a)(1). (3) Parties may not purchase more cellulosic biofuel waiver credits than their current year cellulosic biofuel RVO minus cellulosic biofuel RINs with a D code of 3 that they own. (4) Cellulosic biofuel waiver credits may only be used to meet an obligated party’s cellulosic biofuel RVO.

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(d) Setting the price of cellulosic biofuel waiver credits.—(1) The price for cellulosic biofuel waiver credits shall be set equal to the greater of: (i) $0.25 per cellulosic biofuel waiver credit, adjusted for inflation in comparison to calendar year 2008; or (ii) $3.00 less the wholesale price of gasoline per cellulosic biofuel waiver credit, adjusted for inflation in comparison to calendar year 2008. (2) The wholesale price of gasoline will be calculated by averaging the most recent twelve monthly values for U.S. Total Gasoline Bulk Sales (Price) by Refiners as provided by the Energy Information Administration that are available as of September 30 of the year preceding the compliance period. (3) The inflation adjustment will be calculated by comparing the most recent Consumer Price Index for All Urban Consumers (CPI-U) for All Items expenditure category as provided by the Bureau of Labor Statistics that is available at the time EPA sets the cellulosic biofuel standard to the most recent comparable value reported after December 31, 2008. When EPA must set the price of cellulosic biofuel waiver credits for a compliance year, EPA will calculate the new amounts for paragraphs (d)(1)(i) and (ii) of this section for each year after 2008 and every month where data is available for the year preceding the compliance period at the time EPA sets the cellulosic biofuel standard. (e) Cellulosic biofuel waiver credits under this section will only be able to be purchased on forms and following procedures prescribed by EPA. 40 C.F.R. § 80.1463 § 80.1463 What penalties apply under the RFS program? (a) Any person who is liable for a violation under § 80.1461 is subject to a civil penalty as specified in sections 205 and 211(d) of the Clean Air Act, for every day of each such violation and the amount of economic benefit or savings resulting from each violation. (b) Any person liable under § 80.1461(a) for a violation of § 80.1460(c) for failure to meet its RVOs, or § 80.1460(e) for causing another person to fail to meet their RVOs during any compliance period, is subject to a separate day of violation for each day in the compliance period.

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(c) Any person liable under § 80.1461(b) for failure to meet, or causing a failure to meet, a requirement of any provision of this subpart is liable for a separate day of violation for each day such a requirement remains unfulfilled.

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